SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________.
Commission File No. 0-7152
DEVCON INTERNATIONAL CORP.
(Exact Name of Registrant as Specified in its Charter)
FLORIDA 59-0671992
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1350 E. NEWPORT CENTER DRIVE, SUITE 201, DEERFIELD BEACH, FL 33442
(Address of Principal Executive Offices) (Zip Code)
(954) 429-1500
(Registrant's Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.10 PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
YES X NO
----- -----
As of May 10, 2000 the number of shares outstanding of the Registrant's Common
Stock was 3,911,295.
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C> <C>
Part I. Financial Information:
Condensed Consolidated Balance Sheets
March 31, 2000 (unaudited) and
December 31, 1999................................................................. 3-4
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2000 and 1999 (unaudited)............................ 5
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999
(unaudited)....................................................................... 6-7
Notes to Condensed Consolidated Financial Statements.............................. 8-9
Management's Discussion and Analysis of
Financial Conditions and Results of
Operations........................................................................ 10-16
Part II. Other Information................................................................. 17
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
- ------------------------------------------------------------
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, 2000 and December 31, 1999
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,136,862 $ 1,406,941
Cash equivalents 10,833,369 4,737,311
Receivables, net 12,348,521 12,878,643
Costs in excess of billings
and estimated earnings 1,071,102 258,780
Inventories 2,375,292 3,829,450
Assets held for sale 544,979 7,559,066
Prepaid expenses and other assets 181,473 535,146
------------- --------------
Total current assets 28,491,598 31,205,337
Property, plant and equipment, net
Land 1,455,045 1,920,539
Buildings 1,217,707 2,372,240
Leasehold interests 3,163,673 3,516,202
Equipment 49,421,964 52,380,167
Furniture and fixtures 691,735 785,359
Construction in process 1,914,092 3,091,160
------------- -----------
57,864,216 64,065,667
Less accumulated depreciation (23,163,203) (25,722,376)
------------ -----------
34,701,013 38,343,291
Investments in unconsolidated
joint ventures and affiliates 273,181 277,081
Receivables, net 11,817,194 9,556,539
Intangible assets, net of
accumulated amortization 9,562 936,829
Other assets 1,057,068 1,326,917
------------- -------------
Total assets $76,349,616 $81,645,994
=========== ===========
</TABLE>
3
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, and December 31, 1999
(Continued)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------------- ----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade and other $ 5,770,811 $ 4,926,700
Accrued expenses and other liabilities 3,500,320 3,103,083
Deposit on sale of assets - 8,000,000
Notes payable to banks - 625,000
Current installments of long-term debt 3,057,872 6,956,246
Billings in excess of costs and estimated earnings 1,248,969 1,026,316
Income taxes 782,992 287,423
------------ -----------
Total current liabilities 14,360,964 24,924,768
Long-term debt, excluding current installments 5,525,638 14,349,708
Minority interest in consolidated subsidiaries 845,030 932,325
Deferred income taxes 379,652 379,652
Other liabilities 2,935,080 1,623,331
----------- -----------
Total liabilities 24,046,364 42,209,784
Stockholders' equity:
Common stock 403,699 449,894
Additional paid-in capital 10,825,415 12,064,133
Accumulated other comprehensive income-
cumulative translation adjustment (1,955,488) (1,594,577)
Retained earnings 43,203,331 28,674,264
Treasury stock (173,705) (157,504)
------------- -----------
Total stockholders' equity 52,303,252 39,436,210
----------- -----------
Commitments and contingencies
Total liabilities and stockholders' equity $76,349,616 $81,645,994
=========== ===========
</TABLE>
4
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
--------------- -----------
<S> <C> <C>
Concrete and related products revenue $13,334,074 $13,955,842
Contracting revenue 2,402,928 4,279,413
------------- ------------
Total revenue 15,737,002 18,235,255
Cost of concrete and related products 11,669,351 11,304,170
Cost of contracting 2,056,205 3,711,488
------------- -------------
Gross profit 2,011,446 3,219,597
Operating expenses:
Selling, general and administrative expenses 3,335,426 3,319,715
Impairment of long-lived assets 627,536 -
Credit for litigation - (419,000)
------------------- -----------
Operating (loss) income (1,951,516) 318,882
Other income (deductions):
Joint venture equity loss (14,900) -
Gain on sale of equipment 67,558 70,408
Gain on sale of businesses 18,365,857 -
Interest expense (465,311) (672,371)
Interest and other income 303,229 195,164
Minority interest 87,295 298,815
-------------- -----------
18,343,728 (107,984)
----------- -----------
Income before income taxes 16,392,212 210,898
Income tax expense 601,022 83,800
----------- -------------
Net income $15,791,190 $ 127,098
=========== ===========
Earnings per common share-basic $ 3.94 $ .03
================ ============
Earnings per common share-diluted $ 3.66 $ .03
================ ============
Weighted average number of
shares outstanding-basic 4,012,995 4,498,935
============ ==========
Weighted average number of
shares-diluted 4,315,963 4,501,088
============ ===========
</TABLE>
5
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---------------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $15,791,190 $ 127,098
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,411,719 1,489,500
Provision for doubtful accounts and notes 220,589 173,770
Impairment of long-lived assets 627,536 -
Credit for litigation - (419,000)
Joint venture equity loss 14,900 -
Gain on sale of equipment (67,558) (70,408)
Gain on sale of businesses (18,365,857) -
Minority interest income (87,295) (298,815)
Changes in operating assets and liabilities:
(Increase) decrease in receivables, net (1,501,823) 192,535
Increase in costs in excess
of billings and estimated earnings (812,322) (154,210)
Decrease in inventories 575,291 290,038
Decrease in other current assets 307,233 73,458
Increase in other assets (47,170) (17,548)
Increase (decrease) in accounts
payable, trade and other 1,507,036 (1,422,794)
Increase in billings in
excess of costs and estimated earnings 222,653 103,975
Increase (decrease) in income taxes payable 646,509 (23,334)
(Decrease) increase in other liabilities (453,417) 308,725
--------------- ----------
Net cash (used in) provided by operating activities $ (10,786) $ 352,990
--------------- ----------
Cash flows from investing activities:
Purchase of property, plant and equipment (2,472,216) (3,263,936)
Proceeds from disposition of property,
plant and equipment 205,367 359,870
Proceeds from disposition of businesses 22,157,321 -
Payments received on notes 642,829 1,118,713
Investment in affiliates (11,000) -
Issuance of notes - (16,000)
Purchase of treasury stock (173,705) -
--------------- -------------
Net cash provided by (used in) investing activities $ 20,348,596 $(1,801,353)
-------------- -----------
</TABLE>
6
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
2000 1999
------------------ ---------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from debt $ 884,644 $ 2,812,330
Principal payments on debt (14,771,475) (1,655,482)
Net (repayments) borrowings from bank
credit line and overdrafts (625,000) 94,180
-------------- -----------
Net cash (used in) provided by financing activities (14,511,831) 1,251,028
Net increase (decrease) in cash and cash equivalents 5,825,979 (197,335)
Cash and cash equivalents, beginning of period 6,144,252 2,258,858
------------- -----------
Cash and cash equivalents, end of period $11,970,231 $ 2,061,523
=========== ===========
Supplemental disclosures of
cash flow information
Cash paid for:
Interest $ 553,536 $ 659,769
============= ============
Income taxes $ - $ 33,333
============= ============
</TABLE>
7
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries.
The accounting policies followed by the Company are set forth in Note (l) to the
Company's financial statements included in its Annual Report on Form 10-K for
the fiscal year ended December 31, 1999.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (which consist only of normal
recurring adjustments) necessary to present fairly the Company's financial
position as of March 31, 2000 and the results of its operations and cash flows
for the three months ended March 31, 2000 and 1999.
The results of operations for the three months ended March 31, 2000 are not
necessarily indicative of the results to be expected for the full year.
EARNINGS PER SHARE
Basic earnings per share are computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share are computed by dividing income available
to common shareholders by the weighted-average number of common shares
outstanding during the period increased to include the number of additional
common shares that would have been outstanding if the dilutive potential common
shares had been issued. The dilutive effect of outstanding options is reflected
in diluted earnings per share by application of the treasury stock method. For
loss periods, weighted average common share equivalents are excluded from the
calculation, as their effect would be antidilutive.
Options to purchase 603,300 and 178,300 shares of common stock, at prices
ranging from $1.50 to $5.50 per share, were outstanding for the quarters ended
March 31, 2000 and 1999, respectively. Options to purchase 245,475 and 361,475
shares of common stock, at prices ranging from $6.25 to $14.00 per share, were
outstanding for the quarters ended March 31, 2000 and 1999, respectively, but
were not included in the computation of diluted earnings per share because the
options' exercise prices were greater than the average market prices of the
common shares. For additional disclosures regarding the outstanding employee
stock options, see the 1999 Form 10-K.
8
<PAGE>
The Company's total comprehensive income, comprised of translation adjustments,
for the three month period ended March 31, 2000 and 1999 were as follows:
2000 1999
----------- ----------
Net income $15,791,190 $ 127,098
Other comprehensive loss (360,911) (391,521)
----------- ----------
Total comprehensive income $15,430,279 $ (264,423)
=========== ==========
SEGMENT REPORTING
The following sets forth the revenue and income before income taxes for each of
the Company's business segments for the three months ended March 31,2000 and
1999.
2000 1999
------------- ----------
Revenue (including intersegment)
Concrete and related products $13,335,694 $14,355,124
Contracting 2,557,090 4,279,413
Elimination of inter-segment revenue (155,782) (399,282)
------------- -----------
Total revenue $15,737,002 $18,235,255
=========== ===========
Operating (loss) income:
Concrete and related products $ (1,632,000) $ (74,000)
Contracting (53,000) 178,000
Credit for litigation - 419,000
Unallocated corporate overhead (266,516) (204,118)
------------- -----------
Total operating (loss) income (1,951,516) 318,882
Other income (deductions) 18,343,728 (107,984)
------------- -----------
Income before income taxes $16,392,212 $ 210,898
=========== ===========
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
All dollar amounts of $1.0 million or more are rounded to the nearest one tenth
of a million; all other dollar amounts are rounded to the nearest one thousand
and all percentages are stated to the nearest one tenth of one percent.
This Form 10-Q contains certain "forward-looking statements" within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which represent the Company's expectations and beliefs. These statements
by their nature involve substantial risks and uncertainties, certain of which
are beyond the Company's control, and actual results may differ materially
depending on a variety of important factors, including the financial condition
of the Company's customers, changes in domestic and foreign economic and
political conditions, demand for the Company's services and products, risk and
uncertainties related to large foreign construction projects and changes in the
Company's competitive environment.
The Company cautions that the factors described above could cause actual results
or outcomes to differ materially from those expressed in any forward-looking
statements of the Company made by or on behalf of the Company. Any
forward-looking statement speaks only as of the date on which such statement is
made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for
management to predict all of such factors or the effect that any such factor may
have on the Company's business.
DISPOSITION OF CERTAIN ASSETS
On January 7, 2000, the Company closed a transaction to sell certain
concrete-related assets on St. Thomas, USVI and the subsidiary Devcon Masonry
Products (BVI), Ltd. to a purchaser and the purchaser's related parties. The
selling price was $6 million in cash, a note for $2.5 million payable over three
years and 420,000 shares of Devcon International Corp. The shares were valued at
$2.4 million at the day of closing. The gain before tax realized was $2.2
million.
On February 3, 2000 the Company closed a transaction to sell real property in
St. Croix. The selling price was $2.3 million in cash; the book value of the
property was $1.9 million. The Company realized a gain on the transaction of
approximately $336,000 before taxes in the first quarter.
On February 22, 2000 the Company closed a transaction to sell certain bulk
cement terminal assets on four islands in the Caribbean, The purchasers were
Union Maritima International (UMAR) and some of its affiliated companies. The
selling price was $19.6 million in cash. The book value of the assets, including
certain expenses and contingency accruals, was $3.8 million. The Company entered
at the same time into an agreement to manage the terminals for one year, with a
90-day termination option for both parties. The Company also entered into a
supply
10
<PAGE>
agreement, whereby the Company will buy cement from the terminals for five
years, for its own use in its batch and block plants. The agreement has
stipulations so that the Company will be able to enjoy the best price available
in the local market from any cement supplier. The Company sold cement to third
parties in 1999 and entered into a one-year contract to distribute cement on
these four islands. This distribution agreement has a 90-day termination option
for both parties. The Company recognized a gain in the first quarter of 2000 of
$15.9 million before taxes.
On March 16, 2000 the Company closed on a related transaction to sell its
subsidiary in Dominica to an affiliated company of UMAR. The selling price was
$3.9 million plus or minus an earn-out of 50% of the profits or losses of a
portion of the subsidiary's operations. The book value of the assets, including
certain expenses and contingency accruals, was $3.1 million. The gain on the
transaction will be deferred to the first quarter of 2002, when the earnout
period has finished.
The Company used the proceeds from these transactions to pay off a large portion
of its equipment financing debt, bank debt and other debt. The total amount of
these payments to creditors in year 2000 through March 31 was $15.4 million.
RECOGNITION OF ANTIGUA AND BARBUDA NOTE RECEIVABLE
The Company entered into a restructured agreement in April 2000 with the Antigua
and Barbuda government, subject to confirmation by the Antigua and Barbuda
cabinet. The interest on the notes receivable was reduced from 10% to 6%. In
August an additional monthly payment of $61,000 will commence, bringing the
total expected annual receipts on the notes to $3.1 million. The notes will,
based on the schedule of payments, be fully paid in 2015. The Company will use
some of the gross receivables to prepay duties, income taxes and other taxes.
The book value of the notes at March 31, 2000 was $8.1 million and the gross
balance was $30.8 million after deducting prepayment of taxes, offset of duties
owed and other restructuring items. From time to time in the future the Company
will use part of the gross balance to pay taxes and duties; therefore the notes
may be paid off earlier than estimated. From April 28, 2000 the Company will
start recognizing interest income on the notes receivable. The expected interest
income during 2000 will be approximately $2.1 million.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 VS. THREE MONTHS ENDED MARCH 31,
1999
REVENUE
The Company's revenue during the first quarter of 2000 was $15.7 million as
compared to $18.2 million during the same period in 1999. This 13.7 percent
decrease was primarily due to a decrease in contracting revenue of $1.9 million
and concrete and related products revenue of $622,000.
The Company's concrete and related products division revenue decreased 4.5
percent to $13.3 million during the first quarter of 2000 as compared to $14.0
million for the same period in 1999, due primarily to the sale of concrete
business in St. Thomas, Tortola and Dominica, which
11
<PAGE>
reduced revenue by $2.3 million. The remaining concrete and related products
business units showed an increase of 14.4%, primarily in Antigua, St Martin and
Puerto Rico. The Company cannot currently determine whether demand for this
division's products will increase, decrease or remain the same throughout 2000.
Revenue from the Company's land development contracting division decreased by
43.9 percent to $2.4 million during the first quarter of 2000 as compared to
$4.3 million for the same period in 1999. The Company's backlog of unfilled
portions of land development contracts at March 31, 2000 was $17.0 million,
involving 5 projects. The backlog of one project in the Bahamas amounts to $14.4
million. A Company subsidiary, the President, and a director of the Company are
minority partners of the entity developing this project. We expect most of this
contract not to be completed during 2000. There is substantial uncertainty
whether or not the project will receive its final financing. The Company expects
to receive interim payments from the project's cash resources to cover its
incremental costs while the project is seeking its total financing and permits
to proceed. The Company is monitoring the situation closely and cannot predict
how long it will continue to operate in the current manner.
COST OF CONCRETE AND RELATED PRODUCTS
Cost of concrete and related products as a percentage of concrete and related
products revenue increased to 87.5 percent during the first quarter of 2000 from
81.0 percent for the same period in 1999. This increase was primarily
attributable to increased cost in Antigua and St. Martin, and to the sale of
concrete operations in St. Thomas and Tortola that had higher margins than the
average of the Company.
COST OF CONTRACTING
Cost of contracting as a percentage of land development contracting revenue
decreased to 85.6 percent during the first quarter of 2000 from 86.7 percent
during the same period in 1999. This decrease is primarily attributable to the
varying profitability levels of individual contracts and the stage of completion
of such contracts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense ("SG&A expense") decreased by 0.5
percent to $3.3 million for the first quarter of 2000. As a percentage of
revenue, SG&A expense increased to 21.2 percent during the first quarter as
compared to 18.2 percent for the same period last year. The increase is due to
lower sales while maintaining the same level of SG&A expense. The company is
currently reviewing its cost structure based on the sale of the operations that
took place in the first quarter.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company recognized an impairment of $628,000 to assets in St. Martin and
Saba. The Company re-evaluated its operations in St. Martin and wrote down a
goodwill of $378,000 that
12
<PAGE>
was recognized in connection with the purchase of the subsidiary. Furthermore,
the Company decided to close down its operation in Saba.
CREDIT FOR LITIGATION
In the first quarter of 1999 the Company recognized a $419,000 reduction of the
accrual for litigation, due to that the claimants were denied the multiplier
effect on the legal fee award in the Fore Golf lawsuit.
DIVISIONAL OPERATING LOSS
The Company had an operating loss of $2.0 million for the first quarter of 2000,
as compared to an income of $319,000 for the same period in 1999. The Company's
concrete and related products division operating loss was $1.7 million during
the first quarter of 2000 compared to $74,000 during the same period in 1999.
This increase of the loss is primarily attributable to decreased gross profit of
$1.0 million, mainly due to increased production costs in Antigua and St.
Martin, to the sale of the higher margin concrete operations in St. Thomas and
Tortola, to the sale of the cement operations, and offset to a lesser extent by
improved margins in Puerto Rico. Operating loss increased due to the impairment
of assets of $628,000.
The Company's land development contracting division had an operating loss of
$53,000 during the first quarter of 2000 compared to $178,000 during the same
period in 1999. This decrease was primarily attributable to the reduction in
sales volume and to varying profitability levels of individual contracts and the
stage of completion of such contracts.
OTHER INCOME
Gain on sales of businesses were $18.4 million as described above under
Disposition of Certain Assets. Minority interest income amounted to $87,000 due
to losses in a consolidated joint venture. Interest income increased in the
first quarter of 2000 to $303,000 compared to $195,000 for the same period in
1999, primarily due to interest on deposits and proceeds from the sale of the
cement assets. Interest expense decreased to $465,000 from $672,000 for the same
quarter in 1999, due to repayments of debt during the quarter, offset to a
lesser extent by a write-off of loan fees in connection with the repayment of a
term loan.
NET INCOME
The Company had net income of $15.8 million during the first quarter of 2000 as
compared to $127,000 during the same period in 1999.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company generally funds its working capital needs from operations and bank
borrowings. In the land development contracting business, the Company must
expend considerable funds for equipment, labor and supplies to meet the needs of
particular projects. The Company's capital needs are greatest at the start of
any new contract, since the Company generally must complete 45 to 60 days of
work before receiving the first progress payment. In addition, as a project
continues, a portion of the progress billing is usually withheld, as retainage
until all work is complete, further increasing the need for capital. On occasion
the Company has provided long-term financing to certain customers who have
utilized its land development contracting services. With respect to the
Company's concrete and related products division, accounts receivable are
typically outstanding for a minimum of 60 days and in some cases much longer.
The nature of the Company's business requires a continuing investment in plant
and equipment, along with the related maintenance and upkeep costs of such
equipment.
The Company has funded many of these expenditures out of its current working
capital. However, notwithstanding the foregoing and after factoring in the
Company's obligations as set forth below, management believes that the Company's
cash flow from operations, existing working capital and funds available from
lines of credit will be adequate to meet the Company's anticipated needs for
operations during the next twelve months.
As of March 31, 2000, the Company's liquidity and capital resources included
cash and cash equivalents of $12.0 million and working capital of $14.1 million.
It is management's intention to use a portion of this cash to pay down
additional debt and to repurchase up to $3 million in Company shares, as has
been previously disclosed. Included in working capital is approximately $545,000
of assets held for sale. Although management's intention is to sell these assets
within the next 12 months, there can be no assurance that all assets will be
sold. As of March 31, 2000, total outstanding liabilities were $24.0 million. As
of March 31, 2000, the Company had available lines of credit totaling $1.5
million.
Cash flows used in operating activities for the three months ended March 31,
2000 was $11,000 compared with cash flow provided by operating activities of
$353,000 for the same period in 1999. The primary use of cash for operating
activities during the three months ended March 31, 2000 was an increase in
receivables of $1.5 million and increased costs in excess of billings and
estimated earnings of $812,000, offset to a lesser extent by an increase in
accounts payable and accruals of $1.5 million.
Net cash provided by investing activities was $20.3 million in the first three
months of 2000. The Company closed various transactions of sales of businesses
during the first quarter of 2000, as described above, the proceeds were $22.2
million. Proceeds from sale of property, plant and equipment were $205,000 and
repayment of debt and notes totaled $15.4 million. Receipts on notes receivables
were $643,000. Purchases of property, plant, and equipment were $2.5 million.
The Company entered into a credit agreement with a Caribbean bank in November
1996 for a total credit of $7.0 million. One part of the credit agreement was a
term loan for $6.0 million repayable in monthly installments through November
2002. The Company repaid this loan in
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January 2000. The second part is a revolving line of credit of $1.0 million. The
Company had no outstanding balance under this line of credit at March 31, 2000.
The interest rate on indebtedness outstanding under the credit line is at a
variable rate based on the prime rate. Various parcels of real property and
other assets located in the United States Virgin Islands collateralize the
credit agreement.
The Company has a $500,000 unsecured overdraft facility from a commercial bank
in the Caribbean. The facility is due on demand and bears interest at 14.0
percent per annum. At March 31, 2000, the Company had no borrowings outstanding
under this line.
The Company has borrowed approximately $3.3 million from the Company President.
The note is unsecured and bears interest at 11.0 percent. One million is due on
demand and $2.3 million is due on October 1, 2001. The President has the option
of making the note due on demand should a "Change of Control" occur. A Change of
Control has occurred if a person or group acquires 15.0 percent or more of the
common stock or announces a tender offer, the consummation of which would result
in ownership by a person or group of 15.0 percent or more of the common stock.
The Company has borrowed $1.1 million from one of its directors and his family.
The notes are secured by equipment and bear interest at 10.0 percent. The notes
have equal monthly payments over 5 years.
The Company issued a loan in November 1999 for $1.0 million to the project in
the Bahamas, in which the President and one of the Company's directors are
minority partners. The outstanding amount as of March 31, 2000 was $946,000; the
loan is secured by equipment and personal guarantees by some of the project's
owners.
The Company purchases equipment from time to time as needed for its ongoing
business operations. The Company is currently replacing or upgrading some
equipment (principally concrete trucks and quarry equipment) used by the
concrete and related products division. This should result in a net cash
expenditure, after financing part of the equipment purchases, of approximately
$3.0 million during 2000. The Company has identified some real property not
needed for its ongoing operations, which it plans to sell. The net carrying cost
is $545,000. The Company believes it has available or can obtain sufficient
financing for its contemplated equipment replacements and additions.
Historically, the Company has used a number of lenders to finance a portion of
its machinery and equipment purchases on an individual asset basis. At March 31,
2000, amounts outstanding to these lenders totaled $4.4 million. These loans are
typically repaid over a three to five-year term in monthly principal and
interest installments. The Company prepaid $9.2 million of equipment loans in
the first quarter of 2000.
A significant portion of the Company's outstanding debt bears interest at
variable rates. The Company could be negatively impacted by a substantial
increase in interest rates.
Receivables at March 31, 2000 include $8.1 million, net, of promissory notes and
bonds due from the Government of Antigua and Barbuda, of which $525,000 is
classified as a current receivable. The gross balance of the notes and bonds is
$35.3 million. The notes were restructured on April 28, 2000 and call for both
quarterly and monthly principal and interest payments until maturity in 2015.
The notes will be paid from agreed upon sources, which are
15
<PAGE>
lease proceeds from a rental of a United States military base, fuel tax revenue,
proceeds from a real estate venture and revenue from a gross receipts tax that
is currently being implemented in Antigua and Barbuda. Cash receipts for the
three months in 2000 from agreed upon sources, were $344,000.
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. If not addressed, such
computer systems, software products and embedded technology may be unable to
properly interpret dates beyond the year 1999, which could cause system failures
or miscalculations and lead to disruptions in our activities and operations.
During 1999 the Company assessed its computer information systems. The majority
of its systems are purchased from outside vendors. The Company experienced very
minimal downtime from the systems at the beginning of year 2000 and all software
is today fully functional.
The Company took an inventory of all computers and software and made the changes
needed for these systems to become Year 2000 compliant. It implemented a new
information system for financial reporting, and installing new distribution
systems for the island subsidiaries.
The Company contacted suppliers and customers regarding their Year 2000
compliance status. It has not been affected by any of the suppliers or customers
year 2000 problems.
The Company estimated to spend around $350,000 on its Year 2000 project. This
consisted of PCs, software and other related costs. Most of these monies have
been spent.
REPURCHASE OF COMPANY SHARES
On February 23, 2000 the Company announced its plan to purchase Company shares
in the open market for up to $3.0 million. The timing of share repurchases, the
actual number of shares purchased and the price to be paid will depend upon the
availability of shares, the prevailing market prices and other considerations
which may in the opinion of the Board of Directors or management affect the
advisability of purchasing Devcon shares. In the first quarter the Company
purchased 24,000 shares for an average cost of $7.24 each. Additionally, the
Company received 420,000 shares of common stock of the Company in the St. Thomas
transaction in exchange for its assets. Subsequent to the end of the quarter the
Company purchased an additional 102,000 shares for an average cost of $7.40
each.
16
<PAGE>
II. OTHER INFORMATION
- ---------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
The Company is from time to time involved in routine litigation
arising in the ordinary course of its business, primarily related
to its contracting activities.
The Company is subject to certain Federal, state and local
environmental laws and regulations. Management believes that the
Company is in compliance with all such laws and regulations.
Compliance with environmental protection laws has not had a
material adverse impact on the Company's consolidated financial
condition, results of operations or cash flows in the past and is
not expected to have a material adverse impact in the foreseeable
future.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed forms 8-K for disposition of assets
on January 7 and on February 22, 2000. Pro forma
financial statements of the Company were included with
8-K on January 7, 2000
17
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: May 15, 2000 By: /S/ JAN A. NORELID
-------------------
Jan A. Norelid
Vice President - Finance
18
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 11,970,231
<SECURITIES> 0
<RECEIVABLES> 15,260,133
<ALLOWANCES> (2,911,612)
<INVENTORY> 2,375,292
<CURRENT-ASSETS> 28,491,598
<PP&E> 57,864,216
<DEPRECIATION> (23,163,203)
<TOTAL-ASSETS> 76,349,616
<CURRENT-LIABILITIES> 14,360,964
<BONDS> 0
0
0
<COMMON> 403,699
<OTHER-SE> 51,899,553
<TOTAL-LIABILITY-AND-EQUITY> 76,349,616
<SALES> 15,737,002
<TOTAL-REVENUES> 15,737,002
<CGS> 13,725,556
<TOTAL-COSTS> 13,725,556
<OTHER-EXPENSES> (14,846,077)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 465,311
<INCOME-PRETAX> 16,392,212
<INCOME-TAX> 601,022
<INCOME-CONTINUING> 15,791,190
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,791,190
<EPS-BASIC> 3.94
<EPS-DILUTED> 3.66
</TABLE>
