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, 1999
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 10, 1999 the number of shares outstanding of the Registrant's Common
Stock was 4,498,935.
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DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
INDEX
PAGE NUMBER
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Part I. Financial Information:
Condensed Consolidated Balance Sheets
March 31, 1999 and December 31, 1998................... 3-4
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1999 and 1998............. 5
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998............. 6-7
Notes to Condensed Consolidated Financial Statements... 8-9
Management's Discussion and Analysis of
Financial Conditions and Results of
Operations............................................. 10-15
Part II. Other Information...................................... 16-17
2
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PART I. FINANCIAL INFORMATION
- ------------------------------------------------------------
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, 1999 and December 31, 1998
MARCH 31, DECEMBER 31,
1999 1998
------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash $ 947,044 $ 899,605
Cash equivalents 1,114,479 1,359,253
Receivables, net 13,496,372 12,611,437
Costs in excess of billings
and estimated earnings 864,767 710,557
Inventories 4,178,680 4,468,718
Assets held for sale 2,821,699 2,868,922
Other 325,136 398,592
----------- -----------
Total current assets 23,748,177 23,317,084
Property, plant and equipment
Land 2,159,727 2,167,318
Buildings 3,559,987 3,560,545
Leasehold interests 6,947,456 6,632,206
Equipment 57,736,122 58,340,451
Furniture and fixtures 712,723 642,314
Construction in process 2,695,409 406,344
----------- -----------
73,811,424 71,749,178
Less accumulated depreciation (29,588,653) (28,715,682)
----------- -----------
44,222,771 43,033,496
Investments in unconsolidated
joint ventures and affiliates 237,370 237,370
Receivables, net 10,963,982 13,173,472
Intangible assets, net of
accumulated amortization 1,089,932 1,165,692
Other assets 1,501,838 1,503,005
----------- -----------
Total assets $81,764,070 $82,430,119
=========== ===========
See accompanying notes to condensed consolidated financial statements.
3
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DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, 1999 and December 31, 1998
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade and other $ 6,582,812 $ 6,917,119
Accrued expenses and other liabilities 1,777,477 3,186,375
Notes payable to banks 182,288 88,108
Current installments of long-term debt 6,611,078 5,539,151
Billings in excess of costs and
estimated earnings 418,982 315,007
Income taxes 337,737 361,071
----------- -----------
Total current liabilities 15,910,374 16,406,831
Long-term debt, excluding current
installments and notes payable to banks 18,238,372 18,153,451
Minority interest in consolidated
subsidiaries 1,463,994 1,762,809
Deferred income taxes 399,056 399,056
Other liabilities 2,376,138 2,067,413
----------- -----------
Total liabilities 38,387,934 38,789,560
Stockholders' equity:
Common stock 449,894 449,894
Additional paid-in capital 12,064,133 12,064,133
Accumulated other comprehensive income-
cumulative translation adjustment (1,250,897) (859,376)
Retained earnings 32,113,006 31,985,908
----------- -----------
Total stockholders' equity 43,376,136 43,640,559
----------- -----------
Total liabilities and stockholders' equity $81,764,070 $82,430,119
=========== ===========
See accompanying notes to condensed consolidated financial statements.
4
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DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1999 and 1998
(Unaudited)
1999 1998
----------- -----------
Concrete and related products revenue $13,955,842 $12,487,751
Contracting revenue 4,279,413 1,749,575
Other revenue - 371,386
----------- -----------
Total revenue 18,235,255 14,608,712
Cost of concrete and related
products revenue 11,304,170 9,846,924
Cost of contracting revenue 3,711,488 2,098,923
Cost of other revenue - 245,737
----------- -----------
Gross profit 3,219,597 2,417,128
Selling, general and
administrative expenses 3,319,715 2,538,358
Credit for litigation (419,000) -
----------- -----------
Operating income (loss) 318,882 (121,230)
Other income (deductions)
Interest expense (672,371) (520,274)
Gain on sale of equipment 70,408 66,569
Interest and other income 195,164 148,649
Minority interest 298,815 -
----------- -----------
(107,984) (305,056)
----------- -----------
Income (loss) before income taxes 210,898 (426,286)
Income tax (expense) benefit (83,800) 80,194
----------- -----------
Net income (loss) $ 127,098 $ (346,092)
=========== ===========
Basic earnings (loss) per share $ .03 $ (.08)
=========== ===========
Diluted earnings (loss) per share $ .03 $ (.08)
=========== ===========
Weighted average number of
shares outstanding-basic 4,498,935 4,498,935
=========== ===========
Weighted average number of
shares-diluted 4,501,088 4,498,935
=========== ===========
See accompanying notes to condensed consolidated financial statements.
5
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DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three Months March 31, 1999 and 1998
(Unaudited)
1999 1998
----------- -----------
Cash flows from operating activities:
Net income (loss) $ 127,098 $ (346,092)
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation and amortization 1,489,500 1,393,845
Provision for doubtful accounts
and notes 173,770 (235,181)
Gain on sale of equipment (70,408) (66,569)
Credit for litigation (419,000) -
Minority interest income (298,815) -
Changes in operating assets and liabilities:
Decrease in receivables, net 192,535 1,209,578
Increase in costs in excess of billings
and estimated earnings (154,210) (1,283,381)
Decrease (increase)in inventories 290,038 (109,819)
Decrease in other current assets 73,458 447,956
(Increase) decrease in other assets (17,548) 29,021
Decrease in accounts payable, trade
and other (1,422,794) (951,144)
Increase (decrease)in billings in
excess of costs and estimated earnings 103,975 (66,579)
(Decrease) increase in income taxes
payable (23,334) 44,135
Increase (decrease)in other liabilities 308,725 (202,995)
----------- -----------
Net cash provided by (used in)
operating activities 352,990 (137,225)
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and
equipment (3,263,936) (1,129,479)
Proceeds from disposition of property,
plant and equipment 359,870 3,316,956
Payments received on notes 1,118,713 721,817
Investment in affiliates - (101,020)
Issuance of notes (16,000) -
----------- -----------
Net cash (used in) provided by
investing activities $(1,801,353) $ 2,808,274
----------- -----------
6
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DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998
(Unaudited)
1999 1998
----------- ------------
Cash flows from financing activities:
Proceeds from debt $ 2,812,330 $ 1,511,534
Principal payments on debt (1,655,482) (5,412,931)
Net borrowings from bank credit
line/overdrafts 94,180 951,980
----------- -----------
Net cash provided by (used in)
financing activities 1,251,028 (2,949,417)
------------ -----------
Net decrease in cash
and cash equivalents (197,335) (278,368)
Cash and cash equivalents,
beginning of period 2,258,858 876,368
------------ -----------
Cash and cash equivalents,
end of period $ 2,061,523 $ 598,000
============ ===========
Supplemental disclosures of
cash flow information
Cash paid for:
Interest $ 659,769 $ 593,875
============ ===========
Income taxes $ 33,333 $ 120,334
============ ===========
See accompanying notes to condensed consolidated financial statements.
7
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DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The condensed 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, 1998.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments necessary to present fairly the
Company's financial position as of March 31, 1999 and the results of its
operations and cash flows for the three months ended March 31, 1999 and 1998.
The results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results to be expected for the full year.
EARNINGS PER SHARE
Basic earnings per share are computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share are 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 178,300 and 208,300 shares of common stock, at prices
ranging from $2.17 to $3.75 per share, were outstanding for the quarters ended
March 31, 1999 and 1998, respectively. For the three months ended March 31,
1998, 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 361,475 and 294,975 shares of common stock, at prices ranging from
$2.94 to $14.00 per share, were outstanding for the quarters ended March 31,
1999 and 1998, 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 1998 Form 10-K.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires that all items recognized under
accounting standards as components of comprehensive income be reported in annual
financial statements that is displayed with the same prominence as other annual
financial statements. The Company's total comprehensive income, comprised of
translation adjustments, for the three month period ended March 31, 1999 and
1998 were as follows:
8
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1999 1998
--------- ---------
Net income (loss) $ 127,098 $(346,092)
Other comprehensive income (391,521) -
--------- ---------
Total comprehensive loss $(264,423) $(346,092)
========= =========
SEGMENT REPORTING
The following sets forth the revenue and income (loss) before income taxes for
each of the Company's business segments for the three months ended March 31,
1999 and 1998.
1999 1998
----------- ------------
Revenue (including intersegment)
Concrete and related products $14,355,124 $12,530,393
Contracting 4,279,413 1,749,575
Other - 371,386
Elimination of intersegment revenue (399,282) (42,642)
----------- -----------
Total revenue $18,235,255 $14,608,712
=========== ===========
Operating income (loss):
Concrete and related products $ (74,000) $ 819,000
Contracting 178,000 (897,000)
Other - 120,000
Unallocated corporate overhead 214,882 (163,230)
----------- -----------
Total operating income (loss) 318,882 (121,230)
----------- -----------
Other deductions (107,984) (305,056)
=========== ===========
Income (loss) before income taxes $ 210,898 $ (426,286)
=========== ===========
9
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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 MARCH 31, 1999 VS. THREE MONTHS ENDED MARCH 31,
1998
REVENUE
The Company's revenue during the first quarter of 1999 was $18.2 million as
compared to $14.6 million during the same period in 1998. This 24.8 percent
increase was primarily due to an increase in contracting revenue and to a lesser
extent to an increase in concrete and related products revenue.
The Company's concrete and related products division revenue increased 11.8
percent to $14.0 million during the first quarter of 1999 as compared to $12.5
million for the same period in 1998, 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 1999.
Revenue from the Company's land development contracting division increased by
144.6 percent to $4.3 million during the first quarter of 1999 as compared to
$1.7 million for the same period in 1998. This increase is primarily due to the
Company continuing various contracts that were started during the prior quarters
and to revenue on a contract in the Bahamas. The Company's backlog of unfilled
portions of land development contracts at March 31, 1999 was $12.9 million,
involving 9 projects. The backlog of the project in the Bahamas amounts to $10.0
million. A Company subsidiary and two of the Company's directors are minority
partners of the entity developing this project. The project has not yet received
10
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its total financing thus the timing and amount of the contract could vary. The
Company expects that part of the backlog outstanding at March 31, 1999 will be
completed by the end of 1999. The Company cannot currently determine whether the
contract revenue will increase, decrease or remain the same throughout 1999.
COST OF CONCRETE AND RELATED PRODUCTS
Cost of concrete and related products as a percentage of concrete and related
products revenue increased to 81.0 percent during the first quarter of 1999 from
78.9 percent for the same period in 1998. This increase was primarily
attributable to higher production cost on some islands and to changes in the mix
of products sold in the first quarter of 1999 compared to 1998.
COST OF CONTRACTING
Cost of contracting as a percentage of land development contracting revenue
decreased to 86.7 percent during the first quarter of 1999 from 120.0 percent
during the same period in 1998. This decrease is primarily attributable to the
varying profitability levels of individual contracts and the stage of completion
of such contracts, and to the expense taken on a large contract in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense ("SG&A expense") increased by 30.8
percent to $3.3 million for the first quarter of 1999 from $2.5 million for the
same period in 1998. As a percentage of revenue, SG&A expense increased to 18.2
percent during the first quarter compared to 17.4 percent for the same period
last year. This increase is primarily attributable to increase of expense for
bad debt. The expense for the allowance for doubtful accounts and notes was
approximately $174,000 during the quarter compared to a credit to expense of
$235,000 in the same quarter of 1998.
CREDIT FOR LITIGATION
In the first quarter of 1999 the Company recognized a credit for litigation of
$419,000. This was a result of an order from a Florida circuit court requiring
another party to pay the Company prejudgment interest. See also Item 1, Legal
Proceedings.
DIVISIONAL OPERATING INCOME
The Company had an operating income of $319,000 for the first quarter of 1999,
as compared to an operating loss of $121,000 for the same period in 1998. The
Company's concrete and related products division operating loss was $74,000
during the first quarter of 1999 compared to a profit of $819,000 during the
same period in 1998. This decrease is primarily attributable to increased bad
debt expense in 1999 and a one time worker's compensation expense reduction in
1998 for the concrete and related products division.
The Company's land development contracting division had an operating income of
$178,000 during the first quarter of 1999 compared to a loss of $897,000 during
the same period in 1998. This improvement was primarily attributable to the
increased revenue and the type of contracts the Company has been able to obtain,
combined with a reduction in SG&A expenses, primarily legal expense. There was
also an expense taken on a large contract in 1998.
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OTHER INCOME
Minority interest income increased due to losses in a consolidated joint
venture. Net interest expense increased to $477,000 in 1999 from $372,000 in
1998.
NET INCOME (LOSS)
The Company had a net income of $127,000 during the first quarter of 1999 as
compared to a loss of $346,000 during the same period in 1998.
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, 1999, the Company's liquidity and capital resources included
cash and cash equivalents of $2.1 million and working capital of $7.8 million.
Included in working capital is approximately $2.8 million of assets held for
sale. Although management's intention is to sell these assets within the next 12
months, there can be no assurance that all assets will be sold. As of March 31,
1999, total outstanding liabilities were $38.4 million. As of March 31, 1999,
the Company had available lines of credit totaling $1.2 million. In April 1999
the Company received $1.1 million in payment on a note receivable from the sale
of a leasehold in St. Maarten in 1997.
Cash flows provided by operating activities for the three months ended March 31,
1999 was $353,000 compared with $137,000 used in operating activities for the
same period in 1998. The primary uses of cash for operating activities during
the three months ended March 31, 1999 were a decrease in accounts payable and
accruals of $1.4 million.
Net cash used in investing activities was $1.8 million in the first three months
of 1999. Purchases of property, plant, and equipment were $3.3 million. The
purchases were partially financed through equipment financing. Proceeds from
sale of property, plant and equipment were $360,000 and repayment of debt was
$1.7 million.
12
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The Company turned its first quarter ending accounts receivable approximately
7.4 times, compared to 7.3 and 5.3 times for the fiscal years 1998 and 1997,
respectively. The small increase in 1999 of the accounts receivable turnover
ratio compared to 1998 is a result of increased sales in the first quarter of
1999, and the improvement compared to 1997 is primarily due to increased
contracting activity.
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 $3.7 million of the borrowings outstanding on this loan at
March 31, 1999. The second part is a revolving line of credit of $1.0 million.
The credit line has been re-approved and extended until May 1999. The Company
had $150,000 outstanding under this line of credit at March 31, 1999. 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, 1999. 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
anticipates to be current in its loan payments during the term of the loan.
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, 1999, the Company had borrowings of $32,000
outstanding under this line.
The Company has borrowed approximately $5.4 million from the Company President.
The note is unsecured and bears interest at a rate variable with the prime
interest rate. Three hundred twenty-one thousand is due on demand and $5.1
million is due on April 1, 2000. The President has the option of making 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 (principally concrete trucks and quarry equipment) used by the
concrete and related products division. This should result in a net cash
expenditure, after financing part of the equipment purchases, of approximately
$3.0 million during 1999. 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 $2.8 million. Any proceeds from
these sales would be used to reduce debt and provide working capital. The
Company believes it has available or can obtain sufficient financing for 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, 1999, amounts outstanding
to these lenders totaled $14.4 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.
Receivables at March 31, 1999 include $10.2 million, net, of promissory notes
and bonds due from the Government of Antigua, $2.0 million of which is
classified as
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a current receivable. The gross balance of the notes and bonds is $34.7 million.
The notes called 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 from agreed upon
sources will continue until the obligation is satisfied. The agreed upon sources
are lease proceeds from a rental of a United States military base, fuel tax
revenues and proceeds from a real estate venture. Cash receipts during 1998 from
agreed upon sources was $2.3 million.
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. If not addressed, such
computer systems, software products and embedded technology may be unable to
properly interpret dates beyond the year 1999, which could cause system failures
or miscalculations and lead to disruptions in the Company's activities and
operations.
The Company has identified three major areas determined to be critical for
successful Year 2000 compliance:
o Information systems such as PCs, networks, batch-plant computers
o Third party relationships, including customers, suppliers, and
government agencies
o Equipment which may contain microprocessors with embedded technology
The Company has taken an inventory of all computers and software and the Company
has started planning the changes needed for these systems to become Year 2000
compliant. The Company is currently implementing a new information system for
its financial reporting, and the Company is evaluating proposals from various
vendors in respect to distribution systems for the island subsidiaries. The
Company believes that all conversion efforts will be completed before the end of
1999.
The Company has started the process of contacting suppliers and customers
regarding their Year 2000 compliance status. The Company's contact includes
questioning them about imbedded micro-processors.
The Company has initiated a Year 2000 contingency plan development process to
mitigate potential disruptions in its activities and operations that may be
created by failures of critical business partners, equipment and internal
systems. These contingency plans are expected to be developed by the third
quarter of 1999. However, the Company can provide no assurance that it will
correctly anticipate the level, impact or duration of non-compliance by critical
business partners, equipment or internal systems, or that contingency plans will
be sufficient to mitigate the impact of non-compliance.
The Company estimates to spend around $300,000 on the Year 2000 project. This
consists of PCs, software and other related costs.
The Company cannot assure that its systems or the computer systems of other
companies with whom the Company conducts business will be Year 2000 compliant
prior to December 31, 1999. Management has determined that making the required
system changes will have no material impact on the Company's consolidated
financial position, results of operations or cash flows.
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RECENT ACCOUNTING PRONOUNCEMENTS
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.
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II. OTHER INFORMATION
- ---------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
On April 8, 1999, a final judgment was entered in favor of the Company
and against the Greater Orlando Aviation Authority ("GOAA") in the
amount of $542,688. However, because the judgment amount was less then
seventy-five (75%) of an offer of judgment ($790,000) previously made
by GOAA in July 1998, the Company was subject to pay GOAA's attorneys'
fees from the date the offer of judgment was made. The Company accrued
for GOAA's estimated legal expenses in 1998. On May 7, 1999, the
Florida circuit court awarded prejudgment interest on the judgment
amount of $542,688 at 10% per annum from August 8, 1995 until paid.
Through March 31, 1999, this prejudgment interest amounts to
approximately $203,000, for a total award of approximately $750,000,
or 95% of the offer of judgment. Consequently, subject to GOAA's
possible appeal, there is not currently an obligation to pay GOAA's
legal fees, and the accrual for such expenses was reversed in the
first quarter of 1999. Furthermore, the Company has filed an appeal on
the underlying merits of the case to seek reimbursement of additional
costs and profit in connection with the construction project, which
was performed between 1992 and 1995.
In 1992, Fore Golf, Inc. sued the Company in the Ninth Judicial
Circuit, Orange County, Florida, Case No. CI-92-5289. The Company was
sued by Fore Golf, Inc. for work which this subcontractor allegedly
performed in 1990 and 1991 during construction of two golf courses at
Disney World in Orlando, Florida, the alleged unpaid contract balance
in connection with this project, and inefficiency costs. In June 1997,
the court issued an order establishing liability and damages against
the Company. The Court entered a final judgment in favor of the
plaintiff for damages and prejudgment interest. Subsequently, the
trial court also awarded the plaintiff attorneys' fees. The Company
accrued a total of $4.5 million, included in other liabilities, in
1997 to reflect the total estimated costs to be incurred should it not
be successful in our post trial and appeal efforts. The Company has
posted a bond for the damages, prejudgment interest and plaintiff's
attorneys' fees. This bond is personally guaranteed by the Company's
President. The Company settled its lawsuit with Fore Golf, Inc. and
its creditors in March 1999. The settlement calls for a cash payment
of approximately $300,000 and payments of $460,000 over a period of 4
years. The Company has not yet settled with the lawyers of Fore Golf
regarding the judgment on attorney' fees. The trial court fee award
has been contested by Fore Golf's attorneys.
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.
16
<PAGE>
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 in violation of certain loan covenants as of March 31,
1999. 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
anticipates to be current in its loan payments during the term of the
loan.
ITEM 4. SUBMISSION OF MATTER 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 1999.
17
<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, 1999 By: /s/ JAN A. NORELID
------------------------
Jan A. Norelid
Vice President
18
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
19
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
<CASH> 2,061,523
<SECURITIES> 0
<RECEIVABLES> 18,325,765
<ALLOWANCES> (4,829,393)
<INVENTORY> 4,178,680
<CURRENT-ASSETS> 23,748,177
<PP&E> 73,811,424
<DEPRECIATION> (29,588,653)
<TOTAL-ASSETS> 81,764,070
<CURRENT-LIABILITIES> 15,910,374
<BONDS> 0
0
0
<COMMON> 449,894
<OTHER-SE> 10,813,236
<TOTAL-LIABILITY-AND-EQUITY> 81,764,070
<SALES> 18,235,255
<TOTAL-REVENUES> 18,235,255
<CGS> 15,015,658
<TOTAL-COSTS> 15,015,658
<OTHER-EXPENSES> 2,336,328
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 672,371
<INCOME-PRETAX> 210,898
<INCOME-TAX> 83,800
<INCOME-CONTINUING> 127,098
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 127,098
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
