SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
| For the Quarter Ended January 31, 2002 |
Commission File No. 0-10146 |
|
ABRAMS INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
| Georgia | 58-0522129 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
1945 The Exchange, Suite 300, Atlanta, Georgia 30339
(770) 953-0304
N/A
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 [ ]
The number of shares of $1.00 par value Common Stock of the Registrant outstanding as of February 28, 2002, was 2,910,179.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ABRAMS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| January 31, 2002 | April 30, 2001 | |||||||||||
ASSETS |
||||||||||||
CURRENT ASSETS |
||||||||||||
Cash and cash equivalents (note 3) |
$ | 5,081,878 | $ | 11,448,750 | ||||||||
Receivables (note 2) |
17,108,216 | 15,510,253 | ||||||||||
Less: Allowance for doubtful accounts |
(982,357 | ) | (961,461 | ) | ||||||||
Costs and earnings in excess of billings |
1,134,907 | 1,483,195 | ||||||||||
Property held for sale (note 5) |
12,507,406 | 33,404 | ||||||||||
Deferred income taxes |
864,036 | 786,460 | ||||||||||
Other |
1,218,984 | 785,799 | ||||||||||
Total current assets |
36,933,070 | 29,086,400 | ||||||||||
INCOME-PRODUCING PROPERTIES, net |
26,392,092 | 26,712,359 | ||||||||||
PROPERTY, PLANT AND EQUIPMENT, net |
696,722 | 1,284,689 | ||||||||||
REAL ESTATE HELD FOR FUTURE SALE OR DEVELOPMENT (note 6) |
23,555,440 | 36,100,308 | ||||||||||
OTHER ASSETS
| ||||||||||||
Intangible assets, net (note 10) |
2,283,278 | 1,220,147 | ||||||||||
Goodwill (notes 9 & 10) |
1,741,831 | — | ||||||||||
Other |
2,678,196 | 3,215,782 | ||||||||||
| $ | 94,280,629 | $ | 97,619,685 | |||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||||||
CURRENT LIABILITIES |
||||||||||||
Trade and subcontractors payables |
$ | 9,610,835 | $ | 8,803,760 | ||||||||
Billings in excess of costs and earnings |
1,297,844 | 1,506,766 | ||||||||||
Accrued expenses |
953,207 | 3,720,661 | ||||||||||
Net liabilities of discontinued operations (note 3) |
— | 1,903,375 | ||||||||||
Current maturities of long-term debt (note 5) |
13,787,995 | 1,709,490 | ||||||||||
Total current liabilities |
25,649,881 | 17,644,052 | ||||||||||
DEFERRED INCOME TAXES |
4,512,986 | 3,372,824 | ||||||||||
OTHER LIABILITIES |
3,911,796 | 3,916,647 | ||||||||||
MORTGAGE NOTES PAYABLE, less current maturities (note 5) |
20,165,897 | 32,915,932 | ||||||||||
OTHER LONG-TERM DEBT, less current maturities |
16,550,239 | 17,264,687 | ||||||||||
Total liabilities |
70,790,799 | 75,114,142 | ||||||||||
SHAREHOLDERS’ EQUITY |
||||||||||||
Common stock, $1 par value; authorized 5,000,000 shares; 3,054,439 issued
and 2,912,279 outstanding in January 2002,
3,041,039 issued and 2,943,303 outstanding in April 2001 |
3,054,439 | 3,041,039 | ||||||||||
Additional paid-in capital |
2,135,005 | 2,097,315 | ||||||||||
Deferred stock compensation |
(24,854 | ) | (75,094 | ) | ||||||||
Retained earnings |
18,984,566 | 17,930,914 | ||||||||||
| 24,149,156 | 22,994,174 | |||||||||||
Less cost of treasury stock |
659,326 | 488,631 | ||||||||||
Total shareholders’ equity |
23,489,830 | 22,505,543 | ||||||||||
| $ | 94,280,629 | $ | 97,619,685 | |||||||||
See accompanying notes to consolidated financial statements.
ABRAMS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| THIRD QUARTER ENDED | FIRST NINE MONTHS ENDED | ||||||||||||||||||
| JANUARY 31, | JANUARY 31, | ||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||||
REVENUES |
|||||||||||||||||||
Construction |
$ | 20,388,024 | $ | 23,883,137 | $ | 85,293,150 | $ | 121,908,990 | |||||||||||
Rental income |
3,584,214 | 3,520,721 | 10,012,259 | 9,745,907 | |||||||||||||||
Real estate sales |
465,000 | — | 465,000 | — | |||||||||||||||
Energy management |
734,084 | — | 2,350,012 | — | |||||||||||||||
| 25,171,322 | 27,403,858 | 98,120,421 | 131,654,897 | ||||||||||||||||
Interest |
25,919 | 102,753 | 153,428 | 359,190 | |||||||||||||||
Other |
10,555 | 13,994 | 53,178 | 37,275 | |||||||||||||||
| 25,207,796 | 27,520,605 | 98,327,027 | 132,051,362 | ||||||||||||||||
COSTS AND EXPENSES |
|||||||||||||||||||
Applicable to REVENUES— |
|||||||||||||||||||
Construction |
19,846,464 | 22,416,989 | 82,962,168 | 114,457,368 | |||||||||||||||
Rental property operating expenses,
excluding interest |
2,088,699 | 2,251,640 | 5,346,284 | 5,629,648 | |||||||||||||||
Cost of real estate sold |
405,647 | — | 405,647 | — | |||||||||||||||
Energy management |
508,757 | — | 1,358,121 | — | |||||||||||||||
| 22,849,567 | 24,668,629 | 90,072,220 | 120,087,016 | ||||||||||||||||
Selling, general and administrative |
|||||||||||||||||||
Construction |
713,801 | 2,000,893 | 2,260,595 | 4,697,040 | |||||||||||||||
Real estate |
141,252 | 328,331 | 385,206 | 969,205 | |||||||||||||||
Energy management |
346,256 | — | 993,581 | — | |||||||||||||||
Parent |
448,581 | 597,848 | 1,803,888 | 1,868,404 | |||||||||||||||
| 1,649,890 | 2,927,072 | 5,443,270 | 7,534,649 | ||||||||||||||||
Interest |
1,109,776 | 1,329,972 | 3,379,462 | 3,908,426 | |||||||||||||||
| 25,609,233 | 28,925,673 | 98,894,952 | 131,530,091 | ||||||||||||||||
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |
(401,437 | ) | (1,405,068 | ) | (567,925 | ) | 521,271 | ||||||||||||
INCOME TAX EXPENSE (BENEFIT) |
(181,268 | ) | (544,000 | ) | (253,268 | ) | 210,000 | ||||||||||||
EARNINGS (LOSS) FROM CONTINUING OPERATIONS |
(220,169 | ) | (861,068 | ) | (314,657 | ) | 311,271 | ||||||||||||
DISCONTINUED OPERATIONS (note 3) |
|||||||||||||||||||
Earnings from discontinued operations,
adjusted for applicable income tax expense
of $0, $45,000, $1,056,000, and $126,000,
respectively |
— | 75,326 | 1,720,749 | 205,563 | |||||||||||||||
NET EARNINGS (LOSS) |
$ | (220,169 | ) | $ | (785,742 | ) | $ | 1,406,092 | $ | 516,834 | |||||||||
NET EARNINGS (LOSS) PER SHARE FROM: |
|||||||||||||||||||
Continuing Operations-Basic and Diluted |
$ | (.08 | ) | $ | (.29 | ) | $ | (.11 | ) | $ | .11 | ||||||||
Discontinued Operations-Basic and Diluted |
.00 | .03 | .59 | .07 | |||||||||||||||
NET EARNINGS (LOSS) PER SHARE-BASIC AND DILUTED |
$ | (.08 | ) | $ | (.26 | ) | $ | .48 | $ | .18 | |||||||||
DIVIDENDS PER SHARE |
$ | .04 | $ | .04 | $ | .12 | $ | .12 | |||||||||||
WEIGHTED AVERAGE SHARES OUTSTANDING |
2,922,941 | 2,932,760 | 2,931,498 | 2,934,855 | |||||||||||||||
See accompanying notes to consolidated financial statements.
ABRAMS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| NINE MONTHS ENDED JANUARY 31, | ||||||||||||
| 2002 | 2001 | |||||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | 1,406,092 | $ | 516,834 | ||||||||
Adjustments to reconcile net income to net
cash (used in) provided by operating activities: |
||||||||||||
Adjustments related to discontinued operations, net of tax |
(960,177 | ) | 909,452 | |||||||||
Depreciation and amortization |
1,717,491 | 2,265,338 | ||||||||||
Gain on sale of real estate |
(59,353 | ) | — | |||||||||
Loss on impairment (note 11) |
32,952 | — | ||||||||||
Changes in assets and liabilities: |
||||||||||||
Receivables, net |
(1,661,941 | ) | 5,074,575 | |||||||||
Costs and earnings in excess of billings |
348,288 | 573,549 | ||||||||||
Other current assets |
(416,708 | ) | (189,537 | ) | ||||||||
Other assets |
514,746 | (219,052 | ) | |||||||||
Trade and subcontractors payable |
807,075 | (2,941,661 | ) | |||||||||
Accrued expenses |
(2,648,068 | ) | (2,654,074 | ) | ||||||||
Billings in excess of costs and earnings |
(208,922 | ) | 709,168 | |||||||||
Other liabilities |
(137,039 | ) | 77,740 | |||||||||
Net cash (used in) provided by operating activities |
(1,265,564 | ) | 4,122,332 | |||||||||
Cash flows from investing activities: |
||||||||||||
Proceeds from sale of real estate |
407,837 | — | ||||||||||
Additions to properties, property, plant and equipment, net |
(420,212 | ) | (364,970 | ) | ||||||||
Changes in intangible assets |
(221,502 | ) | — | |||||||||
Acquisition, net of cash acquired |
(2,971,663 | ) | — | |||||||||
Repayments received on notes receivable |
91,710 | 94,657 | ||||||||||
Net cash used in investing activities |
(3,113,830 | ) | (270,313 | ) | ||||||||
Cash flows from financing activities: |
||||||||||||
Debt repayments |
(1,470,948 | ) | (911,531 | ) | ||||||||
Deferred loan costs paid |
(5,000 | ) | (5,000 | ) | ||||||||
Repurchase of capital stock |
(159,097 | ) | (53,330 | ) | ||||||||
Cash dividends |
(352,433 | ) | (352,209 | ) | ||||||||
Net cash used in financing activities |
(1,987,478 | ) | (1,322,070 | ) | ||||||||
Net (decrease) increase in cash and cash equivalents |
(6,366,872 | ) | 2,529,949 | |||||||||
Cash and cash equivalents at beginning of period |
11,448,750 | 7,268,974 | ||||||||||
Cash and cash equivalents at end of period |
$ | 5,081,878 | $ | 9,798,923 | ||||||||
Supplemental disclosure of noncash investing activities: |
||||||||||||
Transfer of real estate held for future development or sale to
property held for sale |
$ | 12,522,944 | $ | — | ||||||||
Transfer of property to real estate held for future development or sale |
$ | 321,710 | $ | — | ||||||||
Supplemental schedule of cash flow information |
||||||||||||
Interest paid, net of amounts capitalized |
$ | 3,095,571 | $ | 3,662,619 | ||||||||
Income taxes paid, net of refunds |
$ | 164,907 | $ | 203,255 | ||||||||
See accompanying notes to consolidated financial statements.
ABRAMS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002, AND APRIL 30, 2001
(UNAUDITED)
NOTE 1. UNAUDITED STATEMENTS
The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, the accompanying financial statements contain all adjustments, consisting of normal recurring accruals that are necessary for a fair statement of the results for the interim periods presented. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report to Shareholders for the year ended April 30, 2001. Results of operations for interim periods are not necessarily indicative of annual results.
NOTE 2. RECEIVABLES
All net contract and trade receivables are expected to be collected within one year.
NOTE 3. DISCONTINUED OPERATIONS
During the quarter ended January 31, 2000, the Board of Directors of the Company decided to discontinue the operations of the Manufacturing Segment. The remaining assets and liabilities of the Manufacturing Segment were consolidated and presented as Net liabilities of discontinued operations on the Consolidated Balance Sheet at April 30, 2001, which included a $2.76 million deferred gain, a current liability, related to the amount awarded to the Company in connection with the Georgia World Congress Center Authority’s condemnation of the Company’s former manufacturing facility. The award still was under appeal by both parties at April 30, 2001, but was settled in October 2001. Earnings from discontinued operations for the nine-month period ended January 31, 2002, represent the gain related to the condemnation.
NOTE 4. OPERATING SEGMENTS
In May 2001, the Company formed a third operating segment, Energy Management, and subsequently acquired substantially all of the assets of Servidyne Systems, Inc., an energy management and engineering services company. Through this new segment, the Company offers its institutional customers energy efficiency products and engineering services that reduce energy consumption, labor, equipment maintenance, and capital costs in commercial buildings.
The table below exhibits selected financial data on a segment basis. Earnings (loss) from continuing operations before income taxes is total revenue less operating expenses of continuing operations, including depreciation and interest. Parent expenses have not been allocated to the subsidiaries.
| Energy | |||||||||||||||||||||||||
| For the Quarter Ended January 31, 2002 | Construction | Real Estate | Management | Parent | Eliminations | Consolidated | |||||||||||||||||||
Revenues from unaffiliated customers |
$ | 20,388,024 | $ | 4,049,214 | $ | 734,084 | $ | — | $ | — | $ | 25,171,322 | |||||||||||||
Interest and other income |
6,766 | 28,175 | — | 3,234 | (1,701 | ) | 36,474 | ||||||||||||||||||
Intersegment revenue |
— | 115,245 | — | — | (115,245 | ) | — | ||||||||||||||||||
Total revenues from continuing operations |
$ | 20,394,790 | $ | 4,192,634 | $ | 734,084 | $ | 3,234 | $ | (116,946 | ) | $ | 25,207,796 | ||||||||||||
Earnings (loss) from continuing operations before income taxes |
$ | (230,878 | ) | $ | 450,733 | $ | (122,200 | ) | $ | (542,226 | ) | $ | 43,134 | $ | (401,437 | ) | |||||||||
| Energy | |||||||||||||||||||||||||
| For the Quarter Ended January 31, 2001 | Construction | Real Estate | Management | Parent | Eliminations | Consolidated | |||||||||||||||||||
Revenues from unaffiliated customers |
$ | 23,883,137 | $ | 3,520,721 | $ | — | $ | — | $ | — | $ | 27,403,858 | |||||||||||||
Interest and other income |
48,609 | 45,240 | — | 22,898 | — | 116,747 | |||||||||||||||||||
Intersegment revenue |
25,039 | 95,807 | — | — | (120,846 | ) | — | ||||||||||||||||||
Total revenues from continuing operations |
$ | 23,956,785 | $ | 3,661,768 | $ | — | $ | 22,898 | $ | (120,846 | ) | $ | 27,520,605 | ||||||||||||
Earnings (loss) from continuing operations before income taxes |
$ | (572,305 | ) | $ | (255,220 | ) | $ | — | $ | (593,266 | ) | $ | 15,723 | $ | (1,405,068 | ) | |||||||||
| Energy | |||||||||||||||||||||||||
| For the Nine Months Ended January 31, 2002 | Construction | Real Estate | Management | Parent | Eliminations | Consolidated | |||||||||||||||||||
Revenues from unaffiliated customers |
$ | 85,293,150 | $ | 10,477,259 | $ | 2,350,012 | $ | — | $ | — | $ | 98,120,421 | |||||||||||||
Interest and other income |
57,364 | 131,954 | — | 23,359 | (6,071 | ) | 206,606 | ||||||||||||||||||
Intersegment revenue |
— | 358,393 | — | — | (358,393 | ) | — | ||||||||||||||||||
Total revenues from continuing operations |
$ | 85,350,514 | $ | 10,967,606 | $ | 2,350,012 | $ | 23,359 | $ | (364,464 | ) | $ | 98,327,027 | ||||||||||||
Earnings (loss) from continuing operations before income taxes |
$ | (70,824 | ) | $ | 1,458,519 | $ | (7,331 | ) | $ | (2,099,011 | ) | $ | 150,722 | $ | (567,925 | ) | |||||||||
| Energy | |||||||||||||||||||||||||
| For the Nine Months Ended January 31, 2001 | Construction | Real Estate | Management | Parent | Eliminations | Consolidated | |||||||||||||||||||
Revenues from unaffiliated customers |
$ | 121,908,990 | $ | 9,745,907 | $ | — | $ | — | $ | — | $ | 131,654,897 | |||||||||||||
Interest and other income |
163,423 | 204,035 | — | 29,007 | — | 396,465 | |||||||||||||||||||
Intersegment revenue |
25,039 | 267,346 | — | — | (292,385 | ) | — | ||||||||||||||||||
Total revenues from continuing operations |
$ | 122,097,452 | $ | 10,217,288 | $ | — | $ | 29,007 | $ | (292,385 | ) | $ | 132,051,362 | ||||||||||||
Earnings (loss) from continuing operations before income taxes |
$ | 2,697,063 | $ | (293,392 | ) | $ | — | $ | (1,920,798 | ) | $ | 38,398 | $ | 521,271 | |||||||||||
NOTE 5. PROPERTY HELD FOR SALE
During the quarter ended October 31, 2001, the Company entered into an agreement to sell its shopping center in Englewood, Florida, which includes Kmart as one of its anchor tenants. During the current quarter, as speculation over a Kmart bankruptcy (see Note 11 to the Consolidated Financial Statements) increased, the buyer sought to renegotiate the terms of the contract for this sale. The Company did not agree to the proposed new terms of the contract, and the contract was terminated. The Company continues to market the center for sale. As of January 31, 2002, the book basis of the property, $12.5 million, has been classified as a current asset in Property held for sale; the related mortgage debt, $12.3 million, has been classified as a current liability in Current maturities of long-term debt. See “ITEM 2. Liquidity and capital resources” for further discussion regarding the debt on this property. The results of operations for the property are summarized below:
| THIRD QUARTER ENDED | FIRST NINE MONTHS ENDED | |||||||||||||||
| JANUARY 31, | JANUARY 31, | |||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||
Revenues |
$ | 579,999 | $ | 553,633 | $ | 1,511,770 | $ | 1,485,198 | ||||||||
Operating expenses, including depreciation only
for the quarter and nine-month period
ended January 31, 2001, and interest |
506,171 | 567,378 | 1,338,050 | 1,503,771 | ||||||||||||
Results of operations |
$ | 73,828 | $ | (13,745 | ) | $ | 173,720 | $ | (18,573 | ) | ||||||
NOTE 6. REAL ESTATE HELD FOR FUTURE SALE OR DEVELOPMENT
As of January 31, 2002, the Company’s shopping center, five outlots and expansion land in North Ft. Myers, Florida, were held for sale. The net book value of all of the combined property was $22.1 million. The results of operations for the property are summarized below:
| THIRD QUARTER ENDED | FIRST NINE MONTHS ENDED | |||||||||||||||
| JANUARY 31, | JANUARY 31, | |||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||
Revenues |
$ | 868,581 | $ | 824,041 | $ | 2,173,524 | $ | 2,106,451 | ||||||||
Operating expenses, including depreciation
for the quarter and nine-month period
ended January 31, 2001, and interest (1) |
527,316 | 892,614 | 1,332,680 | 2,153,352 | ||||||||||||
Results of operations |
$ | 341,265 | $ | (68,573 | ) | $ | 840,844 | $ | (46,901 | ) | ||||||
| (1) | Operating expenses for the third quarter and first nine months ended January 31, 2001, included interest expense of $334,127 and $1,003,598, respectively, and depreciation expense of $162,087 and $470,874, respectively. Operating expenses for the third quarter and first nine months ended January 31, 2002, included interest expense of $170,972 and $631,511, respectively. There was no depreciation expense in the third quarter or first nine months ended January 31, 2002. |
NOTE 7. EARNINGS PER SHARE
Basic earnings per share are computed by dividing net earnings by the weighted average shares outstanding during the reporting period. In May 2001, the Company issued 150,616 incentive stock options with an exercise price of $4.00 per share to certain employees. The options were not dilutive as of January 31, 2002.
NOTE 8. NEW ACCOUNTING PRONOUNCEMENTS
During June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”). Under the provisions of SFAS 141, all business combinations initiated after June 30, 2001, must be accounted for using the purchase method of accounting. The adoption of SFAS 141 is not expected to have a material impact on the Company’s financial statements.
Also during June 2001, the FASB issued Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). Under the provisions of SFAS 142, there will be no amortization of goodwill and other intangible assets that have indefinite useful lives. Instead, these assets must be tested for impairment annually and when events or changes in circumstances indicate that impairment may have occurred. The Company elected to adopt SFAS 142 as of May 1, 2001, and therefore goodwill and a trademark with an indefinite useful life acquired in the transaction described in Note 9 to the Consolidated Financial Statements have not been amortized.
During August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 supercedes FASB Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” In addition, SFAS 144 supercedes the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” for segments of a business to be disposed of. SFAS 144 addresses the treatment of assets held for sale or to be otherwise disposed of, the evaluation of impairment for long-lived assets, and the reporting of discontinued operations. The provisions of SFAS 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001. Under SFAS 144, beginning May 1, 2002, the Company will report any gains or losses recognized on sales of its real estate properties in discontinued operations. In addition, the results of operations of a property classified as held for sale will be reported in discontinued operations.
NOTE 9. ACQUISITION
In May 2001, the Company acquired substantially all of the assets and employed all of the personnel of an energy management and engineering services company, Servidyne Systems, Inc., and acquired certain intellectual property from an affiliated company, Servidyne, Incorporated, for approximately $3.1 million, including the costs associated with completing the acquisition, in an all cash transaction (the “Servidyne transaction”). This acquisition was accounted for as a purchase, and accordingly, the purchase price was allocated to the underlying assets acquired and liabilities assumed, based upon their estimated fair market values as of the date of acquisition. The results of operations related to the acquired assets have been included in the Company’s financial statements since May 2001. Servidyne has offered its expertise, products and services to its institutional customers for more than 28 years. In pursuit of growth and improved shareholder returns, the Company will seek opportunities to leverage Servidyne’s reservoir of knowledge in order to assist the now combined customer base in making building infrastructures more efficient.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
Current assets |
$ | 149,163 | |||
Furniture, fixtures and equipment |
13,321 | ||||
Intangible assets |
1,200,034 | ||||
Goodwill |
1,741,831 | ||||
Total assets acquired |
3,104,349 | ||||
Current liabilities |
(132,686 | ) | |||
Net assets acquired |
$ | 2,971,663 | |||
Of the $1,200,034 of acquired intangible assets, $315,261 was assigned to a registered trademark that is not subject to amortization. The remainder of the intangible assets consists of computer-based work management products (5-year weighted-average useful life) in the amount of $856,113, and other intangible assets of $28,660 (10-year useful life). The weighted-average useful life of all acquired intangible assets subject to amortization is 5 years.
The goodwill amount has been assigned to the Energy Management Segment. All of the goodwill is expected to be amortized and deductible for tax purposes.
The following table displays the consolidated unaudited current results for the quarter and nine-month period ended January 31, 2002, and the consolidated unaudited proforma results for the quarter and nine-month period ended January 31, 2001, as if the acquisition had been completed on May 1, 2000:
| THIRD QUARTER ENDED | FIRST NINE MONTHS ENDED | |||||||||||||||
| JANUARY 31, | JANUARY 31, | |||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||
| (actual) | (proforma) | (actual) | (proforma) | |||||||||||||
Revenues |
$ | 25,207,796 | $ | 28,221,924 | $ | 98,327,027 | $ | 134,155,319 | ||||||||
Net earnings |
$ | (220,169 | ) | $ | (722,016 | ) | $ | 1,406,092 | $ | 708,012 | ||||||
Net earnings per share |
$ | (.08 | ) | $ | (.25 | ) | $ | .48 | $ | .24 | ||||||
NOTE 10. GOODWILL AND OTHER INTANGIBLE ASSETS
The following table illustrates the treatment of acquired intangible assets as of January 31, 2002:
| Gross Carrying | |||||
| Amount | |||||
Amortized intangible assets |
|||||
Computer-based work management products |
$ | 856,113 | |||
Other |
28,660 | ||||
| $ | 884,773 | ||||
Unamortized intangible assets |
|||||
Goodwill |
$ | 1,741,831 | |||
Trademark |
315,261 | ||||
| $ | 2,057,092 | ||||
The gross carrying amounts and accumulated amortization for all of the Company’s intangible assets as of January 31, 2002, are as follows:
| Gross Carrying | Accumulated | ||||||||
| Amount | Amortization | ||||||||
Amortized intangible assets |
|||||||||
Computer-based work management products |
$ | 856,114 | $ | 142,559 | |||||
Computer software |
304,956 | 229,416 | |||||||
Real estate lease costs |
1,432,899 | 678,494 | |||||||
Deferred loan costs |
819,875 | 421,867 | |||||||
Other |
28,660 | 2,151 | |||||||
| $ | 3,442,504 | $ | 1,474,487 | ||||||
Unamortized intangible assets |
|||||||||
Goodwill |
$ | 1,741,831 | |||||||
Trademark |
315,261 | ||||||||
| $ | 2,057,092 | ||||||||
| Aggregate amortization expense for all amortized intangible assets: | |||||
For the quarter ended January 31, 2002 |
$ | 128,637 | |||
For the nine months ended January 31, 2002 |
$ | 413,100 | |||
| Estimated amortization expense for all amortized intangible assets for the fiscal year ended: | |||||
April 30, 2003 |
$ | 465,999 | |||
April 30, 2004 |
$ | 382,552 | |||
April 30, 2005 |
$ | 310,652 | |||
April 30, 2006 |
$ | 211,510 | |||
April 30, 2007 |
$ | 106,390 | |||
As the acquisition, which resulted in the recording of goodwill, occurred during the current fiscal year, no goodwill or resulting amortization was recorded in the previous fiscal year, and therefore no proforma amounts are required to provide comparability.
NOTE 11. KMART BANKRUPTCY
On January 22, 2002, Kmart Corporation filed for protection under Chapter 11 of the U.S. Bankruptcy Code. The Real Estate Segment has no outstanding rental payments currently past due from Kmart. Four of the Company’s seven owned retail properties contain stores leased to Kmart, two of which are freestanding stores. All four of the Company’s owned Kmart stores are currently open and operating. Of the nine freestanding Kmart stores that the Company developed, sold, leased back, and then sub-leased to Kmart, seven of the locations are currently open and operating. The Company has received notification that pursuant to its rights under Chapter 11, Kmart has terminated its leases for the Louisville, Kentucky, and West St. Paul, Minnesota, leaseback properties. Both locations were closed stores and together generated approximately $80,000 in pre-tax earnings in fiscal 2001. As of January 31, 2002, the Company recognized an impairment loss of approximately $33,000 for capitalized costs related to the West St. Paul location. The Company had no capitalized cost basis in the Louisville property.
The Bankruptcy Court has not provided the Company any further information as to whether any additional Kmart stores will be closed or which leases will be rejected or affirmed. Kmart has contacted the Company to request a reduction in rent for one leaseback location that is currently open. The Company has denied the request. This location generated approximately $54,000 in pre-tax earnings in fiscal 2001, and the Company has no capitalized costs related to this location.
The Company has the right to terminate its interest in each of its leaseback properties without further liability.
During the first two fiscal quarters ended October 31, 2001, the Company’s Construction Segment’s volume of work from Kmart declined to less than 0.4% of its total revenues compared to 2.0% for the prior fiscal year. The Company has earned no additional construction revenues from Kmart since October 31, 2001, and the Construction Segment has no uncollected Kmart receivables and no outstanding contracts to perform construction services for Kmart.
The Company sees no negative impact on its Energy Management Segment related to the bankruptcy.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Changes in CONSOLIDATED BALANCE SHEETS between April 30, 2001, and January 31, 2002.
Accounts receivable increased by $1,597,963 and Trade and subcontractors payable increased by $807,075, primarily because of the timing of the submission and payment of invoices for construction work performed.
Property held for sale increased by $12,474,002 and Real estate held for future development or sale decreased by $12,544,868, primarily as a result of the reclassification of the shopping center in Englewood, Florida (see Note 5 to the Consolidated Financial Statements) and the sale of an outparcel in the Company’s shopping center in North Ft. Myers, Florida.
Accrued expenses decreased by $2,767,454, primarily due to the payment of year-end accruals.
Deferred income taxes increased by $1,140,162 due to the accrual of income tax expense related to the recognition of the gain on the sale of the Company’s former manufacturing facility (see Note 3 to the Consolidated Financial Statements). The Company has deferred the gain for income tax purposes under Internal Revenue Code Section 1033, which allows a deferral of the tax liability if the Company utilizes the proceeds of the condemnation to purchase other real estate within three years after the close of the fiscal year in which any part of the gain upon condemnation is realized.
Current maturities of long-term debt increased by $12,078,505 and Mortgage notes payable decreased by $12,750,035, primarily due to the reclassification of the mortgage debt related to the shopping center in Englewood, Florida, as discussed above.
Results of operations of third quarter and first nine months of fiscal 2002 compared to third quarter and first nine months of fiscal 2001.
REVENUES from Continuing Operations
For the third quarter 2002, Consolidated REVENUES from continuing operations, including Interest income and Other income, and net of intersegment eliminations, were $25,207,796, compared to $27,520,605 for the third quarter 2001, a decrease of 8%. For the first nine months of fiscal 2002, Consolidated REVENUES from continuing operations were $98,327,027, compared to $132,051,362 for the first nine months of fiscal 2001, a decrease of 26%.
The figures in Chart A are Segment revenues from continuing operations, net of Intersegment eliminations, and do not include Interest income or Other income.
CHART A
REVENUE FROM CONTINUING OPERATIONS SUMMARY BY SEGMENT
(Dollars in Thousands)
| Third Quarter Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| January 31, | Amount | Percent | January 31, | Amount | Percent | |||||||||||||||||||||||||||
| Increase | Increase | Increase | Increase | |||||||||||||||||||||||||||||
| 2002 | 2001 | (Decrease) | (Decrease) | 2002 | 2001 | (Decrease) | (Decrease) | |||||||||||||||||||||||||
Construction(1) |
$ | 20,388 | $ | 23,883 | $ | (3,495 | ) | (15 | ) | $ | 85,293 | $ | 121,909 | $ | (36,616 | ) | (30 | ) | ||||||||||||||
Real Estate(2) |
4,049 | 3,521 | 528 | 15 | 10,477 | 9,746 | 731 | 8 | ||||||||||||||||||||||||
Energy Management(3) |
734 | — | 734 | — | 2,350 | — | 2,350 | — | ||||||||||||||||||||||||
| $ | 25,171 | $ | 27,404 | $ | (2,233 | ) | (8 | ) | $ | 98,120 | $ | 131,655 | $ | (33,535 | ) | (25 | ) | |||||||||||||||
NOTES TO CHART A
| (1) | REVENUES for the third quarter and first nine months 2002 were lower than those of the same periods of 2001, primarily due to a reduction in the number of construction jobs available, which is the result of a decrease or elimination of current capital spending by most of the Construction Segment’s existing customers. The Company anticipates this trend will continue in the short-term. During fiscal 2002, however, several new institutional customers have awarded jobs to the Construction Segment, as it continues its efforts to expand and diversify its customer base. | |
| (2) | REVENUES for the third quarter and first nine months 2002 include the sale of an outparcel at the Company’s shopping center in North Ft. Myers, Florida. There were no real estate sales in the prior year. | |
| (3) | The Energy Management Segment was formed in May 2001. See Note 9 to the Consolidated Financial Statements. |
The following table indicates the backlog of contracts and rental income for the next twelve months by industry segment.
| January 31, | |||||||||
| 2002 | 2001 | ||||||||
Construction (1) |
$ | 15,910,000 | $ | 33,145,000 | |||||
Real Estate (2) |
10,693,000 | 11,553,000 | |||||||
Energy Management (3) |
531,000 | — | |||||||
Total Backlog |
$ | 27,134,000 | $ | 44,698,000 | |||||
| (1) | See Note 1 to Chart A above. | |
| (2) | Included in the January 31, 2001, backlog is the rent related to the two Kmart leasebacks that were terminated (see Note 11 to the Consolidated Financial Statements), and the contract price for the pending sale of an outparcel. | |
| (3) | Any Energy Management contracts that can be cancelled with less than one year’s notice are not included in backlog. As of January 31, 2002, such contracts total $1.282 million in potential revenue over the next twelve months, assuming cancellation provisions are not invoked. |
COSTS AND EXPENSES: Applicable to REVENUES from Continuing Operations
As a percentage of total Segment REVENUES from Continuing Operations (See Chart A) for the third quarter 2002 and 2001, the total applicable COSTS AND EXPENSES (See Chart B) were 91% and 90%, respectively. As a percentage of total Segment REVENUES from Continuing Operations (See Chart A) for the first nine months 2002 and 2001, the total applicable COSTS AND EXPENSES were 92% and 91%, respectively.
The figures in Chart B are net of Intersegment eliminations.
CHART B
COSTS AND EXPENSES APPLICABLE TO REVENUES
FROM CONTINUING OPERATIONS SUMMARY BY SEGMENT
(Dollars in Thousands)
| Percent of Segment | Percent of Segment | |||||||||||||||||||||||||||||||
| Revenues For | Revenues For | |||||||||||||||||||||||||||||||
| Third Quarter Ended | Third Quarter Ended | Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
| January 31, | January 31, | January 31, | January 31, | |||||||||||||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | 2002 | 2001 | 2002 | 2001 | |||||||||||||||||||||||||
Construction(1) |
$ | 19,847 | $ | 22,417 | 97 | 94 | $ | 82,962 | $ | 114,457 | 97 | 94 | ||||||||||||||||||||
Real Estate |
2,494 | 2,252 | 62 | 64 | 5,752 | 5,630 | 55 | 58 | ||||||||||||||||||||||||
Energy Management(2) |
509 | — | 69 | — | 1,358 | — | 58 | — | ||||||||||||||||||||||||
| $ | 22,850 | $ | 24,669 | 91 | 90 | $ | 90,072 | $ | 120,087 | 92 | 91 | |||||||||||||||||||||
NOTES TO CHART B
| (1) | The increase in the percentage of COSTS AND EXPENSES: Applicable to REVENUES for third quarter 2002 compared to the same period of 2001 was primarily due to defaults by two subcontractors on two jobs. These defaults and intense competitive pressure on margins, which is a result of a significant decrease in the number of potentially available construction jobs due to the decline or absence of current capital spending by the Company’s customers, resulted in the increase in the percentage for the first nine months 2002. | |
| (2) | The Energy Management Segment was formed in May 2001. See Note 9 to the Consolidated Financial Statements. |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
FROM CONTINUING OPERATIONS
For the third quarter 2002 and 2001, Selling, general and administrative expenses from continuing operations, net of intersegment eliminations, were $1,649,890 and $2,927,072, respectively. As a percentage of Consolidated REVENUES from Continuing Operations, these expenses were 7% and 11%, respectively. For the first nine months 2002 and 2001, Selling, general and administrative expenses from continuing operations, net of intersegment eliminations, were $5,443,270 and $7,534,649, respectively. As a percentage of Consolidated REVENUES from Continuing Operations, these expenses were 6% for both periods. In reviewing Chart C, the reader should recognize that the volume of revenues generally will affect the amounts and percentages. The percentages in Chart C are based upon expenses as they relate to Segment REVENUES from Continuing Operations (Chart A), except that Parent and Total expenses relate to Consolidated REVENUES from Continuing Operations.
CHART C
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
FROM CONTINUING OPERATIONS
(Dollars in Thousands)
| Percent of Segment | Percent of Segment | |||||||||||||||||||||||||||||||
| Revenues For | Revenues For | |||||||||||||||||||||||||||||||
| Third Quarter Ended | Third Quarter Ended | Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
| January 31, | January 31, | January 31, | January 31, | |||||||||||||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | 2002 | 2001 | 2002 | 2001 | |||||||||||||||||||||||||
Construction(1) |
$ | 714 | $ | 2,001 | 4 | 8 | $ | 2,260 | $ | 4,697 | 3 | 4 | ||||||||||||||||||||
Real Estate(2) |
141 | 328 | 3 | 9 | 385 | 969 | 4 | 10 | ||||||||||||||||||||||||
Energy Management(3) |
346 | — | 47 | — | 994 | — | 42 | — | ||||||||||||||||||||||||
Parent |
449 | 598 | 2 | 2 | 1,804 | 1,869 | 2 | 1 | ||||||||||||||||||||||||
| $ | 1,650 | $ | 2,927 | 7 | 11 | $ | 5,443 | $ | 7,535 | 6 | 6 | |||||||||||||||||||||
NOTES TO CHART C
| (1) | On a dollar basis, Selling, general and administrative expenses were lower for third quarter and first nine months 2002 compared to the same period of 2001 primarily because of a reserve taken in 2001 for receivables due from Montgomery Ward & Co., Incorporated, which filed a petition for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, and decreases in personnel and incentive compensation costs in 2002. |
| (2) | On a dollar and percentage basis, Selling, general and administrative expenses were lower for third quarter and first nine months 2002 compared to the same periods of 2001 primarily due to a decrease in personnel costs associated with the Company’s outsourcing of its asset and property management functions. | |
| (3) | The Energy Management Segment was formed in May 2001. See Note 9 to the Consolidated Financial Statements. |
Liquidity and capital resources.
Between April 30, 2001, and January 31, 2002, working capital decreased by $159,159. Operating activities used cash of $1,265,564. Investing activities used cash of $3,113,830. Financing activities used cash of $1,987,478.
At January 31, 2002, the Company and its subsidiaries had available unsecured committed lines of credit totaling $12,000,000, of which none was outstanding, $11,500,000 was available, and $500,000 was reserved for a letter of credit issued as security for a mortgage loan on an Income-producing property. The letter of credit has been extended until November 2002, at which time it may be used to pay down the mortgage loan if certain leasing requirements are not attained.
As discussed in Note 5 to the Consolidated Financial Statements, the Company is marketing its shopping center in Englewood, Florida for sale. The $12.3 million related mortgage debt matures August 1, 2002. Although there can be no assurance that sufficient proceeds from a sale or refinancing will be available to pay off the loan before its maturity, the Company’s liability is limited to its interest in the property. Effective August 1, 2002, however, a subsidiary of the Company has guaranteed $1,000,000 of the debt if the loan has not been paid off prior to that date.
In October 2001, the maturity dates of the loans related to the Company’s shopping center in North Ft. Myers, Florida, and corporate headquarters office building in Atlanta, Georgia, were extended to February 2003. The Company currently plans to refinance the office building loan and sell the shopping center or refinance its loan prior to that date. There can be no assurance that sufficient proceeds from such refinancings or sale will be available to pay off these respective loans on or before the due dates.
Cautionary statement regarding forward-looking statements.
Certain statements contained or incorporated by reference in this Quarterly Report on Form 10-Q, including without limitation statements containing the words “believes,” “anticipates,” “expects,” and words of similar import, are forward-looking statements within the meaning of the federal securities laws. Such forward-looking statements involve known and unknown risks, uncertainties and other matters which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or uncertainties expressed or implied by such forward-looking statements. Many such risks, uncertainties and other matters are beyond the Company’s control. They include, but are not limited to: the impact of the Kmart Corporation bankruptcy; the possibility of not achieving projected backlog revenues or not realizing earnings from such revenues; the potential impact of factors beyond the control of the Company on future revenues and costs; changes in laws and regulations, including changes in accounting standards; the timing and amount of earnings recognition related to the possible sale of real estate properties held for sale; delays in customer orders; the timing
and amount of possible refinancings related to real estate properties; the level and volatility of interest rates; the potential loss of a significant customer; and the deterioration in the financial stability of an anchor tenant, significant subcontractor or significant customer.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See “ITEM 2. Liquidity and capital resources” for discussion regarding the debt on the Company’s shopping centers in Englewood, Florida, and North Ft. Myers, Florida, and its corporate headquarters office building in Atlanta, Georgia.
There have been no other material changes since April 30, 2001.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
| (a) | The Registrant has not filed any reports on Form 8-K during the quarter ended January 31, 2002. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
ABRAMS INDUSTRIES, INC. (Registrant) |
||
| Date: March 5, 2002 |
/s/ Alan R. Abrams Alan R. Abrams Chief Executive Officer |
|
| Date: March 5, 2002 |
/s/ Melinda S. Garrett Melinda S. Garrett Chief Financial Officer |