SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)*
[X] Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1994 for the quarterly period ended
March 31, 1995 or
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
to .
Commission File No. 0-7152
DEVCON INTERNATIONAL CORP.
(Exact name of Registrant as specified in its charter)
FLORIDA 59-0671992
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
1350 E. NEWPORT CENTER DRIVE, SUITE 201,
DEERFIELD BEACH, FL 33442
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(305) 429-1500
Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK, $.10 PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days:
YES X NO
As of May 12, 1995, the number of shares outstanding of the
Registrant's Common Stock was 4,431,177.
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
INDEX
Page Number
Part I. Financial Information:
Consolidated Balance Sheets - March 31, 1995
and December 31, 1994. . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations and
Retained Earnings - Three Months Ended
March 31, 1995 and 1994. . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1995 and 1994 . . . . . . .
Notes to Consolidated Financial Statements . . . . . . .
Management's Discussion and Analysis of
Financial Conditions and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . .
Part II. Other Information. . . . . . . . . . . . . . .
PART I. FINANCIAL INFORMATION
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
1995 1994
(Unaudited) (Audited)
ASSETS
Current assets:
Cash $ 291,306 $ 159,118
Cash equivalents 929,099 920,944
Receivables, net 11,823,040 14,600,993
Prepaid expenses 961,884 986,317
Inventories 7,716,515 8,131,881
Costs in excess of billings
and estimated earnings 2,747,418 2,611,494
Total current assets 24,469,262 27,410,747
Property, plant and equipment
Land 5,498,857 5,498,857
Buildings 4,233,720 4,233,720
Leasehold interests 12,551,505 12,454,758
Equipment 70,761,998 69,865,911
Furniture and fixtures 973,445 970,571
Construction in process 1,354,304 2,285,638
95,373,829 95,309,455
Less accumulated depreciation (44,749,732) (43,761,782)
50,624,097 51,547,673
Investments in unconsolidated
joint ventures and affiliates 230,280 230,280
Advances to unconsolidated joint
ventures and affiliates 1,163,755 1,351,454
Receivables, net 18,417,771 18,420,072
Intangible assets, net of
accumulated amortization 482,482 500,582
Other assets 1,009,197 1,044,311
$ 96,396,844 $100,505,119
See accompanying notes to consolidated financial statements.
</TABLE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
1995 1994
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, trade and other $ 4,253,013 $ 6,598,439
Accrued expenses and other
liabilities 755,322 1,273,003
Notes payable to banks 2,580,000 2,480,000
Current installments of
long-term debt 6,313,618 7,033,073
Billings in excess of costs and
estimated earnings 37,774 56,278
Income taxes 42,060 50,000
Total current liabilities 13,981,787 17,490,793
Long-term debt, excluding current
installments 16,850,902 18,074,674
Minority interest in consolidated
subsidiaries 1,143,691 771,503
Deferred income taxes 1,429,000 1,429,000
Other liabilities 1,035,117 1,084,058
Total liabilities 34,440,497 38,850,028
Stockholders' Equity:
Common stock, $0.10 par value
Authorized 15,000,000 shares;
issued and outstanding 4,431,177
shares in 1995 and 1994 443,118 443,118
Additional paid-in capital 11,740,700 11,740,700
Retained earnings 49,772,529 49,471,273
Total stockholders' equity 61,956,347 61,655,091
$ 96,396,844 $100,505,119
See accompanying notes to consolidated financial statements.
</TABLE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings
Three Months Ended March 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
Concrete and related products
revenues $ 9,502,548 $ 9,708,160
Contracting revenues 4,238,027 6,218,151
Other revenues 1,152,187 1,324,661
Total revenues 14,892,762 17,250,972
Cost of concrete and related
products revenues 7,299,797 7,264,515
Cost of contracting revenues 3,302,843 5,132,781
Cost of other revenues 787,779 1,029,372
Gross profit 3,502,343 3,824,304
Selling, general and
administrative expenses 2,724,802 2,880,155
Operating income 777,541 944,149
Other income (deductions)
Interest expense (663,212) (660,940)
Gain (loss) on sale of equipment 2,048 (6,469)
Interest and other income 143,870 233,516
Minority interest 41,009 30,604
(476,285) (403,289)
Income before income taxes 301,256 540,860
Income taxes - 8,366
Net earnings 301,256 532,494
Retained earnings, beginning
of period 49,471,273 47,359,807
Retained earnings, end
of period $49,772,529 $47,892,301
Earnings (loss) per share $ .07 $ .12
Weighted average number of
shares outstanding 4,565,699 4,551,181
See accompanying notes to consolidated financial statements.
</TABLE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
Cash flows from operating activities
Net earnings $ 301,256 $ 532,494
Adjustments to reconcile net
earnings to net cash provided
by operating activities
Depreciation and amortization 1,580,884 1,711,941
Provision for doubtful accounts
and notes 75,000 75,000
(Gain) loss on sale of equipment (2,048) 6,468
Minority interest income (41,009) (30,604)
Changes in operating assets and
liabilities
Decrease (Increase) in receivables,
net 1,472,790 (2,097,998)
Increase in costs in excess
of billings and estimated
earnings (135,924) (1,276,482)
Decrease in inventories 415,366 172,431
Decrease (Increase) in other
current assets 24,433 (111,712)
Decrease in other assets 35,112 159,851
Increase (Decrease) in accounts
payable, trade and other (2,105,432) 2,351,617
Decrease in billings in excess
of costs and estimated earnings (618,504) (154,048)
Increase (Decrease) in income
taxes payable (7,940) 8,366
Increase (Decrease) in other
liabilities (48,939) 229,076
Net cash provided by
operating activities 945,045 1,576,400
Cash flows from investing activities
Purchase of property, plant and
equipment (722,753) (872,408)
Proceeds from disposition of
property, plant and equipment 85,593 215,550
Issuance of notes (196,493) (40,000)
Payments received on notes 2,028,956 160,975
Advances to affiliates (12,301) (9,263)
Advances from affiliates 200,000 100,000
Net cash provided by (used in)
investing activities $1,383,002 $ (445,146)
See accompanying notes to consolidated financial statements.
</TABLE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
Cash flows from financing activities
Proceeds from debt $ 1,815,585 $ 1,776,797
Principal payments on debt (3,658,812) (1,763 561)
Net borrowings from bank
overdrafts (344,477) (1,331,867)
Net cash used in
financing activities (2,187,704) (1,318,631)
Net increase (decrease) in
cash and cash equivalents 140,343 (187,377)
Cash and cash equivalents,
beginning of period 1,080,062 1,263,827
Cash and cash equivalents,
end of period $ 1,220,405 $ 1,076,450
Supplemental disclosures of
cash flow information
Cash paid for
Interest $ 569,472 $ 461,378
Income taxes $ 25,000 $ 80,154
See accompanying notes to consolidated financial statements.
</TABLE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries.
The accounting policies followed by the Company are set forth in
Note (l) to the Company's financial statements included in its
Annual Report on Form 10-K for the fiscal year ended December 31,
1994("1994 10-K").
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments necessary
to present fairly the Company's financial position as of March 31,
1995 and December 31, 1994, and the results of its operations and
cash flows for the three months ended March 31, 1995 and 1994.
The results of operations for the three months ended March 31, 1995
are not necessarily indicative of the results to be expected for
the full year.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All dollar amounts of $1.0 million or more are rounded to the
nearest one tenth of a million; all other dollar amounts are
rounded to the nearest one thousand and all percentages are stated
to the nearest one tenth of one percent.
CONSOLIDATED RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 1995 vs Three Months
Ended March 31, 1994
REVENUES
The Company's revenues during the first quarter of 1995 were $14.9
million, as compared to $17.3 million for the same period in 1994.
This 13.7 percent decrease was primarily due to decreases in the
Company's land development contracting division revenues and, to a
lesser extent, decreases in concrete and related products division
revenues and other revenues.
The Company's concrete and related products division revenues
decreased 2.1 percent to $9.5 million during the first quarter of
1995 from $9.7 million during the first quarter of 1994. This
decrease was primarily due to decreased demand for this division's
products on one Caribbean island, which was generated by a modest
decrease in the overall level of construction activity, offset by
increased demand in certain other island locations.
Revenues from the Company's land development contracting division
decreased by 31.8 percent to $4.2 million during the first quarter
of 1995 from $6.2 million during the first quarter of 1994. This
decrease was primarily attributable to the completion in late 1994
of several construction contracts obtained during the latter part
of 1993. The Company's backlog of unfilled portions of land
development contracts at March 31, 1995 was $10.5 million,
involving thirteen projects. As a result of the Company's current
backlog, new contracts must be obtained as 1995 progresses, in
order to achieve the contract revenue levels obtained in 1994. The
Company reasonably expects that most of the backlog outstanding at
March 31, 1995 will be completed during 1995.
Revenues from the Company's other operations (a marina and a
ceiling tile manufacturing partnership) were $1.1 million during
the first quarter of 1995 and $1.3 million during the first
quarter of 1994.
COST OF CONCRETE AND RELATED PRODUCTS
Cost of concrete and related products as a percentage of concrete
and related products revenues increased to 76.8 percent in the
first quarter of 1995 from 74.8 percent in the first quarter of
1994. This increase was primarily attributable to the decrease in
revenues recognized. The Company's margins will also fluctuate
depending on the mix of products sold and the locations in which
sales are made during the quarter.
COST OF CONTRACTING
Cost of contracting as a percentage of land development contracting
revenues decreased to 77.9 percent in the first quarter of 1995
from 82.6 percent in the first quarter of 1994. This decrease is
primarily attributable to the higher profit margins obtained on
several new contracts, offset by the significant levels of cost
involved in owning and operating heavy construction equipment, some
of which, because of the Company's current level of construction
volume, is not heavily used. In addition, the Company's gross
margins are affected by the varying profitability levels of
individual contracts and the stage of completion of such contracts.
COST OF OTHER
Cost of other as a percentage of other revenues was 68.4 percent in
the first quarter of 1995 and 77.7 percent in the first quarter of
1994. This decrease is primarily attributable to improvements in
the ceiling tile production process which resulted in a lower
spoilage rate during production.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expense ("SG&A expense") was
$2.7 million during the first quarter of 1995 and $2.9 million
during the first quarter of 1994. This decrease was primarily
attributable to a reduction in personnel costs. The Company intends
to continue its program of reducing SG&A expenses until they more
closely match its current volume levels. As a percentage of
revenue, SG&A expense increased to 18.3 percent for the first
quarter of 1995 from 16.7 percent for the first quarter of 1994.
This percentage increase was primarily attributable to the decrease
in revenues actually recognized, offset by the decrease in SG&A
expenses actually incurred.
DIVISIONAL OPERATING INCOME
Operating income was $778,000 for the first quarter of 1995 as
compared to $944,000 for the first quarter of 1994. The Company's
concrete and related products division operating income increased
to $482,000 during the first quarter of 1995 from $435,000 during
the first quarter of 1994. This increase is primarily attributable
to reductions in SG&A expenses incurred by this division.
The Company's land development contracting division operating
income decreased to $347,000 for the first quarter of 1995 from
$545,000 for the first quarter of 1994. This decrease is primarily
attributable to the reduction of contract revenues attained by this
division.
INTEREST EXPENSE
Interest expense increased to $663,000 during the first quarter of
1995 from $661,000 during the first quarter of 1994. This increase
was primarily due to a rise in interest rate levels, offset by a
reduction in the overall level of Company debt.
INTEREST AND OTHER INCOME
Interest and other income decreased to $144,000 in the first
quarter of 1995 from $234,000 in the first quarter of 1994. This
decrease was due primarily to a decrease in interest bearing notes
and investments.
NET EARNINGS (LOSS)
The Company's net earnings decreased to $301,000 during the first
quarter of 1995 from $532,000 for the same period in 1994. This
decrease is primarily attributable to decreases in contracting
revenues and profits and to a lesser extent, decreases in concrete
and related products revenues and gross profits.
LIQUIDITY AND CAPITAL RESOURCES
The Company generally funds its working capital needs from
operations and bank borrowings. In the land development contracting
business, the Company must expend considerable amounts of funds for
equipment, labor and supplies to meet the needs of particular
projects. The Company's capital needs are greatest at the start of
any new contract, since the Company generally must complete 45 to
60 days of work before receiving the first progress payment. In
addition, as a project continues, a portion of the progress billing
is usually withheld as retainage until all work is complete,
further increasing the need for capital. On occasion the Company
has provided long-term financing to certain customers who have
utilized its land development contracting services. The Company has
also provided financing for other business ventures from time to
time. With respect to the Company's concrete and related products
division, accounts receivable are typically outstanding for a
minimum of 60 days and in some cases much longer. The nature of the
Company's business requires a continuing investment in plant and
equipment, as was done in 1994, along with the related maintenance
and upkeep costs of such equipment.
The Company has funded many of these expenditures out of its
current working capital. However, notwithstanding the foregoing
and after factoring in the Company's obligations as set forth
below, management believes that the Company's cash flow from
operations, existing working capital (approximately $9.6 million at
March 31, 1995) and funds available from lines of credit will be
adequate to meet the Company's anticipated needs for operations
during the next twelve months.
At March 31, 1995, the Company had a revolving secured line of
credit in the amount of $2.0 million and three secured lines of
credit in the amount of $1.0 million, $400,000 and $400,000 from
commercial banks in South Florida and the Caribbean. The Company
had $2.0 million of borrowings outstanding under the $2.0 million
line of credit, $237,000 of borrowings outstanding under the $1.0
million line of credit and $600,000 of borrowings outstanding under
the two $400,000 lines of credit. The $2.0 million line expires in
May 1995, the $1.0 million line expires in June 1996 and the two
$400,000 lines have no expiration date. Interest rates on
indebtedness outstanding at March 31, 1995 were 9.5 percent.
The Company also has a $500,000 unsecured overdraft facility from
a commercial bank in the Caribbean. The facility expires on
September 30, 1995 and bears interest at 14 percent per annum. At
March 31, 1995 the Company had borrowings of $496,000 outstanding
under this line.
The Company has entered into three term loans with a Caribbean
bank, repayable in varying monthly installments through December
2001. The interest rate on indebtedness outstanding at March 31,
1995 ranged from 9.25 percent to 10.5 percent and the Company had
$5.5 million of borrowings outstanding. The loans are secured by
individual leasehold mortgages on a block manufacturing plant, a
cement distribution facility and a marina in the U.S. Virgin
Islands.
In September 1993, the Company entered into a $4.0 million secured
term loan. Borrowings outstanding bear interest at the prime
interest rate plus three fourths of one percent. The interest rate
on indebtedness outstanding at March 31, 1995 was 9.75 percent and
the Company has $2.7 million of borrowings outstanding. This loan
is being repaid in quarterly installments which commenced in
November 1993 and all remaining unpaid amounts are due in full on
June 30, 1996. The loan is secured by the Company's notes
receivable from the Government of Antigua and Barbuda.
The Company has borrowed $3.4 million from a Company officer. One
note has an outstanding balance of approximately $3.2 million, is
unsecured, bears interest at the prime interest rate and is due in
full on January 1, 1997. The other note has a balance of $230,000,
is secured by equipment, bears interest at 8 percent per annum and
is due in monthly principal installments through February 1997 of
$10,000, plus interest.
The Company purchases equipment from time to time as needed for its
ongoing business operations. At present, management believes that
the Company's inventory of equipment is adequate for its current
contractual commitments and operating activities, however, the
acquisition of significant new construction contracts, depending on
the nature of the contract, the job location and job duration, may
require the Company to make significant investments in heavy
construction equipment. The Company expects to dispose of such
equipment at the conclusion of a specific contract unless the
equipment involved can be profitably employed elsewhere in the
Company's operations. Accordingly, except for the circumstances
previously discussed, management does not anticipate having to make
a substantial investment in new equipment during the current year.
The Company believes it has available or can obtain sufficient
financing for all of its contemplated equipment replacements and
additions. Historically, the Company has used a number of lenders
to finance machinery and equipment purchases, including its ocean
going bulk cement vessel, on an individual asset basis. At March
31, 1995, amounts outstanding to these lenders totalled $7.0
million. These loans are typically repaid over a three to six year
term in monthly principal and interest installments.
A significant portion of the Company's outstanding debt bears
interest at variable rates. Interest rates have risen recently and
the Company could be negatively impacted by a substantial increase
in interest rates.
The Company has contingent obligations and has made certain
guarantees in connection with acquisitions, its participation in
certain joint ventures, certain employee and construction bonding
matters and its receipt of a tax exemption. In connection with the
St. Maarten acquisition, the Company agreed to pay the seller
annually an amount per unit of certain concrete and stone products
sold by the Company in St. Maarten from April 1, 1990 to March 31,
1997, but in no event less than $500,000 per year. The Company has
certain offsets available against this payment which has reduced
the minimum annual payment to $350,000 per year.
Notes receivable at March 31, 1995 include $18.1 million, net due
the Company pursuant to certain promissory notes delivered to the
Company in connection with two construction contracts with the
Government of Antigua, $2.8 million of which is classified as a
current receivable. Scheduled payments call for both quarterly and
monthly principal and interest payments until maturity in 1997.
The Government of Antigua has routinely made the required quarterly
payments aggregating $2.0 million per year but has made only some
of the required monthly payments. The Company does not presently
anticipate material increases in or accelerations of payments by
the Government of Antigua. The Company expects that the notes will
not be satisfied at maturity but the Antiguan government has
advised the Company that the current payment stream will continue
until the obligation is satisfied. A portion of the payment
received from Antigua is derived from the lease proceeds the
Antiguan government receives from the United States Department of
Defense for the rental of two military bases. In January 1995, the
Antiguan government was notified by the United States government
that one of the bases would be closed in 1996. Terms and
conditions of the closure are the subject of ongoing discussions
between the Antiguan government and representatives of the United
States government. The Antiguan government has advised the Company
that it will make up any shortfall in the military base proceeds
from its general treasury.
II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the
Company during the first quarter of fiscal 1995.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: By:/S/ DONALD L. SMITH, JR.
Donald L. Smith, Jr.
President and Chief
Executive Officer
Date: By:/S/ WALTER B. BARRETT
Walter B. Barrett
Vice President, Finance and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of the registrant for the quarter ended March 31, 1995, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 291,306
<SECURITIES> 0
<RECEIVABLES> 14,488,330
<ALLOWANCES> (2,665,290)
<INVENTORY> 7,716,515
<CURRENT-ASSETS> 24,469,262
<PP&E> 95,373,829
<DEPRECIATION> (44,749,732)
<TOTAL-ASSETS> 96,396,844
<CURRENT-LIABILITIES> 13,981,787
<BONDS> 0
<COMMON> 443,117
0
0
<OTHER-SE> 11,740,700
<TOTAL-LIABILITY-AND-EQUITY> 96,396,844
<SALES> 14,892,762
<TOTAL-REVENUES> 14,892,762
<CGS> 11,390,419
<TOTAL-COSTS> 2,537,875
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (663,212)
<INCOME-PRETAX> 301,256
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 301,256
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
