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 September 30, 1997
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.
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(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 November 9, 1997, the number of shares outstanding of the Registrant's
Common Stock was 4,498,935.
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DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
INDEX
PAGE NUMBER
-----------
Part I. Financial Information:
Consolidated Balance Sheets - September 30, 1997
and December 31, 1996.........................................3-4
Consolidated Statements of Operations and
Retained Earnings - Three and Nine Months
Ended September 30, 1997 and 1996.............................5-6
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 and 1996.................7-8
Notes to Consolidated Financial Statements.................... 9
Management's Discussion and Analysis of
Financial Conditions and Results of
Operations...................................................9-15
Part II. Other Information............................................. 16
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DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash $ 744,044 $ 303,994
Cash equivalents 125,000 1,600,000
Receivables, net 17,828,560 13,803,565
Costs in excess of billings
and estimated earnings 996,623 3,124,860
Inventories 7,647,230 6,998,678
Other 989,295 825,853
------------ ------------
Total current assets 28,330,752 26,656,950
Property, plant and equipment
Land 5,718,819 5,695,867
Buildings 4,153,600 4,146,231
Leasehold interests 12,296,489 12,210,055
Equipment 64,054,013 61,864,583
Furniture and fixtures 573,486 581,050
Construction in process 1,895,100 585,480
------------ ------------
88,691,507 85,083,266
Less accumulated depreciation (38,511,995) (37,587,567)
------------ ------------
50,179,512 47,495,699
Investments in unconsolidated
joint ventures and affiliates 83,780 158,780
Advances to unconsolidated joint
ventures and affiliates 568,861 1,021,453
Receivables, net 16,282,083 17,296,278
Intangible assets, net of
accumulated amortization 967,064 1,093,907
Other assets 1,223,364 1,203,073
------------ ------------
$ 97,635,416 $ 94,926,140
============ ============
See accompanying notes to consolidated financial statements.
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DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------- -----------
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, trade and other $ 7,150,280 $ 5,950,704
Accrued expenses and other liabilities 1,657,822 1,163,944
Notes payable to banks 726,000 400,000
Current installments of long-term debt 5,195,781 4,424,726
Billings in excess of costs and
estimated earnings 202,892 112,652
Income Taxes 976,435 1,026,010
----------- -----------
Total current liabilities 15,909,210 13,078,036
Long-term debt, excluding current
installments and notes payable to banks 20,764,665 19,251,369
Minority interest in consolidated
subsidiaries 1,934,355 1,925,446
Deferred income taxes 495,400 495,400
Other liabilities 4,945,702 624,204
----------- -----------
Total liabilities 44,049,332 35,374,455
Stockholders' Equity:
Common stock 449,894 449,894
Additional paid-in capital 12,064,133 12,064,133
Retained earnings 41,072,057 47,037,658
----------- -----------
Total stockholders' equity 53,586,084 59,551,685
----------- -----------
$97,635,416 $94,926,140
=========== ===========
See accompanying notes to consolidated financial statements.
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<TABLE>
<CAPTION>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings
Three and Nine Months Ended September 30, 1997 and 1996
(Unaudited)
THREE THREE NINE NINE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1997 1996 1997 1996
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Concrete and related
products revenues $ 13,054,280 $ 13,594,124 $ 39,090,390 $ 40,364,836
Contracting revenues 3,524,022 2,594,815 8,369,900 12,154,422
Other revenues 443,717 429,193 2,165,481 1,857,910
------------ ------------ ------------ ------------
Total revenues 17,022,019 16,618,132 49,625,771 54,377,168
Cost of concrete and
related products
revenue 9,968,429 10,068,921 30,615,933 29,269,932
Cost of contracting
revenues 2,764,110 2,398,186 7,549,146 10,670,824
Cost of other revenues 402,645 98,716 1,700,625 1,341,518
------------ ------------ ------------ ------------
Gross profit 3,886,835 4,052,309 9,760,067 13,094,894
Selling, general and
adminstrative expenses 3,275,124 3,041,424 9,699,298 9,328,555
Charge for litigation -- -- 4,500,000 --
------------ ------------ ------------ ------------
Operating income 611,711 1,010,885 (4,439,231) 3,766,339
Other income (deductions)
Joint quity loss (25,000) (25,000) (75,000) (25,000)
Interest expense (751,608) (666,847) (1,960,484) (1,964,433)
Gain (loss) on sale
of Equipment 145,399 (11,515) 86,483 (1,157)
Interest and other
income 265,879 93,407 551,936 269,252
Minority interest (20,307) 15,200 (8,950) (10,302)
------------ ------------ ------------ ------------
(385,637) (594,755) (1,406,015) (1,731,640)
------------ ------------ ------------ ------------
Income (loss)
before income taxes 226,074 416,130 (5,845,246) 2,034,699
Income taxes 120,355 133,089 120,355 333,089
------------ ------------ ------------ ------------
Income (loss) from
continuing
operations 105,719 283,041 (5,965,601) 1,701,610
Loss on disposal of
discontinued operation -- (488,119) -- (488,119)
------------ ------------ ------------ ------------
Net earnings (loss) 105,719 (205,078) (5,965,601) 1,213,491
Retained earnings,
beginning period 40,966,338 48,143,339 47,037,658 46,724,770
------------ ------------ ------------ ------------
Retained earnings,
end of period $ 41,072,057 $ 47,938,261 $ 41,072,057 $ 47,938,261
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
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THREE THREE NINE NINE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1997 1996 1997 1996
------------- ------------- ------------- -------------
Earnings (loss) per share
From continuing
operations $ .02 $ .06 $ (1.30) $ .36
From discontinued
operations -- (.10) -- (.10)
------------- ------------- ------------- =============
$ .02 $ (.04) $ (1.30) $ .26
------------- ============= ------------- =============
Weighted average number
of standing 4,578,127 4,621,271 4,582,681 4,697,916
============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
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DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996
(Unaudited)
1997 1996
----------- -----------
Cash flows from operating activities:
Net earnings (loss) $(5,965,601) $ 1,213,491
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 4,620,858 3,881,922
Joint venture equity loss 75,000 --
Provision for doubtful accounts
and notes 400,000 225,000
Loss (Gain) on sale of equipment (86,483) 1,156
Minority interest expense 8,910 15,200
Charge for litigation 4,500,000 --
Changes in operating assets and liabilities:
Increase in receivables, net (4,880,377) (2,192,635)
Decrease in costs in excess
of billings and estimated earnings 2,128,237 326,803
Increase in inventories (648,552) (221,045)
Decrease (Increase) in other
current assets (163,442) 373,401
Decrease (Increase) in other assets (86,752) 254,709
Increase in accounts payable,
trade and other 1,397,523 1,740,289
Increase (Decrease) in billings in
excess of costs and estimated earnings 90,240 (746,452)
Increase (Decrease) in income
taxes payable (49,575) 300,018
Decrease in other liabilities (178,505) (344,737)
----------- -----------
Net cash provided by
operating activities 1,161,481 4,827,120
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and
equipment (7,334,420) (6,995,171)
Proceeds from disposition of property,
plant and equipment 309,538 1,729,826
Issuance of notes -- (1,857,491)
Payments received on notes 1,469,577 1,454,841
Advances to affiliates -- (258,731)
Advances from affiliates 452,592 55,220
----------- -----------
Net cash used in
investing activities $(5,102,713) $(5,871,506)
----------- -----------
See accompanying notes to consolidated financial statements.
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DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996
(Unaudited)
1997 1996
------------ ------------
Cash flows from financing activities:
Proceeds from debt $ 10,388,491 $ 7,039,733
Principal payments on debt (7,778,140) (6,518,479)
Net borrowings from bank overdrafts 295,931 354,133
------------ ------------
Net cash provided by
financing activities 2,906,282 875,387
------------ ------------
Net decrease in
cash and cash equivalents (1,034,950) (168,999)
Cash and cash equivalents,
beginning of period 1,903,994 1,416,138
------------ ------------
Cash and cash equivalents,
end of period $ 869,044 $ 1,247,139
============ ============
Supplemental disclosures of
cashflow information
Cash paid for:
Interest $ 2,014,725 $ 2,077,387
============ ============
Income taxes $ 169,929 $ --
============ ============
See accompanying notes to consolidated financial statements.
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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, 1996.
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 September 30, 1997 and the results of its operations
and cash flows for the three and nine months ended September 30, 1997 and 1996.
The results of operations for the nine months ended September 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
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 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.
In June 1997, an order was issued by the Circuit Court of the Ninth Judicial
Circuit in and for Orange County Florida, Case No.: CI 92-5289 establishing
liability and damages against the Company for alleged breach of a contract
between the Company and the Plaintiff. The Court ruled that the Company failed
to grant appropriate time extensions to the Plaintiff and awarded the Plaintiff
damages and prejudgment interest in the amount of approximately $3.0 million.
The trial court judge has entered a judgment of approximately $3.0 million and
will enter a subsequent judgment for attorneys' fees following an evidentiary
hearing. The amount of the anticipated attorney fee judgment is unknown. The
Company accrued a total of $4.5 million in the second quarter to reflect the
9
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total estimated costs to be incurred should the Company not be successful in its
post trial and appeal efforts. Management believes that it has appellate issues
of considerable merit and will pursue remedies through the appellate court
system. See Liquidity and Capital Resources for additional information.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 VS THREE MONTHS ENDED
SEPTEMBER 30, 1996
REVENUES
The Company's revenues during the third quarter of 1997 were $17.0 million as
compared to $16.6 million during the same period in 1996. This 2.4 percent
increase was primarily due to increases in the Company's land development
contracting revenues which was partially offset by a decrease in the concrete
and related products revenues.
The Company's concrete and related products division revenues decreased 4.0
percent to $13.1 million during the third quarter of 1997 as compared to $13.6
million for the same period in 1996, primarily as a result of decline in demand
for this division's products on certain Caribbean islands, offset to a lesser
extent by increases on other islands. The Company cannot currently determine
whether demand for this division's products will increase, decrease or remain
the same throughout 1997.
Revenues from the Company's land development contracting division increased by
35.9 percent to $3.5 million during the third quarter of 1997 as compared to
$2.6 million for the same period in 1996. This increase is primarily due to a
larger contract on one of the islands offset to a lesser extent by a reduction
in work on other islands. The Company's backlog of unfilled portions of land
development contracts at September 30, 1997 was $3.5 million, involving 11
projects. The Company expects that all of the backlog outstanding at September
30, 1997 will be completed by March 31, 1998. Consequently, the Company needs to
obtain new contracts over the remainder of 1997 in order to achieve 1998
contract revenue levels comparable to those achieved in 1997.
COST OF CONCRETE AND RELATED PRODUCTS
Cost of concrete and related products as a percentage of concrete and related
products revenues increased to 76.4 percent during the third quarter of 1997
from 74.1 percent for the same period in 1996. This increase was primarily
attributable to the decrease in revenues and changes in the mix of products sold
in the third quarter of 1997 compared to 1996.
COST OF CONTRACTING
Cost of contracting as a percentage of land development contracting revenues
decreased to 78.4 percent during the third quarter of 1997 from 92.4 percent
during the same period in 1996. This decrease is primarily attributable to the
profitability of a larger contract on one of the islands. 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") increased by 7.7
percent to $3.3 million for the third quarter of 1997 from $3.0 million for the
same period in 1996. This increase was primarily attributable to an increase in
the SG&A expense of the land development contracting division. As a
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percentage of revenue, SG&A expense increased to 19.2 percent for the third
quarter of 1997 from 18.3 percent for the same period of 1996. This percentage
increase was primarily attributable to the increase in SG&A expense in 1997
versus 1996, which was not offset by an increase in revenues.
DIVISIONAL OPERATING INCOME
The Company had an operating income of $612,000 for the third quarter of 1997,
as compared to operating income of $1.0 million for the same period in 1996. The
Company's concrete and related products division operating income decreased to
$708,000 during the third quarter of 1997 from $1.1 million during the same
period in 1996. This decrease was primarily attributable to changes in the mix
of products sold and to a lesser extent decreased profitability on a few
islands.
The Company's land development contracting division operating income increased
to $83,000 during the third quarter of 1997 from a loss of $250,000 during the
same period in 1996. This increase was primarily attributable to the increase in
gross profit margins achieved on contract work partially offset by an increase
in SG&A expense.
NET EARNINGS (LOSS)
The Company had net income of $106,000 during the third quarter of 1997 as
compared to a net loss of $205,000 during the same period in 1996. This increase
is primarily attributable to the 1996 write down required as a result of the
Company's disposal of its ceiling tile business.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 VS NINE MONTHS ENDED
SEPTEMBER 30, 1996
REVENUES
The Company's revenues during the first nine months of 1997 were $49.6 million
as compared to $54.4 million during the same period in 1996. This 8.7 percent
decrease was primarily due to decreases in the Company's land development
contracting revenues and, to a lesser extent, concrete and related products
revenues.
The Company's concrete and related products division revenues decreased 3.2
percent to $39.1 million during the first nine months of 1997 as compared to
$40.4 million for the same period in 1996, primarily as a result of a decline in
demand for this division's products on certain Caribbean islands, offset to a
lesser extent by increases on other islands. The Company cannot currently
determine whether demand for this division's products will increase, decrease or
remain the same throughout 1997.
Revenues from the Company's land development contracting division decreased by
31.1 percent to $8.4 million during the first nine months of 1997 as compared to
$12.2 million for the same period in 1996, primarily as a result of completing
contract work in late 1996 and not obtaining new work to replace the completed
contracts. The Company's backlog of unfilled portions of land development
contracts at September 30, 1997 was $3.5 million, involving 11 projects. The
Company expects that all of the backlog outstanding at September 30, 1997 will
be completed by March 31, 1998. Consequently, the Company needs to obtain new
contracts over the remainder of 1997 in order to achieve 1998 contract revenue
levels comparable to those achieved in 1997.
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COST OF CONCRETE AND RELATED PRODUCTS
Cost of concrete and related products as a percentage of concrete and related
products revenues increased to 78.3 percent during the first nine months of 1997
from 72.5 percent for the same period in 1996. This increase was primarily
attributable to changes in the mix of products sold in 1997 compared to 1996 and
to increased expense on some islands not offset by increased revenue.
COST OF CONTRACTING
Cost of contracting as a percentage of land development contracting revenues
increased to 90.2 percent during the first nine months of 1997 from 87.8 percent
during the same period in 1996. This increase is primarily attributable to the
decline in construction revenues and costs incurred as a result of owning and
operating heavy construction equipment, some of which, because of the Company's
current level of construction volume, is not heavily utilized. 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") increased 4.0
percent during the first nine months of 1997 as compared to the same period in
1996. This increase was primarily attributable to an increase in SG&A expense of
the concrete and related products division, partially offset by reductions in
the unallocated and land development contracting division SG&A expense. As a
percentage of revenue, SG&A expense increased to 19.6 percent for the first nine
months of 1997 from 17.2 percent for the same period in 1996. This percentage
increase was primarily attributable to the decrease in revenues actually
recognized and the increase in SG&A expense incurred.
CHARGE FOR LITIGATION
In the second quarter of 1997, the Company accrued a $4.5 million charge for the
estimated costs related to a Florida State court ruling which the company is
contesting through post-trial motions and, if necessary, the appellate court
system. See INTRODUCTION of MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS for additional information.
DIVISIONAL OPERATING INCOME
The Company had an operating loss of $4.4 million for the first nine months of
1997, which included a $4.5 million charge for litigation, as compared to
operating income of $3.8 million for the same period in 1996. The Company's
concrete and related products division's operating income decreased to $1.4
million during the first nine months of 1997 from $4.2 million for the same
period in 1996. This decrease is primarily attributable to decreases in revenues
and increases in costs of sales.
The Company's land development contracting division operating loss increased to
$1.2 million during the first nine months of 1997 from a loss of $325,000 during
the same period in 1996. This increase is primarily attributable to the
reduction in gross profit margins achieved on contract work and declines in
contract revenues and an increase in SG&A expense.
NET EARNINGS (LOSS)
The Company had a net loss of $6.0 million during the first nine months of 1997
as compared to net earnings of $1.2 million during the same period in 1996. This
decrease is primarily attributable to the accrual of $4.5 million to reflect an
order entered against the Company and estimated litigation expenses
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and post-judgment interest related to the order. Other contributing factors
included decreases in concrete and related products revenues and gross profits
and decreases in contract revenues and gross profits.
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 amounts of 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. 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 (approximately $12.4 million
at September 30, 1997) and funds available from lines of credit will be adequate
to meet the Company's anticipated needs for operations during the next twelve
months.
The Company turned its fiscal year-end accounts receivable approximately 5.2
times in 1996 and 4.7 times in 1995. The improvement in the Company's accounts
receivable turnover ratio from 1995 to 1996 was due primarily to (i) a reduction
in contract retainage receivables as a result of a gradual decline in the number
of pending construction contracts held by the Company and (ii) modest
improvements in the Company's collection process. The accounts receivable
turnover ratio decreased to 3.7 times for the nine months ended September 30,
1997. The decrease in accounts receivable turnover, coupled with a slight
decrease in revenue were partly responsible for the accounts receivable
increase. There was also an increase in construction receivables resulting from
a larger contract which was partially collected in October.
At September 30, 1997, the Company had a $1.0 million revolving secured line of
credit from a commercial bank in the Caribbean. The Company had $ 726,000 of
borrowings outstanding and the line expires in July 1998. The interest rate on
indebtedness outstanding at September 30, 1997 was 9.5 percent.
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 September 30, 1997 the Company had borrowings of $381,987
outstanding under this line.
The Company entered into a $5.0 million term loan with a Caribbean bank,
repayable in monthly installments through December 2001. The interest rate on
indebtedness outstanding at September 30, 1997 was 10.0 percent and the Company
had $3.1 million of borrowings outstanding. The loan is secured by a leasehold
mortgage on a marina in the U.S. Virgin Islands.
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The Company has borrowed $5.9 million from a Company officer. The note is
unsecured, bears interest at the prime interest rate and is due in full on
January 1, 1999.
In November 1996, the Company entered into a $6.0 million term loan with a
Caribbean bank. The loan proceeds were used to repay and retire approximately
$5.7 million in existing term and line of credit debt . The balance of
approximately $200,000 was used to provide additional working capital for the
Company. The loan is collateralized by various parcels of real property and
other assets located in the United States Virgin Islands and certain other
areas. The interest rate on indebtedness outstanding at September 30, 1997 was
9.5 percent and the Company had $5.2 million of borrowings outstanding.
As a result of the Company's loss for the first nine months of 1997, which was
primarily due to the $4.5 million charge related to a judgment entered by a
Florida state circuit court, the Company is in default of loan covenants
contained in the loan agreement with a Caribbean bank. Provided that the Company
makes the payments required under the terms of the loan agreement, the bank has
agreed that the loan will not be accelerated. See INTRODUCTION of MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS for
additional information.
The Company purchases equipment from time to time as needed for its ongoing
business operations. The Company is currently replacing or upgrading various
equipment used by the concrete and related products division, principally
concrete trucks and quarry equipment. This upgrading and replacement program
will continue throughout 1997 and should result in a capital expenditure of
approximately $8.5 million of which $5.2 million has been or will be financed
with equipment loans over three to five years. At present, management believes
that the Company's inventory of construction equipment is adequate for its
current contractual commitments and operating activities, however, the
acquisition of significant new construction contracts, depending on the nature
of the contract, the job location and job duration, may require the Company to
make significant investments in heavy construction equipment. If the Company
does not obtain additional contract backlog, then it plans to sell a portion of
the equipment it currently owns. The Company will have to bear the carrying
costs, principally depreciation and interest, on any idle equipment not sold.
During 1997, the Company has sold equipment with an original cost basis of
$796,000 and net book value of $231,000. The Company expects to complete
additional equipment sales during 1997. 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 September 30, 1997, amounts outstanding to these
lenders totaled $9.6 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 and in return for the right to remove an unlimited quantity of
material from the quarry, 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. This right to remove material, may at the Company's option, be renewed for
two successive five year periods and requires annual payments of $550,000
14
<PAGE>
per year. At the end of the fifteen year royalty period, the Company has the
option to purchase a fifty hectare parcel of property, which includes the
quarry, for $4.4 million. In connection with a 1990 St. Maarten acquisition, the
Company agreed to pay the seller annually an amount per unit of certain concrete
and stone products sold by the Company in St. Maarten from April 1, 1990 to
March 31, 1998, but in no event less than $500,000 per year. The Company has
certain offsets available against this payment which have reduced the minimum
annual payment to $350,000 per year.
Notes receivable and accrued interest at September 30, 1997 include $12.9
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 will not be 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 $2.0 million per year but has made only
some of the required monthly payments. A portion of the payment received from
Antigua was derived from the lease proceeds the Antiguan government received
from the United States Department of Defense for the rental of two military
bases. One of the bases was closed at the end of 1995, resulting in a shortfall
of $700,000 per year in the required quarterly payments. To partially make up
this shortfall, the Antiguan government has entered into a written agreement
with the Company requiring Antigua to pay $600,000 per year from its fuel tax
revenues. Payments under this agreement commenced in January 1997. The Company
does not presently anticipate any other material increases in or accelerations
of payments by the Government of Antigua. Management believes that the
receivable from the Government of Antigua is fairly stated, based on the present
stream of cash flow being received and, therefore, no reserve has been
established against the receivable reflected in the Company's financial
statements.
15
<PAGE>
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.
FOREGOLF, INC., PLAINTIFF V. DEVCON INTERNATIONAL CORP.:INSURANCE COMPANY OF
NORTH AMERICAN, AS SURETY; ET AL.
In June 1997, a ruling was issued by the Circuit Court of the Ninth Judicial
Circuit in and for Orange County Florida, Case No.: CI 92-5289 establishing
liability and damages including prejudgment interest, against the Company
totaling approximately $3.0 million for alleged breach of contract with
Plaintiff by failing to grant to Plaintiff appropriate time extensions under a
construction contract. The circuit court has entered judgment against the
Company for approximately $3.0 million, reserving jurisdiction to additionally
award an undetermined amount of attorneys' fees to the plaintiff. The Company
accrued a total of $4.5 million in the second quarter to reflect the total
estimated costs to be incurred should the Company not be successful in appeal
efforts. See INTRODUCTION of MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS for additional information.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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 nine months of
fiscal 1997.
16
<PAGE>
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: NOVEMBER 11, 1997 By: /s/ RICHARD L. HORNSBY
-----------------------
Richard L. Hornsby
Executive Vice President
17
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 744,044
<SECURITIES> 125,000
<RECEIVABLES> 21,094,506
<ALLOWANCES> (3,265,946)
<INVENTORY> 7,647,230
<CURRENT-ASSETS> 28,330,752
<PP&E> 88,691,507
<DEPRECIATION> (38,511,995)
<TOTAL-ASSETS> 97,635,416
<CURRENT-LIABILITIES> 15,909,210
<BONDS> 0
0
0
<COMMON> 449,894
<OTHER-SE> 12,064,133
<TOTAL-LIABILITY-AND-EQUITY> 97,635,416
<SALES> 49,625,771
<TOTAL-REVENUES> 49,625,771
<CGS> 39,865,704
<TOTAL-COSTS> 39,865,704
<OTHER-EXPENSES> 14,199,298
<LOSS-PROVISION> 75,000
<INTEREST-EXPENSE> 1,960,484
<INCOME-PRETAX> (5,845,246)
<INCOME-TAX> 120,355
<INCOME-CONTINUING> (5,965,601)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (5,965,601)
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