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 September 30, 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 November 6, 2000 the number of shares outstanding of the Registrant's
Common Stock was 3,737,985.
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DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page Number
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<S> <C>
Part I. Financial Information:
Condensed Consolidated Balance Sheets
September 30, 2000 (unaudited) and
December 31, 1999.................................................... 3-4
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2000 and 1999 (unaudited).. 5
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999
(unaudited).......................................................... 6-7
Notes to Condensed Consolidated Financial Statements................. 8-10
Management's Discussion and Analysis of
Financial Conditions and Results of
Operations........................................................... 10-17
Part II. Other Information.................................................... 18
</TABLE>
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PART I. FINANCIAL INFORMATION
------------------------------------------------------------
DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 2000 and December 31, 1999
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash $ 2,386,886 $ 1,406,941
Cash equivalents 6,190,649 4,737,311
Receivables, net 14,797,608 12,878,643
Costs in excess of billings
and estimated earnings 840,662 258,780
Inventories 3,034,664 3,829,450
Assets held for sale 196,036 7,559,066
Prepaid expenses and other assets 637,690 535,146
------------ ------------
Total current assets 28,084,195 31,205,337
Property, plant and equipment, net
Land 1,455,045 1,920,539
Buildings 1,217,707 2,372,240
Leasehold interests 3,164,089 3,516,202
Equipment 50,699,523 52,380,167
Furniture and fixtures 805,137 785,359
Construction in process 490,208 3,091,160
------------ ------------
57,831,709 64,065,667
Less accumulated depreciation (24,827,125) (25,722,376)
------------ ------------
33,004,584 38,343,291
Investments in unconsolidated
joint ventures and affiliates 288,484 277,081
Receivables, net 11,211,671 9,556,539
Intangible assets, net of
accumulated amortization -- 936,829
Other assets 1,012,606 1,326,917
------------ ------------
Total assets $ 73,601,540 $ 81,645,994
============ ============
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DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 2000 and December 31, 1999
(Continued)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade and other $ 6,988,471 $ 4,926,700
Accrued expenses and other liabilities 3,665,899 3,103,083
Deposit on sale of assets -- 8,000,000
Notes payable to banks -- 625,000
Current installments of long-term debt 1,902,290 6,956,246
Billings in excess of costs and estimated earnings 1,533,209 1,026,316
Income taxes 338,261 287,423
------------ ------------
Total current liabilities 14,428,130 24,924,768
Long-term debt, excluding current installments 2,611,321 14,349,708
Minority interest in consolidated subsidiaries 706,250 932,325
Deferred income taxes 379,652 379,652
Other liabilities 3,440,861 1,623,331
------------ ------------
Total liabilities 21,566,214 42,209,784
Stockholders' equity:
Common stock 390,628 449,894
Additional paid-in capital 10,466,993 12,064,133
Accumulated other comprehensive income-
cumulative translation adjustment (2,510,822) (1,594,577)
Retained earnings 44,863,247 28,674,264
Treasury stock (1,174,720) (157,504)
------------ ------------
Total stockholders' equity 52,035,326 39,436,210
------------ ------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 73,601,540 $ 81,645,994
============ ============
</TABLE>
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DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Concrete and related products revenue $ 13,005,240 $ 13,976,050 $ 39,089,387 $ 42,897,787
Contracting revenue 4,427,890 2,866,006 10,574,771 10,604,325
------------ ------------ ------------ ------------
Total revenue 17,433,130 16,842,056 49,664,158 53,502,112
------------ ------------ ------------ ------------
Cost of concrete and related products (10,485,724) (11,930,686) (32,734,545) (35,059,938)
Cost of contracting (3,338,898) (2,444,278) (8,304,090) (8,964,862)
------------ ------------ ------------ ------------
Gross profit 3,608,508 2,467,092 8,625,523 9,477,312
Operating expenses:
Selling, general and
administrative expenses (2,809,345) (2,736,587) (9,030,596) (9,060,334)
Impairment of long-lived assets -- -- (627,536) --
Credit for litigation -- 635,603 -- 1,054,602
------------ ------------ ------------ ------------
Operating income (loss) 799,163 366,108 (1,032,609) 1,471,580
Other income (deductions):
Joint venture equity (loss) gain (829) 16,400 (9,195) (13,600)
Loss on sale of property & equipment (6,018) (241,743) (4,825) (133,231)
Gain on sale of businesses -- -- 18,312,345 --
Interest expense (131,221) (568,473) (785,701) (1,822,637)
Interest and other income 986,574 283,438 2,078,224 654,497
Minority interest 101,389 205,012 226,075 681,361
------------ ------------ ------------ ------------
949,895 (305,366) 19,816,923 (633,610)
------------ ------------ ------------ ------------
Income before income taxes 1,749,058 60,742 18,784,314 837,970
Income tax expense (165,439) (131,149) (738,618) (317,917)
------------ ------------ ------------ ------------
Net income (loss) $ 1,583,619 $ (70,407) $ 18,045,696 $ 520,053
============ ============ ============ ============
Earnings (loss) per common share-basic $ 0.42 $ (0.02) $ 4.63 $ 0.12
============ ============ ============ ============
Earnings (loss) per common share-diluted $ 0.39 $ (0.02) $ 4.24 $ 0.11
============ ============ ============ ============
Weighted average number of
shares outstanding-basic 3,763,182 4,473,935 3,893,701 4,489,361
Effect of dilutive securities: Options 349,955 -- 359,135 70,929
------------ ------------ ------------ ------------
Weighted average number of
shares-diluted 4,113,137 4,473,935 4,252,836 4,560,290
============ ============ ============ ============
</TABLE>
5
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DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 18,045,696 $ 520,053
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 3,901,960 4,788,656
Provision for doubtful accounts and notes 299,585 169,194
Impairment of long-lived assets 627,536 --
Credit for litigation -- (1,054,602)
Loss on sale of equipment 4,825 133,231
Gain on sale of business (18,312,345) --
Joint venture equity loss 9,195 13,600
Minority interest income (226,075) (681,361)
Changes in operating assets and liabilities:
(Increase) decrease in receivables, net (5,510,989) 262,870
(Increase) decrease in costs in excess
of billings and estimated earnings (581,882) 130,493
Increase in inventories (107,296) (375,480)
Increase in other current assets (148,984) (88,835)
Increase in other assets (8,972) (95,571)
Increase (decrease) in accounts
payable, trade and other 2,758,453 (2,247,137)
Increase (decrease) in billings in
excess of costs and estimated earnings 506,893 (117,210)
Increase in income taxes payable 154,491 162,280
(Decrease) increase in other liabilities (39,441) 115,880
------------ ------------
Net cash provided by operating activities $ 1,372,650 $ 1,636,061
------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment $ (3,875,417) $ (6,937,355)
Proceeds from disposition of property,
plant and equipment 608,811 493,387
Proceeds from disposition of businesses 23,196,405 --
Payments received on notes 1,582,967 3,387,699
Investment in affiliates (20,598) (45,411)
Issuance of notes (414,000) (16,000)
Purchase of treasury stock (2,169,606) (78,132)
------------ ------------
Net cash provided by (used in)
investing activities $ 18,908,562 $ (3,195,812)
------------ ------------
</TABLE>
6
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DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from debt $ 810,389 $ 6,841,300
Principal payments on debt (18,062,118) (6,676,594)
Net (repayments) borrowings from bank
credit line and overdrafts (625,000) 1,061,892
Issuance of stock 28,800 --
------------ ------------
Net cash (used in) provided by financing activities $(17,847,929) $ 1,226,598
------------ ------------
Net increase (decrease) in cash and cash equivalents $ 2,433,283 $ (333,153)
Cash and cash equivalents, beginning of period 6,144,252 2,258,858
------------ ------------
Cash and cash equivalents, end of period $ 8,577,535 $ 1,925,705
============ ============
Supplemental disclosures of
cash flow information
Cash paid for
Interest $ 886,678 $ 1,808,423
============ ============
Income taxes $ 578,602 $ 155,636
============ ============
Supplemental disclosures of non-cash
investing and financing activities
Property, plant and equipment
transferred to assets held
for sale $ -- $ 6,035,102
============ ============
</TABLE>
7
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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 September 30, 2000 and the results of its operations and cash
flows for the three and nine months ended September 30, 2000 and 1999.
The results of operations for the three and nine months ended September 30, 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 763,100 and 524,300 shares of common stock, at prices
ranging from $1.50 to $6.75 per share, were outstanding for the quarters ended
September 30, 2000 and 1999, respectively. Options to purchase 71,475 and
320,475 shares of common stock were outstanding for the quarters ended September
30, 2000 and 1999, respectively, at prices ranging from $7.00 to $14.00 per
share, but these options 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
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COMPREHENSIVE INCOME
The Company's total comprehensive income, comprised of net income and foreign
currency translation adjustments, for the three and nine month periods ended
September 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) $ 1,583,619 $ (70,407) $ 18,045,696 $ 520,053
Other comprehensive (loss) income (582,885) 169,633 (916,245) (415,736)
------------ ------------ ------------ ------------
Total comprehensive income $ 1,000,734 $ 99,226 $ 17,129,451 $ 104,317
============ ============ ============ ============
</TABLE>
SEGMENT REPORTING
The following sets forth the revenue and income before income taxes for each of
the Company's business segments for the three and nine months ended September
30, 2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue (including intersegment)
Concrete and related products $ 13,115,351 $ 13,752,057 $ 39,556,792 $ 43,239,243
Contracting 4,453,577 3,202,760 10,671,610 11,139,980
Elimination of inter-segment
revenue (135,798) (112,761) (564,244) (877,111)
------------ ------------ ------------ ------------
Total revenue 17,433,130 16,842,056 49,664,158 53,502,112
------------ ------------ ------------ ------------
Operating (loss) income:
Concrete and related products 151,000 (203,000) (1,568,000) 400,000
Contracting 753,000 131,000 1,167,000 609,000
Credit for litigation -- 636,000 -- 1,055,000
Unallocated corporate overhead (104,837) (197,892) (631,609) (592,420)
------------ ------------ ------------ ------------
Total operating (loss) income 799,163 366,108 (1,032,609) 1,471,580
Other income (deductions) 949,895 (305,366) 19,816,923 (633,610)
------------ ------------ ------------ ------------
Income before income taxes $ 1,749,058 $ 60,742 $ 18,784,314 $ 837,970
============ ============ ============ ============
</TABLE>
RECOGNITION OF ANTIGUA AND BARBUDA NOTE RECEIVABLE
The Company entered into a restructured agreement in April 2000 with the
Government of Antigua and Barbuda, subject to confirmation by the Antigua and
Barbuda Cabinet. The interest rate on the notes receivable was reduced from 10%
to 6%. In November 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, excluding any future tax offsets,
be fully paid by 2015. The Company will use some of the notes' gross receivables
balance to
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prepay duties, income taxes and other taxes. The book value of the notes at
September 30, 2000 was $7.9 million and the gross balance was $30.6 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 started to recognize
interest income on the notes receivable. The Company recognized $739,000 in
income during the third quarter 2000. The expected interest income during 2000
will be approximately $2.0 million.
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.
RECOGNITION OF RETIREMENT EXPENSE
The Company entered into an agreement on June 30, 2000 with its CEO, Mr. Donald
L. Smith, Jr., whereby Mr. Smith shall receive a retirement benefit upon the
sooner of Mr. Smith's retirement, provided he remains at his position at least
until March 31, 2003, or a change in control of the Company. Benefits to be
received shall equal 75% of Mr. Smith's base salary, and shall continue for the
remainder of his life. In the event that Mr. Smith is survived by a spouse, then
the surviving spouse shall receive a benefit equal to 100% of Mr. Smith's base
salary for the shorter of five years or the remainder of the surviving spouse's
life. The Company will recognize the expense of the retirement agreement over
Mr. Smith's expected remaining period of active
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employment with the Company. The Company recorded expense of $110,000 in the
third quarter of 2000.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 VS. THREE MONTHS ENDED
SEPTEMBER 30, 1999
REVENUE
The Company's revenue during the third quarter of 2000 was $17.4 million as
compared to $16.8 million during the same period in 1999. This 3.5 percent
increase was primarily due to an increase in contracting revenue of $1.6 million
partially offset by a decrease in concrete and related products revenue of $1.0
million.
The Company's concrete and related products division revenue decreased 6.9
percent to $13.0 million during the third quarter of 2000 as compared to $14.0
million for the same period in 1999, due primarily to the sale of the Company's
concrete business in St. Thomas, Tortola and Dominica, which reduced revenue by
$3.4 million. The remaining concrete and related products business units showed
an increase of 23.4%, primarily in St. Croix, 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 increased by
54.5 percent to $4.4 million during the third quarter of 2000 as compared to
$2.9 million for the same period in 1999. This increase is mainly due to the
completion of certain dredging contracts and continued work at the St. Croix
airport. The Company's backlog of unfilled portions of land development
contracts at September 30, 2000 was $15.9 million, involving 8 projects. The
backlog of one project in the Bahamas amounts to $13.3 million. A Company
subsidiary, the President, and a director of the Company are minority partners
of the entity developing this project. The Company expects that most of this
contract will not be completed during 2000. The project has not yet received its
total financing and completion of the project is pending additional financing.
The Company has been advised by this entity that it has received a loan
commitment letter from a bank, has entered into a contract with a reputable
hotel chain for management of the hotel being built, and has received further
financial commitments from other sources. All commitments are subject to
significant conditions that the entity is currently working on fulfilling. Until
the financing transaction is consummated there is uncertainty whether or not the
project will receive its final financing. The Company is monitoring the
situation closely.
COST OF CONCRETE AND RELATED PRODUCTS
Cost of concrete and related products as a percentage of concrete and related
products revenue decreased to 80.6 percent during the third quarter of 2000 from
85.4 percent for the same period in 1999. This decrease was primarily
attributable to improved operations in St. Martin, offset to a lesser extent by
the increased cost of cement as the market price the Company pays to cement
terminals is higher that the market price it paid directly to the cement
manufacturers, prior to the sale of its cement business earlier this year. This
decrease was also attributable to the sale of the
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Company's concrete operations in St. Thomas and Tortola that had higher margins
than the Company average.
COST OF CONTRACTING
Cost of contracting as a percentage of contracting revenue decreased to 75.4
percent during the third quarter of 2000 from 85.3 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") increased by 2.7
percent to $2.8 million for the third quarter of 2000 from $2.7 million for the
same period in 1999. As a percentage of revenue, SG&A expense remained
relatively consistent at 16.1 percent during the third quarter as compared to
16.2 percent for the same period last year. The percentage decrease was
primarily due to the increased revenue in the remaining operating entities,
offset to a lesser extent by the Company's central expenses, which remained
fairly stable and did not decrease to compensate for the reduction in sales
resulting from the sale of the businesses in St Thomas, Tortola and Dominica.
DIVISIONAL OPERATING INCOME (LOSS)
The Company had operating income of $799,000 for the third quarter of 2000, as
compared to $366,000 for the same period in 1999. The Company's concrete and
related products division operating income was $151,000 during the third quarter
of 2000 compared to an operating loss of $203,000 during the same period in
1999. This improvement is primarily attributable to decreased production costs
in St. Martin and Puerto Rico, offset to a lesser extent by the sale of the
concrete operations in St. Thomas, Tortola, and Dominica and the increased cost
of cement as the market price the Company pays to cement terminals is higher
that the market price it paid directly to the cement manufacturers, prior to the
sale of its cement business earlier this year.
The Company's land development contracting division had operating income of
$753,000 during the third quarter of 2000 compared to $131,000 during the same
period in 1999. This increase was primarily attributable to an increase in sales
volume, varying profitability levels of individual contracts, and the stage of
completion of such contracts.
OTHER INCOME (DEDUCTIONS)
Loss on sales of equipment and property was $6,000 compared to $242,000 for the
same quarter last year. Minority interest income amounted to $101,000 due to
losses in a consolidated joint venture. Interest income and other income
increased in the third quarter of 2000 to $987,000 compared to $283,000 for the
same period in 1999, primarily due to interest recognized on the note receivable
from the Government of Antigua and Barbuda and interest earned on cash and cash
equivalents. Interest expense decreased to $131,000 from $568,000 for the same
quarter in
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1999 due to repayments of debt during 2000, as a result of the sale of certain
operations in the first quarter of 2000.
NET INCOME (LOSS)
The Company had net income of $1.6 million during the third quarter of 2000 as
compared to a loss of $70,000 during the same period in 1999.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 VS. NINE MONTHS ENDED
SEPTEMBER 30, 1999
REVENUE
The Company's revenue during the first nine months of 2000 was $49.7 million as
compared to $53.5 million during the same period in 1999. This 7.2 percent
decrease was primarily due to a decrease in concrete and related products
revenue of $3.8 million.
The Company's concrete and related products division revenue decreased 8.9
percent to $39.1 million during the first nine months of 2000 as compared to
$42.9 million for the same period in 1999. This decrease was due primarily to
the sale of the Company's concrete business in St. Thomas, Tortola and Dominica,
which reduced revenue by $10.8 million. The remaining concrete and related
products business units showed an increase of 21.7 percent, primarily Puerto
Rico, St. Croix and St. Martin. 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
0.3 percent to $10.6 million during the first nine months of 2000 as compared to
$10.6 million for the same period in 1999. The Company's backlog of unfilled
portions of land development contracts at September 30, 2000 was $15.9 million,
involving 8 projects. The backlog of one project in the Bahamas amounts to $13.3
million. A Company subsidiary, the President, and a director of the Company are
minority partners of the entity developing this project. The Company expects
that most of this contract will not be completed during 2000. The project has
not yet received its total financing and completion of the project is pending
additional financing. The Company has been advised by this entity that it has
received a loan commitment letter from a bank, has entered into a contract with
a reputable hotel chain for management of the hotel being built, and has
received further financial commitments from other sources. All commitments are
subject to significant conditions that the entity is currently working on
fulfilling. Until the financing transaction is consummated there is uncertainty
whether or not the project will receive its final financing. The Company is
monitoring the situation closely.
COST OF CONCRETE AND RELATED PRODUCTS
Cost of concrete and related products as a percentage of concrete and related
products revenue increased to 83.7 percent during the first nine months of 2000
from 81.7 percent for the same period in 1999. This increase was primarily
attributable to increased costs in Antigua, to the increased cost of cement as
the market price the Company pays to cement terminals is higher that
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the market price it paid directly to the cement manufacturers, prior to the sale
of its cement business earlier this year. This increase was also attributable to
the sale of the Company's concrete operations in St. Thomas and Tortola that had
higher margins than the Company average.
COST OF CONTRACTING
Cost of contracting as a percentage of contracting revenue decreased to 78.5
percent during the first nine months of 2000 from 84.5 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 0.3
percent to $9.0 million for the first nine months of 2000 as compared to $9.1
million for the same period in 1999. As a percentage of revenue, SG&A expense
increased to 18.2 percent for the first nine months of 2000 as compared to 16.9
percent for the same period last year. The percentage increase was due to the
Company not decreasing its central expenses to compensate for the reduction in
sales resulting from the sale of the businesses in St Thomas, Tortola and
Dominica.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company recognized in 2000 an impairment of $628,000 to assets in St. Martin
and Saba. The Company re-evaluated its operations in St. Martin and wrote down
goodwill of $378,000 that was recognized in connection with the purchase of the
subsidiary. Furthermore, the Company decided to close its operation in Saba.
CREDIT FOR LITIGATION
In the second and third quarter of 1999 the Company recognized a $1.1 million
credit for litigation from a reduction of the accrual for litigation, as the
claimants were denied the multiplier effect on the legal fee award in the Fore
Golf lawsuit, and income due to a settlement of a lawsuit with the Greater
Orlando Airport.
DIVISIONAL OPERATING INCOME (LOSS)
The Company had an operating loss of $1.0 million for the first nine months of
2000, as compared to operating income of $1.5 million for the same period in
1999. The Company's concrete and related products division operating loss was
$1.6 million during the first nine months of 2000 compared to income of $400,000
during the same period in 1999. This loss is primarily attributable to increased
production costs in Antigua, the sale of the concrete operations in St. Thomas
and Tortola, and to the increased cost of cement as the market price the Company
pays to cement terminals is higher that the market price it paid directly to the
cement manufacturers, prior to the sale of its cement business earlier this
year. This decreased result was
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offset to a lesser extent by improved margins in Puerto Rico and St. Martin. The
operating loss also increased due to the impairment of assets of $628,000 in St.
Martin and Saba.
The Company's land development contracting division had operating income of $1.2
million during the first nine months of 2000 compared to $609,000 during the
same period in 1999. This increase was primarily attributable to an increase in
sales volume, varying profitability levels of individual contracts and the stage
of completion of such contracts.
OTHER INCOME (DEDUCTIONS)
The gain on sales of businesses and property was $18.3 million, primarily due to
the sale of 4 cement terminals and the ready-mix business in St. Thomas and
Tortola. Minority interest income recognized was $226,000, due to losses
incurred by a consolidated joint venture. Interest income and other income
increased in the first nine months of 2000 to $2.1 million compared to $654,000
for the same period in 1999, primarily due to interest recognized on the note
receivable from the Government of Antigua and Barbuda and interest earned on
cash and cash equivalents. Interest expense decreased to $786,000 from $1.8
million for the same period in 1999 due to repayments of debt during 2000, as a
result of the sale of certain operations in the first quarter of 2000, offset to
a lesser extent by expensing of loan fees in connection with the repayment of a
term loan.
NET INCOME
The Company had an effective tax rate of 3.9% for the nine-month period of 2000
compared to 37.9% for the same period in 1999. The decrease in the effective tax
rate resulted from income being realized in different tax jurisdictions with
varying tax rates, tax loss carry-forwards in the United States, a 90% tax
exemption in the US Virgin Islands and an effective tax rate of 0% in Antigua.
The Company had net income of $18.0 million during the first nine months of 2000
as compared to $520,000 during the same period in 1999.
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. 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.
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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 September 30, 2000, the Company's liquidity and capital resources included
cash and cash equivalents of $8.6 million and working capital of $13.7 million.
Included in working capital is approximately $196,000 of assets held for sale.
As of September 30, 2000, total outstanding liabilities were $21.6 million. As
of September 30, 2000, the Company had available lines of credit totaling $1.5
million.
Cash flows provided by operating activities for the nine months ended September
30, 2000 were $1.4 million compared with $1.6 million for the same period in
1999. The primary use of cash for operating activities during the nine months
ended September 30, 2000 was an increase in receivables of $5.5 million and
increased costs in excess of billings and estimated earnings of $582,000, offset
to a lesser extent by an increase in accounts payable and accruals of $2.8
million.
Net cash provided by investing activities was $18.9 million in the first nine
months of 2000. The Company closed various transactions of sales of businesses
during the first quarter of 2000 with proceeds of $23.2 million. Proceeds from
sale of property, plant and equipment were $609,000 and repayment of debt and
notes totaled $18.7 million. Receipts on notes receivables were $1.6 million.
Purchases of property, plant, and equipment were $3.9 million and the repurchase
of Company common stock was $2.2 million.
The Company entered into a credit agreement with a Caribbean bank in November
1996 for credit of $7.0 million. One part of the credit agreement was a term
loan for $6.0 million payable in monthly installments through November 2002. The
Company repaid this loan in 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 September 30, 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 September 30, 2000, the Company had no borrowings
outstanding under this line.
The Company has borrowed approximately $2.1 million from the Company President.
The note is unsecured and bears interest at 11.5 percent. One million is due on
demand, and $1.1 million is due on January 1, 2002. 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.
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The Company issued a loan in November 1999 for $1.0 million to a project in the
Bahamas in which the President and one of the Company's directors are minority
partners. The outstanding amount as of September 30, 2000 was $867,000. The loan
is secured by equipment and personal guarantees of 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 net cash
expenditure, after financing part of the equipment purchases, of approximately
$4.0 million during 2000. 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 September 30, 2000, amounts outstanding to these lenders totaled
$1.4 million. These loans are typically repaid over a three to five-year term in
monthly principal and interest installments. The Company believes it has
available or can obtain sufficient financing for its contemplated equipment
replacements and additions.
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 September 30, 2000 include a net balance of $7.9 million
consisting of promissory notes due from the Government of Antigua and Barbuda,
substantially all of which is classified as a long-term receivable. The gross
balance of the notes is $30.6 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
consist of 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 nine months ended September 30, 2000 from agreed upon sources
were $1,860,000.
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 third quarter the Company
purchased 123,000 shares at an average cost of $6.73 each, and since February
23, 2000 the Company has repurchased a total of 312,000 shares at an average
cost of $7.00. Additionally, the Company received 420,100 shares of common stock
of the Company in a transaction in St. Thomas in exchange for assets sold.
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PART 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:
None
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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: November 13, 2000 By: /S/ JAN A. NORELID
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Jan A. Norelid
Vice President - Finance
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EXHIBIT INDEX
EXHIBIT NO. EXHIBIT DESCRIPTION
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27 Financial Data Schedule
