ABRAMS INDUSTRIES, INC.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended January 31, 2006
Commission file number 0-10146
ABRAMS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
|
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Georgia
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58-0522129 |
|
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|
(State or other jurisdiction of
|
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(I.R.S. Employer identification No.) |
incorporation or organization) |
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1945 The Exchange, Suite 300, Atlanta, GA 30339-2029
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (770) 953-0304
Former name, former address, former fiscal year, if changed since last report: 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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of accelerated filer
and large accelerated filer in Rule 12b-2 of the Exchange Act.
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Large
accelerated filer o
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Accelerated Filer o
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Non-accelerated filer þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
þ
The number of shares of $1.00 par value Common Stock of the Registrant outstanding as
of February 28, 2006, was 3,531,390.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
ABRAMS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
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|
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|
|
|
|
January 31, 2006 |
|
|
April 30, 2005 |
|
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|
|
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
4,248,730 |
|
|
$ |
1,402,645 |
|
Restricted cash |
|
|
|
|
|
|
8,272,399 |
|
Short-term investment |
|
|
2,000,000 |
|
|
|
2,000,000 |
|
Receivables (Note 4) |
|
|
2,753,740 |
|
|
|
2,721,051 |
|
Less: Allowance for doubtful accounts |
|
|
(12,701 |
) |
|
|
(69,801 |
) |
Assets of discontinued operations (Note 5) |
|
|
30,393 |
|
|
|
142,981 |
|
Costs and earnings in excess of billings |
|
|
252,612 |
|
|
|
312,781 |
|
Deferred income taxes |
|
|
558,327 |
|
|
|
552,953 |
|
Note receivables |
|
|
767,691 |
|
|
|
|
|
Other |
|
|
779,595 |
|
|
|
851,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
11,378,387 |
|
|
|
16,186,962 |
|
|
|
|
|
|
|
|
|
|
INCOME-PRODUCING PROPERTIES, net |
|
|
20,810,317 |
|
|
|
20,693,372 |
|
PROPERTY AND EQUIPMENT, net |
|
|
897,556 |
|
|
|
836,227 |
|
ASSETS OF DISCONTINUED OPERATIONS (Note 5) |
|
|
|
|
|
|
4,174,138 |
|
OTHER ASSETS: |
|
|
|
|
|
|
|
|
Real estate held for future development or sale |
|
|
3,087,710 |
|
|
|
3,692,731 |
|
Intangible assets, net (Note 8) |
|
|
3,041,143 |
|
|
|
2,794,558 |
|
Goodwill (Note 8) |
|
|
5,458,717 |
|
|
|
5,458,717 |
|
Notes
receivable (Note 9) |
|
|
3,516,306 |
|
|
|
23,500 |
|
Other |
|
|
3,642,532 |
|
|
|
3,206,967 |
|
|
|
|
|
|
$ |
51,832,668 |
|
|
$ |
57,067,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
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|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
Trade and subcontractors payables |
|
$ |
1,117,634 |
|
|
$ |
885,824 |
|
Accrued expenses |
|
|
1,753,539 |
|
|
|
1,789,502 |
|
Accrued incentive compensation |
|
|
|
|
|
|
1,089,369 |
|
Liabilities of discontinued operations (Note 5) |
|
|
57,890 |
|
|
|
326,188 |
|
Billings in excess of costs and earnings |
|
|
388,795 |
|
|
|
526,512 |
|
Current maturities of long-term debt |
|
|
1,145,074 |
|
|
|
1,119,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
4,462,932 |
|
|
|
5,736,760 |
|
|
|
|
|
|
|
|
|
|
DEFERRED INCOME TAXES |
|
|
3,331,289 |
|
|
|
3,460,151 |
|
OTHER LIABILITIES |
|
|
1,814,083 |
|
|
|
1,602,243 |
|
LIABILITIES OF DISCONTINUED OPERATIONS (Note 5) |
|
|
|
|
|
|
2,831,091 |
|
MORTGAGE NOTES PAYABLE, less current maturities |
|
|
20,054,077 |
|
|
|
20,736,098 |
|
OTHER LONG-TERM DEBT, less current maturities |
|
|
1,490,500 |
|
|
|
1,787,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
31,152,881 |
|
|
|
36,153,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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SHAREHOLDERS EQUITY: |
|
|
|
|
|
|
|
|
Common stock, $1 par value; 5,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
3,694,436 issued and 3,531,390 outstanding at January 31,
2006
(including 335,203 shares issued on October 11, 2005, as a stock
dividend),
3,357,601 issued and 3,209,113 outstanding at April 30, 2005 |
|
|
3,694,436 |
|
|
|
3,357,601 |
|
Additional paid-in capital |
|
|
4,800,028 |
|
|
|
3,067,982 |
|
Deferred stock compensation |
|
|
(2,823 |
) |
|
|
(14,162 |
) |
Retained earnings (Note 7) |
|
|
12,962,028 |
|
|
|
15,186,932 |
|
Treasury stock, common shares;
|
|
|
|
|
|
|
|
|
163,046 at January 31, 2006, and 148,488 at April 30, 2005 |
|
|
(773,882 |
) |
|
|
(684,942 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
20,679,787 |
|
|
|
20,913,411 |
|
|
|
|
|
|
$ |
51,832,668 |
|
|
$ |
57,067,172 |
|
|
|
|
See accompanying notes to consolidated financial statements.
1
ABRAMS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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THIRD QUARTER ENDED |
|
|
FIRST NINE MONTHS ENDED |
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JANUARY 31, |
|
|
JANUARY 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
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|
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy and facilities solutions |
|
$ |
971,079 |
|
|
$ |
839,864 |
|
|
$ |
2,865,031 |
|
|
$ |
2,670,159 |
|
Energy services |
|
|
1,925,207 |
|
|
|
2,478,420 |
|
|
|
5,894,848 |
|
|
|
6,434,818 |
|
Rental income |
|
|
1,540,032 |
|
|
|
1,415,138 |
|
|
|
4,584,054 |
|
|
|
6,778,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,436,318 |
|
|
|
4,733,422 |
|
|
|
13,343,933 |
|
|
|
15,883,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
42,953 |
|
|
|
20,612 |
|
|
|
141,044 |
|
|
|
59,172 |
|
Other |
|
|
64,959 |
|
|
|
6,635 |
|
|
|
318,830 |
|
|
|
42,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,544,230 |
|
|
|
4,760,669 |
|
|
|
13,803,807 |
|
|
|
15,985,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy and facilities solutions |
|
|
517,160 |
|
|
|
466,942 |
|
|
|
1,519,684 |
|
|
|
1,500,700 |
|
Energy services |
|
|
1,126,728 |
|
|
|
1,668,661 |
|
|
|
3,394,013 |
|
|
|
4,528,388 |
|
Rental property operating expenses, excluding interest |
|
|
1,014,922 |
|
|
|
981,195 |
|
|
|
2,978,542 |
|
|
|
3,233,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,658,810 |
|
|
|
3,116,798 |
|
|
|
7,892,239 |
|
|
|
9,262,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy and facilities solutions |
|
|
581,952 |
|
|
|
621,510 |
|
|
|
1,669,539 |
|
|
|
1,720,473 |
|
Energy services |
|
|
548,468 |
|
|
|
494,414 |
|
|
|
1,634,104 |
|
|
|
1,616,105 |
|
Real estate |
|
|
179,905 |
|
|
|
185,473 |
|
|
|
628,997 |
|
|
|
1,128,780 |
|
Parent |
|
|
759,749 |
|
|
|
626,969 |
|
|
|
2,395,344 |
|
|
|
2,227,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,070,074 |
|
|
|
1,928,366 |
|
|
|
6,327,984 |
|
|
|
6,693,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218,071 |
|
|
Interest costs incurred |
|
|
411,313 |
|
|
|
431,947 |
|
|
|
1,197,680 |
|
|
|
1,388,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,140,197 |
|
|
|
5,477,111 |
|
|
|
15,417,903 |
|
|
|
17,562,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAIN ON SALES OF REAL ESTATE, net of costs |
|
|
184,026 |
|
|
|
191,126 |
|
|
|
726,156 |
|
|
|
191,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES |
|
|
(411,941 |
) |
|
|
(525,316 |
) |
|
|
(887,940 |
) |
|
|
(1,386,254 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX BENEFIT |
|
|
(156,538 |
) |
|
|
(249,583 |
) |
|
|
(337,417 |
) |
|
|
(556,270 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM CONTINUING OPERATIONS |
|
|
(255,403 |
) |
|
|
(275,733 |
) |
|
|
(550,523 |
) |
|
|
(829,984 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED OPERATIONS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from discontinued operations, adjusted
for applicable income tax (benefit) expense of $(62,205),
$23,531, $(101,934), and $12,855, respectively |
|
|
(101,495 |
) |
|
|
27,493 |
|
|
|
(166,315 |
) |
|
|
(2,370 |
) |
Gain on sale of discontinued operations, adjusted
for applicable income tax expense of $521,230,
$0, $521,230, and $0, respectively |
|
|
850,428 |
|
|
|
|
|
|
|
850,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS
(LOSS) FROM DISCONTINUED OPERATIONS |
|
|
748,933 |
|
|
|
27,493 |
|
|
|
684,113 |
|
|
|
(2,370 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS (LOSS) |
|
$ |
493,530 |
|
|
$ |
(248,240 |
) |
|
$ |
133,590 |
|
|
$ |
(832,354 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS (LOSS) PER SHARE BASIC AND DILUTED: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations |
|
$ |
(.07 |
) |
|
$ |
(.08 |
) |
|
$ |
(.15 |
) |
|
$ |
(.24 |
) |
From discontinued operations |
|
|
.21 |
|
|
|
.01 |
|
|
|
.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
(LOSS) PER SHARE
BASIC AND DILUTED |
|
$ |
.14 |
|
|
$ |
(.07 |
) |
|
$ |
.04 |
|
|
$ |
(.24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS PER SHARE |
|
$ |
.04 |
|
|
$ |
.04 |
|
|
$ |
.11 |
|
|
$ |
.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING
BASIC AND DILUTED |
|
|
3,531,409 |
|
|
|
3,528,878 |
|
|
|
3,531,003 |
|
|
|
3,525,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
2
ABRAMS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
Deferred |
|
|
|
|
|
|
|
|
Common Stock |
|
Paid-In |
|
Stock |
|
Retained |
|
Treasury |
|
|
|
|
Shares |
|
Amount |
|
Capital |
|
Compensation |
|
Earnings |
|
Stock |
|
Total |
|
|
|
BALANCES at April 30, 2003 |
|
|
3,060,239 |
|
|
|
3,060,239 |
|
|
|
2,153,505 |
|
|
|
(16,598 |
) |
|
|
16,734,753 |
|
|
|
(673,947 |
) |
|
|
21,257,952 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,850,126 |
) |
|
|
|
|
|
|
(1,850,126 |
) |
Common stock acquired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued |
|
|
267,389 |
|
|
|
267,389 |
|
|
|
810,369 |
|
|
|
(41,700 |
) |
|
|
|
|
|
|
|
|
|
|
1,036,058 |
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,443 |
|
|
|
|
|
|
|
(5,836 |
) |
|
|
25,607 |
|
Cash
dividends declared - $.16 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(471,964 |
) |
|
|
|
|
|
|
(471,964 |
) |
|
|
|
BALANCES at April 30, 2004 |
|
|
3,327,628 |
|
|
|
3,327,628 |
|
|
|
2,963,874 |
|
|
|
(26,855 |
) |
|
|
14,412,663 |
|
|
|
(679,783 |
) |
|
|
19,997,527 |
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,800,358 |
|
|
|
|
|
|
|
1,800,358 |
|
Common stock acquired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued |
|
|
29,973 |
|
|
|
29,973 |
|
|
|
104,108 |
|
|
|
(39,175 |
) |
|
|
|
|
|
|
|
|
|
|
94,906 |
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,868 |
|
|
|
|
|
|
|
(5,159 |
) |
|
|
46,709 |
|
Cash dividends declared - $.32 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,026,089 |
) |
|
|
|
|
|
|
(1,026,089 |
) |
|
|
|
BALANCES at April 30, 2005 |
|
|
3,357,601 |
|
|
|
3,357,601 |
|
|
|
3,067,982 |
|
|
|
(14,162 |
) |
|
|
15,186,932 |
|
|
|
(684,942 |
) |
|
|
20,913,411 |
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133,590 |
|
|
|
|
|
|
|
133,590 |
|
Common stock issued |
|
|
900 |
|
|
|
900 |
|
|
|
3,555 |
|
|
|
(4,455 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,794 |
|
|
|
|
|
|
|
(1,376 |
) |
|
|
14,418 |
|
Stock option exercise |
|
|
732 |
|
|
|
732 |
|
|
|
2,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,928 |
|
Cash dividends declared -
$.11 per share (adjusted
for subsequent stock
dividend) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(384,560 |
) |
|
|
|
|
|
|
(384,560 |
) |
Stock dividend declared -
10% at market value
on date declared |
|
|
335,203 |
|
|
|
335,203 |
|
|
|
1,726,295 |
|
|
|
|
|
|
|
(1,973,934 |
) |
|
|
(87,564 |
) |
|
|
|
|
|
|
|
BALANCES at January 31, 2006 |
|
|
3,694,436 |
|
|
$ |
3,694,436 |
|
|
$ |
4,800,028 |
|
|
$ |
(2,823 |
) |
|
$ |
12,962,028 |
|
|
$ |
(773,882 |
) |
|
$ |
20,679,787 |
|
|
|
|
See
accompanying notes to consolidated financial statements.
3
ABRAMS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
NINE MONTHS ENDED |
|
|
|
JANUARY 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
|
CONTINUING OPERATIONS: |
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
133,590 |
|
|
$ |
(832,354 |
) |
(Earnings) loss from discontinued operations, net of tax |
|
|
(684,113 |
) |
|
|
2,370 |
|
Adjustments to reconcile net loss to net
cash used in operating activities: |
|
|
|
|
|
|
|
|
Gains on
sale of real estate, net of costs |
|
|
(726,156 |
) |
|
|
(191,126 |
) |
Depreciation and amortization |
|
|
1,012,919 |
|
|
|
1,336,339 |
|
Deferred tax benefit |
|
|
(134,236 |
) |
|
|
(613,868 |
) |
(Recovery
of) provision for doubtful accounts, net |
|
|
(57,100 |
) |
|
|
52,298 |
|
Extinguishment of debt |
|
|
|
|
|
|
218,071 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Receivables |
|
|
(31,909 |
) |
|
|
5,386 |
|
Costs and earnings in excess of billings |
|
|
60,169 |
|
|
|
140,034 |
|
Note receivables |
|
|
(510,497 |
) |
|
|
|
|
Other current assets |
|
|
87,427 |
|
|
|
(216,497 |
) |
Other assets |
|
|
(134,305 |
) |
|
|
(323,355 |
) |
Trade and subcontractors payable |
|
|
229,237 |
|
|
|
283,671 |
|
Accrued expenses |
|
|
(107,809 |
) |
|
|
(169,650 |
) |
Accrued incentive compensation |
|
|
(1,089,369 |
) |
|
|
|
|
Billings in excess of costs and earnings |
|
|
(137,717 |
) |
|
|
188,677 |
|
Other liabilities |
|
|
(67,136 |
) |
|
|
13,336 |
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(2,157,005 |
) |
|
|
(106,668 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Release of restricted cash held in escrow |
|
|
8,272,399 |
|
|
|
|
|
Proceeds from sale of real estate |
|
|
881,177 |
|
|
|
515,000 |
|
Proceeds from maturity of short-term investment |
|
|
|
|
|
|
200,000 |
|
Additions to income-producing properties, net |
|
|
(640,715 |
) |
|
|
(362,452 |
) |
Additions to property and equipment, net |
|
|
(190,059 |
) |
|
|
(450,482 |
) |
Additions to intangible assets, net |
|
|
(649,754 |
) |
|
|
(363,101 |
) |
Acquisition, net of cash acquired |
|
|
|
|
|
|
(183,224 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
7,673,048 |
|
|
|
(644,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Debt restructuring |
|
|
|
|
|
|
(1,974,042 |
) |
Debt principal repayments |
|
|
(932,448 |
) |
|
|
(690,196 |
) |
Deferred loan costs paid |
|
|
|
|
|
|
(50,000 |
) |
Cash received on stock option exercise |
|
|
2,928 |
|
|
|
|
|
Cash dividends |
|
|
(384,560 |
) |
|
|
(897,773 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(1,314,080 |
) |
|
|
(3,612,011 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED OPERATIONS: |
|
|
|
|
|
|
|
|
Operating activities |
|
|
(554,697 |
) |
|
|
1,739,325 |
|
Investing activities |
|
|
2,048,866 |
|
|
|
(71,745 |
) |
Financing activities |
|
|
(2,850,047 |
) |
|
|
(177,088 |
) |
|
|
|
|
|
|
|
Net cash (used in) provided by discontinued operations |
|
|
(1,355,878 |
) |
|
|
1,490,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
2,846,085 |
|
|
|
(2,872,446 |
) |
Cash and cash equivalents at beginning of period |
|
|
1,402,645 |
|
|
|
6,379,679 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
4,248,730 |
|
|
$ |
3,507,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash financing activities: |
|
|
|
|
|
|
|
|
Issuance of common stock under Stock Award Plan |
|
$ |
4,455 |
|
|
$ |
7,500 |
|
See accompanying notes to consolidated financial statements.
4
ABRAMS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2006, AND APRIL 30, 2005
(UNAUDITED)
NOTE 1. ORGANIZATION AND BUSINESS
Abrams Industries, Inc. (together with its subsidiaries, the Company) was organized under
Delaware law in 1960. In 1984, the Company changed its state of incorporation from Delaware to
Georgia. The Company (i) provides energy engineering and analytical consulting services and
develops, implements and supports facility management software applications; (ii) implements energy
saving lighting programs and provides other energy services, including facility related
improvements that reduce energy and operating costs; and (iii) engages in real estate investment
and development.
NOTE 2. UNAUDITED STATEMENTS
The accompanying unaudited consolidated financial statements have been prepared by the Company in
accordance with accounting principles generally accepted in the United States of America, 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 accompanying
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 Companys Annual Report on Form 10-K for the year
ended April 30, 2005. Results of operations for interim periods are not necessarily indicative of
annual results.
Certain reclassifications have been made to the fiscal 2005 consolidated financial statements to
conform to the classifications adopted in 2006.
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES
For purposes of the required pro forma disclosures required by Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, as amended by SFAS 148,
Accounting for Stock-Based Compensation Transition and Disclosure, the Company has computed the
value of all stock option awards granted for the quarter ended January 31, 2006, and January 31,
2005, using the Black-Scholes option pricing model.
If the Company had accounted for its stock-based compensation awards in accordance with SFAS 123,
pro forma results would have been as follows:
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
Nine Months |
|
|
Ended January 31, |
|
Ended January 31, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
|
|
|
|
Net earnings (loss), as reported |
|
$ |
493,530 |
|
|
$ |
(248,240 |
) |
|
$ |
133,590 |
|
|
$ |
(832,354 |
) |
Add: Stock-based compensation |
|
|
4,913 |
|
|
|
13,887 |
|
|
|
21,000 |
|
|
|
48,568 |
|
Deduct: Total stock-based compensation
expense as determined under fair value
based method for all awards, net of
related tax effects |
|
|
(20,184 |
) |
|
|
(31,622 |
) |
|
|
(78,869 |
) |
|
|
(138,904 |
) |
Add: Forfeitures, net of related tax effects |
|
|
|
|
|
|
1,128 |
|
|
|
9,659 |
|
|
|
47,663 |
|
|
|
|
|
|
Pro forma net earnings (loss) |
|
$ |
478,259 |
|
|
$ |
(264,847 |
) |
|
$ |
85,380 |
|
|
$ |
(875,027 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted as reported |
|
$ |
0.14 |
|
|
$ |
(0.07 |
) |
|
$ |
0.04 |
|
|
$ |
(0.24 |
) |
|
|
|
|
|
Basic and diluted pro forma |
|
$ |
0.14 |
|
|
$ |
(0.08 |
) |
|
$ |
0.02 |
|
|
$ |
(0.25 |
) |
|
|
|
|
|
The Company adjusted the stock awards and stock options previously awarded for the 10% stock
dividend declared and distributed during the quarter ended October 31, 2005 (See Note 7). All
share amounts have been adjusted on a prospective basis to reflect the stock dividend.
Options to purchase 773,890 shares were outstanding at January 31, 2006, of which 646,868 options
were vested. The Company did not grant any stock options or shares of restricted stock for the
quarters ended January 31, 2006, and January 31, 2005. The Company granted 4,000 stock options and
900 shares of restricted stock for the first nine months ended January 31, 2006, and granted 84,900
stock options and 7,500 shares of restricted stock for the first nine months ended January 31,
2005. The number of stock options forfeited in the quarters ended January 31, 2006, and January 31,
2005, was 0 and 2,200, respectively. The number of stock options forfeited in the first nine
months ended January 31, 2006, and January 31, 2005, was 16,248 and 68,200, respectively. There
were 4,028 stock options that were in-the-money and exercisable as of January 31, 2006. The
number of shares of unvested and restricted stock forfeited in the quarters ended January 31, 2006,
and January 31, 2005, was 110 and 0, respectively. The number of shares of unvested and restricted
stock forfeited in the first nine months ended January 31, 2006, and January 31, 2005, was 320 and
700, respectively.
NOTE 4. RECEIVABLES
All net contract and trade receivables are expected to be collected within one year.
NOTE 5. DISCONTINUED OPERATIONS
Construction Segment
During fiscal 2004, the Company made the decision to curtail its operations as a general
contractor, and pursuant to this decision, all operating activities were ceased. The former
Construction Segment has been classified as a discontinued operation.
Real Estate Sales of Income-Producing Properties
The Company is in the business of creating long-term value by periodically realizing gains through
the sale of existing real estate assets, and then redeploying its capital by reinvesting the
proceeds from such sales. Effective May 1, 2002, the Company adopted SFAS 144, Accounting for the
Impairment or
6
====================================================================================================================================
Disposal of Long-Lived Assets, which requires, among other things, that the operating results of
certain income-producing assets, sold subsequent to April 30, 2002, be included in discontinued
operations in the statements of operations for all periods presented. The Company classifies an
asset as held for sale when the asset is under a binding sales contract with minimal contingencies,
and the buyer is materially at risk if the buyer fails to complete the transaction. However, each
potential transaction is evaluated based on its separate facts and circumstances. Pursuant to this
standard, as of January 31, 2006, the Company had no assets that were classified as held for sale.
On January 30, 2006, the Company sold its professional medical office building located in
Douglasville, Georgia, which the Company had acquired in April 2004, and recognized a pre-tax gain on the sale of approximately $1.37 million. On April 18,
2005, the Company sold its shopping center located in Jackson, Michigan, and recognized a pre-tax
gain of approximately $4.1 million. On February 9, 2005, the Company sold its shopping center in
Cincinnati, Ohio, and recognized a pre-tax gain of approximately $850,000. As a result of these
transactions, the Companys financial statements have been prepared with the assets, liabilities,
results of operations, cash flows, and the gains on the sales of these properties shown as
discontinued operations. All historical statements have been restated in accordance with SFAS 144.
Summarized financial information for discontinued operations for the quarters and nine month
periods ended January 31, 2006, and 2005, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended |
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
January 31, |
|
January 31, |
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
$ |
|
|
|
$ |
|
|
|
$ |
40 |
|
|
$ |
145,513 |
|
|
|
|
|
|
|
|
|
Rental properties |
|
|
178,634 |
|
|
|
552,472 |
|
|
|
513,103 |
|
|
|
1,513,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
178,634 |
|
|
|
552,472 |
|
|
|
513,143 |
|
|
|
1,659,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction cost and expenses |
|
|
|
|
|
|
|
|
|
|
(25,964 |
) |
|
|
114,734 |
|
|
|
|
|
|
|
|
|
Rental property operating expenses,
including depreciation |
|
|
111,708 |
|
|
|
406,706 |
|
|
|
386,058 |
|
|
|
1,060,357 |
|
|
|
|
|
|
|
|
|
Interest expense and prepayment fees |
|
|
201,380 |
|
|
|
113,409 |
|
|
|
319,983 |
|
|
|
343,266 |
|
|
|
|
|
|
|
|
|
Construction selling, general & administrative |
|
|
29,246 |
|
|
|
(18,667 |
) |
|
|
101,315 |
|
|
|
130,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
342,334 |
|
|
|
501,448 |
|
|
|
781,392 |
|
|
|
1,648,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from discontinued operations |
|
|
(163,700 |
) |
|
|
51,024 |
|
|
|
(268,249 |
) |
|
|
10,485 |
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense |
|
|
(62,205 |
) |
|
|
23,531 |
|
|
|
(101,934 |
) |
|
|
12,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from discontinued operations, net of tax |
|
|
(101,495 |
) |
|
|
27,493 |
|
|
|
(166,315 |
) |
|
|
(2,370 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale from real estate |
|
|
1,371,658 |
|
|
|
|
|
|
|
1,371,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
521,230 |
|
|
|
|
|
|
|
521,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale from real estate, net of tax |
|
|
850,428 |
|
|
|
|
|
|
|
850,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued operations, net of tax |
|
$ |
748,933 |
|
|
$ |
27,493 |
|
|
$ |
684,113 |
|
|
$ |
(2,370 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Balances at |
Assets of
discontinued operations |
|
January 31, 2006 |
|
April 30, 2005 |
|
|
|
Receivables, net |
|
$ |
|
|
|
$ |
101,257 |
|
|
|
|
|
|
|
|
|
|
Other current assets |
|
|
30,393 |
|
|
|
41,724 |
|
Income-producing properties |
|
|
|
|
|
|
3,720,273 |
|
Intangible assets |
|
|
|
|
|
|
369,714 |
|
Other assets |
|
|
|
|
|
|
84,151 |
|
|
|
|
|
|
$ |
30,393 |
|
|
$ |
4,317,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at |
Liabilities
of discontinued operations |
|
January 31, 2006 |
|
April 30, 2005 |
|
|
|
Trade and subcontractors payables |
|
$ |
26,721 |
|
|
$ |
76,723 |
|
Accrued expenses |
|
|
31,169 |
|
|
|
194,123 |
|
Current maturities of long-term debt |
|
|
|
|
|
|
55,342 |
|
Mortgage notes payable |
|
|
|
|
|
|
2,831,091 |
|
|
|
|
|
|
$ |
57,890 |
|
|
$ |
3,157,279 |
|
|
|
|
NOTE 6. OPERATING SEGMENTS
The Company has three operating segments: Energy and Facilities Solutions, Energy Services, and
Real Estate. The table below shows selected financial data on a segment basis. Net earnings
(loss) is total revenues less operating expenses, including depreciation, interest, and income
taxes. In this presentation, management fee expense charged by the Parent Company has not been
allocated to the subsidiaries.
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy and |
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended January 31, 2006 |
|
Facilities Solutions |
|
Energy Services |
|
Real Estate |
|
Parent |
|
Eliminations |
|
Consolidated |
|
|
|
|
|
|
(1) |
|
|
|
|
|
|
|
|
|
Revenues from unaffiliated
customers |
|
$ |
971,079 |
|
|
$ |
1,925,207 |
|
|
$ |
1,540,032 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,436,318 |
|
Interest and other income |
|
|
205 |
|
|
|
24,340 |
|
|
|
254,811 |
|
|
|
10,948 |
|
|
|
(182,392 |
) |
|
|
107,912 |
|
Intersegment revenue |
|
|
|
|
|
|
|
|
|
|
134,613 |
|
|
|
|
|
|
|
(134,613 |
) |
|
|
|
|
|
|
|
Total revenues from
continuing operations |
|
$ |
971,284 |
|
|
$ |
1,949,547 |
|
|
$ |
1,929,456 |
|
|
$ |
10,948 |
|
|
$ |
(317,005 |
) |
|
$ |
4,544,230 |
|
|
|
|
Net earnings (loss)(2) |
|
$ |
(147,771 |
) |
|
$ |
76,852 |
|
|
$ |
1,106,748 |
|
|
$ |
(547,322 |
) |
|
$ |
3,497 |
|
|
$ |
492,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy and |
|
|
|
|
|
Real Estate |
|
|
|
|
|
|
For the Quarter Ended January 31, 2005 |
|
Facilities Solutions |
|
Energy Services |
|
(1) |
|
Parent |
|
Eliminations |
|
Consolidated |
|
|
|
Revenues from unaffiliated
customers |
|
$ |
839,864 |
|
|
$ |
2,478,420 |
|
|
$ |
1,415,138 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,733,422 |
|
Interest and other income |
|
|
|
|
|
|
(8,100 |
) |
|
|
88,008 |
|
|
|
6,717 |
|
|
|
(59,378 |
) |
|
|
27,247 |
|
Intersegment revenue |
|
|
14,867 |
|
|
|
|
|
|
|
113,599 |
|
|
|
|
|
|
|
(128,466 |
) |
|
|
|
|
|
|
|
Total revenues from
continuing operations |
|
$ |
854,731 |
|
|
$ |
2,470,320 |
|
|
$ |
1,616,745 |
|
|
$ |
6,717 |
|
|
$ |
(187,844 |
) |
|
$ |
4,760,669 |
|
|
|
|
Net (loss) earnings (2) |
|
$ |
(192,317 |
) |
|
$ |
109,093 |
|
|
$ |
266,944 |
|
|
$ |
(550,941 |
) |
|
$ |
111,550 |
|
|
$ |
(255,671 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy and |
|
|
|
|
|
Real Estate |
|
|
|
|
|
|
For the Nine Months Ended January 31, 2006 |
|
Facilities Solutions |
|
|
Energy Services |
|
|
(1) |
|
Parent |
|
Eliminations |
|
Consolidated |
|
|
|
Revenues from unaffiliated
customers |
|
$ |
2,865,031 |
|
|
$ |
5,894,848 |
|
|
$ |
4,584,054 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
13,343,933 |
|
Interest and other income |
|
|
1,938 |
|
|
|
33,870 |
|
|
|
827,428 |
|
|
|
24,588 |
|
|
|
(427,950 |
) |
|
|
459,874 |
|
Intersegment revenue |
|
|
|
|
|
|
|
|
|
|
396,506 |
|
|
|
|
|
|
|
(396,506 |
) |
|
|
|
|
|
|
|
Total revenues from
continuing operations |
|
$ |
2,866,969 |
|
|
$ |
5,928,718 |
|
|
$ |
5,807,988 |
|
|
$ |
24,588 |
|
|
$ |
(824,456 |
) |
|
$ |
13,803,807 |
|
|
|
|
Net earnings (loss)(2) |
|
$ |
(405,211 |
) |
|
$ |
313,081 |
|
|
$ |
1,901,083 |
|
|
$ |
(1,631,518 |
) |
|
$ |
(3,838 |
) |
|
$ |
173,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy and |
|
|
|
|
|
Real Estate |
|
|
|
|
|
|
For the Nine Months Ended January 31, 2005 |
|
Facilities Solutions |
|
Energy Services |
|
(1) |
|
Parent |
|
Eliminations |
|
Consolidated |
|
|
|
Revenues from unaffiliated
customers |
|
$ |
2,670,159 |
|
|
$ |
6,434,818 |
|
|
$ |
6,778,226 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
15,883,203 |
|
Interest and other income |
|
|
|
|
|
|
3,025 |
|
|
|
236,415 |
|
|
|
21,923 |
|
|
|
(159,492 |
) |
|
|
101,871 |
|
Intersegment revenue |
|
|
14,867 |
|
|
|
|
|
|
|
371,352 |
|
|
|
|
|
|
|
(386,219 |
) |
|
|
|
|
|
|
|
Total revenues from
continuing operations |
|
$ |
2,685,026 |
|
|
$ |
6,437,843 |
|
|
$ |
7,385,993 |
|
|
$ |
21,923 |
|
|
$ |
(545,711 |
) |
|
$ |
15,985,074 |
|
|
|
|
Net (loss) earnings (2) |
|
$ |
(410,899 |
) |
|
$ |
(50,897 |
) |
|
$ |
1,291,694 |
|
|
$ |
(1,854,624 |
) |
|
$ |
262,962 |
|
|
$ |
(761,764 |
) |
|
|
|
9
|
(1) |
|
The Company is in the business of creating long-term value by periodically realizing gains
through the sale of income-producing properties. The Real Estate Segments net earnings
include results from income-producing properties that are reflected as discontinued
operations pursuant to SFAS 144, including gains on the sale of those properties. |
|
|
(2) |
|
The Company has changed its measurement of profit or loss previously disclosed from net
earnings (loss) from continuing operations before income taxes to net earnings (loss). The
chief executive officer uses this measurement to analyze each Segments operating
performance. |
The following is a reconciliation of Segment net earnings (loss) shown in the table above to
consolidated net earnings (loss) on the statements of operations for the quarters and nine months
ended January 31, 2006, and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Nine Months Ended |
|
|
|
January 31, |
|
|
January 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Consolidated Segment net earnings (loss) |
|
$ |
492,004 |
|
|
$ |
(255,671 |
) |
|
$ |
173,597 |
|
|
$ |
(761,764 |
) |
Discontinued Construction Segment net earnings (loss) |
|
|
1,526 |
|
|
|
80,716 |
|
|
|
(40,007 |
) |
|
|
(70,590 |
) |
Eliminations related to Construction Segment |
|
|
|
|
|
|
(73,285 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net earnings (loss) |
|
$ |
493,530 |
|
|
$ |
(248,240 |
) |
|
$ |
133,590 |
|
|
$ |
(832,354 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 7. EARNINGS (LOSS) PER SHARE
Basic earnings per share are computed by dividing net earnings (loss) by the weighted average
shares outstanding during the reporting period. Diluted earnings per share are computed giving
effect to dilutive stock equivalents resulting from outstanding stock options and stock warrants.
The dilutive effect on the number of common shares for the third quarter and for the first nine
months of fiscal 2006 was 626 and 67,541 shares, respectively, and was 711 and 287 shares,
respectively, for the third quarter and for the first nine months of fiscal 2005. Since the
Company had a loss from continuing operations for all periods presented, all stock equivalents were
antidilutive during these periods, and therefore, are excluded when determining the diluted
weighted average shares outstanding.
On August 25, 2005, the Company awarded a stock dividend of ten percent (10%) to all shareholders
of record on September 27, 2005. On October 11, 2005, the Company issued 335,203 shares of stock
pursuant to the stock dividend. Earnings (loss) per share have been adjusted retroactively to
present the shares issued, including the shares pursuant to the stock dividend, as outstanding for
all periods presented.
10
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
The gross carrying amounts and accumulated amortization for all of the Companys intangible assets
as of January 31, 2006, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
Amortized intangible assets: |
|
|
|
|
|
|
|
|
Proprietary facility management
software applications |
|
$ |
2,253,051 |
|
|
$ |
774,614 |
|
Computer software |
|
|
415,085 |
|
|
|
391,719 |
|
Real estate lease costs |
|
|
1,184,633 |
|
|
|
715,443 |
|
Customer relationships |
|
|
218,000 |
|
|
|
90,833 |
|
Deferred loan costs |
|
|
751,547 |
|
|
|
535,984 |
|
Other |
|
|
55,608 |
|
|
|
36,895 |
|
|
|
|
|
|
|
|
|
|
$ |
4,877,924 |
|
|
$ |
2,545,488 |
|
|
|
|
|
|
|
|
|
Unamortized intangible assets: |
|
|
|
|
|
|
|
|
Trademark |
|
$ |
708,707 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
5,458,717 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense for all amortized intangible assets |
|
For the three months ended January 31, 2006 |
|
$ |
145,068 |
|
For the nine months ended January 31, 2006 |
|
|
394,833 |
|
For the three months ended January 31, 2005 |
|
|
136,817 |
|
For the nine months ended January 31, 2005 |
|
|
408,652 |
|
The Company tested goodwill impairment and intangible assets, with indefinite useful lives
related to its Energy Services Segment as of December 19, 2005, for impairment, as required by SFAS
142, utilizing the estimated discounted cash flows. The analysis did not result in an impairment.
NOTE 9. DISPOSITIONS
On January 30, 2006, the Company closed on the sale of its medical office building in Douglasville,
Georgia, which it had acquired in April 2004, for a sales price of $5.5 million, resulting in a pre-tax gain of approximately $1.37
million. The Company provided financing for a portion of the transaction and recorded a note
receivable in the amount of $3.3 million, bearing interest at an annual rate of 5.5%, commencing on
March 1, 2006, with interest only payments due monthly until maturity on May 31, 2006. The $3.3
million is included in notes receivable on the accompanying balance sheet. After selling expenses
and the repayment of the mortgage note payable, the sale generated proceeds of approximately $2.5
million. The Company currently intends to use the net proceeds from this sale to acquire an
additional income producing property, which would qualify the sale under Internal Revenue Code
Section 1031 for federal income tax deferral, and has assigned the note receivable to a third party
intermediary in connection therewith.
On December 22, 2005, the Company closed on the sale of a 4.7 acre tract of land in Louisville,
Kentucky, for a sales price of approximately $270,000, resulting in a pre-tax gain of approximately
$185,000. After selling expenses, the sale generated proceeds of approximately $265,000.
On October 28, 2005, the Company closed on the sale of one of its outparcels located in North Fort
11
Myers, Florida, for a sales price of $625,000, resulting in a pre-tax gain of approximately
$296,000. After selling expenses, the sale generated proceeds of approximately $577,000 of which
$450,000 was recorded as a note receivable, bearing interest at an annual rate of 7.25%, commencing
on December 1, 2005, with interest only payments due monthly until maturity on April 28, 2006.
On October 21, 2005, the Company closed on the sale of one of its outparcels located in North Fort
Myers, Florida, for a sales price of approximately $529,000, resulting in a pre-tax gain of
approximately $246,000. After selling expenses, the sale generated net cash proceeds of
approximately $488,000.
NOTE 10. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and other claims that arise in the ordinary course of
business. While the resolution of these matters cannot be predicted with certainty, the Company
believes that the final outcome of these matters will not have a material adverse effect on the
Companys financial position or results of operations.
NOTE 11. SUBSEQUENT EVENT
The Company has entered into a contract to sell an approximately seven acre parcel of land in North
Fort Myers, Florida, at a gain. The contract specifies a closing date in fiscal 2006. The sale is
subject to customary conditions, and there can be no assurance that the contract will close.
The Company has entered into a contract to sell the Companys leaseback interest in a shopping
center located in Bayonet Point, Florida, at a gain. The contract specifies a closing date in
fiscal 2006. The sale is subject to customary conditions, and there can be no assurance that the
contract will close.
12
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements,
including the notes to those statements, which are presented elsewhere in this report. The Company
also recommends that this discussion and analysis be read in conjunction with the managements
discussion and analysis section and the consolidated financial statements included in the Companys
Annual Report on Form 10-K for the year ended April 30, 2005.
The Companys fiscal year 2006 ends April 30, 2006.
In the following charts, changes in revenues, costs and expenses and changes in selling, general
and administrative expenses from period to period are analyzed on both segment and consolidated
basis. For net earnings and similar profit information on a consolidated basis, please see the
Companys consolidated financial statements.
Pursuant to SFAS 144, the figures shown in the following charts for all periods presented do not
include Real Estate Segment revenues, cost and expenses, and selling, general and administrative
expenses, generated by certain owned income-producing properties which have been sold, including
the gains on the sale of these properties; such amounts have been reclassified to discontinued
operations. See Critical Accounting Policies Discontinued Operations later in this discussion
and analysis section.
Results of operations of the third quarter and first nine months of fiscal 2006, compared to
the third quarter and first nine months of fiscal 2005
REVENUES From Continuing Operations
For the third quarter of fiscal 2006, consolidated revenues from continuing operations, including
interest income and other income, and net of intersegment
eliminations, were $4,544,230 compared
to $4,760,669 for the third quarter of fiscal 2005, a decrease of 5%. For the first nine months of
fiscal 2006, consolidated revenues from continuing operations were
$13,803,807, compared to
$15,985,074 for the first nine months of fiscal 2005, a decrease of 14%.
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
REVENUES FROM CONTINUING OPERATIONS BY SEGMENT
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended |
|
|
Amount |
|
|
Percent |
|
|
Nine Months Ended |
|
|
Amount |
|
|
Percent |
|
|
|
January 31, |
|
|
Increase |
|
|
Increase |
|
|
January 31, |
|
|
Increase |
|
|
Increase |
|
|
|
2006 |
|
|
2005 |
|
|
(Decrease) |
|
|
(Decrease) |
|
|
2006 |
|
|
2005 |
|
|
(Decrease) |
|
|
(Decrease) |
|
|
|
|
Energy and Facilities
Solutions(1) |
|
$ |
971 |
|
|
$ |
840 |
|
|
$ |
131 |
|
|
|
16 |
|
|
$ |
2,865 |
|
|
$ |
2,670 |
|
|
$ |
195 |
|
|
|
7 |
|
Energy Services (2) |
|
|
1,925 |
|
|
|
2,478 |
|
|
|
(553 |
) |
|
|
(22 |
) |
|
|
5,895 |
|
|
|
6,435 |
|
|
|
(540 |
) |
|
|
(8 |
) |
Real Estate (3) |
|
|
1,540 |
|
|
|
1,415 |
|
|
|
125 |
|
|
|
9 |
|
|
|
4,584 |
|
|
|
6,778 |
|
|
|
(2,194 |
) |
|
|
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,436 |
|
|
$ |
4,733 |
|
|
$ |
(297 |
) |
|
|
(6 |
) |
|
$ |
13,344 |
|
|
$ |
15,883 |
|
|
$ |
(2,539 |
) |
|
|
(16 |
) |
|
|
|
13
NOTES TO CHART A
(1) |
|
Energy and Facilities Solutions revenues from continuing operations increased $131,000 or
16% for the third quarter of fiscal 2006, and $195,000 or 7% for the first nine months of
fiscal 2006, compared to the same periods in fiscal 2005, primarily due to: |
|
(a) |
|
an increase in revenues related to energy engineering services of
approximately $102,000 and $93,000, in the third quarter of fiscal 2006 and for the
first nine months of fiscal 2006, respectively; and |
|
|
(b) |
|
an increase in revenues related to the installation of the Companys
proprietary facility management software applications of approximately $63,000 and
$151,000, in the third quarter and for the first nine months of fiscal 2006,
respectively. |
(2) |
|
Energy Services revenues from continuing operations decreased $553,000 or 22% for the third
quarter of fiscal 2006, compared to the same period in fiscal 2005, because the fiscal 2005
period included revenues from two large contracts in the education and government sector. |
|
|
|
Energy Services revenues from continuing operations decreased $540,000 or 8% for the first
nine months of fiscal 2006, compared to the same period in fiscal 2005, primarily due to: |
|
(a) |
|
revenues from two large contracts in fiscal 2005 in the education and
government sector; |
offset by:
|
(b) |
|
the recognition of approximately $660,000 in revenues in the first
quarter of fiscal 2006 from a consulting services contract that was substantially
performed in prior periods and did not have any associated costs and expenses (See
Chart B). |
(3) |
|
Real estate revenues from continuing operations increased $125,000 or 9% for the third
quarter of fiscal 2006, compared to the same period in fiscal 2005, primarily due to an
increase in rental income in fiscal 2006 related to increased occupancy. |
|
|
|
Real estate revenues from continuing operations decreased $2,194,000 or 32% for the first
nine months of fiscal 2006, compared to the same period in fiscal 2005, primarily due to: |
|
(a) |
|
an increase in rental income in fiscal 2006 of approximately $202,000 related to increased occupancy; |
offset by:
|
(b) |
|
one-time rental revenues of $2,250,000 in fiscal 2005 from the
termination of the Companys leaseback interest in a shopping center in Minneapolis,
Minnesota, in September 2004; whereas there were no rental revenues from a leaseback
termination in the first nine months of fiscal 2006; and |
|
(c) |
|
a decrease in leaseback income of approximately $141,000 related to the
leaseback termination mentioned in (b) above. |
14
The following table indicates the backlog of contracts and rental income for the next twelve
months, by industry segment.
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
|
|
2006 |
|
|
2005 |
|
Energy and Facilities Solutions (a) |
|
$ |
3,108,000 |
|
|
$ |
2,634,000 |
|
Energy Services (b) |
|
|
2,299,000 |
|
|
|
4,439,000 |
|
Real Estate (c) |
|
|
5,920,000 |
|
|
|
6,009,000 |
|
Less: Intersegment eliminations |
|
|
(544,000 |
) |
|
|
(528,000 |
) |
|
|
|
|
|
|
|
Total Backlog |
|
$ |
10,783,000 |
|
|
$ |
12,554,000 |
|
|
|
|
|
|
|
|
(a) |
|
The increase in backlog is primarily due to an increase in energy engineering service
contracts. Backlog includes contracts that can be cancelled with less than one years notice,
and assumes cancellations provisions will not be invoked. The cancellation rate for such
contracts in the previous twelve months was approximately 9%. |
(b) |
|
The decrease in backlog is primarily due to one large order included in the prior period in
the retail sector and one smaller contract in the prior period in the education and government
sector. |
(c) |
|
Revenues from any contract to sell real estate in which the prospective buyer is not
materially at risk are not included in backlog. As of January 31, 2006, backlog does not
include a contract to sell, at a gain, a tract of land in North Fort
Myers, Florida, and a contract to sell, at a gain, the Companys
leaseback interest in a shopping center located in Bayonet Point,
Florida. See Note
11 to the consolidated financial statements. |
COSTS AND EXPENSES APPLICABLE TO REVENUES
From Continuing Operations
As a percentage of total segment revenues from continuing operations (See Chart A), the total
applicable costs and expenses (See Chart B) were 60% and 66% for the third quarters of fiscal 2006
and 2005, respectively, and 59% and 58%, respectively, for the first nine months of fiscal 2006 and
2005, respectively. In reviewing Chart B, the reader should recognize that the volume of revenues
generally will affect the amounts and percentages presented there.
The figures in Chart B are net of intersegment eliminations.
CHART B
COSTS AND EXPENSES APPLICABLE TO REVENUES
FROM CONTINUING OPERATIONS 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, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
Energy and Facilities
Solutions (1) |
|
$ |
517 |
|
|
$ |
467 |
|
|
|
53 |
|
|
|
56 |
|
|
$ |
1,520 |
|
|
$ |
1,501 |
|
|
|
53 |
|
|
|
56 |
|
Energy Services (2) |
|
|
1,127 |
|
|
|
1,669 |
|
|
|
59 |
|
|
|
67 |
|
|
|
3,394 |
|
|
|
4,528 |
|
|
|
58 |
|
|
|
70 |
|
Real Estate (3) |
|
|
1,015 |
|
|
|
981 |
|
|
|
66 |
|
|
|
69 |
|
|
|
2,978 |
|
|
|
3,234 |
|
|
|
65 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,659 |
|
|
$ |
3,117 |
|
|
|
60 |
|
|
|
66 |
|
|
$ |
7,892 |
|
|
$ |
9,263 |
|
|
|
59 |
|
|
|
58 |
|
|
|
|
15
NOTES TO CHART B
(1) |
|
The change in the percentage of costs and expenses applicable to revenues from continuing
operations of the Energy and Facilities Solutions Segment for all periods presented is
primarily due to: |
|
(a) |
|
changes in the mix of services and products; and
|
|
|
(b) |
|
improved operational efficiencies related to energy engineering services. |
(2) |
|
On a dollar basis, costs and expenses from continuing operations decreased $542,000 or 32%
for the third quarter of fiscal 2006 and $1,134,000 or 25% for the first nine months of fiscal
2006, compared to the same periods of fiscal 2005, primarily due to a corresponding decrease
in installation contract revenues. |
|
|
|
On a percentage basis, costs and expenses decreased for the third quarter of fiscal 2006,
compared to the same period of fiscal 2005, primarily due to improved operational efficiencies
on lighting installations. |
|
|
|
On a percentage basis, costs and expenses decreased for the first nine months of fiscal 2006,
compared to the same period of fiscal 2005, primarily due to: |
|
(a) |
|
improved operational efficiencies on lighting installations; and |
|
|
(b) |
|
the recognition of revenue from a consulting services contract in the
first quarter of fiscal 2006, that had no associated cost and expense in the first
nine months of fiscal 2006. |
(3) |
|
On a dollar basis, cost and expenses from continuing operations decreased $256,000 or 8% for
the first nine months of fiscal 2006, compared to the same period of fiscal 2005, primarily
due to: |
|
(a) |
|
the absence of lease costs of $103,000 in the first nine months of fiscal
2006 related to the termination of the Companys leaseback interest in a shopping center
located in Minneapolis, Minnesota, in September 2004; and |
|
|
(b) |
|
a decrease in depreciation expense of approximately $99,000 related to
one of the owned shopping centers being fully depreciated in fiscal 2006. |
|
|
On a percentage basis, costs and expenses from continuing operations are higher for the first
nine months of fiscal 2006, primarily due to the absence of the rental revenues of $2,250,000
that was included in last years first nine months of fiscal 2005, that resulted from the
termination of the Companys leaseback interest in the shopping center in Minneapolis,
Minnesota, in the second quarter ended October 31, 2004; the cost of the sale was $42,115. |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
From Continuing Operations
For the third quarters of fiscal 2006 and 2005, total selling, general and administrative expenses
(SG&A) from continuing operations, net of intersegment eliminations, were $2,070,074 and
$1,928,366, respectively. As a percentage of consolidated revenues from continuing operations,
these expenses were 47% and 41% for the third quarters of fiscal 2006 and 2005, respectively. For
the first nine months of fiscal 2006 and 2005, total SG&A expenses from continuing operations, net
of intersegment eliminations, were $6,327,984 and $6,693,049, respectively. As a percentage of
consolidated revenues from continuing operations, these expenses were 47% and 42% for the first
nine months of fiscal 2006 and 2005, respectively. In reviewing Chart C, the reader should
recognize that the volume of revenues generally will affect the amounts and percentages presented
there. 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.
16
CHART C
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
FROM CONTINUING OPERATIONS 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, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
Energy and Facilities
Solutions |
|
$ |
582 |
|
|
$ |
622 |
|
|
|
60 |
|
|
|
74 |
|
|
$ |
1,670 |
|
|
$ |
1,720 |
|
|
|
58 |
|
|
|
64 |
|
Energy Services |
|
|
548 |
|
|
|
494 |
|
|
|
28 |
|
|
|
20 |
|
|
|
1,634 |
|
|
|
1,616 |
|
|
|
28 |
|
|
|
25 |
|
Real Estate (1) |
|
|
180 |
|
|
|
185 |
|
|
|
12 |
|
|
|
13 |
|
|
|
629 |
|
|
|
1,129 |
|
|
|
14 |
|
|
|
17 |
|
Parent |
|
|
760 |
|
|
|
627 |
|
|
|
17 |
|
|
|
13 |
|
|
|
2,395 |
|
|
|
2,228 |
|
|
|
18 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,070 |
|
|
$ |
1,928 |
|
|
|
47 |
|
|
|
41 |
|
|
$ |
6,328 |
|
|
$ |
6,693 |
|
|
|
47 |
|
|
|
42 |
|
|
|
|
NOTES TO CHART C
(1) |
|
On a dollar and percentage basis, SG&A expenses from continuing operations are $500,000 or
44% lower for the first nine months of fiscal 2006, compared to the same period of fiscal
2005, primarily due to the legal costs and a net settlement cost that were expensed in fiscal
2005, due to the conclusion of arbitration proceedings. |
Gain on sales of real estate, net of costs
On December 22, 2005, the Company closed on the sale of a 4.7 acre tract of land in Louisville,
Kentucky, for a sales price of approximately $270,000, resulting in a pre-tax gain of approximately
$184,000. After selling expenses, the sale generated proceeds of approximately $265,000.
On October 28, 2005, the Company closed on the sale of one of its outparcels located in North Fort
Myers, Florida, for a sales price of $625,000, resulting in a pre-tax gain of approximately
$296,000. After selling expenses, the sale generated proceeds of approximately $577,000 of which
$450,000 was recorded as a note receivable, bearing interest at an annual rate of 7.25%, commencing
on December 1, 2005, with interest only payments due monthly until maturity on April 28, 2006.
On October 21, 2005, the Company closed on the sale of one of its outparcels located in North Fort
Myers, Florida, for a sales price of approximately $529,000, resulting in a pre-tax gain of
approximately $246,000. After selling expenses, the sale generated net cash proceeds of
approximately $488,000.
Liquidity and capital resources
Between April 30, 2005, and January 31, 2006, working capital decreased by $3,535,000. Operating
activities used cash of $2,157,000 primarily due to:
|
(a) |
|
an increase in note receivables of approximately $510,000 primarily
related to services performed on a consulting contract; |
|
|
(b) |
|
cash payments of $1,089,000 related to the incentive compensation
generated by the successful achievement of Company-wide earnings and performance
goals in fiscal 2005; and |
|
|
(c) |
|
current year losses from continuing operations |
17
Investing
activities provided cash of approximately $7,673,000 primarily due to:
|
(a) |
|
the release of approximately $8,272,000 previously held in escrow for the
purpose of purchasing a replacement property as part of an Internal Revenue Code
Section 1031 federal tax deferred exchange for the Companys former shopping center
located in Cincinnati, Ohio, which was sold in February 2005, and the Companys
former shopping center located in Jackson, Michigan, which was sold in April 2005,
as the Company did not purchase replacement properties; |
|
|
(b) |
|
proceeds of approximately $881,000 from the sale of two outparcels located in North
Fort Myers, Florida, that were sold at gains in October 2005, and the sale of a 4.7
acre tract of land located in Louisville, Kentucky, that was sold at a gain in
December 2005; |
offset by:
|
(c) |
|
additions to income-producing properties of approximately $641,000 primarily related to
tenant and building improvements; and |
|
|
(d) |
|
additions to intangible assets of approximately $650,000 primarily related to software
development costs for one of the Companys proprietary software solutions. |
Financing activities used cash of approximately $1,314,000 for scheduled principal payments of mortgage notes and
other long-term debt and regular quarterly dividends.
Discontinued operations used cash of approximately $1,356,000 primarily due to the Company financing a portion of
the sale of a professional medical office building in Douglasville,
Georgia, and recording a note
receivable of $3,300,000, which is included on the accompanying balance sheet. In addition, the
Company paid off the principal balance of the related mortgage note payable of approximately
$2,850,000.
The Company has a commitment from a bank for a secured line of credit in the amount of $1.5
million, of which a total of $300,000 is restricted to secure a letter of credit. The bank line of
credit is secured by the Companys investment in a short-term securities bond of $2.0 million that
matures in April 2006. The Company can borrow an amount not to exceed 75% of the current market
value on the bond. The line of credit bears interest at the prime rate or LIBOR plus 2%, and has a
commitment fee of .375% on any unused portion. The bank line of credit expires April 7, 2006. The
Company expects to renew or replace the bank line of credit; however, there can be no assurance
that it will be renewed or replaced. As of January 31, 2006, there were no amounts outstanding on this line of
credit.
The Company anticipates that its existing cash balances, equity, line of credit, potential proceeds
from sales of real estate, potential cash flow provided by financing or refinancing of debt
obligations, and cash flow generated from operations will, for the foreseeable future, provide
adequate liquidity and financial flexibility to meet the Companys needs to fund working capital,
capital expenditures, and investment activities.
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,
estimates, expects, plans, 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.
18
Factors relating to general global, national, regional, and local economic conditions, including
international political stability, national defense, homeland security, natural disasters,
employment levels, wage and salary levels, consumer confidence, availability of credit, taxation
policies, the Sarbanes-Oxley Act, SEC reporting requirements, fees paid to vendors in order to
remain in compliance with Sarbanes-Oxley Act and SEC requirements, interest rates, capital
spending, and inflation could negatively impact the Company and its customers, suppliers, and
sources of capital. Any significant negative impact from these factors could result in material
adverse effects on the Companys results of operations and financial condition.
The Company is at risk for many other matters beyond its control, including, but not limited to:
the possible impact, if any, on the ultimate disposition of legal proceedings in which the Company
may be involved; the potential loss of significant customers; the Companys ability to sell or
refinance its real estate; the possibility of not achieving projected backlog revenues or not
realizing earnings from such revenues; the cost and availability of insurance; the ability of the
Company to attract and retain key personnel; weather conditions; changes in laws and regulations,
including changes in accounting standards, generally accepted accounting principles, and regulatory
requirements of the SEC and NASDAQ; overall vacancy rates in markets where the Company leases
retail and office space; overall capital spending trends in the economy; the timing and amount of
earnings recognition related to the possible sale of real estate properties held for sale; delays
in or cancellations of customers orders; the level and volatility of interest rates; the level and
volatility of energy prices; the failure of a subcontractor to perform; and the deterioration in
the financial stability of an anchor tenant, significant subcontractor, vendor, or other
significant customer.
Critical Accounting Policies
A critical accounting policy is one that is both important to the portrayal of the Companys
financial position and results of operations, and requires the Company to make estimates and
assumptions in certain circumstances that affect the amounts reported in the accompanying
consolidated financial statements and related notes. In preparing these financial statements, the
Company has made its best estimates and used its best judgments regarding certain amounts included
in the financial statements, giving due consideration to materiality. The application of these
accounting policies involves the exercise of judgment and the use of assumptions regarding future
uncertainties, and as a result, actual results could differ from those estimates. Management
believes that the Companys most critical accounting policies include:
Revenue
recognition
Energy and facilities solutions revenues primarily consist of services and product sales. Revenues
are recognized as services are rendered, and depending upon the product type and customer
agreement, product sales are recognized when products are installed or when products are delivered.
Energy services revenues are reported on the percentage-of-completion method, using costs incurred
to-date in relation to estimated total costs of the contracts, to measure the stage of completion.
Original contract prices are adjusted for changes in estimated total contract costs and revenues
(change orders), in the amounts that are reasonably estimated based on the Companys historical
experience. The cumulative effects of change orders are recorded in the period in which the facts
requiring such revisions become known, and are accounted for using the percentage-of-completion
method. At the time it is determined that a contract is expected to result in a loss, the entire
estimated loss is recorded.
19
The Company leases space in its income-producing properties to tenants, and recognizes minimum base
rentals as revenue on a straight-line basis over the lease term. The lease term usually begins
when the lessee takes possession of or controls the physical use of the leased asset. Generally,
this occurs on the lease commencement date. In determining what constitutes the leased asset, the
Company evaluates whether the Company or the lessee is the owner of the tenant improvements. If
the Company is the owner of the tenant improvements then the leased asset is the finished space and
revenue recognition begins when the lessee takes possession of the finished space, typically when
the improvements are substantially complete. If the Company concludes that the tenant improvements
belong to the lessee, then the leased asset is the unimproved space and any tenant improvement
allowances funded under the lease are treated as lease incentives which reduce the revenue
recognized over the term of the lease. In these circumstances, the Company begins revenue
recognition when the lessee takes possession of the unimproved space for the lessee to construct
improvements. The Company considers a number of different factors to evaluate who owns the tenant
improvements. These factors include (1) whether the lease stipulates how and on what a tenant
improvement allowance may be spent; (2) whether the tenant or the landlord retain legal title to
the improvements; (3) the uniqueness of the improvements; (4) the expected economic life of the
tenant improvements relative to the length of the lease; and (5) who constructs or directs the
construction of the improvements. The determination of who owns the tenant improvement is subject
to significant judgment. In making the determination the Company considers all of the above
factors; however, no one factor is determinative in reaching a conclusion. Tenants may also be
required to pay additional rental amounts as reimbursement for their share of property operating
expenses. In addition, certain tenants are required to pay incremental rental amounts, which are
contingent on their store sales. These percentage rents are recognized only if and when earned.
Revenue from the sale of real estate is recognized when all of the following has occurred: (a) the
property is transferred to the buyer; (b) the buyers initial and continuing investment is adequate
to demonstrate a commitment to pay for the property; and (c) the buyer has assumed all future
ownership risks of the property. The cost of sales related to real estate is based on the specific
property sold. When a portion or unit of a development property is sold, a proportionate share of
the total cost of the development is charged to cost of sales.
Income-producing properties and property and equipment
Income-producing properties are stated at cost, and are depreciated for financial reporting
purposes using the straight-line method over the estimated useful lives of the assets.
Property and equipment are stated at cost and are depreciated for financial reporting purposes
using the straight-line method over the estimated useful lives of the assets. Significant
additions that extend asset lives are capitalized. Normal maintenance and repair costs are
expensed as incurred.
Interest and other carrying costs related to real estate assets under development are capitalized.
Costs of development and construction of real estate assets are also capitalized. Capitalization
of interest and other carrying costs is discontinued when a development project is substantially
completed or if active development ceases.
The Company reviews its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable.
Valuation of goodwill and other intangible assets
Goodwill and intangible assets with indefinite lives are required to be reviewed for impairment on
an annual basis or whenever events or changes in circumstances indicate that the carrying amount of
an
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asset may not be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to estimated future net discounted cash flows
expected to be generated by the asset. The most significant assumptions in the impairment analysis
are revenue growth and the discount rate utilized. If an asset is considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying amount of the asset
exceeds the assets fair value. Assets to be disposed of are reported at the lower of their
carrying amount or estimated fair value less costs to sell.
Income
taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized
in income in the period that includes the enactment date of such change.
Discontinued
Operations
The Company adopted SFAS 144, Accounting for the Impairment or Disposal of Long- Lived Assets,
effective May 1, 2002, which requires, among other things, that the gains and losses from the
disposition of certain income-producing real estate assets and the related historical operating
results be reflected as discontinued operations in the statements of operations for all periods
presented. Although net earnings is not affected, the Company has reclassified results previously
included in continuing operations to discontinued operations for qualifying dispositions pursuant
to SFAS 144.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes since April 30, 2005. Refer to the Companys Annual Report on
Form 10-K for the fiscal year ended April 30, 2005, for detailed disclosures about quantitative and
qualitative disclosures about market risk.
ITEM 4. CONTROLS AND PROCEDURES
Management has evaluated the Companys disclosure controls and procedures as defined by Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the
period covered by this report. This evaluation was carried out with the participation of the
Companys Chief Executive Officer and Chief Financial Officer. No system of controls, no matter
how well designed and operated, can provide absolute assurance that the objectives of the system of
controls are met, and no evaluation of controls can provide absolute assurance that the system of
controls has operated effectively in all cases. The Companys disclosure controls and procedures,
however, are designed to provide reasonable assurance that the objectives of disclosure controls
and procedures are met.
Based on managements evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Companys disclosure controls and procedures were effective, as of the end of the period
covered by this report, to provide reasonable assurance that the objectives of disclosure controls
and procedures were met.
There was no change in the Companys internal control over financial reporting that occurred during
the period covered by this quarterly report on Form 10-Q that materially affected, or is reasonably
likely to materially affect, the Companys internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
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31(a) |
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Certification of Chief Executive Officer, pursuant to Rules 13a-14(a)/15d-14(a) |
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31(b) |
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Certification of Chief Financial Officer, pursuant to
Rules 13a-14(a)/15d-14(a) |
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32(a) |
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Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes Oxley Act 2002 |
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32(b) |
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Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes Oxley Act 2002 |
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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.
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ABRAMS INDUSTRIES, INC.
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(Registrant)
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Date:
March 15,
2006 |
/s/ Alan R. Abrams
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Alan R. Abrams |
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Chief Executive Officer |
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Date:
March 15,
2006 |
/s/ Mark J. Thomas
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Mark J. Thomas |
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Chief Financial Officer |
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