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.
<PAGE>
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
<PAGE>
PART I. FINANCIAL INFORMATION
- ------------------------------------------------------------
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(Unaudited) (Audited)
<S> <C> <C>
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
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------- ------------
(Unaudited) (Audited)
<S> <C> <C>
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
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings
Three and Six Months Ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
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)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
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
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<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, 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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<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.
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
<PAGE>
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
<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: AUGUST 14, 1998 By: /S/ JAN A. NORELID
---------------------
Jan A. Norelid
Vice President
19
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 462,585
<SECURITIES> 0
<RECEIVABLES> 18,313,660
<ALLOWANCES> (4,809,631)
<INVENTORY> 4,524,943
<CURRENT-ASSETS> 24,109,967
<PP&E> 69,322,369
<DEPRECIATION> (28,236,129)
<TOTAL-ASSETS> 83,639,364
<CURRENT-LIABILITIES> 15,700,740
<BONDS> 0
0
0
<COMMON> 449,894
<OTHER-SE> 12,064,133
<TOTAL-LIABILITY-AND-EQUITY> 83,639,364
<SALES> 31,281,348
<TOTAL-REVENUES> 31,281,348
<CGS> 25,319,762
<TOTAL-COSTS> 25,319,762
<OTHER-EXPENSES> 4,586,856
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,099,093
<INCOME-PRETAX> 275,637
<INCOME-TAX> 170,179
<INCOME-CONTINUING> 105,458
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 105,458
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
