-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SjdlJTi4qYU6cfo18GKIpesSV1cxiJlBXNzjnYmmLVGCK3KZ5Be3BhHcSl+mxvTx K5Nm1S5lzlYYXTaqBymeoA== 0000950170-98-001681.txt : 19980817 0000950170-98-001681.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950170-98-001681 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEVCON INTERNATIONAL CORP CENTRAL INDEX KEY: 0000028452 STANDARD INDUSTRIAL CLASSIFICATION: CONCRETE GYPSUM PLASTER PRODUCTS [3270] IRS NUMBER: 590671992 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-07152 FILM NUMBER: 98687384 BUSINESS ADDRESS: STREET 1: 1350 E NEWPORT CENTER DR STREET 2: STE 201 CITY: DEERFIELD BEACH STATE: FL ZIP: 33443 BUSINESS PHONE: 3054291500 MAIL ADDRESS: STREET 1: 1350 E NEWPORT CENTER DR STREET 2: SUITE 201 CITY: DEERFIELD BEACH STATE: FL ZIP: 33442 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________. Commission File No. 0-7152 DEVCON INTERNATIONAL CORP. (Exact Name of Registrant as Specified in its Charter) FLORIDA 59-0671992 (State or Other Jurisdiction of (I.R.S.Employer Incorporation or Organization) Identification No.) 1350 E. NEWPORT CENTER DRIVE, SUITE 201, DEERFIELD BEACH, FL 33442 (Address of Principal Executive Offices) (Zip Code) (954) 429-1500 (Registrant's Telephone Number, Including Area Code) SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $.10 PAR VALUE (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES X NO ______ As of August 8, 1998, the number of shares outstanding of the Registrant's Common Stock was 4,498,935. DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES INDEX PAGE NUMBER ----------- Part I. Financial Information: Consolidated Balance Sheets - June 30, 1998 and December 31, 1997................................... 3-4 Consolidated Statements of Operations and Retained Earnings - Three and Six Months Ended June 30, 1998 and 1997............................ 5-6 Consolidated Statements of Cash Flows - Six Months Ended June 30, 1998 and 1997................. 7-8 Notes to Consolidated Financial Statements.............. 9 Management's Discussion and Analysis of Financial Conditions and Results of Operations..............................................10-16 Part II. Other Information.......................................17-18 2 PART I. FINANCIAL INFORMATION - ------------------------------------------------------------ DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Consolidated Balance Sheets June 30, 1998 and December 31, 1997
JUNE 30, DECEMBER 31, 1998 1997 ----------- ------------ (Unaudited) (Audited) ASSETS Current assets: Cash $ 462,585 $ 876,368 Cash equivalents - 125,000 Receivables, net 13,504,029 13,928,997 Costs in excess of billings and estimated earnings 1,188,095 329,707 Inventories 4,524,943 4,779,121 Assets held for sale 3,390,233 6,919,511 Other 1,040,082 937,290 ----------- ----------- Total current assets 24,109,967 27,895,994 Property, plant and equipment Land 2,148,825 2,148,825 Buildings 3,453,382 3,365,775 Leasehold interests 6,561,434 6,302,592 Equipment 55,201,809 53,382,393 Furniture and fixtures 581,774 560,402 Construction in process 1,375,145 1,007,879 ----------- ----------- 69,322,369 66,767,866 Less accumulated depreciation (28,236,129) (27,119,417) ----------- ----------- 41,086,240 39,648,449 Investments in unconsolidated joint ventures and affiliates 244,150 132,130 Advances to unconsolidated joint ventures and affiliates 563,300 568,861 Receivables, net 14,729,418 15,137,701 Intangible assets, net of accumulated amortization 1,332,129 1,429,921 Other assets 1,574,160 1,620,204 ----------- ----------- Total assets $83,639,364 $86,433,260 =========== ===========
See accompanying notes to consolidated financial statements. 3 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Consolidated Balance Sheets June 30, 1998 and December 31, 1997
JUNE 30, DECEMBER 31, 1998 1997 ---------- ------------ (Unaudited) (Audited) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable, trade and other $ 5,448,291 $ 6,390,461 Accrued expenses and other liabilities 2,487,340 2,702,517 Notes payable to banks 691,268 384,473 Current installments of long-term debt 5,943,428 8,990,968 Billings in excess of costs and estimated earnings 508,800 137,408 Income taxes 621,613 577,478 ----------- ----------- Total current liabilities 15,700,740 19,183,305 Long-term debt, excluding current installments and notes payable to banks 17,871,546 16,981,738 Minority interest in consolidated subsidiaries 1,933,204 1,923,629 Deferred income taxes 399,791 399,791 Other liabilities 4,812,963 5,129,135 ----------- ----------- Total liabilities 40,718,244 43,617,598 Stockholders' equity: Common stock 449,894 449,894 Additional paid-in capital 12,064,133 12,064,133 Cumulative translation adjustment (1,200,000) (1,200,000) Retained earnings 31,607,093 31,501,635 ----------- ----------- Total stockholders' equity 42,921,120 42,815,662 ----------- ----------- Total liabilities and stockholders' equity $83,639,364 $86,433,260 =========== ===========
See accompanying notes to consolidated financial statements. 4 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Consolidated Statements of Operations and Retained Earnings Three and Six Months Ended June 30, 1998 and 1997 (Unaudited)
THREE THREE SIX SIX MONTHS MONTHS MONTHS MONTHS ENDED ENDED ENDED ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1998 1997 1998 1997 -------- -------- -------- -------- Concrete and related products revenue $13,271,683 $13,680,288 $25,759,433 $26,036,111 Contracting revenue 3,400,954 2,800,262 5,150,529 4,845,878 Other revenue - 672,808 371,386 1,721,763 ----------- ----------- ----------- ----------- Total revenue 16,672,637 17,153,358 31,281,348 32,603,752 Cost of concrete and related products revenue 10,622,531 10,651,553 20,469,456 20,647,504 Cost of contracting revenue 2,503,822 2,778,857 4,602,744 4,785,037 Cost of other revenue 1,825 579,996 247,562 1,297,979 ----------- ----------- ----------- ----------- Gross profit 3,544,459 3,142,952 5,961,586 5,873,232 Selling, general and administrative expenses 2,902,166 2,983,651 5,440,523 6,424,174 Charge for litigation - 4,500,000 - 4,500,000 ----------- ----------- ----------- ----------- Operating income (loss) 642,293 (4,340,699) 521,063 (5,050,942) Other income (deductions) Joint venture equity loss - (25,000) - (50,000) Interest expense (578,819) (631,570) (1,099,093) (1,208,875) Gain (loss) on sale of equipment (20,573) (51,269) 45,997 (58,916) Interest and other income 668,598 163,150 817,245 286,057 Minority interest (9,575) 19,615 (9,575) 11,356 ----------- ----------- ----------- ----------- 59,631 (525,074) (245,426) (1,020,378) Profit (loss) before income taxes 701,924 (4,865,773) 275,637 (6,071,320) Income tax 250,374 - 170,179 - ----------- ----------- ----------- ----------- Net income (loss) 451,550 (4,865,773) 105,458 (6,071,320) Other comprehensive income - - - - ----------- ----------- ----------- ----------- Comprehensive income (loss) 451,550 (4,865,773) 105,458 (6,071,320) Retained earnings, beginning of period 31,155,543 45,832,111 31,501,635 47,037,658 ----------- ----------- ----------- ----------- Retained earnings, end of period $31,607,093 $40,966,338 $31,607,093 $40,966,338 =========== =========== =========== ===========
See accompanying notes to consolidated financial statements. 5
THREE THREE SIX SIX MONTHS MONTHS MONTHS MONTHS ENDED ENDED ENDED ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1998 1997 1998 1997 -------- -------- -------- -------- Basic income (loss) per share from continuing operations $ 0.10 $ (1.08) $ 0.02 $ (1.35) ========= ========= ========= ========= Weighted average number of shares outstanding-Basic 4,498,935 4,498,935 4,498,935 4,498,935 ========= ========= ========= ========= Diluted income loss $ 0.10 $ (1.08) $ 0.02 $ (1.35) ========= ========= ========= ========= Weighted average number of shares diluted 4,524,722 4,498,935 4,533,768 4,498,935 ========= ========= ========= =========
See accompanying notes to consolidated financial statements. 6 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows Six Months Ended June 31, 1998 and 1997 (Unaudited)
1998 1997 ---- ---- Cash flows from operating activities: Net income (loss) $ 105,458 $(6,071,320) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 2,918,395 2,945,065 Joint venture equity loss - 50,000 Provision for doubtful accounts and notes (217,162) 150,000 (Gain) loss on sale of equipment (45,997) 58,916 Minority interest expense 9,575 (11,356) Charge for litigation - 4,500,000 Changes in operating assets and liabilities: Decrease (increase) in receivables, net 293,718 (3,066,372) (Increase) decrease in costs in excess of billings and estimated earnings (858,388) 252,742 Decrease in inventories 254,178 271,116 Increase in other current assets (102,793) (329,140) (Increase) decrease in other assets (2,932) 17,499 (Decrease) increase in accounts payable, trade and other (1,059,290) 2,674,615 Increase (decrease) in billings in excess of costs and estimated earnings 371,392 (32,475) Increase (decrease) in income taxes payable 44,135 (146,082) Decrease in other liabilities (316,171) (132,105) ----------- ----------- Net cash provided by operating activities 1,394,118 1,131,103 ----------- ----------- Cash flows from investing activities: Purchase of property, plant and equipment (4,313,764) (6,083,550) Proceeds from disposition of property, plant and equipment 3,473,105 119,746 Payments received on notes 1,165,236 897,406 Investment in affiliates (112,020) - Advances from affiliates 5,561 305,000 Issuance of Notes (479,135) - ----------- ----------- Net cash used in investing activities $ (261,017) $(4,761,398) =========== ===========
See accompanying notes to consolidated financial statements. 7 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows Six Months Ended June 30, 1998 and 1997 (Unaudited)
1998 1997 ---- ---- Cash flows from financing activities: Proceeds from debt $ 5,029,879 $ 7,993,525 Principal payments on debt (7,008,558) (6,506,310) Net borrowings from bank credit line/overdrafts 306,795 882,605 ------------ ----------- Net cash (used in) provided by financing activities (1,671,884) 2,369,820 ------------ ----------- Net decrease in cash and cash equivalents (538,783) (1,260,475) Cash and cash equivalents, beginning of period 1,001,368 1,903,994 ------------ ----------- Cash and cash equivalents, end of period $ 462,585 $ 643,519 ============ =========== Supplemental disclosures of cash flow information Cash paid for: Interest $ 1,163,717 $ 1,264,193 ============ =========== Income taxes $ 124,140 $ 146,082 ============ ===========
See accompanying notes to consolidated financial statements. 8 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. The accounting policies followed by the Company are set forth in Note (l) to the Company's financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 1997. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the Company's financial position as of June 30, 1998 and the results of its operations and cash flows for the three and six months ended June 30, 1998 and 1997. The results of operations for the six months ended June 30, 1998 are not necessarily indicative of the results to be expected for the full year. In December 1997, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per Share. In accordance with SFAS No. 128, primary earnings per share have been replaced with basic earnings per share, and fully diluted earnings per share have been replaced with diluted earnings per share, which includes potentially dilutive securities such as outstanding options. Prior periods have been presented to conform to SFAS No. 128, however, as the Company had a net loss in the prior periods, basic and diluted loss per share are the same. Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. The dilutive effect of outstanding options is reflected in diluted earnings per share by application of the treasury stock method. For loss periods, weighted average common share equivalents are excluded from the calculation as their effect would be antidilutive. Options to purchase 171,300 and 148,300 shares of common stock, at prices ranging from $2.33 to $3.00 per share, were outstanding for the quarters ended June 30, 1998 and 1997, respectively. In 1997 the options were not included in the computation of diluted earnings per share because the inclusion of the options would be antidilutive. Options to purchase 342,475 and 348,155 shares of common stock, at prices ranging from $3.63 to $14.00 per share, were outstanding for the quarters ended June 30, 1998 and 1997, respectively, but were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market prices of the common shares. For additional disclosures regarding the outstanding employee stock options, see the 1997 Form 10-K. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION All dollar amounts of $1.0 million or more are rounded to the nearest one tenth of a million; all other dollar amounts are rounded to the nearest one thousand and all percentages are stated to the nearest one tenth of one percent. This Form 10-Q contains certain "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which represent the Company's expectations and beliefs. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the Company's control, and actual results may differ materially depending on a variety of important factors, including the financial condition of the Company's customers, changes in domestic and foreign economic and political conditions, demand for the Company's services and products, risk and uncertainties related to large foreign construction projects and changes in the Company's competitive environment. The Company cautions that the factors described above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements of the Company made by or on behalf of the Company. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of such factors or the effect that any such factor may have on the Company's business. COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 VS THREE MONTHS ENDED JUNE 30, 1997 REVENUE The Company's revenue during the second quarter of 1998 was $16.7 million as compared to $17.2 million during the same period in 1997. This 2.9 percent decrease was primarily due to a decrease in other sales of $673,000 as a result of the sale of Crown Bay Marina in January 1998. The Company's concrete and related products division revenue decreased 3.0 percent to $13.3 million during the second quarter of 1998 as compared to $13.7 million for the same period in 1997, primarily as a result of a decrease in demand for this division's products on certain Caribbean islands, offset to a lesser extent by increased demand on other islands. The Company cannot currently determine whether demand for this division's products will increase, decrease or remain the same throughout 1998. Revenue from the Company's land development contracting division increased by 21.5 percent to $3.4 million during the second quarter of 1998 as compared to $2.8 million for the same period in 1997. This increase is primarily due to the Company starting various contracts during the quarter. The Company's backlog of unfilled portions of land development contracts at June 30, 1998 was $20.6 million, involving 11 projects. One project's backlog amounts to $15.0 million. A Company subsidiary and two of the Company's directors are minority partners of the entity developing this project. The Company expects that part of the 10 backlog outstanding at June 30, 1998 will be completed by the end of 1998. The Company expects to achieve in 1998 contract revenue levels higher than those achieved in 1997. COST OF CONCRETE AND RELATED PRODUCTS Cost of concrete and related products as a percentage of concrete and related products revenue increased to 80.0 percent during the second quarter of 1998 from 77.9 percent for the same period in 1997. This increase was primarily attributable to the decrease in revenue and changes in the mix of products sold in the second quarter of 1998 compared to 1997, and to a lesser extent offset by a reduction in depreciation. COST OF CONTRACTING Cost of contracting as a percentage of land development contracting revenue decreased to 73.6 percent during the second quarter of 1998 from 99.2 percent during the same period in 1997. This decrease is primarily attributable to the type of contracts the Company has been able to obtain, which has led the Company to utilize its dredge at higher efficiency. In addition, the Company's gross margins are affected by the varying profitability levels of individual contracts and the stage of completion of such contracts. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE Selling, general and administrative expense ("SG&A expense") decreased by 2.7 percent to $2.9 million for the second quarter of 1998 from $3.0 million for the same period in 1997. As a percentage of revenue, SG&A expense remained the same at 17.4 percent for the second quarter 1998 as for the same period of 1997. The expense for the allowance for doubtful accounts and notes was approximately $30,000 during the quarter. DIVISIONAL OPERATING INCOME The Company had an operating income of $642,000 for the second quarter of 1998, as compared to an operating loss of $4.3 million for the same period in 1997. The Company's concrete and related products division operating income decreased to $279,000 during the second quarter of 1998 compared to $813,000 during the same period in 1997. This decrease is primarily attributable to lower gross profit on two islands, offset to a lesser extent by improvement in other operations. The SG&A expense for the concrete and related products increased by 5.9 percent. The Company's land development contracting division had an operating income of $544,000 during the second quarter of 1998 compared to a loss of $500,000 during the same period in 1997. This improvement was primarily attributable to the type of contracts the Company has been able to obtain, as discussed above, combined with a reduction of SG&A expenses, primarily legal expenses. OTHER INCOME Interest income has increased due to that the Company is recognizing as income a portion of the receipts, in excess of agreed upon amounts, from the notes receivable due from the Government of Antigua and Barbuda. 11 NET INCOME (LOSS) The Company had a net income of $452,000 during the second quarter of 1998 as compared to a loss of $4.9 million during the same period in 1997. The result from 1997 was largely affected by a charge for litigation of $4.5 million. Tax expense increased due to the expiration of the tax holiday in Antigua. COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 VS SIX MONTHS ENDED JUNE 30, 1997 REVENUE The Company's revenue during the first six months of 1998 was $31.3 million as compared to $32.6 million during the same period in 1997. This 4.1 percent decrease was primarily due to a decrease in other sales of $1.4 million as a result of the sale of Crown Bay Marina in January 1998. The Company's concrete and related products division revenue decreased 1.1 percent to $25.8 million during the first six months of 1998 as compared to $26.0 million for the same period in 1997, primarily as a result of a decrease in demand for this division's products on certain Caribbean islands, offset to a lesser extent by increased demand on other islands. The Company cannot currently determine whether demand for this division's products will increase, decrease or remain the same throughout 1998. Revenue from the Company's land development contracting division increased by 6.3 percent to $5.2 million during the first six months of 1998 as compared to $4.8 million for the same period in 1997. This increase is primarily due to the Company starting various contracts during the quarter. The Company's backlog of unfilled portions of land development contracts at June 30, 1998 was $20.6 million, involving 11 projects. One of these project's backlog amounts to $15.0 million, a Company subsidiary and two of the Company's directors are minority partners of the entity developing this project. The Company expects that part of the backlog outstanding at June 30 1998 will be completed by the end of 1998. The Company expects to achieve in 1998 contract revenue levels higher than those achieved in 1997. COST OF CONCRETE AND RELATED PRODUCTS Cost of concrete and related products as a percentage of concrete and related products revenue increased to 79.5 percent during the first six months of 1998 from 79.3 percent for the same period in 1997. This increase was primarily attributable to the decrease in revenue and changes in the mix of products sold in the first six months of 1998 compared to 1997, and to a lesser extent offset by a reduction in depreciation. COST OF CONTRACTING Cost of contracting as a percentage of land development contracting revenue decreased to 89.4 percent during the first six months of 1998 from 98.7 percent during the same period in 1997. This decrease is primarily attributable to the type of contracts the Company has been able to obtain, which has led the Company to utilize its dredge at higher efficiency. In addition, the Company's gross margins are affected by the varying profitability levels of individual contracts and the stage of completion of such contracts. 12 SELLING, GENERAL AND ADMINISTRATIVE EXPENSE Selling, general and administrative expense ("SG&A expense") decreased by 15.3 percent to $5.4 million for the first six months of 1998 from $6.4 million for the same period in 1997. The allowance for doubtful accounts and note receivable was reduced by approximately $217,000, which reduced SG&A expense in the second quarter of 1998, compared to a cost of $150,000 in 1997. Legal expenses decreased approximately $310,000 and other non-recurring cost reductions of $300,000 occurred in the first six months of 1998. As a percentage of revenue, SG&A expense decreased to 17.4 percent for the first six months of 1998 from 19.7 percent for the same period of 1997. This percentage decrease was primarily attributable to the decrease in SG&A expense in 1998 versus 1997. DIVISIONAL OPERATING INCOME The Company had an operating income of $521,000 for the first six months of 1998, as compared to an operating loss of $5.1 million for the same period in 1997. The Company's concrete and related products division operating income increased to $1.1 million during the first six months of 1998 from $741,000 during the same period in 1997. This increase was primarily attributable to the decreased SG&A expense. The Company's land development contracting division operating loss decreased to $353,000 during the first six months of 1998 compared to $1.2 million during the same period in 1997. This decrease was primarily attributable to the type of contracts the Company has been able to obtain, combined with reduced SG&A expense, primarily legal expenses. OTHER INCOME Interest income has increased due to that the Company is recognizing as income a portion of the receipts, in excess of agreed upon amounts, from the notes receivable due from the Government of Antigua and Barbuda. NET INCOME (LOSS) The Company had a net income of $105,000 during the first six months of 1998 as compared to a loss of $6.1 million during the same period in 1997. The result from 1997 was largely affected by a charge for litigation of $4.5 million. Tax expense increased due to the expiration of the tax holiday in Antigua. LIQUIDITY AND CAPITAL RESOURCES The Company generally funds its working capital needs from operations and bank borrowings. In the land development contracting business, the Company must expend considerable funds for equipment, labor and supplies to meet the needs of particular projects. The Company's capital needs are greatest at the start of any new contract, since the Company generally must complete 45 to 60 days of work before receiving the first progress payment. In addition, as a project continues, a portion of the progress billing is usually withheld as retainage until all work is complete, further increasing the need for capital. On occasion the Company has provided long-term financing to certain customers who have utilized its land development contracting services. The Company has also provided financing for other business ventures from time to time. With respect to the Company's concrete and related products division, accounts receivable are typically outstanding for a minimum of 60 days and in some cases much longer. 13 The nature of the Company's business requires a continuing investment in plant and equipment, along with the related maintenance and upkeep costs of such equipment. The Company has funded many of these expenditures out of its current working capital. However, notwithstanding the foregoing and after factoring in the Company's obligations as set forth below, management believes that the Company's cash flow from operations, existing working capital and funds available from lines of credit will be adequate to meet the Company's anticipated needs for operations during the next twelve months. As of June 30, 1998, the Company's liquidity and capital resources included cash and cash equivalents of $463,000 and working capital of $8.4 million. Included in working capital is approximately $3.4 million of assets held for sale. Although management's intention is to sell these assets during 1998, there can be no assurance that all assets will be sold. As of June 30, 1998, total outstanding liabilities was $40.7 million as compared to $43.6 million as of December 31, 1997. As of June 30, 1998, the Company had available lines of credit totaling $809,000. Cash flows provided by operating activities for the six months ended June 30 1998 was $1.4 million compared with $1.1 million for the same period in 1997. The primary use of cash for operating activities during the six months ended June 30 1998 was a decrease in accounts payable and accruals of $1.1 million. Net cash used in investing activities was $261,000 in the first six months of 1998. Purchases of property, plant, and equipment were $4.3 million. The purchases were almost completely financed through equipment financing. Some of this financing included refinancing of equipment acquired in December 1997. Proceeds from sale of property, plant and equipment was $3.5 million and repayment of debt was $7.0 million. The Company turned its second quarter ending accounts receivable approximately 6.2 times, compared to 5.3 times for both of the fiscal years 1997 and 1996. The improvement in the accounts receivable turnover ratio is a result of increased collection efforts and more stringent credit control. The Company entered into a credit agreement with a Caribbean bank in November 1996 for a total credit of $7.0 million. One part of the credit agreement is a term loan for $6.0 million repayable in monthly installments through November 2002. The Company had $4.4 million of borrowings outstanding on this loan at June 30 1998. The second part is a revolving line of credit of $1.0 million. The credit line has been re-approved and extended until February 1999. The Company had $325,000 outstanding under this line of credit at June 30 1998. The interest rate on indebtedness outstanding under both loans is at a rate variable with the prime rate. The credit agreement is collateralized by various parcels of real property and other assets located in the United States Virgin Islands and certain other areas. The Company was in violation of certain loan covenants as of June 30 1998. The bank has agreed not to accelerate the repayment of the loan as long as the Company is current in its loan payments. The Company has a $500,000 unsecured overdraft facility from a commercial bank in the Caribbean. The facility is due on demand and bears interest at 14.0 percent per annum. At June 30, 1998, the Company had borrowings of $366,000 outstanding under this line. The Company has borrowed approximately $5.8 million from the Company President. The note is unsecured and bears interest at the prime interest rate. Three 14 hundred thousand is due on demand and $5.5 million is due on July 1, 1999. The President has the option to make the note due on demand should a "Change of Control" occur. A Change of Control has occurred if a person or group acquires 15.0 percent or more of the common stock or announces a tender offer, the consummation of which would result in ownership by a person or group of 15.0 percent or more of the common stock. The Company purchases equipment from time to time as needed for its ongoing business operations. The Company is currently replacing or upgrading some equipment used by the concrete and related products division, principally concrete trucks and quarry equipment. The Company is also presently acquiring heavy construction equipment for one of its current projects. This should result in a net cash expenditure, after financing part of the equipment purchases, of approximately $2.0 million during 1998. The Company has identified some equipment and real property not needed for its ongoing operations and it plans to sell those assets. The net carrying cost of these assets is $3.4 million. The proceeds from these sales will reduce debt and provide working capital. Except for equipment purchases in certain locations, such as the Bahamas, the Company believes it has available or can obtain sufficient financing for most of its contemplated equipment replacements and additions. Historically, the Company has used a number of lenders to finance a portion of its machinery and equipment purchases on an individual asset basis. At June 30, 1998, amounts outstanding to these lenders totaled $11.6 million. These loans are typically repaid over a three to five-year term in monthly principal and interest installments. A significant portion of the Company's outstanding debt bears interest at variable rates. The Company could be negatively impacted by a substantial increase in interest rates. The Company has contingent obligations and has made certain guarantees in connection with acquisitions, its participation in certain joint ventures, certain employee and construction bonding matters and its receipt of a tax exemption. As part of the 1995 acquisition of Societe des Carrieres de Grand Case (SCGC), a French company operating a ready-mix concrete plant and quarry in St. Martin, the Company agreed to pay the quarry owners (who were also the owners of SCGC), a royalty payment of $550,000 per year through August 2000, which at the Company's option, may be renewed for two successive five-year periods and requires annual payments of $550,000 per year. At the end of the fifteen-year royalty period, the Company has the option to purchase a fifty hectare parcel of property for $4.4 million. Notes receivable and accrued interest at June 30, 1998 include $11.4 million, net due the Company pursuant to certain promissory notes delivered to the Company in connection with two construction contracts with the Government of Antigua, $2.0 million of which is classified as a current receivable. The notes call for both quarterly and monthly principal and interest payments until maturity in 1997. The notes were not satisfied at maturity but the Antiguan government has advised the Company that payments will continue until the obligation is satisfied. The Government of Antigua has routinely made the required quarterly payments aggregating $1.3 million per year but has made only some of the required monthly payments. The Company does not presently anticipate any material decreases of payments by the Government of Antigua. YEAR 2000 ISSUE The Year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. The majority of the Company's systems are purchased from outside vendors. The Company is currently assessing whether it will be required to modify or replace significant portions 15 of its software and hardware so that its computer systems will properly utilize dates beyond December 31, 1999. Those installed systems which are not currently able to fully function in the Year 2000, either have new versions which are Year 2000 compliant, or the vendor has committed to a Year 2000 complaint release in sufficient time to allow installation and testing prior to critical cutover dates. The Company has begun to develop plans to address the possible exposures related to the impact on its computer systems of the Year 2000 problem. The plan provides for the conversion efforts to be completed by the end of 1999. Management can not determine the financial impact of making the required system changes to the Company consolidated financial position, results of operations or cash flows which are being funded through operating cash flows as the Company has just begun to address this issue. There can be no assurance that the Company's systems nor the computer systems of other companies with whom the Company conducts business will be Year 2000 compliant prior to December 31, 1999. The Company is in process of contacting its larger suppliers and customers in regards to their year 2000 compliance. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. Management does not anticipate a significant impact of the adoption of SFAS No. 130 on the Company's consolidated financial position, results of operations or cash flows. In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that these enterprises report selected information about operating segments in interim financial reports to shareholders. SFAS No. 131 is effective for financial statements for periods beginning after December 15, 1997. Management does not anticipate a significant impact of the adoption of SFAS No. 131 on the Company's consolidated financial position, results of operations or cash flows. In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits. SFAS No. 132 standardizes the disclosure requirements of SFAS No. 87 and SFAS No. 106 to the extent practicable and recommends a parallel format for presenting information about pensions and other postretirement benefits. SFAS No. 132 is effective for fiscal years beginning after December 15, 1997. Management does not anticipate a significant impact of the adoption of SFAS No. 132 on the Company's consolidated financial position, results of operations or cash flows. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133 requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Gains and losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. SFAS 133 is effective for fiscal years beginning after June 15, 1999, with earlier adoption encouraged. Management does not anticipate a significant impact of the adoption of SFAS 133 on the Company's consolidated financial position, results of operations or cash flows. 16 II. OTHER INFORMATION - --------------------------------------------- ITEM 1. LEGAL PROCEEDINGS The Company is from time to time involved in routine litigation arising in the ordinary course of its business, primarily related to its contracting activities. The Company is subject to certain Federal, state and local environmental laws and regulations. Management believes that the Company is in compliance with all such laws and regulations. Compliance with environmental protection laws has not had a material adverse impact on the Company's consolidated financial condition, results of operations or cash flows in the past and is not expected to have a material adverse impact in the foreseeable future. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES The Company was as of June 30, 1998 in violation of certain loan covenants on debt to a bank. The bank has agreed not to accelerate the repayment of the loans as long as the Company is current in its loan payments. The Company is current in its payments as of June 30, 1998. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its Annual Shareholders Meeting on June 12, 1998. The issues submitted to a vote of the security holders and the results of the voting are as follows: 1) Election of five directors FOR WITHHELD --- -------- Richard L. Hornsby 3,130,924 55,300 Robert L. Kester 3,130,924 55,300 W. Douglas Pitts 3,130,924 55,300 Donald L. Smith, Jr. 3,130,124 56,100 Robert A. Steele 3,130,924 55,300 The Board consists of five directors. All nominees were elected to serve for a one year period. 2) Amendment of the Company's Restated Articles of Incorporation FOR AGAINST WITHHELD --- ------- -------- 3,132,569 45,710 7,945 17 3) Proposal to ratify the appointment of KPMG Peat Marwick, LLP as the Company's auditor for 1998. FOR AGAINST WITHHELD --- ------- -------- 3,182,654 425 3,145 ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 27 Financial Data Schedule (b) Reports on Form 8-K: No reports on Form 8-K were filed by the Company during the first three months of fiscal 1998. 18 SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: AUGUST 14, 1998 By: /S/ JAN A. NORELID --------------------- Jan A. Norelid Vice President 19 EXHIBIT INDEX EXHIBIT DESCRIPTION - ------- ----------- 27 Financial Data Schedule EX-27 2
5 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 462,585 0 18,313,660 (4,809,631) 4,524,943 24,109,967 69,322,369 (28,236,129) 83,639,364 15,700,740 0 0 0 449,894 12,064,133 83,639,364 31,281,348 31,281,348 25,319,762 25,319,762 4,586,856 0 1,099,093 275,637 170,179 105,458 0 0 0 105,458 .02 .02
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