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, 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
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(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
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(Address of Principal Executive Offices)
(Zip Code)
(954) 429-1500
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(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)
<PAGE>
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 9, 1997, 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, 1997
and December 31, 1996......................................... 3-4
Consolidated Statements of Operations and
Retained Earnings - Three and Six Months
Ended June 30, 1997 and 1996.................................. 5
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1997 and 1996....................... 6-7
Notes to Consolidated Financial Statements.................... 8
Management's Discussion and Analysis of
Financial Conditions and Results of
Operations................................................... 8-17
Part II. Other Information............................................ 18-19
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PART I. FINANCIAL INFORMATION
- -------------------------------------------------------------------------------
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
ASSETS
Current assets:
Cash $ 643,519 $ 303,994
Cash equivalents -- 1,600,000
Receivables, net 16,356,745 13,803,565
Costs in excess of billings
and estimated earnings 2,872,118 3,124,860
Inventories 6,727,562 6,998,678
Other 1,154,993 825,853
------------ ------------
Total current assets 27,754,937 26,656,950
Property, plant and equipment
Land 5,767,671 5,695,867
Buildings 4,151,419 4,146,231
Leasehold interests 12,280,647 12,210,055
Equipment 64,067,720 61,864,583
Furniture and fixtures 535,814 581,050
Construction in process 1,994,785 585,480
------------ ------------
88,798,056 85,083,266
Less accumulated depreciation (38,213,719) (37,587,567)
------------ ------------
50,584,337 47,495,699
Investments in unconsolidated
joint ventures and affiliates 108,780 158,780
Advances to unconsolidated joint
ventures and affiliates 716,453 1,021,453
Receivables, net 16,762,066 17,296,278
Intangible assets, net of
accumulated amortization 1,009,345 1,093,907
Other assets 1,141,321 1,203,073
------------ ------------
$ 98,077,239 $ 94,926,140
============ ============
See accompanying notes to consolidated financial statements.
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DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996
JUNE 30, DECEMBER 31,
1997 1996
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, trade and other $ 9,145,937 $ 5,950,704
Accrued expenses and other liabilities 1,525,931 1,163,944
Notes payable to banks 726,000 400,000
Current installments of long-term debt 5,219,664 4,424,726
Billings in excess of costs and
estimated earnings 80,177 112,652
Income Taxes 879,927 1,026,010
----------- -----------
Total current liabilities 17,577,636 13,078,036
Long-term debt, excluding current
installments and notes payable to banks 19,617,645 19,251,369
Minority interest in consolidated
subsidiaries 1,914,090 1,925,446
Deferred income taxes 495,400 495,400
Other liabilities 4,992,103 624,204
----------- -----------
Total liabilities 44,596,874 35,374,455
Stockholders' Equity:
Common stock 449,894 449,894
Additional paid-in capital 12,064,133 12,064,133
Retained earnings 40,966,338 47,037,658
----------- -----------
Total stockholders' equity 53,480,365 59,551,685
----------- -----------
$98,077,239 $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 Six Months Ended June 30, 1997 and 1996
(Unaudited)
THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Concrete and related
products revenues $ 13,680,288 $ 14,153,505 $ 26,036,111 $ 26,770,712
Contracting revenues 2,800,262 4,819,763 4,845,878 9,559,607
Other revenues 672,808 564,402 1,721,763 1,428,718
------------ ------------ ------------ ------------
Total revenues 17,153,358 19,537,670 32,603,752 37,759,037
Cost of concrete and
related products revenues 10,651,553 9,960,154 20,647,504 19,201,011
Cost of contracting
revenues 2,778,857 4,339,651 4,785,037 8,272,638
Cost of other revenues 579,996 502,587 1,297,979 1,242,804
------------ ------------ ------------ ------------
Gross profit 3,142,952 4,735,278 5,873,232 9,042,584
Selling, general and
administrative expenses 2,983,651 3,295,018 6,424,174 6,287,131
Charge for litigation 4,500,000 -- 4,500,000 --
------------ ------------ ------------ ------------
Operating income (4,340,699) 1,440,260 (5,050,942) 2,755,453
Other income (deductions)
Joint venture equity
loss (25,000) -- (50,000) --
Interest expense (631,570) (654,245) (1,208,875) (1,297,586)
Gain (loss) on sale
of equipment (51,269) (301) (58,916) 10,359
Interest and other
income 163,150 84,533 286,057 175,845
Minority interest 19,615 (20,000) 11,356 (25,502)
------------ ------------ ------------ ------------
(525,074) (590,013) (1,020,378) (1,136,884)
------------ ------------ ------------ ------------
Income (loss)
before income taxes (4,865,773) 850,247 (6,071,320) 1,618,569
Income taxes -- 100,000 -- 200,000
------------ ------------ ------------ ------------
Net earnings (loss) (4,865,773) 750,247 (6,071,320) 1,418,569
Retained earnings,
beginning of period 45,832,111 47,393,092 47,037,658 46,724,770
------------ ------------ ------------ ------------
Retained earnings,
end of period $ 40,966,338 $ 48,143,339 $ 40,966,338 $ 48,143,339
============ ============ ============ ============
Earnings (loss) per share $ (1.06) $ .16 $ (1.32) $ .30
============ ============ ============ ============
Weighted average number
of shares outstanding 4,580,657 4,659,019 4,584,958 4,736,239
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statments.
5
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996
(Unaudited)
1997 1996
----------- -----------
Cash flows from operating activities:
Net earnings (Loss) $(6,071,320) $ 1,418,569
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 2,945,065 2,512,408
Joint venture equity loss 50,000 --
Provision for doubtful accounts
and notes 150,000 150,000
Loss (Gain) on sale of equipment 58,916 (10,359)
Minority interest expense (income) -- (11,356)
25,502
Charge for litigation 4,500,000 --
Changes in operating assets and liabilities:
Increase in receivables, net (3,066,372) (2,307,554)
Decrease in costs in excess
of billings and estimated earnings 252,742 427,870
Decrease (Increase) in inventories 271,116 (409,272)
Decrease in other current assets (329,140) (666,634)
Decrease in other assets 17,499 103,056
Increase in accounts payable,
trade and other 2,674,615 1,108,728
Decrease in billings in
excess of costs and estimated earnings (32,475) (746,452)
Increase (Decrease) in income
taxes payable (146,082) 221,746
Decrease in other liabilities (132,105) (244,874)
----------- -----------
Net cash provided by
operating activities 1,131,103 1,582,734
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and
equipment (6,083,550) (5,018,349)
Proceeds from disposition of property,
plant and equipment 119,746 1,387,553
Issuance of notes -- (288,457)
Payments received on notes 897,406 137,046
Advances from affiliates 305,000 --
----------- -----------
Net cash used in
investing activities $(4,761,398) $(3,782,207)
----------- -----------
See accompanying notes to consolidated financial statments.
6
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996
(Unaudited)
1997 1996
----------- -----------
Cash flows from financing activities:
Proceeds from debt $ 7,993,525 $ 5,976,733
Principal payments on debt (6,506,310) (4,618,655)
Net borrowings from bank overdrafts 882,605 769,314
----------- -----------
Net cash provided by
financing activities 2,369,820 2,127,392
----------- -----------
Net decrease in
cash and cash equivalents (1,260,475) (72,081)
Cash and cash equivalents,
beginning of period 1,903,994 1,416,138
----------- -----------
Cash and cash equivalents,
end of period $ 643,519 $ 1,344,057
=========== ===========
Supplemental disclosures of
cashflow information
Cash paid for:
Interest $ 1,264,193 $ 1,405,197
=========== ===========
Income taxes $ 146,082 $ --
=========== ===========
See accompanying notes to consolidated financial statements.
7
<PAGE>
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 June 30, 1997 and the results of its operations and
cash flows for the three and six months ended June 30, 1997 and 1996.
The results of operations for the six months ended June 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
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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 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. Although
the district circuit court judge has not yet entered a judgment, 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 its post
trial and appeal efforts. Management believes that it has defenses of
considerable merit and will pursue remedies through post-trial motions and, if
necessary, through the appellate court system. See Liquidity and Capital
Resources for additional information.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997 VS THREE MONTHS
ENDED JUNE 30, 1996
REVENUES
The Company's revenues during the second quarter of 1997 were $17.1 million as
compared to $19.7 million during the same period in 1996. This 13.0 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 3.3
percent to $13.7 million during the second quarter of 1997 as compared to $14.2
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 decreased by
41.9 percent to $2.8 million during the second quarter of 1997 as compared to
$4.8 million for the same period in
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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 June 30, 1997 was $8.7
million, involving 18 projects. The Company expects that all of the backlog
outstanding at June 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 1997 contract revenue levels comparable to those achieved in 1996.
COST OF CONCRETE AND RELATED PRODUCTS
Cost of concrete and related products as a percentage of concrete and related
products revenues increased to 77.7 percent during the second quarter of 1997
from 70.5 percent for the same period in 1996. This increase was primarily
attributable to the decrease in revenues recognized and changes in the mix of
products sold in the first quarter of 1997.
COST OF CONTRACTING
Cost of contracting as a percentage of land development contracting revenues
increased to 99.2 percent during the second quarter of 1997 from 90.0 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") decreased by 9.5
percent to $3.0 million for the second quarter of 1997 from $3.3 million for the
same period in 1996. This decrease was primarily attributable to a reduction in
the SG&A expense of the land development contracting division. As a percentage
of revenue, SG&A expense increased to 17.4 percent for the second quarter of
1997 from 16.9 percent for the same period of 1996. This percentage increase was
primarily attributable to the decrease in revenue in 1997 versus 1996.
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 will
contest through post-trial motions and, if necessary, the appellate court
system. See the
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INTRODUCTION to 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 $4.3 million for the second quarter of
1997, which included a $4.5 million charge for litigation, as compared to
operating income of $1.4 million for the same period in 1996. The Company's
concrete and related products division operating income decreased to $813,000
during the second quarter of 1997 from $1.9 million during 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
$500,000 during the second quarter of 1997 from a loss of $268,000 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, partially offset by a reduction in SG&A expense.
NET EARNINGS (LOSS)
The Company had a net loss of $4.9 million during the second quarter of 1997 as
compared to net earnings of $750,000 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 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, partially offset by lower SG&A
expenses.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 VS SIX MONTHS ENDED
JUNE 30, 1996
REVENUES
The Company's revenues during the first six months of 1997 were $32.6 million as
compared to $37.8 million during the same period in 1996. This 13.7 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 2.7
percent to $26.0 million during the first six months of 1997 as compared to
$26.8 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
11
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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
49.3 percent to $4.8 million during the first six months of 1997 as compared to
$9.6 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 June 30, 1997 was $8.7 million, involving 18 projects. The Company
expects that all of the backlog outstanding at June 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 1997 contract revenue levels
comparable to those achieved in 1996.
COST OF CONCRETE AND RELATED PRODUCTS
Cost of concrete and related products as a percentage of concrete and related
products revenues increased to 79.3 percent during the first six months of 1997
from 71.7 percent for the same period in 1996. This increase was primarily
attributable to the decrease in revenues recognized and changes in the mix of
products sold in 1997.
COST OF CONTRACTING
Cost of contracting as a percentage of land development contracting revenues
increased to 98.7 percent during the first six months of 1997 from 86.5 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 2.2
percent during the first six 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 19.7 percent for the second
quarter of 1997 from 16.7 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 actually incurred.
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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 will
contest 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 $5.1 million for the first six months of
1997, which included a $4.5 million charge for litigation, as compared to
operating income of $2.8 million for the same period in 1996. The Company's
concrete and related products division operating income decreased to $741,000
during the first six months of 1997 from $3.2 million for the same period in
1996. This decrease is primarily attributable to decreases in revenues,
increases in costs of sales and increases in SG&A expense for this division.
The Company's land development contracting division operating loss increased to
$1.2 million during the first six months of 1997 from a loss of $75,000 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, partially offset by a reduction in SG&A expense.
NET EARNINGS (LOSS)
The Company had a net loss of $6.1 million during the first six months of 1997
as compared to net earnings of $1.4 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 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, partially offset by lower SG&A
expenses.
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
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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 $10.2 million
at June 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 4.0 times for the six months ended June 30, 1997.
This decrease was due primarily to an increase in construction receivables
resulting from a new job begun in the second quarter which were collected in
July. To a lesser extent, the decrease in accounts receivable turnover was due
to an increase in concrete and related products division receivables.
At June 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 November 1997. The interest rate
on indebtedness outstanding at June 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 June 30, 1997 the Company had borrowings of $500,000
outstanding under this line.
The Company has 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 June 30,
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1997 was 10.0 percent and the Company had $3.2 million of borrowings
outstanding. The loan is secured by a leasehold mortgage on a marina in the U.S.
Virgin Islands.
The Company has borrowed $5.6 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 June 30, 1997 was 9.5
percent and the Company had $5.4 million of borrowings outstanding.
As a result of the Company's loss in the second quarter of 1997 which was
primarily due to the $4.5 million charge related to an order 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 net cash expenditure of
approximately $4.1 million. 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 approximately $2.4
million and net book value of $179,000. 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
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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, 1997 amounts outstanding to these lenders
totaled $8.1 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 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 June 30, 1997 include $13.3 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
16
<PAGE>
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.
17
<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. Although the circuit court judge has not entered a
judgment, 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 post-trial motions and 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
The Company held its Annual Shareholders Meeting on June 13, 1997. 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 ABSTAIN
--------- -------- -------
Richard L. Hornsby 3,549,433 3,200 -
Robert L. Kester 3,549,433 3,200 -
W. Douglas Pitts 3,549,433 3,200 -
Donald L. Smith, Jr. 3,549,433 3,200 -
Robert A. Steele 3,549,433 3,200 -
The Board consists of five directors. All nominees were elected to serve for a
one year term.
18
<PAGE>
2) Proposal to ratify the appointment of KPMG Peat Marwick, LLP as the Company's
auditor for 1997.
FOR AGAINST ABSTAIN
--------- ------- -------
3,550,933 400 1,300
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 six months of fiscal 1997.
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 13, 1997 By: /s/ RICHARD L. HORNSBY
--------------------------
Richard L. Hornsby
Executive Vice President
19
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 643,519
<SECURITIES> 0
<RECEIVABLES> 19,214,931
<ALLOWANCES> (2,858,186)
<INVENTORY> 6,727,562
<CURRENT-ASSETS> 27,754,937
<PP&E> 88,798,057
<DEPRECIATION> (38,213,719)
<TOTAL-ASSETS> 98,077,239
<CURRENT-LIABILITIES> 17,577,636
<BONDS> 0
0
0
<COMMON> 449,894
<OTHER-SE> 12,064,133
<TOTAL-LIABILITY-AND-EQUITY> 98,077,239
<SALES> 32,603,752
<TOTAL-REVENUES> 32,603,752
<CGS> 26,730,520
<TOTAL-COSTS> 26,730,520
<OTHER-EXPENSES> 10,585,677
<LOSS-PROVISION> 150,000
<INTEREST-EXPENSE> 1,208,875
<INCOME-PRETAX> (6,071,320)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,071,320)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,071,320)
<EPS-PRIMARY> (1.32)
<EPS-DILUTED> (1.32)
</TABLE>
