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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
[ X ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from January 1, 1993 to December 31, 1993
Commission file number 0-3797
MasTec, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 59-1259279
- - -------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
8600 N.W. 36th Street, Miami, FL 33166
__________________________________________ ________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 599-1800
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class 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 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
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Page 1 of 50
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 March 31, 1994 was
$45,527,424.
The number of shares of common stock outstanding as of March 31, 1994 was
16,027,592.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement which was filed on February 11,
1994 are incorporated by reference into Part III.
Page 2 of 50
PART I
Item 1. BUSINESS
General Development of Business:
On March 11, 1994, Church & Tower, Inc. ("CT") and Church & Tower of Florida
("CTF" and, together with CT, the "CT Group"), privately held corporations
under common control, were acquired (the "Acquisition") through an exchange of
stock, by Burnup & Sims Inc., ("Burnup") a Delaware public company. As a result
of the Acquisition, the former CT Group shareholders received approximately 65%
of shares of Burnup in exchange for 100% of the shares of CT Group. Under
generally accepted accounting principles, the Acquisition was accounted for as
a purchase by the CT Group and, therefore, the accompanying financial statements
and disclosures are those of the CT Group only. Immediately following the
Acquisition, the name of Burnup was changed to MasTec, Inc. ("MasTec" or the
"Company") and the fiscal year end was changed to December 31. See Condensed
Pro Forma Financial Information in the Notes to the Combined Financial
Statements for information regarding Burnup.
As a result of the Acquisition, the Company will be able to provide a wider
range of engineering, cable design, installation and maintenance services to
telephone, CATV and utility customers throughout the United States and abroad.
The Company will provide such services through subsidiaries located principally
in California, Florida, Georgia, Mississippi, North and South Carolina and
Texas. In addition, the Company owns a manufacturer of uninteruptible backup
power supplies for the CATV industry, a motion picture theater chain in the
southeastern U.S. and a commercial printing and graphic arts company.
Operations of the Company are somewhat seasonal, and this has historically
resulted in reduced revenues during the months of November, December and
January relative to other months. During winter months, inclement weather in
certain areas reduces the volume and efficiency of outside service activities.
Additionally, certain utility services customers may reduce expenditures for
outside 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 is expected to
generate less than 5% of revenues for fiscal year 1994. Burnup's sales to
foreign markets generated less than one percent of revenues for its 1993
fiscal year. 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, technical expertise and supervisory
personnel from certain domestic areas of operation.
The CT Group's backlog of orders which is substantially represented by written
contracts and purchase orders and does not include work to be performed under
telephone and utility master contracts, approximated $9 million at December 31,
1992 related to its General Construction Services.
The Company obtains the majority of its raw materials and supplies from
customers for which it provides services.
Page 3 of 50
CTF was incorporated under the laws of Florida in 1968. Since that date, CTF
has performed engineering, construction and maintenance services for regional
telephone companies, long distance carriers and private business, including
BellSouth Telecommunications ("BellSouth"), pursuant to master contracts
covering outside plant work, and customer installation and hookup services for
cable television "CATV" subscribers. CTF currently holds three such master
contracts, expiring at various times through 1996, for Dade County and south
Broward County, Florida. The revenues generated under such contracts constitute
approximately 64% of CT Group's total combined revenues. CTF also provides
fiber-optic installation services which require specialized skills for BellSouth
and alternate access providers. Customers typically supply materials such as
poles, cable, conduit and telephone equipment, and the CT Group provides
expertise, tools and equipment necessary to perform the installation
services and engineering and other types of personnel to supplement day-to-day
requirements of telephone companies and to meet their emergency and peak load
maintenance and installation needs. CTF also provides construction and
maintenance services under individual contracts to local utilities, including
the Miami-Dade Water and Sewer Authority. The services provided to telephone,
CATV and utility companies are collectively referred to as Utilities Services.
CT was incorporated under the laws of Florida in 1990 to engage in selected
construction projects in the public and private sectors ("General Construction
Services"). In 1990, a joint venture (the "9001 Joint Venture"), of which CT is
the majority partner, was established for the purpose of constructing a
detention facility in Dade County with a capacity of approximately 2,500 beds.
The detention facility was completed in 1993. In September 1990, CT entered
into a joint venture (the "OCT Joint Venture") of which CT is a 20% minority
partner with Constructora Norberto Odebrecht, an international construction
contractor, to construct governmental projects. The OCT Joint Venture has
completed the Brickell Extension Project of the City of Miami's Metro Mover, an
elevated transportation system, and has as of December 31, 1993 completed
approximately 56% of the construction of a landfill in south Dade County.
In May 1992, CT merged with Communication Contractors, Inc., an affiliate of CTF
engaged primarily in providing manpower and equipment to CTF. Since the merger,
work under the BellSouth master contracts has been primarily subcontracted to
CT.
In the latter part of 1992, the CT Group entered into a joint venture for the
removal of debris related to Hurricane Andrew. The CT Group has a 25% interest
in this venture and recorded approximately $1,087,000 of income during 1993
related to its equity in the earnings of this venture. The venture was
essentially completed in 1993.
See "Business Segments" in Note 11 to the Combined Financial Statements for
information related to revenues, operating profits, and identifiable assets of
each of the CT Group's principal business segments.
At December 31, 1993, the CT Group employed 437 people and Burnup employed
1,999 people.
Page 4 of 50
As previously mentioned, the CT Group operates primarily in two industry
segments: the Utilities Services and General Construction Services. See
Note 4 to the Combined Financial Statements for information related to
revenues derived from work performed under MasTec contract. 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.
Burnup's telephone and cable television and utility services industry segment
operate in substantially the same manner as the CT Group's Utilities Services
industry segment. However, Burnup provides its services in approximately 35
states and certain foreign countries. Additionally, Burnup 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 market for Utilities 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
fragmented and characterized by a large number of small companies.
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.
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.
Providing General Construction services to the public and private sectors is
highly competitive. Projects are awarded based on a bidding process.
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 5 of 50
Environment
The Company's facilities are subject to federal, state, and local provisions
involving the protection of the environment. Accruals for environmental matters
are recorded in operating expenses when it is probable that a liability has been
incurred and the amount of the liability can be reasonably estimated. To
determine appropriate accrual amounts, management and outside experts review
currently available facts to evaluate the probability and scope of potential
liability. Inherent uncertainties exist in such evaluations primarily due to
unknown conditions, evolving governmental standards regarding
liability, and changing technologies for handling site remediation and
restoration. At December 31, 1993, $630,000 had been accrued for site
remediation and is reflected in the Balance Sheet as part of "Other current
liabilities" with a corresponding amount charged to costs of revenues. It is
estimated that future additional costs, if any, in this respect will not be
significant.
Item 2. PROPERTIES
The CT Group's principal facilities are located in South Florida and consist of
offices, equipment yards and temporary storage locations. The CT Group does not
consider any specific owned or leased facility to be indispensable to its
operations since much of the work is performed upon the customer's premises or
upon public rights-of-way. In addition, the CT Group believes that equally
suitable alternative locations are available in all areas where it currently
does business.
Burnup owns two indoor and eight drive-in theatres located on approximately 117
acres in ten Florida cities and leases 18 indoor and three drive-in
theatres located in 19 Florida cities and 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.
Burnup 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.
At December 31, 1993, the CT Group operated approximately 250 licensed vehicles,
all of which are owned. In addition, it owns various types of construction
equipment including approximately 65 off-road vehicles. Burnup 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 CT Group believes that its properties, as well as Burnup's, are generally
in good condition and suitable for their intended uses. The Company has no
material amounts of idle equipment.
Page 6 of 50
In addition to its operating properties, Burnup 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 and vehicles are encumbered pursuant to
loan agreements.
Item 3. LEGAL PROCEEDINGS
The following is a summary of legal proceedings involving the Company.
Albert H. Kahn v. Nick A. Caporella, et al., Civil Action No. 11890 was filed
on December 1990 by a stockholder 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 the Board of Directors, and against National Beverage Corporation
("NBC"), as a purported class action and derivative lawsuit. In May 1993,
plaintiff amended its class action and shareholder derivative complaint
(the "Amended Complaint"). The class action claims allege, among other things,
that the Board of Directors, and NBC, as its then largest stockholder, breached
their respective fiduciary duties in approving (i) the distribution to the
Company's stockholders of all of the common stock of NBC owned by it
(the "Distribution") and (ii) the exchange by NBC of 3,846,153 shares of Common
Stock for certain indebtedness of NBC held by the Company (the "Exchange") (the
Distribution and the Exchange are hereinafter referred to as the "1991
Transaction"), and allegedly placing the interests of NBC ahead of the interests
of the other stockholders of the Company. The derivative action claims allege,
among other things, that the Board of Directors has breached its 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 in an unspecified amount.
The Amended Complaint alleges that the Special Transaction Committee that
approved the 1991 Transaction was not independent and that, therefore, the 1991
Transaction was not protected by the business judgment rule or conducted in
accordance with a settlement agreement (the "1990 Settlement") entered into in
1990 pertaining to certain prior litigation. The Amended Complaint also makes to
other allegations which involve (i) further violations of the 1990 Settlement
by the Company's engaging in certain transactions not approved by the Special
Transaction 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.
In November 1993, plaintiff filed a class action and derivative complaint, Civil
Action 13248, (the "1993 Complaint") against the Company, the members of
the Board of Directors, CT, CTF, Jorge Mas Canosa, Jorge Mas and Juan Carlos Mas
(CT,CTF, Jorge Mas Canosa, Jorge Mas and Juan Carlos Mas are referred to as the
"CT Defendants"). In December 1993, plaintiffs amended the 1993 Complaint
("1993 Amended Complaint"). The 1993 Amended Complaint alleges, among other
things, that (i) the Board of Directors and NBC, as the Company's largest
stockholder at the time, breached their respective fiduciary duties by approving
the Acquisition Agreement and the Redemption (as defined in the Proxy Statement
dated February 10, 1994) which, according to the allegations of the 1993
Complaint, benefits Mr. Caporella at the expense of the Company's stockholders,
Page 7 of 50
(ii) the CT Defendants had knowledge of the fiduciary duties owed by NBC and the
Board of Directors and knowingly and substantially participated in
their breaches thereof, and (iii) the Special Transaction Committee of the Board
of Directors which approved the Acquisition Agreement and Redemption was not
independent and, as such, was not in accordance with the 1990 Settlement,
(iv) the Board of Directors breached its fiduciary duties by failing to take an
active and direct role in the sale of the Company and failing to ensure the
maximization of stockholder value in the sale of control of the company; and
(v) the Board of Directors and NBC, as the Company's largest stockholder at
the time, breached their respective fiduciary duties by failing to disclose
completely all material information regarding the Acquisition Agreement and
the Redemption.
The 1993 Complaint also claims derivatively that each member of the Board of
Directors engaged in mismanagement, waste and breach of their fiduciary duties
in managing the Company's affairs. On November 29, 1993, plaintiff filed a
motion for an order preliminarily and permanently enjoining the Acquisition
and the Redemption. On March 7, 1994, the court heard arguments with respect
to plaintiff's motion to enjoin the Acquisition and Redemption and on March 10,
1994, the court denied plaintiff's request for injunctive relief.
The Company believes that the allegations in the complaint, the Amended
Complaint and the 1993 Complaint and the 1993 Amended 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. Alternatively,
plaintiff seeks unspecified damages for breach of contract and for alleged
breaches of fiduciary duties, and seeks an award of punitive damages and
attorneys' 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 is vigorously defending
this action. Additionally, the Company has filed counterclaims which, among
other things, seek a declaratory judgment that the plaintiff's failure to
satisfy certain material conditions terminated his rights under the stock
purchase agreement. The evidentiary portion of the trial proceedings relative
to these actions concluded on November 19, 1993. On June 8, 1994 the judge
entered an Opinion of The Court which held for the Plaintiffs without specifying
damages pending the issuance of a judgment. The opinion denied punitive damages
against the Company. In the opinion of management, the ultimate outcome of the
legal proceedings is not expected to have a material adverse effect on the
financial position of the Company.
Jorge Gamez, as Personal Representative of the Estate of Jorge A. Gamez,
deceased, vs. Church & Tower, Inc., a Florida corporation, et al. Civil
Action 93-07318 CA 20, filed in the Circuit Court of the 11th Judicial
Circuit in and for Dade County, Florida on March 22, 1993, and amended on
April 20, 1994, to include MasTec, Inc. The claim alleges that a CT Group
employee was negligent in the operation of a truck and trailer combination
which resulted in a death. Although no amounts are stated in the preliminary
case filings, the plaintiff has made a demand for $7.2 million.
Page 8 of 50
The Company is also a defendant in other legal actions arising in the normal
course of business.
Management believes, based on consultations with its legal counsel, that the
amount provided in the financial statements of the Company are adequate to cover
the estimated losses expected to be incurred in connection with these matters.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no vote of security holders during the fourth quarter of the last
fiscal year. On March 11, 1994, however, security holders of the Company
voted on certain matters. Results of votes of security holders are included
in the Company's quarterly report for the period ended March 31, 1994 and are
hereby incorporated by reference.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The following information relates to the Company's common stock, par value $.10
per share, (the "Common Stock") which currently trades on the NASDAQ National
Market System under the symbol MASX (formerly BSIM). The high and low closing
quotations of the Common Stock for each quarter of the last two fiscal years,
as reported by NASDAQ, are set forth below:
1993 1992
High Low High Low
First Quarter $ 3 7/16 $ 2 5/8 $ 8 3/4 $ 6 3/4
Second Quarter 2 7/16 2 8 1/4 4
Third Quarter 4 1/8 1 7/8 5 1/8 3 3/4
Fourth Quarter 5 5/16 3 5/16 6 2 7/8
No cash dividends were declared for the years ended December 31, 1993 and 1992
with respect to the Company. See Note 3 to the Combined Financial Statements
for information concerning the payment of dividends to the CT Group
shareholders.
Item 6. SELECTED FINANCIAL DATA
Five-year Summary of Operations and Financial Information
The following tables present summary historical combined financial information
of CT Group, summary unaudited consolidated financial data for Burnup and
summary unaudited pro forma consolidated financial data for the Company. The
unaudited pro forma operating statement data for fiscal 1993 and 1992 assume
that the Acquisition had occurred on January 1, 1992. The unaudited pro forma
balance sheet data assume that the Acquisition had occurred on December 31,
1993. The unaudited pro forma consolidated financial data do not purport to
represent what the Company's consolidated results of operations or financial
position actually would have been had the Acquisition occurred on the dates
indicated, or to project the Company's results of operations or financial
position for any future period or date. The summary unaudited pro forma data
should be read in conjunctin with the Combined Financial Statements.
Page 9 of 50
(In Thousands, Except Earnings Per Common Share)
CT Group
Years Ended December 31
1993 1992 1991 1990 1989
Statement of Operations Data:
Contract Revenue $ 44,683 $ 34,136 $ 31,588 $ 18,640 $ 15,670
Costs and Expenses 39,108 25,441 25,841 14,196 12,896
Income from Operations 5,575 8,695 5,747 4,444 2,774
Net Income 6,752 8,280 5,301 4,757 3,093
Common Shares Outstanding (1) 10,250 10,250 10,250 10,250 10,250
Earnings per Common Share (1) $ 0.66 $ 0.81 $ 0.50 $ 0.47 $ 0.30
Balance Sheet Data
(at end of period):
Working Capital $ 9,091 $ 12,767 $ 7,154 $ 5,209 $ 4,254
Property - Net 4,632 3,656 2,406 2,100 2,039
Total Assets 21,325 23,443 11,733 8,849 7,613
Non-Current Debt 3,579 855 371 333 323
Stockholders' Equity(2) 10,942 15,690 9,436 7,296 6,127
Burnup
Years Ended January 31
1994 1993 1992 1991 1990
Statement of Operations Data:
Contract Revenue $137,732 $143,990 $155,254 $188,656 $181,474
Costs and Expenses 147,953 148,720 153,612 192,983 175,724
Income (Loss) from Operations (10,221) (4,730) 1,642 (4,327) 5,750
Net Income (7,294) (2,992) 731 (3,138) 4,384
Common Shares Outstanding 8,768 8,768 8,768 9,664 9,662
Earnings per Common Share $ (0.83) $ (0.34) $ 0.08 $ (0.32) $ 0.45
Balance Sheet Data
(at end of period):
Working Capital $ 17,308 $ 19,175 $ 24,003 $ 27,009 $ 50,266
Property - Net 16,875 18,252 22,760 24,234 30,927
Total Assets 101,798 107,550 116,816 131,914 148,488
Non-Current Debt 32,028 37,036 38,506 38,095 47,082
Stockholders' Equity 33,988 40,098 43,090 58,966 61,962
Page 10 of 50
Pro Forma (3)
(CT Group and Burnup Combined)
Years Ended December 31,
1993 1992
Statement of Operations Data:
Contract Revenue $182,415 $178,126
Costs and Expenses 187,449 176,590
Income (Loss) from Operations (5,034) 1,536
Net Income (Loss) (2,621) 724
Common Shares Outstanding (4) 15,865 15,865
Earnings (Loss) per Common
Share (4) $ (0.17) $ 0.05
Balance Sheet Data
(at end of period):
Working Capital $ 18,581
Property - Net 44,048
Total Assets 137,112
Non-Current Debt 35,607
Stockholders' Equity 44,311
(1) Reflects the shares of the Company's common stock received by the former
stockholders of the CT Group pursuant to the Acquisition.
(2) See Note 3 to the Combined Financial Statements regarding dividends
declared.
(3) The pro forma amounts have been prepared based upon the same assumptions
as are used in preparing the Pro Forma Condensed Financial Statements
included in the notes to the financial statements.
(4) Reflects the shares which would have been outstanding had the Acquisition
occured on January 1, 1992.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations should be read in conjunction with the Combined Financial Statements
and notes thereto included elsewhere herein.
Results of Operations
Revenues
Revenues for the fiscal year ended December 31, 1993, were $44,683,403 compared
to $34,135,788 for the year ended December 31, 1992 and $31,588,228 for the year
ended December 31, 1991. These increases resulted primarily from an increase in
the CT Group's customer base coupled with an increase in the volume of work
from BellSouth arising in connection with the rebuilding necessitated by
Hurricane Andrew, the expansion of outside plant systems approved under
BellSouth's increased Master Budget Plan and the growth in private sector
telecommunication projects. The revenues generated by services provided to
BellSouth constitutes substantially all of the increase in total combined
revenues. Accordingly, the loss of all or a significant portion of work from
BellSouth could have a material adverse impact on the CT Group's results of
operations.
Page 11 of 50
Operating Costs and Expenses
Cost of revenues increased from $22,162,792 in 1992 to $28,729,144 for the year
ended December 31, 1993, and was 64%, 65% and 73% of revenues for the years
ended December 31, 1993, 1992 and 1991, respectively. Consequently, the
increase in gross profit from $11,601,508 in the prior year to $15,344,991 for
1993 was due primarily to an increase in revenues without a commensurate
increase in fixed costs. The decrease in cost of revenues as a percentage of
revenue from 1991 to 1992 primarily as a result of overall improvements on
operational efficiencies.
General and administrative expenses for the year increased by $6,581,472 from
$3,289,163 in the prior year to $9,870,635 due primarily to bonuses paid to
certain employee/shareholders as a result of a change in tax status in
contemplation of the Acquisition coupled with non recurring expenses
associated with provisions for litigation and environmental expenditures.
Expressed as a percentage of revenues, general and administrative expenses were
22% in 1993, 10% in 1992 and 9% in 1991.
Depreciation increased by $237,780 from $371,488 in the prior year to $609,268
primarily as a result of the acquisition of construction equipment and vehicles
required to support the volume increase and scheduled fleet replacement.
Expressed as a percentage of revenue, depreciation and amortization expense was
1% in 1993, 1992 and 1991.
Other Income and Expenses
Interest expense of $133,572 for 1993 increased by $100,047 compared to $33,525
in 1992 and $104,793 compared to $28,779 in 1991. These increases are a result
of financing incurred in connection with the acquisition of construction
equipment and vehicles.
Other expenses increased $289,976 from 1992. This was primarily due to a loss
on disposition of assets of $282,000. Other income in 1992 increased by
$124,149 from 1991. This increase was primarily a result of insurance proceeds
received in 1992 as repayment of expenses incurred by the Group in 1991.
The CT Group's equity in earnings of its unconsolidated joint ventures
increased by $1,560,469 from 1992. During 1993, the Group recorded income of
approximately $1,087,000 related to its joint venture for the removal of debris
related to Hurricane Andrew. In 1992, as a result of non-payment of certain
change orders, the OCT Joint Venture incurred a loss. CT's portion of such
loss was $372,972 representing its twenty percent (20%) interest in the
joint venture. These change orders were approved in 1993 and the resulting
profit was recognized.
Pro Forma Results of Operations
The pro forma management's discussion and analysis is presented for
informational purposes only and may not be indicative of the future results of
operations or financial position of MasTec, or what the results of operations
or fianancial position of MasTec would have been if the acquisition had
occurred on January 1, 1992.
Page 12 of 50
As a result of the Acquisition, the Company will adjust the value of certain
assets and liabilities in accordance with generally accepted accounting
principles. See Note 13 to the Combined Financial Statements for a detailed
description of the adjustments. As a result of these adjustments, on a pro
forma basis for fiscal year 1993 and 1992, assuming that the Acquisition was
effective on January 31, 1992, the Company would have reported a net loss of
$2.6 million for 1993 and net income of $0.7 million for 1992.
Pro Forma Revenue
Revenues in 1993 would have increased by $4.3 million as a result of an
increase in the volume of work by the CT Group from BellSouth arising in
connection with the rebuilding necessitated by Hurricane Andrew, offset by a
decline in revenue generated by Burnup as a result of uncommonly harsh winter
conditions which reduced the volume and efficiency of outside plant service
activity.
Pro Forma Operating Costs and Expenses
Cost of revenues would have increased from $148.4 million to $154.1 million
and would have been 85% and 83% as a percentage of revenues for 1993 and 1992,
respectively. The decrease in gross profit reflects and losses incurred on
Burnup's telephone service contracts, mobilization expenses related to changes
in geographic areas of operation, and start-up costs caused by the
diversification of commercial printing services offered by Burnup.
General and administrative expenses for the year would have increased by $8
million from $20.4 million for 1992 to $28.4 million for 1993. This increase
would have been primarily due to bonuses paid to certain employee/shareholders
of the CT Group as a result of a change in tax status in contemplation of
Acquisition, as well as increased stock option compensation incurred by Burnup
based upon an increase in the market value of the common stock coupled with
non-recurring expenses associated with provisions for litigation and
environmental expenditures recorded by the CT Group. Expressed as a percentage
of revenues, general and administrative expenses would have been 16% in 1993
and 11% in 1992.
Depreciation and amortization would have decreased by $3.2 million from $6.5
million for 1992 to $3.3 million for 1993 primarily as a result of the write-off
of certain goodwill recorded by Burnup in 1992. Expressed as a percent of
revenue, depreciation and amortization expense would have been 1.8% and 3.7% for
1993 and 1992, respectively.
Pro Forma Other Income and Expense
Interest expense would have decreased by $0.6 million from $4.9 million for 1992
to $4.3 million for 1993 due to reduced levels of Burnup borrowings offset by
an increase in the CT Group borrowings required to support volume increases and
scheduled fleet replacements.
Other income decreased by $0.9 million from $3.6 million in 1992 to $2.7
million in 1993. This would have primarily been due to a loss on disposition of
assets by the CT Group and a write-down of certain tangible assets by Burnup.
Page 13 of 50
The Company's effective tax rate would have decreased as a percent of pretax
income from 25.8% for 1992 to 24.5% for 1993 primarily due to the effect on
taxable income of certain state income taxes and reduced permanent differences
resulting from the 1992 goodwill write-off.
Liquidity and Capital Resources
Cash and cash equivalents decreased $1,260,445 from $10,190,412 at December 31,
1992 to $8,929,967 at December 31, 1993. Working capital decreased from
$12,767,411 at December 31, 1992 to $9,091,495 at December 31, 1993. The
decrease in working capital resulted primarily from a decrease in cash and
contract receivables. During the year ended December 31, 1993, the CT Group
declared dividends otalling $11,500,000 of which $8,500,000 was paid prior to
year end.
In 1993, cash of $8,411,250 was generated from operations. Cash of $1,212,374
was used in investing activities, including investmens in unconsolidated joint
ventures of $660,000 offset by distributions from such ventures of $1,484,000
and $2,036,374 was used primarily for additions to machinery and equipment.
Cash of $8,500,000 was used to pay distributions to shareholders.
The CT Group's principal sources of liquidity were internally generated cash,
and, to a lesser extent, trade financing. The CT Group currently has no
material commitments for capital expenditures. Management expects to meet its
future working capital needs primarily through cash flow from operations
and to a lessor extent trade and external financing.
As a result of the Acquisition, significant adjustmenst to the balance sheet
will be recorded (See Note 13 to the Combined Financial Statements).
The CT Group assumed the existing debt of Burnup pursuant to the Acqusition.
The debt agreements contain, among other things, restrictions on the payments
of dividends and require the maintenance of certain financial convenants.
Pursuant to such covenants, the Company is currently prohibited from
declaring or paying dividends.
The Company anticipates that operating cash requirements, capital expenditures,
and debt service will substantially be funded from cash flow generated by
operations and, to a lesser extent, external financing. The Company
currently has no material commitments for capital expenditures; however, it is
continuoulsy evaluating the need for fleet improvements.
Environmental matters
The CT Group is in the process of removing, restoring and upgrading underground
fuel storage tanks. As explained more fully in the notes to the Combined
Financial Statements, the CT Group does not expect the ultimate disposition of
the matters to have a material adverse effect on its financial position or
results of operations.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See index to Combined Financial Statements and Combined Financial Statement
Schedules on page 12.
Page 14 of 50
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 11, 1994, the Company changed accountants. For further information,
refer to Form 8-K, Item 4, filed on March 18, 1994 which is hereby incorporated
by reference.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the information relating to directors of the Company under the caption
"MANAGEMENT," contained on pages 47 through 52 of the Company's Proxy
Statement filed February 11, 1994 related to the Annual and Special Meeting of
Shareholders held on March 11, 1994 which is hereby incorporated by reference.
The following information indicates the position and age of the executive
officers at December 31, 1993 of the CT Group:
Officer Age Positions and offices presently held and
business experience
Jorge L. Mas Canosa 54 President and Chief Executive Officer of CTF
during the past five years
Jorge Mas 30 During the past five years has served for part or
all of such period as President and Chief
Executive Officer of CT (and its predecessor
company Communication Contractors, Inc.) Neff
Rental Inc., Neff Machinery, Inc., Atlantic Real
Estate Holding Corp. & U.S. Development Corp.,
each a company controlled by the CT Group
stockholders.
Pursuant to the Acquisition, the following individuals were appointed officers
of the Company.
Officer Age Position Principal Occupation
or Employment during the
Past Five Years
Jorge L. Mas Canosa 54 Chairman of the President and Chief Executive
Board of Directors Officer of CTF during the
past five years
Jorge Mas 30 President, Chief President and Chief Executive
Executive Officer Officer of CT (and its
predecessor company
Communication Contractors,
Inc.) Neff Rental Inc., Neff
Machinery, Inc., Atlantic Real
Estate Holding Corp. & U.S.
Development Corp., each a
company controlled by the
CT Group stockholders.
Page 15 of 50
Ismael Perera 45 Senior Executive Director of Network Operations
Vice President - for BellSouth Telecommunica-
Operations tions prior to joining C & T
Group. Over 23 years
experience in the Tele-
communications industry.
Carlos A. Valdes 31 Senior Vice- Chief Financial Officer for CT
President, Finance since 1991. Vice President
at First Union/Southeast Bank,
N.A. from 1986 to 1991.
Carmen Sabater 29 Corporate Controller Corporate Controller for
MasTec since April 1994.
Certified Public Accountant
affiliated with Deloite &
Touche, an international
public accounting firm since
1985.
Nancy J. Damon 44 Corporate Secretary Paralegal for Burnup for over
four years. Paralegal for
Holland & Knight for five
years. Has over 20 years
legal expierence.
Item 11. EXECUTIVE COMPENSATION
For the year ended December 31, 1993, CT Group paid the following amounts to
its most highly compensated executive officers for their services in all
capacities to the CT Group . The table below does not set forth certain of the
tabular formats set forth in the SEC's recently expanded rules on executive
compensation disclosure dealing with other annual compensation and long-term
compensation awards and payouts, since no plans regarding awards or compensation
existed during this period.
Name and Principal Position Salary $ Bonus $
Jorge L. Mas Canosa, 1,524,460 1,560,000
President of CTF
Jorge Mas, President and
Chief Executive Officer of CT 852,000 832,000
For the eight month period ended December 31, 1993, Burnup paid the following
amounts to its most highly compensated executive officers for their services in
all capacities to Burnup . The table below does not set forth certain of the
tabular formats set forth in the SEC's recently expanded rules on executive
compensation disclosure dealing with other annual compensation and long-term
compensation awards and payouts, since no plans regarding awards or compensation
existed during this period.
Name and Principal Position Salary $ Bonus $
Nick A. Caporella, Chairman of
the Board, President and Chief
Executive Officer -0- -0-
Page 16 of 50
Gerald W. Hartman, Senior Vice
President of the Company and
President of Burnup & Sims
ComTec, Inc. and Burnup & Sims
of California, Inc., wholly-
owned subsidiaries of the Company 140,000 -0-
Leo J. Hussey, Executive Vice
President, and Director of the
Company, and President of
Southeastern Printing Company,
Inc. and The Deviney Company,
wholly-owned subsidiaries of the
Company 140,000 -0-
George R. Bracken, Vice President 66,667 -0-
& Treasurer
Pursuant to the Acquisition, the individuals listed above resigned their
position with the Company and new executive officers were appointed by the
Board of Directors. The following table sets forth the proposed annual base
compensation for the Chief Executive Officer of the Company and the other two
most highly compensated executive officers of the Company whose salary will
exceed $100,000 during the 1994 fiscal year.
Name and Principal Position Salary ($)
Jorge Mas, President and Chief 300,000
Executive Officer
Ismael Perera, Senior Vice 150,000
President-Operations
Carlos A. Valdes, Senior Vice- 115,000
President-Finance
Bonus compensation will be determined by the Compensation and Stock Option
Committee of the Board of Directors. The aforementioned officers and other
key salaried employees of the Company will be eligible to receive options and
awards as determined from time to time by the Compensation and Stock Option
Committee of the Board of Directors. See the description of the stock option
plans of the Company contained on pages 38 through 44 of the Company's Proxy
Statement filed February 11, 1994, related to the Annual and Special Meeting
of Shareholders held on March 11, 1994 (the "Meeting"), which is hereby
incorporated by reference. The referenced plans were approved by the
stockholders at the Meeting.
Options Granted
No options were granted by the CT Group during the year ended
December 31, 1993. As described in the Notes to Burnup's Form 10-Q for the
quarterly period ended July 31, 1993, which is hereby incorporated
by reference, options to purchase 238,000 shares were cancelled and replaced
with options to purchase 114,000 shares. Additionally, options to purchase
137,000 shares were granted.
Page 17 of 50
Aggregate Fiscal Year-End Stock Option Value Table
There were no stock options outstanding for the CT Group as of December 31,
1993.
The following table summarizes the options held at December 31, 1993 by
individuals named in the Summary Compensation Table for Burnup; no stock
options were exercised by such persons during the eight month period December
31, 1993. Such options however, were exercised in March 1994 as a result of
the Acquisition.
Number of Unexercised Value of Unexercised
Options at In-the-Money Options
December 31, 1993 (#) at December 31, 1993 ($)
Name Exercisable Unexercisable Exercisable Unexercisable
Nick A. Caporella 100,000 0 $ 583,750 $ 0
Leo J. Hussey 30,000 10,000 175,125 39,375
Gerald W. Hartman 20,000 5,000 116,750 19,687
George R. Bracken 4,500 0 26,269 0
The following table summarizes the options granted on March 11, 1994 by
individuals named in the Summary Compensation Table for the new executive
officers of the Company; such options are 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 at an exercised price no less than the fair
market value of the shares at grant date.
Number of Unexercised Value of Unexercised
Options at In-the-Money Options
March 31, 1994 (#) at March 31, 1994 ($)
Name Exercisable Unexercisable Exercisable Unexercisable
Jorge Mas 0 0 0 0
Ismael Perera 0 20,000 0 0
Carlos A. Valdes 0 20,000 0 0
Long-Term Incentive and Pension Plans
The CT Group and Burnup do not have any long-term incentive or pension plans.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1934, as amended, that might
incorporate future filings, including this transition report on Form 10-K,
in whole or in part, the following Compensation and Stock Option Committee
Report and Performance Graph shall not be incorporated by reference
into any such filings.
Report of the Compensation and Stock Option Committee
The CT Group did not have a compensation and stock option committee. The
following report is that of the Company's Compensation Committee.
Page 18 of 50
The Compensation and Stock Option Committee of the Board of Directors is
responsible for approving the compensation levels of the executive officers
of the Company, including the Chief Executive Officer. The Compensation
Committee also reviews with the Chief Executive Officer guidelines for salary
adjustments and aggregate bonus awards applicable to management and employees
other than executive officers. The Compensation Committee, which is composed
of three non-employee directors of the Company, reviews its recommendations
with the members of the Board. The following report is submitted by the
Compensation Committee regarding compensation paid during the eight month period
ended December 31, 1993:
The compensation program of the Company is designed to enable the Commpany to
attract, motivate, reasonably reward, and retain professional personnel who
will effectively manage the assets of the Company and maximize corporate
performance and stockholder value over time. Compensation packages include
a mix of salary, incentive bonus awards, and stock options.
Salaries of executive officers are established based on an individual's
performance and general market conditions. Salary levels are determined
based upon the challenge and responsibility of an individual's position with
the Company and are dependent on subjective considerations. In addition to
paying a base salary, the Company provides incentive bonus awards as a component
of overall compensation. Bonus awards are measured based upon overall
performance of the executive officer's area of responsibility or operating
performance of the operation under control of the executive, if any. Due to
the fact that Burnup's financial results for the last three years reflect
volume declines and net losses, salaries of executive officers during the eight
months ended December 31, 1993, (with certain exceptions for outstanding merit)
are frozen at previous levels. In addition, in light of these factors, the
Burnup's President and Chief Executive Officer and Chairman of the Board prior,
to the Acquisition, Nick A. Caporella, declined to accept any salary or bonus
compensation for fiscal years 1992 or 1993 and through the eight months ended
December 31, 1993.
Long-term incentive compensatin for executives consisted of stock-based awards
made under the Company's two non-qualified stock option plans (the "Option
Plans"). The Option Plans provided for the granting of options to purchase
Common Stock to key employees at $2.00. The Compensation Committee believes that
the maximization of stockholder wealth through appreciation in the value of
Common Stock is created through the use of stock options. At December 31, 1993,
there were 205,300 stock options granted under the Option Plans held by
executive officers.
Compensation and Stock Option Committee
Samuel C. Hathorn, Jr.
William A. Morse
Eliot C. Abbott
Page 19 of 50
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on Common
Stock from December 31, 1988 through December 31, 1993 for Burnup only with the
cumulative total return of the S & P 500 Stock Index and a Burnup constructed
index of two peer companies consisting of Dycom Industries, Inc. and the L.E.
Myers Company. The graph assumes that the value of the investment in Common
Stock was $100 on December 31, 1988 and that all dividends were reinvested.
This data does not take into consideration what the cumulative stockholder
return on common stock would have been had the Acquisition happened at an
earlier date and is not necessarily indicative of future results.
1988 1989 1990 1991 1992 1993
Burnup & Sims Inc. 100.00 90.00 47.33 21.33 14.67 31.33
Dycom Industries, Inc. 100.00 86.59 59.46 70.43 32.93 25.61
L.B. Myers Company Group 100.00 200.89 454.77 456.02 471.93 336.24
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the names of all persons who, on March 31,
1994, were known by the CT Group to be the beneficial owners (as defined in the
rules of the Securities and Exchange Commission) of more than 5% of the shares
of Common Stock of the CT Group:
Name Beneficial Amount and Nature of Percent of
Owner Beneficial Ownership Class
Samuel C. Hathorn, Jr. 5,200(1) *
Jorge L. Mas Canosa 5,330,000 33.2%
Jorge Mas 3,936,000 24.6%
All Executive Officers
and Directors as a group
(ten persons) 9,271,200 57.8%
(1) Includes 200 shares held by the children of Mr. Hathorn, as to which
Mr. Hathorn discloses benefial ownership.
* Less than one percent.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Note 3 to the Combined Financial Statements.
Page 20 of 50
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of the report.
1. Combined Financial Statements
Page
Number
Reports of Independent Accountants 22-24
Combined Balance Sheets at December 31, 1993 and 1992 25-26
Combined Statements of Income and Retained Earnings
for the three years ended December 31, 1993 27
Combined Statements of Cash Flows for the three
years ended December 31, 1993 28-29
Notes to Combined Financial Statements 30-47
2. Financial Statement Schedules
V - Property, Plant and Equipment 48
VI - Accumulated Depreciation and Amortization of
Property, Plant and Equipment 49
Schedules other than those listed above are omitted because they are not
applicable or the required information is shown in the financial statements or
notes thereto.
(b) Report on Form 8-K
The Company did not file any reports on Form 8-K during the three months ended
December 31, 1993. However, a Form 8-K was filed on March 18, 1994 regarding
the Acquisition, change in name, change in fiscal year end and change in
accountants and is hereby incorporated by reference.
Page 21 of 50
Report of Independent Accountants
To the Boards of Directors and
Shareholders of Church & Tower Group
In our opinion, the combined financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of the
Church & Tower Group at December 31, 1993, and the results of their operations
and their cash flows for the year in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Group's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Miami, Florida
April 22, 1994
Page 22 of 50
Report of Predecessor Independent Accountants
To the Boards of Directors and
Shareholders of Church & Tower Group
We have audited the combined financial statements of the Church & Tower Group
listed in the accompanying index as of December 31, 1992 and for each of the
two years then ended. These financial statements are the responsibility of the
Group's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We did not audit the financial statements of 9001 Joint Venture, a joint venture
that is majority-owned by a company in the Group, for the years ended December
31, 1992 and 1991. These statements reflect total assets of $3,064,573 as of
December 31, 1992 and total revenues of $14,495,378 and $8,240,290 for each of
the two years ended December 31, 1992, respectively. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for 9001 Joint Venture,
is based solely on the reports of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based upon our audits and the report of other auditors, the
combined financial statements referred to above present fairly, in all material
respects, the financial position of the Church & Tower Group as of December 31,
1992 and the results of their operations and their cash flows for each of the
two years ended December 31, 1992 in conformity with generally accepted
accounting principles.
VICIANA AND SHAFER
Coral Gables, Florida
June 15, 1993
Page 23 of 50
Report of Independent Accountants
To the partners of
9001 Joint Venture
We have audited the balance sheet of 9001 Joint Venture as of December 31, 1992
and the related statements of earnings, partners' capital, and cash
flows for each of the two years then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatements. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of 9001 Joint Venture as of
December 31, 1992 and the results of its operations and its cash flows for each
of the two years then ended in conformity with generally accepted accounting
principles.
E.F. ALVAREZ & COMPANY
Miami, Florida
March 15, 1993
Page 24 of 50
CHURCH & TOWER GROUP
COMBINED BALANCE SHEETS
December 31, 1993 and 1992
Assets 1993 1992
- - ------- ---- ----
Cash and cash equivalents $ 8,929,967 $ 10,190,412
Accounts receivable, net of allowance
for doubtful accounts of $250,000
in 1993 6,350,434 6,783,906
Contract receivables 400,000 2,542,833
Other current assets 186,234 129,558
------------ ------------
Total current assets 15,866,635 19,646,709
------------ ------------
Investment in unconsolidated joint
ventures 152,725 5,000
------------ ------------
Property and equipment, net 4,632,321 3,655,855
------------ ------------
Other assets 673,122 135,142
------------ ------------
Total assets $ 21,324,803 $ 23,442,706
============ ============
The accompanying notes are an integral part of these combined financial
statements.
Page 25 of 50
CHURCH & TOWER GROUP
COMBINED BALANCE SHEET
December 31, 1993 and 1992
Liabilities and Shareholders' Equity 1993 1992
- - ------------------------------------ ---- ----
Current liabilities:
Accounts payable and accrued expenses $ 3,323,865 $ 4,291,580
Billings in excess of costs and
estimated earnings on uncompleted
contracts - 1,527,012
Current maturities of long-term notes
payable 508,364 691,667
Current portion of notes payable to
shareholders 500,000 -
Other current liabilities 2,442,911 153,267
Deficit in unconsolidated joint
venture's capital account - 215,772
------------ ------------
Total current liabilities 6,775,140 6,879,298
Notes payable 1,079,201 855,219
Notes payable to shareholders 2,500,000 -
------------ ------------
Total liabilities 10,354,341 7,734,517
------------ ------------
Commitments and contingencies - -
------------ ------------
Minority interest in consolidated
joint venture 28,197 17,751
------------ ------------
Shareholders' equity:
Common stock 1,025,000 1,025,000
Retained earnings 9,917,265 14,665,438
------------ ------------
Total shareholders' equity 10,942,265 15,690,438
------------ ------------
Total liabilities and
shareholders' equity $ 21,324,803 $ 23,442,706
============ ============
The accompanying notes are an integral part of these combined
financial statements.
Page 26 of 50
CHURCH & TOWER GROUP
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
Three Years Ended December 31, 1993
1993 1992 1991
---- ---- ----
Contract revenue $ 44,683,403 $ 34,135,788 $ 31,588,228
------------ ------------ ------------
Costs and expenses:
Cost of contract revenue (exclusive
of depreciation shown separately
below) 28,729,144 22,162,792 22,969,522
Depreciation 609,268 371,488 359,236
General and administrative expenses 9,870,635 3,289,163 2,795,528
Interest expense 133,572 33,525 28,779
Interest income (314,524) (206,881) (226,722)
Other, net 80,532 (209,444) (85,295)
------------ ------------ ------------
Total costs and expenses 39,108,627 25,440,643 25,841,048
------------ ------------ ------------
Income from operations 5,574,776 8,695,145 5,747,180
Equity in earnings (losses) of
unconsolidated joint ventures 1,187,497 (372,972) 179,051
Minority interest in earnings of
consolidated joint venture (10,446) (42,618) (625,542)
------------ ------------ ------------
Net income 6,751,827 8,279,555 5,300,689
------------ ------------ ------------
Retained earnings, beginning of year
(as restated for reverse acquisition) 14,665,438 8,411,017 6,271,083
Distributions to shareholders (11,500,000) (2,025,134) (3,160,755)
------------ ------------ ------------
Retained earnings, end of year $ 9,917,265 $ 14,665,438 $ 8,411,017
============ ============ ============
Earnings per common share $ 0.66 $ 0.81 $ 0.52
============ ============ ============
The accompanying notes are an integral part of these combined
financial statements.
Page 27 of 50
CHURCH & TOWER GROUP
COMBINED STATEMENTS OF CASH FLOWS
Three Years Ended December 31, 1993
1993 1992 1991
---- ---- ----
Cash flows from operating activities:
Net income $ 6,751,827 $ 8,279,555 $ 5,300,689
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 609,268 371,488 359,236
Loss on disposition of assets 282,640 - -
Equity in (earnings) losses of
unconsolidated joint ventures (1,187,497) 372,972 (179,051)
Minority interest in net income of
consolidated joint venture 10,446 42,618 625,542
Changes in assets and liabilities:
Decrease (increase) in net accounts
receivable 433,472 (4,304,916) 994,082
Decrease (increase) in contract
receivables 2,142,833 (758,645) (1,423,863)
Decrease (increase) in other
current assets 111,324 (567,371) 111,775
(Increase) in other assets (537,980) (91,037) -
(Decrease) increase in accounts
payable and accrued expenses (967,715) 2,520,005 667,310
Increase (decrease) in other
current liabilities 2,289,644 179,624 (167,472)
(Decrease) increase in billings
in excess of costs and estimated
earnings on uncompleted
contracts (1,527,012) 1,284,095 56,109
------------ ------------ ------------
Net cash provided by operating
activities 8,411,250 7,328,388 6,344,357
------------ ------------ ------------
Cash flows from investing activities:
Distribution from unconsolidated joint
venture 1,484,000 48,000 24,051
Investments in unconsolidated joint
ventures (660,000) (190,578) -
Investment in joint venture - (5,000) -
Purchases of equipment, net (2,036,374) (1,739,864) (327,288)
------------ ------------ ------------
Net cash used in investing activities (1,212,374) (1,887,442) (303,237)
------------ ------------ ------------
Page 28 of 50
CHURCH & TOWER GROUP
COMBINED STATEMENTS OF CASH FLOWS
Three Years Ended December 31, 1993
Cash flows from financing activities:
Proceeds from notes payable 989,271 1,700,000 -
Principal payments on notes payable (948,592) (201,751) (14,728)
Distributions to shareholders (8,500,000) (2,025,134) (3,160,755)
Distributions to partners of
consolidated joint venture - - (602,549)
Repayment of loans from affiliates - (334,610) -
------------ ------------ ------------
Net cash used in financing activities (8,459,321) (861,495) (3,778,032)
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents (1,260,445) 4,579,451 2,263,088
Cash and cash equivalents, beginning
of year 10,190,412 5,610,961 3,347,873
------------ ------------ ------------
Cash and cash equivalents, end of
year $ 8,929,967 $10,190,412 $ 5,610,961
============ ============ ============
Supplemental disclosure of cash flow
information:
Cash paid during the year for
interest $ 133,570 $ 33,525 $ 4,496
============ ============ ============
Supplemental disclosure of noncash financing activities:
During 1993, the Group declared distributions to shareholders of $11,500,000.
Of the amounts declared, $8,500,000 was paid in cash and $3,000,000 remains
payable at December 31, 1993 as notes payable to shareholders.
The accompanying notes are an integral part of these combined
financial statements.
Page 29 of 50
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Church & Tower Group (the Group) represents the combination of two Florida
corporations, Church & Tower of Florida, Inc. (CT Florida) and Church & Tower,
Inc. (CT), which, prior to March 11, 1994, were owned by members of the Mas
family. Effective March 11, 1994, the Group was acquired by Burnup & Sims Inc.
See Note 2.
CT Florida, established in 1968, is engaged in the construction and maintenance
of outside plant (underground cable and conduit, aerial lines, manholes, etc.)
for utility companies servicing the geographical areas of Dade and Broward
counties in South Florida. CT, incorporated in 1990 under the laws of the
State of Florida, engages in construction contracts and serves, primarily, as
CT Florida's manpower and equipment subcontractor.
CT Florida holds three Master Contracts with BellSouth Telecommunications (Bell
South). The contracts expire at various times through 1996, and provide for
annual price revisions based on changes in the construction price index, as
calculated and published by the U.S. Department of Commerce. CT Florida also
provides construction services under individual contracts to Bell South and
Miami-Dade Water & Sewer Authority (Miami-Dade).
In 1990, CT formed 9001 Joint Venture for the purpose of constructing a
detention center for Metro-Dade County. From its initial 60% interest in the
joint venture, CT increased its participation to 89.8% and 99.7% during 1991
and 1992, respectively. Accordingly, the accounts of 9001 Joint Venture have
been consolidated with the accounts of CT in the accompanying combined financial
statements.
Also in 1990, CT entered into a joint venture agreement with an international
construction contractor. In this venture, CT has had a 20% interest in two
governmental projects and accounts for its investment under the equity method.
Effective June 1, 1992, CT merged its operations with those of Communication
Contractors, Inc. (CCI) in a transaction accounted for as a pooling of
interests. CCI, also wholly owned by a member of the Mas family, provided
construction subcontracting services (manpower and equipment) to CT Florida
during the year ended December 31, 1991 and for the period from January 1, 1992
through May 31, 1992. The accompanying financial statements for 1992 and 1991
include the operations of CCI.
In the latter part of 1992, the Group entered into a joint venture for the
removal of debris related to Hurricane Andrew. The Company has a 25% interest
in this venture and recorded approximately $1,087,000 of income during 1993
related to its equity in the earnings of this venture. The venture was
essentially completed in 1993.
A summary of the significant accounting policies followed in the preparation of
the accompanying combined financial statements is presented below:
Page 30 of 50
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
(Continued)
Principles of combination
The combined financial statements include the accounts of CT Florida and CT and
their majority owned joint venture. All significant intercompany balances and
transactions have been eliminated.
Revenue recognition
Revenues and related costs for short term construction projects are recognized
when the projects are completed.
Revenues from long term construction contracts are recognized under the
percentage-of-completion method. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined.
Billings in excess of costs and estimated earnings on uncompleted contracts are
classified as current liabilities and represent billings in excess of revenues
recognized.
Property and equipment, net
Property and equipment are recorded at cost, less accumulated depreciation.
Depreciation is computed using the straight line method over the estimated
useful lives of the related assets. 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.
Beginning in 1993, the Group changed prospectively the estimated useful life of
construction and excavation equipment from 10 to 7 years. This change in
estimated useful lives did not have a material effect on the 1993 financial
statements.
Income taxes
CT Florida and CT have elected to be taxed under the Subchapter S provisions of
the Internal Revenue Code, which provide that taxable income is to be included
in the Federal income tax returns of the individual shareholders. Accordingly,
no provision for income taxes has been recorded in the accompanying combined
statements of income and retained earnings.
As explained in Note 2, the Group has been acquired by Burnup & Sims Inc.
("Burnup"). As a result of this acquisition, the Group will be taxed as a C
Corporation. Upon its change in tax status, the Group will record income taxes
under the provisions of Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes, which requires the Group to use the liability
method of accounting for income taxes based on temporary taxable and deductible
differences between the tax bases of the Group's assets and liabilities and
their financial reporting bases. The change in tax status by the Group is
expected to result in a net deferred tax asset of approximately $435,000 due
to the tax effect of deductible temporary differences, principally related to
certain provisions recorded at December 31, 1993 related to environmental and
other matters.
Page 31 of 50
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
(Continued)
Earnings per share
Earnings per share for the three years ended December 31, 1993, were computed
using the number of shares outstanding after giving effect to the exchange of
shares at March 11, 1994 as described in Notes 2 and 10.
Cash and cash equivalents
The Group has defined cash and cash equivalents as those highly liquid
investments purchased with an original maturity of three months or less.
Environmental expenditures
Environmental expenditures that result from the remediation of an existing
condition caused by past operations, that do not contribute to current or
future revenues, are expensed. Liabilities are recognized when
cleanup is probable and the cost can be reasonably estimated.
Reclassifications
Certain accounts in the accompanying combined financial statements for the
years ended December 31, 1992 and 1991 have been reclassified for comparative
purposes.
2 - ACQUISITION:
On October 15, 1993, the shareholders of the Group entered an agreement, as
amended, pursuant to which the Group was acquired, through an exchange of
stock, effective March 11, 1994, by Burnup, a publicly traded company with
business activities similar to the Group. As a result of the acquisition,
the shareholders of the Group received approximately 65% of the shares of
Burnup in exchange for 100% of the shares of CT and CT Florida. The reverse
acquisition was accounted for as a purchase of Burnup by the Group. The name
of the resulting merged entity was changed to MasTec, Inc. ("MasTec"). The
results of operations of the Group will be included with those of MasTec for
periods subsequent to the effective date of the acquisition.
3 - RELATED PARTY TRANSACTIONS:
The Group rents and purchases construction equipment from affiliates. During
1993, 1992 and 1991, the Group incurred approximately $249,000, $222,000 and
$497,000 of equipment rental expense and purchased approximately $1,432,000,
$127,000 and $605,000, respectively, from these affiliates.
Additionally, at December 31, 1993 and 1992 the Group had recorded $97,450 and
$42,839 as amounts due from affiliates. These amounts are included in accounts
receivable in the accompanying combined balance sheets.
Page 32 of 50
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
(Continued)
During 1993, the Group declared distributions to shareholders of $11,500,000.
Of the amounts declared, $8,500,000 was paid in cash and $3,000,000 remains
payable at December 31, 1993 in the form of notes payable to shareholders. The
notes bear interest at the prime rate of interest plus 2% (8% at December 31,
1993) and are payable in semi-annual instalments of $500,000 beginning in
August 1994, plus accrued interest, through February 1997. The loans are
unsecured.
The Group is a party to certain non-cancelable operating leases expiring
October 1998 with an affiliate related to its equipment yards. Annual rental
payments are $48,000.
4 - SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
The Group provides construction services primarily to BellSouth and Miami-Dade.
As a result, the Group is exposed to a concentration of credit risk with
respect to these customers. Revenues from BellSouth and Miami-Dade for the
years ended December 31, 1993, 1992 and 1991 were approximately $29.1 million,
$22.3 million and $15.7 million; and $4.4 million, $1.9 million and $1.1
million, respectively. Accounts receivable from BellSouth and Miami-Dade at
December 31, 1993 and 1992 were $3.3 million and $5.7 million; and $2.4 million
and $108,000, respectively.
In addition, the Group, through its 9001 Joint Venture, recognized revenue from
Metro-Dade County in connection with the construction of the detention center
of approximately $10.7 million, $8.2 million and $14.4 million during the years
ended December 31, 1993, 1992 and 1991, respectively. At December 31, 1993
and 1992 there were contracts receivable from Metro-Dade County in the amount
of $400,000 and $2,542,833, respectively.
5 - PROPERTY AND EQUIPMENT:
Property and equipment was comprised of the following as of December 31, 1993
and 1992:
Estimated
useful lives
1993 1992 (in years)
------------ ------------ ----------
Land $ 216,395 $ 216,395 -
Buildings and improvements 526,942 526,942 5-30
Machinery and Equipment 4,881,088 4,262,138 7-10
Office furniture and equipment 442,390 457,473 10
------------ ------------
6,066,815 5,462,948
Less-accumulated depreciation (1,434,494) (1,807,093)
------------ ------------
$ 4,632,321 $ 3,655,855
============ ============
Page 33 of 50
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
(Continued)
6 - OTHER ASSETS:
Included in other assets at December 31, 1993, are approximately $541,000 of
deferred costs related to the acquisition of Burnup.
7 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
At December 31,1993 and 1992, accounts payable and accrued expenses consisted
of the following:
1993 1992
---- ----
Trade accounts payable $ 1,843,551 $ 3,278,170
Accrued insurance premiums 818,000 640,000
Accrued payroll 240,814 193,693
Bank overdraft - 9001 Joint
Venture 281,500 -
Other accrued expenses 140,000 179,717
------------ ------------
$ 3,323,865 $ 4,291,580
============ ============
8 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS:
Billings in excess of costs and estimated earnings on uncompleted contracts
with Metro-Dade County at December 31, 1992, were as follows:
Costs incurred on uncompleted
contracts $ 18,119,364
Estimated earnings 5,079,299
-------------
23,198,663
Less - billings to date (24,725,675)
--------------
$ (1,527,012)
==============
Page 34 of 50
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
(Continued)
9 - NOTES PAYABLE:
Notes payable at December 31, 1993 and 1992 consisted of:
1993 1992
---- ----
Instalment note payable to bank,
original amount of $2 million
fully disbursed in January 1993,
due in monthly instalments of
$41,667 plus interest at 7.7%
through January 1997, collateralized
by receivables and equipment. $ 1,561,112 $ 1,010,729
Note payable to bank, payable in
monthly instalments of $19,444 plus
interest at Prime plus 1/2%
(6 1/2% at December 31, 1992)
beginning in May 1992 through April
1995, collateralized by receivables
and equipment. - 502,778
Other 26,453 33,379
------------- ------------
1,587,565 1,546,886
Less - current maturities (508,364) (691,667)
------------- ------------
$ 1,079,201 $ 855,219
============= ============
Principal maturities are as follows:
1994 $ 508,364
1995 508,365
1996 569,477
1997 1,359
-----------
$ 1,587,565
===========
10 - SHAREHOLDERS' EQUITY:
As a result of the reverse acquisition by the Group of Burnup in March 1994,
described in Note 2, the Group's historical shareholders' equity has been
retroactively restated in the accompanying combined balance sheets at
December 31, 1993 and 1992. The restatement gives effect to the number of
shares of MasTec received by the Group at the date of acquisition, as well as
the par value of the shares received. The effect of the restatement is as
follows:
Page 35 of 50
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
(Continued)
Additional
Common paid in Treasury Retained
stock capital stock earnings
1993 ------ ---------- -------- ---------
- - ----
Historical amount $ 6,000 $ 42,000 $ (14,169) $ 10,908,434
Adjustment for reverse
acquisition 1,019,000 (42,000) 14,169 (991,169)
----------- ----------- ----------- -------------
Restated balances $ 1,025,000 $ - $ - $ 9,917,265
=========== =========== =========== =============
1992
Historical amount $ 6,000 $ 42,000 $ (14,169) $ 15,656,607
Adjustment for reverse
acquisition 1,019,000 (42,000) 14,169 (991,169)
----------- ----------- ----------- -------------
Restated balances $ 1,025,000 $ - $ - $ 14,665,438
=========== =========== =========== =============
MasTec shares have a $.10 par value.
The weighted average number of shares outstanding used in the computations of
earnings per share are summarized as follows:
1993 1992 1991
---- ---- ----
Weighted average common
shares outstanding 6,000 6,000 6,000
Adjustment for shares
received in connection
with the reverse acquisition
of Burnup 10,244,000 10,244,000 10,244,000
---------- ---------- ----------
Weighted average shares
used in the per share
computations 10,250,000 10,250,000 10,250,000
========== ========== ==========
Page 36 of 50
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
(Continued)
11 - BUSINESS SEGMENTS:
Business segment information is summarized as follows:
(In thousands)
1993 1992 1991
---- ---- ----
Contract revenue:
Utility services $ 34,010 $ 25,896 $ 17,093
General construction 10,673 8,240 14,495
---------- ---------- ----------
Total $ 44,683 $ 34,136 $ 31,588
========== ========== ==========
Income from operations:
Utility services $ 9,351 $ 8,472 $ 3,900
General construction 2,266 2,149 2,747
Corporate (6,042) (1,926) (900)
---------- ---------- ----------
Total $ 5,575 $ 8,695 $ 5,747
========== ========== ==========
Identifiable assets:
Utility services $ 17,405 $ 17,726 $ 6,658
General construction 400 3,065 2,738
Corporate 3,520 2,651 2,337
---------- ---------- ----------
Total $ 21,325 $ 23,442 $ 11,733
========== ========== ==========
Depreciation expense:
Utility services $ 609 $ 371 $ 359
---------- ---------- ----------
Total $ 609 $ 371 $ 359
========== ========== ==========
Capital expenditures:
Utility services $ 2,036 $ 1,740 $ 327
---------- ---------- ----------
Total $ 2,036 $ 1,740 $ 327
========== ========== ==========
The Group's operations are organized into two principal business segments -
utility services and general construction. Income from operations consists of
income before equity in earnings of unconsolidated joint ventures and minority
interest in earnings of consolidated joint venture. There are no material
intersegment sales or transfers. Identifiable assets are those assets used for
operations in each business segment. Corporate assets are principally invested
cash and investments in unconsolidated joint ventures.
Page 37 of 50
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
(Continued)
12 - COMMITMENTS AND CONTINGENCIES:
In connection with certain construction contracts, the Group has signed
certain agreements of indemnity in the aggregate amount of approximately $20
million, of which approximately $9 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. Management believes that
no losses will be sustained from these agreements.
Federal, state and local laws and regulations govern the Group's operation of
underground fuel storage tanks. The Group is in the process of removing,
restoring and upgrading these tanks, as required by the applicable laws, and
has identified certain tanks and surrounding soil which will require remedial
cleanups.
Under the terms of the contract with Metro-Dade County, the Group has provided
a warranty to the County with respect to materials and workmanship for a one
year period from the date of substantial completion, as defined in the
contract. In management's opinion, no significant losses are expected as a
result of this warranty.
Jorge Gamez, as Personal Representative of the Estate of Jorge A. Gamez,
deceased, vs. Church & Tower, Inc., a Florida corporation, et al. Civil Action
93-07318 CA 20, filed in the Circuit Court of the 11th Judicial Circuit in and
for Dade County, Florida on March 22, 1993, as amended on April 20, 1994, to
include MasTec, Inc. The claim alleges that a Group employee was negligent in
the operation of a truck and trailer combination which resulted in a death.
Although no amounts are stated in the preliminary case filings, the plaintiff
has made a demand for $7.2 million.
During the year ended December 31, 1993, the Group provided approximately
$2.3 million, net of $1 million of insurance coverage, related to the above
matters. This amount has been included in other current liabilities in the
accompanying combined balance sheet at December 31, 1993. Management believes,
based on consultations with its legal and other advisors, that the amount
provided is adequate to cover the estimated losses expected to be incurred in
connection with these matters.
In November 1993, Albert H. Kahn (the "plaintiff") filed a class action and
derivative complaint, Civil Action 13248, (the "1993 Complaint") against
Burnup, the members of Burnup's Board of Directors, CT, CT Florida, Jorge Mas
Canosa, Jorge Mas and Juan Carlos Mas (CT, CT Florida, Jorge Mas Canosa, Jorge
Mas and Juan Carlos Mas are referred to as the "CT Defendants"). In December
1993, plaintiff amended the 1993 Complaint ("1993 Amended Complaint").
The 1993 Amended Complaint alleges, among other things, that (i) the Burnup's
Board of Directors and National Beverage Corp. ("NBC"), as Burnup's largest
stockholder at the time, breached their respective fiduciary duties by approv-
the acquisition which, according to the allegations of the 1993 Complaint,
benefits Mr. Caporella at the expense of Burnup's stockholders, (ii) the CT
Defendants had knowledge of the fiduciary duties owed by NBC and Burnup's Board
Page 38 of 50
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
(Continued)
of Directors and knowingly and substantially participated in their breaches
thereof, (iii) the Special Transaction Committee of Burnup's Board of Directors
which approved the Acquisition Agreement and Redemption was not independent
and, as such, was not in accordance with the 1990 Settlement, (iv) Burnup's
Board of Directors breached its fiduciary duties by failing to take an active
and direct role in the sale of the Company and failing to ensure the
maximization of stockholder value in the sale of control of the company; and (v)
Burnup's Board of Directors and NBC, as Burnup's largest stockholder, breached
their respective fiduciary duties by failing to disclose completely all material
information regarding the acquisition. The 1993 Complaint also claims
derivatively that each member of Burnup's Board of Directors engaged in
mismanagement, waste and breach of their fiduciary duties in managing Burnup's
affairs. On November 29, 1993, plaintiff filed a motion for an order
preliminarily and permanently enjoining the acquisition. On March 7, 1994, the
court heard arguments with respect to plaintiff's motion to enjoin the
acquisition and on March 10, 1994, the court denied plaintiff's request for
injunctive relief.
The Company believes that the allegations in the 1993 Complaint and the 1993
Amended Complaint are without merit, and intends to vigorously defend this
action.
Effective January 1994, the Group entered into a non-cancelable operating lease
for its office facilities. Future minimum rentals under the lease agreement
are $123,900 for 1994 and 1995.
Page 39 of 50
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
(Continued)
13 - CONSOLIDATED PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
The following unaudited pro forma consolidated statements of income of
Burnup and the CT Group for the years ended December 31, 1992 and 1993 are
presented as if the acquisition had occurred on January 1, 1992. The unaudited
pro forma consolidated balance sheet is presented as if the acquisition had
occurred on December 31, 1993.
The pro forma data is presented for informational purposes only and may not be
indicative of the future results of operations or financial position of MasTec,
or what the results of operations or financial position of MasTec would have
been if the acquisition had occurred on the dates set forth.
These pro forma consolidated financial statements should be read in
conjunction with the historical combined financial statements and notes
thereto of the CT Group included herein.
As discussed in Note 1, the acquisition will be treated as a "reverse
acquisition" for financial reporting purposes, with the CT Group considered to
be the acquiring entity. As a result, the pro forma adjustments include
adjustments to reflect the estimated fair values of the net assets of Burnup;
the capital structure has been adjusted to reflect the outstanding capital
structure of the surviving legal entity. MasTec has not yet finalized the
allocation of the purchase price but believes that a substantial portion of
the purchase price ultimately will be allocated to property and real estate
investments. The purchase accounting adjustments have been made assuming a
fair value of $5.60 per share for Burnup's Common Stock, which was determined
in accordance with Accounting Principles Board Opinion No. 16 "Business
Combinations" using the average trading price for the period from the date the
acquisition was announced to the date of consummation (March 11, 1994). The
fair value approximates the price determined by the CT Group and Burnup in
arriving at the number of shares to be issued.
The unaudited pro forma consolidated financial statements are derived from
the historical financial statements of Burnup and the CT Group. The pro forma
consolidated balance sheet combines Burnup's January 31, 1994 balance
sheet with the CT Group's December 31, 1993 balance sheet. The pro forma
consolidated statements of income combine Burnup's historical statements of
operations for the twelve months ended January 31, 1994 and 1993 with the CT
Group's historical statements of income for the fiscal year ended December
31, 1993 and 1992, respectively.
Page 40 of 50
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
(Continued)
MasTec, Inc.
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS)
CT GROUP BURNUP
December January PRO FORMA CONSOLIDATED
31, 1993 31, 1994 ADJUSTMENTS PROFORMA
--------- -------- ----------- ----------
ASSETS
Current Assets
Cash and Cash Equivalents $ 8,930 $ 6,605 $ (227) (2) $ 15,308
Accounts Receivable-Net
and Unbilled Revenues 6,751 18,369 25,120
Other Current Assets 186 14,500 (2,500) (1) 12,186
--------- ---------- ------------ ----------
Total Current Assets 15,867 39,474 (2,727) 52,614
--------- ---------- ------------ ----------
Investment in NBC 0 28,495 (17,401) (1)(3) 11,094
Property-Net 4,632 16,875 22,541 (3) 44,048
Goodwill 0 3,174 665 (3) 3,839
Other Assets 826 13,780 10,911 (3) 25,517
--------- ---------- ------------ ----------
TOTAL ASSETS $ 21,325 $ 101,798 $ 13,989 $ 137,112
========= ========== ============ ==========
Page 41 of 50
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
(Continued)
MasTec, Inc.
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS)
CT GROUP BURNUP
December January PRO FORMA CONSOLIDATED
31, 1993 31, 1994 ADJUSTMENTS PROFORMA
--------- -------- ----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Maturities of Debt $ 1,008 $ 3,930 $ $ 4,938
Accounts Payable and
Accrued Expenses 3,324 11,815 5,092 (2)(5) 20,231
Other Current Liabilities 2,443 6,421 8,864
--------- ---------- ------------- ---------
Total Current Liabilities 6,775 22,166 5,092 34,033
Other Liabilities 28 13,616 9,517 (3)(4)(5) 23,161
--------- ---------- ------------ ----------
Long-Term Debt 3,579 32,028 35,607
--------- ---------- ------------ ----------
Shareholders' Equity
Common Stock 1,025 1,602 (1,024) (1)(2) 1,603
(7)
Capital Surplus 72,860 (30,587) (1)(2) 42,273
(5)(6)(7)
Retained Earnings 9,918 33,666 (43,149) (4)(6)(8) 435
Treasury Stock (74,140) 74,140 (7) 0
--------- ---------- ------------ ----------
Total Shareholders' Equity 10,943 33,988 (620) 44,311
--------- ---------- ------------ ----------
$ 21,325 $ 101,798 $ 13,989 $ 137,112
========= ========== ============ ==========
Page 42 of 50
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
(Continued)
MasTec, Inc.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(In Thousands Except Per Share Amounts)
TWELVE MONTHS ENDED
CT GROUP BURNUP
December January PRO FORMA CONSOLIDATED
31, 1993 31, 1994 ADJUSTMENTS PROFORMA
--------- ---------- ----------- ---------
Revenues $ 44,683 $ 137,732 $ $ 182,415
--------- ---------- ------------ ----------
Costs and Expenses
Costs of Revenues (exclusive
of depreciation and
amortization shown separately
below) 28,729 125,378 154,107
General and Administrative 9,870 18,528 28,398
Depreciation and Amortization 609 5,169 (2,450) (1) 3,328
Interest Expense 134 4,047 153 (2) 4,334
Interest and Dividend Income (315) (3,922) 2,685 (3) (1,552)
Other 81 (1,247) (1,166)
--------- ---------- ------------ ----------
Total Costs and Expenses 39,108 147,953 388 187,449
--------- ---------- ------------ ----------
Income (Loss) Before Income
Taxes, Equity in Earnings
(Losses) of Unconsolidated
Joint Ventures and Minority
Interest in Earnings of
Consolidated Joint Venture 5,575 (10,221) (388) (5,034)
Provision (Credit) for Income
Taxes 0 (2,927) 1,691 (4) (1,236)
--------- ---------- ------------ ----------
Income (Loss) Before Equity in
Earnings (Losses) of
Unconsolidated Joint Ventures
and Minority Interest in
Earnings of Consolidated
Joint Venture 5,575 (7,294) (2,079) (3,798)
Equity in Earnings (Losses) of
Unconsolidated Joint Ventures 1,187 0 1,187
Minority Interest in Earnings of
Consolidated Joint Venture (10) 0 (10)
--------- ---------- ------------ ----------
NET INCOME (LOSS) $ 6,752 $ (7,294) $ (2,079) $ (2,621)
========= ========== ============ ==========
Average Shares Outstanding(5) 10,250 8,768 (3,153) 15,865
========= ========== ============ ==========
Earnings (Loss) Per Share $ 0.66 $ (.83) $ (0.17)
========= ========== ==========
Page 43 of 50
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
(Continued)
MasTec, Inc.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(In Thousands Except Per Share Amounts)
TWELVE MONTHS ENDED
CT GROUP BURNUP
December January PRO FORMA CONSOLIDATED
31, 1992 31, 1993 ADJUSTMENTS PROFORMA
--------- -------- ----------- -----------
Revenues $ 34,136 $ 143,990 $ $ 178,126
--------- ---------- ------------ ----------
Costs and Expenses
Costs of Revenues (exclusive
of depreciation and
amortization shown separately
below) 22,163 126,233 148,396
General and Administrative 3,289 17,075 20,364
Depreciation and Amortization 371 6,600 (433) (1) 6,538
Interest Expense 34 4,718 177 (2) 4,929
Interest and Dividend Income (207) (4,038) 2,685 (3) (1,560)
Other (209) (1,868) (2,077)
--------- ---------- ------------ ----------
Total Costs and Expenses 25,441 148,720 2,429 176,590
--------- ---------- ------------ ----------
Income (Loss) Before Income
Taxes, Equity in Earnings
(Losses) of Unconsolidated
Joint Ventures and Minority
Interest in Earnings of
Consolidated Joint Venture 8,695 (4,730) (2,429) 1,536
Provision (Credit) for Income
Taxes 0 (1,738) 2,135 (4) 397
--------- ---------- ------------ ----------
Income (Loss) Before Equity in
Losses of Unconsolidated Joint
Ventures and Minority Interest in
Earnings of Consolidated
Joint Venture 8,695 (2,992) (4,564) 1,139
Equity in Losses of
Unconsolidated Joint Ventures (373) 0 (373)
Minority Interest in Earnings of
Consolidated Joint Venture (42) 0 (42)
--------- ---------- ------------ ----------
NET INCOME (LOSS) $ 8,280 $ (2,992) $ (4,564) $ 724
========= ========== ============ ==========
Average Shares Outstanding(5) 10,250 8,768 (3,153) 15,865
========= ========== ============ ==========
Earnings (Loss) Per Share $ 0.81 $ (0.34) $ 0.05
========= ========== ==========
Page 44 of 50
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
(Continued)
Notes to Unaudited Pro Forma Financial Statements
Balance Sheet
- - -------------
(1) To record exchange with NBC as follows:
(000's)
(a) redemption of subordinated debenture
and other investment included in Other
current assets $ 2,500
(b) redemption of subordinated debenture
and other indebtedness included in
Investment in NBC $ 15,401
(c) retirement of Common stock $ 315
(d) reduction in Capital surplus $ 17,586
(2) To record stock options and stock appreciation
rights ("SAR's") exercised by Burnup employees
prior to the consummation date as follows:
(a) issuance of 163,100 shares of common
stock par value $.10 $ 16
=========
(b) increase in capital surplus $ 1,027
=========
(c) net decrease in cash from exercise of
stock options and SAR's $ 227
=========
(d) decrease in accrued compensation expense
as a result of SAR's exercised $ 1,297
=========
(3) To allocate the purchase price of $32,897,000
(based on 5,777,592 shares outstanding at $5.60
per share, plus transaction cost of $550,000)
Net book value of Burnup at January 31, 1994 $ 33,988
Less: Effect of exchange with NBC and loss
for period to acquisition (21,363)
---------
Net book value at acquisition 12,625
Purchase price 32,906
---------
Excess purchase price over net assets acquired
included in Capital Surplus $ 20,281
=========
Page 45 of 50
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
(Continued)
Allocated as follows:
Incr. (Decr.)
in net assets
-------------
(a) Increase in Land included in Property
to fair value $20,471
(b) Increase in buildings included in
Property to fair value 2,070
(c) Increase in real estate investment
included in Other assets to fair value 10,911
(d) Decrease in value of Investment in
preferred stock and notes Receivables (2,000)
(e) Decrease in value of historical Goodwill (3,174)
(f) Increase in deferred taxes included in
Other liabilities resulting from
above adjustments (11,836)
(g) Goodwill on acquisition 3,839
--------
$20,281
========
(4) To recognize deferred tax asset of $435,000
included in Other liabilities regarding
deductible temporary differences related to
the Group.
(5) To accrue losses of $6,389,000 (related tax
benefit of $1,884,000 included in Other
liabilities) for period February 1, 1994, to
acquisition. (These losses include $2,682,000
related to non recurring expenses in connection with
the acquisition: bonus pool, transactions
costs, options and SAR's).
(6) To transfer from Retained earnings to
Capital surplus $9,918,000 of the Group's
retained earnings at December 31, 1993
considered to be permanently capitalized
undistributed earnings.
(7) To retire 7,253,375 shares in treasury stock
as follows:
Common stock 7,253,375 shares @ $.10 par value $ 725
Capital surplus 73,415
--------
$74,140
========
(8) To transfer to Capital Surplus Burnup's
Retained earnings of $33,666,000 at
January 31, 1994.
Page 46 of 50
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
(Continued)
Statement of Operations
- - -----------------------
(1) To record the effect on depreciation and amortization
resulting from the adjustments described above as follows:
1993 1992
---- ----
(a) depreciation expense on fair value
of buildings which were revalued
(20 year life) $279 $279
(b) elimination of historical depreciation-
of revalued buildings per
(a) above (556) (556)
(c) elimination of historical goodwill
amortization and writedown of
Goodwill in April 1993 of $2,017,000 (2,365) (348)
(d) amortization of goodwill on acquisition
of Burnup (20 years) 192 192
------ ------
($2,450) ($433)
======== ======
(2) To record increase in interest expenses as a result of the
notes payable issued to the CT Group shareholders for dividends
payable.
(3) To reverse interest income earned on NBC Subordinated Debentures
and other indebtedness and reduced other income as a
result of decreased cash.
(4) To record income tax benefit on pro forma adjustments and to
record tax provision on the income of the CT Group as follows:
1993 1992
---- ----
(a) tax provision on the income
of the CT Group $2,536 $3,105
(b) tax benefit on pro forma
adjustments (845) (970)
------ -------
$1,691 $2,135
====== =======
(5) Adjusted for redemption and issuance of shares as in the notes
to the pro forma balance sheet.
********
Page 47 of 50
CHURCH & TOWER GROUP
FINANCIAL STATEMENT SCHEDULES
DECEMBER 31, 1993
SCHEDULE V - PROPERTY, PLANT and EQUIPMENT
BALANCE ADDITIONS BALANCE
1993 12/31/92 AT COST RETIREMENTS 12/31/93
LAND $ 216,395 $ 216,395
BUILDINGS & IMPROVEMENTS 526,942 526,942
MACHINERY & EQUIPMENT 4,262,138 $ 2,095,742 $ 1,476,792 4,881,088
FURNITURE & FIXTURES 457,473 33,282 48,365 442,390
---------- ----------- ----------- -----------
TOTAL $5,462,948 $ 2,129,024 $ 1,525,157 $ 6,066,815
========== =========== =========== ===========
BALANCE ADDITIONS BALANCE
1992 12/31/91 AT COST RETIREMENTS 12/31/92
LAND $ 216,395 $ 216,395
BUILDINGS & IMPROVEMENTS 526,942 526,942
MACHINERY & EQUIPMENT 2,780,098 $1,482,040 4,262,138
FURNITURE & FIXTURES 399,318 58,155 457,473
---------- ---------- ----------- -----------
TOTAL $3,922,753 $1,540,195 $ 0 $ 5,462,948
========== ========== =========== ===========
BALANCE ADDITIONS BALANCE
1991 12/31/90 AT COST RETIREMENTS 12/31/91
LAND $ 216,395 $ 216,395
BUILDINGS & IMPROVEMENTS 525,410 $ 1,532 526,942
MACHINERY & EQUIPMENT 2,433,162 652,212 $ 305,276 2,780,098
FURNITURE & FIXTURES 383,419 15,899 399,318
---------- ---------- ----------- -----------
TOTAL $3,558,386 $ 669,643 $ 305,276 $ 3,922,753
========== ========== =========== ===========
Page 48 of 50
CHURCH & TOWER GROUP
FINANCIAL STATEMENT SCHEDULES
DECEMBER 31, 1993
SCHEDULE VI - ACCUMULATED DEPRECIATION
ADDITIONS
BALANCE CHARGED TO BALANCE
1993 12/31/92 EXPENSES RETIREMENTS 12/31/93
BUILDINGS & IMPROVEMENTS $ 203,310 $ 18,367 $ 221,677
MACHINERY & EQUIPMENT 1,302,941 524,416 $ 981,867 845,490
FURNITURE & FIXTURES 300,842 66,485 367,327
---------- ---------- ----------- -----------
TOTAL $1,807,093 $ 609,268 $ 981,867 $ 1,434,494
========== ========== =========== ===========
ADDITIONS
BALANCE CHARGED TO BALANCE
1992 12/31/91 EXPENSES RETIREMENTS 12/31/92
BUILDINGS & IMPROVEMENTS $ 184,943 $ 18,367 $ 203,310
MACHINERY & EQUIPMENT 1,096,772 206,169 1,302,941
FURNITURE & FIXTURES 234,921 65,921 300,842
---------- ---------- ----------- -----------
TOTAL $1,516,636 $ 290,457 $ 0 $ 1,807,093
========== ========== =========== ===========
ADDITIONS
BALANCE CHARGED TO BALANCE
1991 12/31/90 EXPENSES RETIREMENTS 12/31/92
BUILDINGS & IMPROVEMENTS $ 166,576 $ 18,367 $ 184,943
MACHINERY & EQUIPMENT 1,143,209 262,624 $ 309,061 1,096,772
FURNITURE & FIXTURES 180,745 54,176 234,921
---------- ---------- ----------- -----------
TOTAL $1,490,530 $ 335,167 $ 309,061 $ 1,516,636
========== ========== =========== ===========
Page 49 of 50
MasTec, Inc.
FORM 10-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its be
half by the undersigned, thereunto duly authorized.
MasTec, Inc.
(Registrant)
/s/ Carlos A. Valdes
- - ----------------------
Carlos A. Valdes
Senior Vice President
(Principal Financial and
Accounting Officer)
Dated: June 9, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Jorge L. Mas
- - -------------------------------
President & Chief Executive Officer
(Principal Executive Officer)
/s/ Jorge Mas Canosa
- - -------------------------------
Chairman of the Board
/s/ Arthur B. Laffer
- - ------------------------------
Director
/s/ Eliot C. Abbott
- - -------------------------------
Director
Page 50 of 50