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, 1996 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 10, 1996, the number of shares outstanding of the
Registrant's Common Stock was 4,498,935.
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
INDEX
Page Number
Part I. Financial Information:
Consolidated Balance Sheets -
March 31, 1996 and December 31,
1995
Consolidated Statements of Operations
and Retained Earnings - Three Months
Ended March 31, 1996 and 1995
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1996
and 1995
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, 1996 and December 31, 1995
[CAPTION]
<TABLE>
<S> <C> <C>
March 31, December 31,
1996 1995
(Unaudited) (Audited)
ASSETS
Current assets:
Cash $ 166,458 $ 438,682
Cash equivalents 982,750 977,456
Receivables, net 13,131,312 12,043,706
Costs in excess of billings
and estimated earnings 3,922,606 3,461,984
Inventories 6,801,598 6,392,278
Other 877,686 936,446
Net assets of discontinued
operation 747,168 749,114
Total current assets 26,629,578 24,999,666
Property, plant and equipment
Land 5,667,867 5,667,867
Buildings 4,132,165 4,248,816
Leasehold interests 12,086,481 12,590,763
Equipment 72,034,297 72,319,224
Furniture and fixtures 574,341 1,057,850
Construction in process 1,773,453 1,396,187
96,268,604 97,280,707
Less accumulated depreciation (43,199,636) (45,898,662)
53,068,968 51,382,045
Investments in unconsolidated
joint ventures and affiliates 208,780 208,780
Advances to unconsolidated joint
ventures and affiliates 1,088,173 1,047,663
Receivables, net 17,172,565 17,585,097
Intangible assets, net of
accumulated amortization 1,051,668 1,086,801
Other assets 906,639 1,002,588
$100,126,371 $ 97,312,640
See accompanying notes to consolidated financial statements.
</TABLE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995
[CAPTION]
<TABLE>
<S> <C> <C>
March 31, December 31,
1996 1995
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Accounts payable, trade and
other $ 8,342,767 $ 6,501,977
Accrued expenses and other
liabilities 1,569,454 1,451,429
Notes payable to banks 3,847,000 3,467,310
Current installments of
long-term debt 6,972,989 7,274,506
Billings in excess of costs
and estimated earnings 19,947 766,399
Income taxes 811,378 689,650
Total current liabilities 21,563,535 20,151,271
Long-term debt, excluding current
installments 16,573,166 15,547,908
Minority interest in consolidated
subsidiaries 681,355 675,853
Deferred income taxes 651,979 651,979
Other liabilities 829,428 1,127,043
Total liabilities 40,299,463 38,154,054
Stockholders' Equity:
Common stock 446,451 446,451
Additional paid-in capital 11,987,365 11,987,365
Retained earnings 47,393,092 46,724,770
Total stockholders' equity 59,826,908 59,158,586
$100,126,371 $ 97,312,640
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, 1996 and 1995
(Unaudited)
[CAPTION]
<TABLE>
<S> <C> <C>
1996 1995
Concrete and related
products revenues $12,617,207 $ 9,502,548
Contracting revenues 4,739,844 4,238,027
Other revenues 864,316 864,949
Total revenues 18,221,367 14,605,524
Cost of concrete and
related products revenues 9,240,857 7,299,797
Cost of contracting revenues 3,932,987 3,302,843
Cost of other revenues 740,217 631,631
Gross profit 4,307,306 3,371,253
Selling, general and
administrative expenses 2,992,113 2,554,446
Operating income 1,315,193 816,807
Other income (deductions)
Interest expense (643,341) (651,814)
Gain on sale of equipment 10,660 2,048
Interest and other income 91,312 148,162
Minority interest (5,502) (6,991)
(546,871) (508,595)
Income from continuing
operations before
income taxes 768,322 308,212
Income taxes 100,000 -
Income from continuing operations 668,322 308,212
Loss from discontinued operation - (6,956)
Net earnings 668,322 301,256
Retained earnings, beginning
of period 46,724,770 49,471,273
Retained earnings, end
of period $47,393,092 $49,772,529
Earnings (loss) per share:
From continuing operations .14 .07
From discontinued operation - -
.14 .07
Weighted average number of
shares outstanding 4,659,019 4,565,699
See accompanying notes to consolidated financial statements.
</TABLE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995
(Unaudited)
[CAPTION]
<TABLE>
<S> <C> <C>
1996 1995
Cash flows from operating activities:
Net earnings $ 668,322 $ 301,256
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 1,220,101 1,580,884
Provision for doubtful accounts
and notes 75,000 75,000
Gain on sale of equipment (10,661) (2,048)
Minority interest expense 5,502 6,991
Changes in operating assets and
liabilities:
Decrease (Increase) in
receivables, net (1,043,371) 1,578,105
Increase in costs in excess
of billings and estimated earnings (460,622) (135,924)
Decrease (Increase) in inventories (409,320) 501,739
Decrease in other current assets 60,706 35,645
Decrease in other assets 95,949 11,168
Increase (Decrease) in accounts
payable, trade and other 1,799,186 (2,187,934)
Decrease in billings in excess
of costs and estimated earnings (746,452) (18,504)
Increase (Decrease) in income
taxes payable 121,728 (7,428)
Decrease in other liabilities (297,616) (48,939)
Net cash provided by
operating activities 1,078,452 1,690,011
Cash flows from investing activities:
Purchase of property, plant and
equipment (3,469,523) (722,753)
Proceeds from disposition of property,
plant and equipment 608,292 85,593
Issuance of notes (288,457) (936,404)
Payments received on notes 581,753 2,028,956
Advances to affiliates (40,510) (12,301)
Advances from affiliates - 200,000
Net cash provided by (used in)
investing activities $(2,608,445) $ 643,091
See accompanying notes to consolidated financial statements.
</TABLE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995
(Unaudited)
[CAPTION]
<TABLE>
<S> <C> <C>
1996 1995
Cash flows from financing activities:
Proceeds from debt $ 3,529,759 $ 1,815,585
Principal payments on debt (2,426,328) (3,641,636)
Net borrowings from bank overdrafts 159,632 (344,477)
Net cash provided by (used in)
financing activities 1,263,063 (2,170,528)
Net increase (decrease) in
cash and cash equivalents (266,930) 162,574
Cash and cash equivalents,
beginning of period 1,416,138 942,050
Cash and cash equivalents,
end of period $ 1,149,208 $ 1,104,624
Supplemental disclosures of
cash flow information
Cash paid for
Interest $ 620,980 $ 556,990
Income taxes $ - $ 25,000
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,
1995.
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,
1996 and the results of its operations and cash flows for the three
months ended March 31, 1996 and 1995.
The results of operations for the three months ended March 31, 1996
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.
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 1996 vs Three Months
Ended March 31, 1995
REVENUES
The Company's revenues during the first three months of 1996 were
$18.2 million, as compared to $14.6 million during the same period
in 1995. This 24.8 percent increase was primarily due to increases
in the Company's concrete and related products revenues and to a
lesser extent, land development contracting division revenues.
The Company's concrete and related products division revenues
increased 32.8 percent to $12.6 million during the first three
months of 1996 from $9.5 million during the same period in 1995.
The Company believes the increased sales are a result of rebuilding
required to repair homes and other buildings damaged during
Hurricanes Luis and Marilyn, which struck the Caribbean in
September 1995. The Company believes that demand for concrete and
related products for the balance of 1996 will continue at high
levels in Antigua, St. Maarten, St. Martin and St. Thomas, as the
owners of storm damaged homes and businesses begin and continue
repair and rebuilding work.
Revenues from the Company's land development contracting division
increased by 11.8 percent to $4.7 million during the first three
months of 1996 from $4.2 million for the same period in 1995. This
increase was primarily attributable to the Company obtaining
several hurricane related repair and reconstruction contracts in
late 1994. The Company's backlog of unfilled portions of land
development contracts at March 31, 1996 was $12.1 million,
involving 21 projects. The Company expects that all of the backlog
outstanding at March 31, 1996 will be completed by the end of 1996.
As its current backlog is expected to be completed by the end of
the year, the Company needs to obtain new contracts over the
remainder of 1996 in order to achieve comparable contract revenue
levels in 1997.
Revenues from the Company's other operations were $864,000 during
the first three months of 1996 and $865,000 for the same period in
1995. The marina, which is in St. Thomas, was quickly repaired and
reopened after the hurricanes.
COST OF CONCRETE AND RELATED PRODUCTS
Cost of concrete and related products as a percentage of concrete
and related products revenues decreased to 73.2 percent during the
first three months of 1996 from 76.8 percent for the same period in
1995. This increase was primarily attributable to the increase 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 increased to 83.0 percent during the first three months of
1996 from 77.9 percent during the same period in 1995. This
increase is primarily attributable to the costs incurred as a
result of owning and operating heavy construction equipment, some
of which, because of the Company's current level of construction
volume, is not heavily utilized, offset to some extent by the
increase in revenues actually recognized. 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 increased to 85.6
percent during the first three months of 1996 from 73.1 percent for
the same period in 1995. This increase is primarily attributable
to increases in various operating expenses, principally fuel, water
and electricity.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense ("SG&A expense") was
$3.0 million during the first three months of 1996 and $2.6
million for the same period in 1995. This increase was primarily
attributable to SG&A expense related to the Company's new operation
on St. Martin and higher than expected operating expenses, offset
by a reduction in expense attributable to personnel reductions. As
a percentage of revenue, SG&A expense decreased to 16.4 percent for
the first three months of 1996 from 17.5 percent for the same
period in 1995. This percentage decrease was primarily
attributable to the increase in revenues actually recognized,
offset by the increase in SG&A expense actually incurred.
DIVISIONAL OPERATING INCOME
The Company had operating income of $1.3 million for the first
three months of 1996 as compared to $817,000 for the same period in
1995. The Company's concrete and related products division
operating income increased to $1.3 million during the first three
months of 1996 from $482,000 during the same period in 1995. This
increase is primarily attributable to increases in revenues and
gross profits by this division.
The Company's land development contracting division operating
income decreased to $193,000 for the first three months of 1996
from $347,000 during the same period in 1995. This decrease is
primarily attributable to the reduction in gross profit margins
achieved on contract work.
NET EARNINGS
The Company had net earnings of $668,000 during the first three
months of 1996 as compared to net earnings of $301,000 during the
same period in 1995. This increase is primarily attributable to
increases 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, 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. The increases in sales achieved during
the first quarter of 1996, along with related increases in accounts
receivable, inventories and plant and equipment, have had a short-
term negative impact on the Company's cash reserves. 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 $5.1 million at March 31, 1996) and funds available
from existing and anticipated lines of credit and extensions
thereof (assuming that they are obtained) will be adequate to meet
the Company's anticipated needs for operations during the next
twelve months.
At March 31, 1996, 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, $567,000 of borrowings outstanding under the $1.0
million line of credit and $800,000 of borrowings outstanding under
the two $400,000 lines of credit. The $2.0 million and one $400,000
line expire in May 1996, the $1.0 million line expires in June 1996
and the other $400,000 line has no expiration date. The interest
rates on all such indebtedness outstanding at March 31, 1996 ranged
from 8.5 to 8.8 percent.
The Company has a $500,000 unsecured overdraft facility from a
commercial bank in the Caribbean. The facility expired on
September 30, 1995 and is being continued on a month to month basis
until reapproved. The facility bears interest at 14.0 percent per
annum. At March 31, 1996 the Company had borrowings of $500,000
outstanding under this line.
The Company also has a $500,000 secured line of credit from a
commercial bank in the United States. The line expires in October
1996 and bears interest at the prime interest rate plus one half of
one percent. At March 31, 1996, the Company had borrowings of
$499,000 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,
1996 ranged from 8.5 percent to 9.8 percent and the Company had
$4.7 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, 1996 was 9.0 percent and
the Company has $1.8 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 $4.9 million from a Company officer. One
note has an outstanding balance of $4.8 million, is unsecured,
bears interest at the prime interest rate and is due in full on
January 1, 1998. The other note has a balance of $110,000, is
secured by equipment, bears interest at 8.0 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 construction equipment is adequate for
its current contractual commitments, 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 is currently upgrading and replacing various
equipment used by the concrete and related products division,
principally concrete delivery trucks and quarry equipment. This
upgrading and replacement program will continue throughout 1996.
Since the beginning of the year and through March 31, 1996, the
Company has sold, for a small gain, equipment with an original cost
basis of approximately $4.5 million and net book value of $598,000.
Additional sales are expected over the remainder of 1996. The
Company believes it has available or can obtain sufficient
financing for most of its contemplated equipment replacements and
additions. Historically, the Company has used a number of lenders
to finance a portion of its machinery and equipment purchases,
including its ocean going bulk cement vessel, on an individual
asset basis. At March 31, 1996 amounts outstanding to these
lenders totalled $8.6 million. These loans are typically repaid
over a three to six year term in monthly principal and interest
installments.
The Company is seeking a commitment from a bank in the Caribbean
for a new $8.0 million credit facility which would be structured as
a seven year term loan of $7.0 million with a $1.0 million
revolving line of credit. The bank has reacted favorably to the
Company's proposal although there is no assurance that the loan
will be granted on terms acceptable to the Company or even granted
at all. The term loan proceeds of $7.0 million would be used to
repay and retire a revolving line of credit due in May 1996 with a
$2.0 million balance, two term loans totalling $1.0 million, an
equipment loan with a balance of $283,000, a term loan due in June
1996 with a balance of $1.8 million, a line of credit due in June
1996 with a balance of $567,000, another line of credit due in May
1996 with a balance of $400,000 and various other notes amounting
to approximately $420,000. The balance of $600,000 would be used
to provide additional working capital for the Company. The loan
would be collateralized by various parcels of real property located
in the United States Virgin Islands. The Company needs either to
obtain extensions of the loans which become due in 1996 or to
obtain a new credit facility to repay such loans. The Company
intends to seek extensions of the loans which are due in 1996,
pending the new credit facility. The Company believes, based on
present circumstances, that it will be successful in obtaining such
extensions, although there is no assurance that it will be. If the
new credit facility is not obtained, the Company intends to seek an
alternative lender or to continue seeking extensions to the extent
that it is able.
The Company is in violation of certain loan covenants with two
lenders. One of its lenders has provided the Company a waiver of
the violations and the Company believes it can obtain a waiver from
the other lender.
A significant portion of the Company's outstanding debt bears
interest at variable rates. The Company could be negatively
impacted by a substantial increase in interest rates.
The Company has contingent obligations and has made certain
guarantees in connection with acquisitions, its participation in
certain joint ventures, certain employee and construction bonding
matters and its receipt of a tax exemption. 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,
1998, 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 and accrued interest at March 31, 1996 include
$15.8 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, $2.5 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 made the required
quarterly payments aggregating $2.0 million per year ($1.3 million
per year after January 1, 1996) 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 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 has been
derived from the lease proceeds the Antiguan government has
received from the United States Department of Defense for the
rental of two military bases. One of the bases was closed at the
end of 1995. The Antiguan government has advised the Company that
it will make up any shortfall in the military base proceeds from
its general treasury, although it has not yet done so.
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 three months of
fiscal 1996.
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: May 10, 1996 By: /S/ DONALD L. SMITH, JR.
Donald L. Smith, Jr.
President and Chief
Executive Officer
Date: May 10, 1996 By: /S/ WALTER B. BARRETT
Walter B. Barrett
Vice President, Finance and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,149,208
<SECURITIES> 0
<RECEIVABLES> 15,550,983
<ALLOWANCES> 2,419,671
<INVENTORY> 6,801,598
<CURRENT-ASSETS> 26,629,578
<PP&E> 96,268,604
<DEPRECIATION> (43,199,636)
<TOTAL-ASSETS> 100,126,371
<CURRENT-LIABILITIES> 21,563,535
<BONDS> 0
0
0
<COMMON> 446,451
<OTHER-SE> 11,987,365
<TOTAL-LIABILITY-AND-EQUITY> 100,126,371
<SALES> 18,221,367
<TOTAL-REVENUES> 18,221,367
<CGS> 13,914,061
<TOTAL-COSTS> 2,895,643
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 643,341
<INCOME-PRETAX> 768,322
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 668,322
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
