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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 March 31, 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 May 8, 1998, the number of shares outstanding of the Registrant's Common
Stock was 4,498,935.
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<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
INDEX
PAGE NUMBER
-----------
Part I. Financial Information:
Consolidated Balance Sheets - March 31, 1998
and December 31, 1997....................................... 3-4
Consolidated Statements of Operations and
Retained Earnings - Three months
Ended March 31, 1998 and 1997............................... 5
Consolidated Statements of Cash Flows -
Three months Ended March 31, 1998 and 1997.................. 6-7
Notes to Consolidated Financial Statements.................. 8
Management's Discussion and Analysis of
Financial Conditions and Results of
Operations.................................................. 9-14
Part II. Other Information........................................... 15
2
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PART I. FINANCIAL INFORMATION
- ------------------------------------------------------------
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 598,000 $ 876,368
Cash equivalents 125,000 125,000
Receivables, net 12,425,014 13,928,997
Costs in excess of billings
and estimated earnings 1,619,333 329,707
Inventories 4,888,940 4,779,121
Assets held for sale 3,479,568 6,919,511
Other 489,334 937,290
----------- -----------
Total current assets 23,625,189 27,895,994
Property, plant and equipment
Land 2,148,825 2,148,825
Buildings 3,410,115 3,365,775
Leasehold interests 6,543,077 6,302,592
Equipment 53,881,834 53,382,393
Furniture and fixtures 567,550 560,402
Construction in process 1,021,003 1,007,879
----------- -----------
67,572,404 66,767,866
Less accumulated depreciation (28,171,305) (27,119,417)
----------- -----------
39,401,099 39,648,449
Investments in unconsolidated
joint ventures and affiliates 233,150 132,130
Advances to unconsolidated joint
ventures and affiliates 568,861 568,861
Receivables, net 15,062,372 15,137,701
Intangible assets, net of
accumulated amortization 1,381,025 1,429,921
Other assets 1,591,183 1,620,204
----------- -----------
Total assets $81,862,879 $86,433,260
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade and other $ 5,460,193 $ 6,390,461
Accrued expenses and other liabilities 2,703,015 2,702,517
Notes payable to banks 1,336,453 384,473
Current installments of long-term debt 4,819,870 8,990,968
Billings in excess of costs and
estimated earnings 70,829 137,408
Income taxes 621,613 577,478
----------- -----------
Total current liabilities 15,011,973 19,183,305
Long-term debt, excluding current
installments and notes payable to banks 17,131,776 16,981,738
Minority interest in consolidated
subsidiaries 1,923,629 1,923,629
Deferred income taxes 399,791 399,791
Other liabilities 4,926,140 5,129,135
----------- -----------
Total liabilities 39,393,309 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 31,155,543 31,501,635
----------- -----------
Total stockholders' equity 42,469,570 42,815,662
----------- -----------
Total liabilities and stockholders' equity $81,862,879 $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 Months Ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Concrete and related
products revenue $12,487,751 $12,355,823
Contracting revenue 1,749,575 2,045,616
Other revenue 371,386 1,048,955
----------- -----------
Total revenue
14,608,712 15,450,394
Cost of concrete and related
products revenue 9,846,924 9,995,951
Cost of contracting revenue 2,098,923 2,006,180
Cost of other revenue 245,737 717,983
----------- -----------
Gross profit 2,417,128 2,730,280
Selling, general and
administrative expenses 2,538,358 3,440,523
----------- -----------
Operating loss (121,230) (710,243)
Other income (deductions)
Joint venture equity loss - (25,000)
Interest expense (520,274) (577,305)
Gain (loss) on sale of equipment 66,569 (7,647)
Interest and other income 148,649 122,907
Minority interest - (8,259)
----------- -----------
(305,056) (495,304)
----------- -----------
Loss before income taxes (426,286) (1,205,547)
Income taxes 80,194 -
----------- -----------
Net loss (346,092) (1,205,547)
Other comprehensive income - -
----------- -----------
Comprehensive loss (346,092) (1,205,547)
Retained earnings, beginning of period 31,501,635 47,037,658
----------- -----------
Retained earnings, end of period $31,155,543 $45,832,111
=========== ===========
Basic loss per share from
continuing operations $ (.08) $ (.27)
=========== ===========
Weighted average number of
shares outstanding - Basic 4,498,935 4,498,935
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (346,092) $(1,205,547)
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Depreciation and amortization 1,393,845 1,479,254
Joint venture equity loss - 25,000
Provision for doubtful accounts
and notes (235,181) 75,000
(Gain) Loss on sale of equipment (66,569) 7,647
Minority interest expense - 8,259
Changes in operating assets and
liabilities:
Decrease (Increase) in receivables, net 1,209,578 (544,580)
(Increase) Decrease in costs in excess
of billings and estimated earnings (1,283,381) 38,438
(Increase) Decrease in inventories (109,819) 377,813
Decrease in other current assets 447,956 160,412
Decrease (Increase)in other assets 29,021 (40,165)
(Decrease) Increase in accounts payable,
trade and other (951,144) 1,026,190
(Decrease) Increase in billings in
excess of costs and estimated earnings (66,579) 50,122
Increase (Decrease) in income taxes
payable 44,135 (146,082)
Decrease in other liabilities (202,995) (33,052)
----------- -----------
Net cash (used in) provided by
operating activities (137,225) 1,278,709
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and
equipment (1,129,479) (3,389,761)
Proceeds from disposition of property,
plant and equipment 3,316,956 37,190
Payments received on notes 721,817 737,505
Investment in affiliates (101,020) -
Advances from affiliates - 225,000
----------- -----------
Net cash provided by (used in)
investing activities $ 2,808,274 $(2,390,066)
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from financing activities:
Proceeds from debt $ 1,511,534 $ 4,210,883
Principal payments on debt (5,412,931) (3,748,211)
Net borrowings from bank credit line/overdrafts 951,980 221,942
----------- -----------
Net cash (used in) provided by
financing activities (2,949,417) 684,614
----------- -----------
Net decrease in
cash and cash equivalents (278,368) (426,743)
Cash and cash equivalents,
beginning of period 876,368 1,903,994
----------- -----------
Cash and cash equivalents,
end of period $ 598,000 $ 1,477,251
=========== ===========
Supplemental disclosures of
cash flow information
Cash paid for:
Interest $ 593,875 $ 518,949
=========== ===========
Income taxes $ 120,334 $ 146,082
=========== ===========
</TABLE>
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, 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 March 31, 1998 and the results of its operations and
cash flows for the three months ended March 31, 1998 and 1997.
The results of operations for the three months ended March 31, 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 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 208,300 and 148,300 shares of common stock, at prices
ranging from $2.33 to $3.75 per share, were outstanding for the quarters ended
March 31, 1998 and 1997, respectively, but were not included in the computation
of diluted earnings per share because the inclusion of the options would be
antidilutive. Options to purchase 294,975 and 345,155 shares of common stock, at
prices ranging from $5.00 to $14.00 per share, were outstanding for the quarters
ended March 31, 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.
8
<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 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 MARCH 31, 1998 VS THREE MONTHS ENDED MARCH 31,
1997
REVENUE
The Company's revenue during the first quarter of 1998 was $14.6 million as
compared to $15.5 million during the same period in 1997. This 5.4 percent
decrease was primarily due to a decrease in other sales of $678,000 as a result
of the sale of Crown Bay Marina in January 1998.
The Company's concrete and related products division revenue increased 1.1
percent to $12.5 million during the first quarter of 1998 as compared to $12.4
million for the same period in 1997, primarily as a result of an increase in
demand for this division's products on certain Caribbean islands, offset to a
lesser extent by decreased 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 decreased by
14.5 percent to $1.7 million during the first quarter of 1998 as compared to
$2.0 million for the same period in 1997. This decrease is primarily due to the
Company completing various contracts during the quarter and work on new
contracts started towards the end of the quarter in 1998. The Company's backlog
of unfilled portions of land development contracts at March 31,1998 was $6.7
million, involving 14 projects. The Company expects that most of the backlog
outstanding at March 31, 1998 will be completed by the end of 1998. The Company
9
<PAGE>
needs to obtain new contracts over the remainder of 1998 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 revenue decreased to 78.9 percent during the first quarter of 1998 from
80.9 percent for the same period in 1997. This decrease was primarily
attributable to the increase in revenue and changes in the mix of products sold
in the first quarter of 1998 compared to 1997, and a reduction in depreciation.
COST OF CONTRACTING
Cost of contracting as a percentage of land development contracting revenue
increased to 120.0 percent during the first quarter of 1998 from 98.1 percent
during the same period in 1997. This increase is primarily attributable to an
expense taken in a large contract on one of the islands. The job was delayed
during the first quarter, incurring additional costs. Management believes that
all additional costs have been provided for in the first quarter of 1998. 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 26.2
percent to $2.5 million for the first quarter of 1998 from $3.4 million for the
same period in 1997. This decrease was primarily attributable to the decrease in
the SG&A expense of the concrete and related products division. The allowance
for doubtful accounts and note receivable was reduced by approximately $235,000,
which reduced SG&A expense in the first quarter 1998, compared to a cost of
$75,000 in 1997. Legal expenses decreased approximately $200,000 and other
non-recurring cost reductions of $300,000 occurred in the first quarter of 1998.
As a percentage of revenue, SG&A expense decreased to 17.4 percent for the first
quarter of 1998 from 22.3 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 loss of $121,000 for the first quarter of 1998, as
compared to an operating loss of $710,000 for the same period in 1997. The
Company's concrete and related products division operating income increased to a
profit of $819,000 during the first quarter of 1998 from a loss of $50,000
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 increased to
$897,000 during the first quarter of 1998 compared to $747,000 during the same
period in 1997. This increase was primarily attributable to loss incurred on a
large contract on one of the islands, offset to a lesser extent by reduced SG&A
expense.
NET LOSS
The Company had a net loss of $346,000 during the first quarter of 1998 as
compared to a loss of $1.2 million during the same period in 1997.
10
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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.
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 March 31, 1998, the Company's liquidity and capital resources included
cash and cash equivalents of $723,000 and working capital of $8.6 million.
Included in working capital is approximately $3.5 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 March 31, 1998, total
outstanding liabilities was $39.4 million as compared to $43.6 million as of
December 31, 1997. As of March 31, 1998, the Company had available lines of
credit totaling $100,000.
Cash flows used in operating activities for the quarter ended March 31, 1998 was
$137,000 compared with $1.3 million provided by operating activities for the
quarter ended March 31, 1997. The primary use of cash for operating activities
during the quarter ended March 31, 1998 was an increase in costs in excess of
billings of $1.3 million. The primary sources of cash for the period were
reductions of accounts receivable of $1.2 million.
Net cash provided by investing activities was $2.8 million in the first quarter
of 1998. Purchases of property, plant, and equipment were $1.1 million. The
purchases were partially financed through $1.5 million in equipment financing.
Some of this financing included refinancing of equipment acquired in December
1997. Proceeds from sale of property, plant and equipment was $3.3 million and
repayment of debt was 5.4 million.
The Company turned its first quarter ending accounts receivable approximately
6.1 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 $4.7 million of borrowings outstanding on this loan at
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March 31, 1998. The second part is a revolving line of credit of $1.0 million.
The credit line was re-approved and extended for a year until April 1999. The
Company had $900,000 outstanding under this line of credit at March 31, 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 March 31, 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 March 31, 1998, the Company had borrowings of $436,000
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
hundred thousand is due on demand and $5.5 million is due on April 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. This should result in a net cash
expenditure, after financing part of the equipment purchases, of approximately
$2.0 million during 1998. 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. 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 $3.5 million. The
proceeds from these sales will reduce debt and provide working capital. During
the first quarter of 1998, the Company sold a marina for $3.3 million and
retired its related debt of $3.1 million. The Company also sold equipment with
an original cost basis of approximately $193,000 and a net book value of
$31,000, the net proceeds were approximately $54,000. 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 March 31, 1998, amounts outstanding to these
lenders totaled $9.9 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,
12
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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 March 31, 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. 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
revenue. 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.
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
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.
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.
13
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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.
14
<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 March 31, 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.
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 three months of
fiscal 1998.
15
<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: MAY 14, 1998 By: /S/ JAN A. NORELID
------------ --------------------
Jan A. Norelid
Vice President
16
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 598,000
<SECURITIES> 125,000
<RECEIVABLES> 17,218,620
<ALLOWANCES> (4,793,606)
<INVENTORY> 4,888,940
<CURRENT-ASSETS> 23,625,189
<PP&E> 67,572,404
<DEPRECIATION> (28,171,305)
<TOTAL-ASSETS> 81,862,879
<CURRENT-LIABILITIES> 15,011,973
<BONDS> 0
0
0
<COMMON> 449,894
<OTHER-SE> 12,064,133
<TOTAL-LIABILITY-AND-EQUITY> 81,862,879
<SALES> 14,608,712
<TOTAL-REVENUES> 14,608,712
<CGS> 12,191,584
<TOTAL-COSTS> 12,191,584
<OTHER-EXPENSES> 2,323,140
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 520,274
<INCOME-PRETAX> (426,286)
<INCOME-TAX> (80,194)
<INCOME-CONTINUING> (346,092)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (346,092)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
