Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)of the securities Exchange Act of
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
Commission file number 0-7152
DEVCON INTERNATIONAL CORP.
FLORIDA CORPORATION TIN 59-0671992
1350 E. NEWPORT CENTER DR. SUITE 201, DEERFIELD BEACH, FL 33442
(954) 429-1500
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.10 PAR VALUE
We have 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.
This document or its amendments does not include disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K nor will disclosure be made in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
As of March 20, 2000, Devcon International Corp. had 4,036,995 shares
outstanding. The aggregate market value of the Common Stock held by non-
affiliates of Devcon International Corp. as of March 20, 1999 was approximately
$13.0 million, based on the closing price on that date of $7.19 for the Common
Stock as reported on the Nasdaq National Market System. In this calculation all
executive officers, directors and 5 percent beneficial owners of Devcon
International Corp. are considered to be affiliates. This is not an admission
that such executive officers, directors or 5 percent beneficial owners are, in
fact, affiliates of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (Items 10, 11, 12 and 13) is incorporated
by reference from Devcon's definitive proxy statement (to be filed pursuant to
Regulation 14A).
PART I
ITEM 1. BUSINESS
GENERAL
In the Caribbean, Devcon International Corp.(the "Company") produces and
distributes ready-mix concrete, crushed stone, concrete block, and asphalt and
distributes bulk and bagged cement. We also perform site preparation work as a
land development contractor. We have established a significant market share in
most locations where we have facilities.
During the first quarter of 2000 we sold our operations in Tortola and Dominica,
our concrete operations in St. Thomas and all our bulk cement terminals. Due to
the sales, our revenue in 2000 will diminish. The operations in Tortola and
Dominica had revenue of $9.5 million in 1999. The concrete operations in St.
Thomas had revenue of $6.3 million, however, our quarry is supplying the
concrete operation sand and stone and the value of this supply would have been
approximately $2.0 million in 1999. Therefore, the net revenue deduction using
1999 figures would be $4.3 million. The cement terminals we sold had sales of
cement to third parties of approximately $6.4 million in 1999. However, we
entered into an agreement to distribute cement on the islands in question. The
agreement has a 90-day termination clause, therefore, we cannot say at this
point whether or not our revenue will decrease due to the sale of the cement
terminals. See additional information under Item 7 - Subsequent Events.
We are a large producer and distributor of ready-mix concrete and quarry
products in these Caribbean islands:
Puerto Rico Commonwealth of Puerto Rico
St. Thomas United States Virgin Islands
St. Croix United States Virgin Islands
Tortola British Virgin Islands
Saba Netherlands Antilles
St. Maarten Netherlands Antilles
St. Martin French West Indies
Antigua West Indies
Dominica West Indies
Our contracting division performs earthmoving, excavating, and filling
operations, builds golf courses, roads, and utility infrastructures, dredges
waterways and constructs deep-water piers and marinas in the Caribbean. We have
historically provided these land development services to both private
enterprises and governments in the Caribbean. We believe that our relationships
with customers in the Caribbean give us a competitive advantage. Our project
managers have substantial experience in land development contracting, and our
equipment is well-suited for the Caribbean markets. We have equipment and
personnel in the Caribbean that, we believe, often allow us to start work more
quickly and less expensively than other contractors. While we can bid
competitively and cost- effectively for these land development contracts, our
ability to mobilize quickly can sometimes cause us to incur higher expense.
The following table sets forth financial highlights of our concrete and related
products, contracting and other business, see further information in Note 11 of
Notes to Consolidated Financial Statements.
2
1999 1998 1997
---- ---- ----
(In thousands)
Revenue (net of intersegment sales):
Concrete and related products........................ $55,313 $50,448 $ 51,461
Contracting.......................................... 12,721 15,359 9,852
Other................................................ - 371 2,931
------- ------- --------
Total........................................... $68,034 $66,178 $ 64,244
======= ======= ========
Operating (loss) income (by segment):
Concrete and related products........................ $(2,198) $ 693 $ (4,322)
Contracting.......................................... (301) 714 (3,502)
Charge for litigation................................ 1,160 461 (4,500)
Other................................................ - 116 434
Unallocated corporate overhead....................... (879) (1,038) (688)
------- ------- --------
Total............................................. $(2,218) $ 946 $(12,578)
======= ======= ========
Our executive offices are located at 1350 East Newport Center Drive, Suite 201,
Deerfield Beach, Florida 33442 and our telephone number is (954)429-1500. In
this document, the terms "Company" and "Devcon" refer to Devcon International
Corp. and its subsidiaries.
BUSINESS DEVELOPMENT
We expanded our operations in the Caribbean by opening an aggregate processing
plant in Puerto Rico in December 1998. Minority investors own 49.9 percent of
this separate company. The president of one of the investors subsequently became
a director of Devcon. From time to time, we investigate opportunities to expand
our operations to areas of the Caribbean where we presently have no business.
Such expansion may take place through joint ventures, acquisitions or other
business arrangements.
During the first quarter of 2000 we sold our operations in Tortola and Dominica,
our concrete operations in St. Thomas and all our bulk cement terminals. Due to
hurricane damages we have decided to close our Saba operations. See additional
information under Item 7 - Subsequent Events.
RISKS OF FOREIGN OPERATIONS
Portions of our operation in 1999 were conducted in Caribbean foreign countries,
primarily Antigua, St. Maarten, St. Martin, Dominica, Saba, St. Kitts, and
Tortola. In 1999, 56.0 percent of our revenue was derived from foreign
operations. Overseas contract work performed by the parent U.S. corporation is
not considered foreign-source revenue for this calculation. For a summary of our
revenues and earnings from foreign operations, see Note 9 of Notes to
Consolidated Financial Statements. The risks of doing business in foreign areas
include potential adverse changes in U.S. diplomatic relations with foreign
countries, changes in the relative purchasing power of the U.S. dollar,
hostility from local populations, adverse effects of exchange controls,
restrictions on the withdrawal of foreign investment and earnings, government
policies against businesses owned by non-nationals, expropriations of property,
the instability of foreign governments, and any insurrection that could result
in uninsured losses. We are not subject to these risks in Puerto Rico or the
U.S. Virgin Islands since these territories use the U.S. dollar as currency. The
Company is also subject to U.S. federal income tax upon the distribution of
certain offshore earnings. See Note 8 of Notes to Consolidated Financial
Statements. Although we have not encountered significant difficulties in our
foreign operations, there can be no assurance that we will never encounter
difficulties.
3
CONCRETE AND RELATED PRODUCTS
GENERAL In 1999 we manufactured and distributed ready-mix concrete, block and
crushed aggregate. We also distributed bulk and bagged cement. The different
activities on the islands are shown below:
Concrete Bulk and
Ready-Mix Quarry Block Bagged
Concrete Aggregates Production Cement
-------- ---------- ---------- ------
Puerto Rico X
St. Thomas, U.S.V.I. S X X S
St. Croix, U.S.V.I. X X S
Tortola, British V.I. S S
Saba C C C
St. Maarten X X X S
St. Martin X X S
Antigua X X X S
Dominica S S
The "S" in the above table corresponds to operations sold in the first quarter
of 2000 and "C" corresponds to closed operations.
Our concrete and related products business employed assets in 1999 such as:
o Quarries o Concrete Batch Plants
o Rock Crushing Plants o Fleet of Concrete Mixer Trucks
o Bulk Cement Terminals o Concrete Block Plants
o Cement Bagging Facilities o Asphalt Plants
See additional information under Item 7 - Subsequent Events.
READY-MIX CONCRETE AND CONCRETE BLOCK Our concrete batch plants mix cement,
sand, crushed stone, water and chemical additives to produce ready-mix concrete
for use in local construction. Our fleet of concrete mixer trucks deliver the
concrete to the customer's job site. At our concrete block plants, a
low-moisture concrete mixture is machine-formed, then dried and stored for later
sale. Usually, our ready-mix concrete operations and concrete block plants are
the area's largest or only facility.
QUARRY OPERATIONS AND CRUSHED STONE We own or lease quarry sites at which we
blast rock from exposed mineral formations. This rock is crushed to sizes
ranging from 3 1/2 inch stones down to manufactured sand. The resulting
aggregate is then sorted, cleaned and stored. The aggregate is sold to customers
and used in our operations to make concrete products. Our quarries are the
largest on six Caribbean islands. It is often less expensive to manufacture
crushed rock at our quarries than to import aggregate from off-island sources.
BULK AND BAGGED CEMENT In 1999, we leased a bulk cement ship with a 6,000
metric- ton capacity. The ship delivered cement in bulk to our cement terminals.
From silos at these terminals, the cement is transferred for use in our concrete
batch plants, sold in bulk or bagged and then sold. Bulk cement is readily
available from a number of manufacturers located throughout the Caribbean basin.
In the first quarter of 2000 we sold the cement terminals and sub chartered the
ship to Union Maritima International S.A. The effect of this is that we enter
the supply chain of cement at a later stage. See additional information under
Item 7 - Subsequent Events.
4
SUPPLIES We presently obtain all of the crushed rock and a majority of the sand
necessary for our production of ready-mix concrete from our own quarries. Our
ability to produce our own sand gives us a competitive advantage because of the
substantial investment required to produce sand, the difficulty in obtaining the
necessary environmental permits to establish quarries and the moratorium on
mining beach sand imposed by most Caribbean countries. The sand that we produce
is sometimes blended with sand obtained from offshore sources unaffiliated with
the Company.
CUSTOMERS Our primary customers are building contractors, governments, asphalt
pavers and individual homeowners. Customers generally pick up quarry products,
concrete block and bagged cement at our facilities, and we generally deliver
ready-mix concrete and bulk cement to the customers' job sites.
COMPETITION We have some competitors in the concrete and related products
business in the locations where we conduct business. We encounter competition
from the producers of asphalt, which is an alternative material to concrete for
road construction. We believe our concrete and related products market share,
resources, facilities, local presence and cost structure give us a competitive
advantage in the eastern Caribbean markets where we operate.
LAND DEVELOPMENT CONTRACTING
GENERAL We have completed land development construction projects, including
interstate highways, airport sites and runways, deep-water piers and marinas,
hydraulic dredging, golf courses, and industrial, residential and commercial
site development. We pursue the most profitable land development contracts
available in the Caribbean, rather than attempting to maintain a high volume.
The revenue related to the work performed by our contracting division is
generated on a contract-by-contract basis. The majority of our contracts are
completed in less than one year, although we obtain multi-year contracts from
time to time. These contracts are bid or negotiated at a fixed price except for
changes in the scope of the work requested by the owner during the term of the
contract. The majority of our work is performed by our own labor and equipment
and is not subcontracted. We also enter into unit-price contracts where our fee
is based upon the quantity of work performed. This is often measured in yards,
meters or tons, rather than time.
OPERATIONS We obtain leads for new projects from customers and engineering firms
with whom we have established relationships. First, we decide whether to submit
a bid or negotiate to undertake a particular project. We prepare and submit
timely proposals detailing what we believe will best meet a customer's
objectives. We have also provided long-term or short-term financing to obtain
more profitable construction contracts, and any financing by us in the future is
contingent upon our financial position and operating results. Project proposals
and bids are reviewed by our Vice President of Construction Operations and/or
our President. After a customer accepts our proposal, a formal contract is
negotiated. We are normally the prime contractor. We assign a project manager
and one of our seven field superintendents to maintain close contact with the
customer and its engineers, to supervise personnel and the relocation, purchase,
lease and maintenance of equipment and to schedule and monitor our operations.
BACKLOG Our backlog of unfulfilled portions of land development contracts at
December 31, 1999 was $18.7 million involving 6 projects. One Bahamian project's
backlog increased due to change orders aggregating $8.6 million in 1999 and
5
amounts to $15.1 million at the end of 1999 ($11.9 million at the end of 1998).
A subsidiary and two of our directors are minority partners, and our President
is Chairman of the entity developing this project. This partnership does not yet
have the necessary financing to complete the development of the project and
there is substantial uncertainty as to whether it will obtain necessary
financing. Therefore, the amount of the backlog could substantially diminish and
the timing of completion could vary. The backlog of $18.7 million at the end of
1999 compares to $16.3 million involving 10 projects at December 31, 1998. Since
December 31, 1999 we have entered into new land development contracts in the
Caribbean amounting to $2.8 million. We expect most of the current backlog will
be completed during 2000, except for the project in the Bahamas.
BONDING We must obtain a performance bond to bid on government construction
contracts and some private contracts. We have, in the past, been able to bond
all contracts that so required.
COMPETITION Land development contracting is extremely competitive. Primary
competitive factors include price, prior experience and relationships, the equip
ment available to complete the job, innovation, the available engineering staff
to assist an owner in minimizing costs, how quickly a company can complete a
contract, and the ability to obtain bonding which guarantees contract
completion. We believe that we compete effectively and have a favorable
competitive position in our Caribbean markets.
OTHER OPERATIONS
MARINA Two of our subsidiaries owned a Virgin Islands general partnership formed
in 1988 to construct and operate a marina on a 4.92 acre parcel of land leased
from the U.S. Virgin Islands government. The marina was sold for $3.3 million on
February 3, 1998 and we recognized a loss of $108,000 in 1997.
TAX EXEMPTIONS AND BENEFITS
Most of our offshore earnings are taxed at rates lower than U.S. statutory
federal income tax rates due to tax exemptions and lower prevailing tax rates
offshore. The U.S. Virgin Islands Industrial Development Commission granted us
tax exemptions on most of our U.S. Virgin Islands earnings through 2003.
U.S. tax laws provide that our offshore earnings are not taxable for U.S.
federal income tax purposes and most post-April 1988 concrete and related
products earnings in the U.S. Virgin Islands can be distributed to us free of
U.S. income tax. Any distribution to our United States operations of: (1)
earnings from our U.S. Virgin Islands operations accumulated prior to April 1,
1988; or (2) earnings from our Antigua, St. Martin, St. Maarten, Dominica, Saba,
St. Kitts, and Tortola operations, would subject us to U.S. federal income tax
on the amounts distributed, less applicable taxes paid in those jurisdictions.
At December 31, 1999, $37.4 million of accumulated earnings had not been
distributed to our U.S. operations. We have not provided for federal income tax
on the undistributed earnings of foreign subsidiaries because we intend to
permanently reinvest those earnings offshore.
Our tax exemption and our ability to receive most of the current earnings from
our U.S. Virgin Islands operations without subjecting us to U.S. income taxes
reduces our income tax expense. For further information on our tax exemptions
and income taxes, see Note 8 of Notes to Consolidated Financial Statements.
6
EQUIPMENT
Both of our businesses require us to lease or purchase and maintain equipment.
As of December 31, 1999, our equipment included cranes, bulldozers, road
graders, rollers, backhoes, earthmovers, hydraulic dredge, barges, rock
crushers, bulk cement handling equipment and concrete batch and block plants,
concrete mixer trucks, asphalt processing and paving equipment and other items.
Some of this equipment is encumbered by chattel mortgages. See Notes 7 and 10 of
Notes to Consolidated Financial Statements.
MISCELLANEOUS INVESTMENTS AND JOINT VENTURES
We have invested or participated in several joint ventures in connection with
our land development contracting and concrete and related products division.
During 1998 and 1999 we invested $177,000 for a 2.1 percent interest in a real
estate joint venture in the Bahamas. The upscale resort project awaits final
financing to finish its development, however, there is substantial uncertainty
whether it will obtain this financing. Two of our directors have an interest in
the joint venture. See Note 12 of Notes to Consolidated Financial Statements.
During 1999 and 1998 we invested a total of $118,000 for a 33.3 percent interest
in a real estate company in Puerto Rico that owns the land where the Aguadilla
aggregate processing plant operates. During 1999 we recognized an expense of
$18,000 using the equity method of accounting.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
Donald L. Smith, Jr., 78, a cofounder of the Company, has served as its Chairman
of the Board, President and Chief Executive Officer since its formation in 1951.
Richard L. Hornsby, 64, was appointed the Company's Executive Vice President in
March 1989. Mr. Hornsby served as Vice President of the Company from August 1986
to February 1989. From 1981 to 1986 he was Financial Manager for unrelated
private investment companies. He has been a director of the Company since 1975
and served as Vice President-Finance from 1972 to 1977.
Henry C. Obenauf, 70, was appointed Vice President-Engineering of the Company in
March 1989, after having served as Vice President of the Company since 1977. Mr.
Obenauf has been employed by the Company for over 32 years.
Jan A. Norelid, 46, was appointed Vice President-Finance and Chief Financial
Officer in October 1997. From January 1996 to September 1997, he owned and
operated a printing company. From 1991 to 1995 he served as Chief Financial
Officer for Althin Medical, Inc., a medical device manufacturer.
Donald L. Smith, III, 47, was appointed Vice President-Construction Operations
for the Company in December 1992. Starting in March 1992, he served as Assistant
Vice President for Construction Operations-South Florida and Caribbean. Mr.
Smith joined the Company in 1976 and has served in supervisory and managerial
positions within the Company since that time.
7
EMPLOYEES
At December 31, 1999 we employed 71 persons in the contracting business in the
Caribbean, of whom 25 are members of a union. We employed 328 persons in our con
crete and related products division, of whom 121 are members of a union. We also
employ 39 managerial, supervisory and administrative personnel in the overall
administration and management of the Company. Employee relations are considered
satisfactory.
8
ITEM 2. PROPERTY
GENERAL
Nearly all of the real property that the Company owns or leases is utilized by
its concrete and related products division.
OTHER PROPERTY
We own undeveloped parcels of land in the U.S. Virgin Islands and Antigua.
The following table shows information on the property and facilities that we
owned or leased for our operations at December 31, 1999:
Lease Expiration
Description Location with all Options Area
----------- -------- ---------------- ----
Shared facilities
Principal executive offices (1) Deerfield Beach 5/07 8,410 sq.ft.
Maintenance shop for heavy equipment (1)(2) Deerfield Beach Month-to-Month 4.40 acres
Concrete and related products segment
Concrete block plant and St. Thomas 6/04 11.00 acres (1)
equipment maintenance facility
Quarry and office building St. Thomas - 8.50 acres (5)
Quarry and concrete batch plant St. Thomas 2/08 44.00 acres (1)
Barge terminal St. Thomas Month to Month 1.50 acres (1)
Bulk cement terminal and bagging facility St. Thomas 5/12 .50 acres (1) (5)
Quarry St. Thomas 8/06 7.49 acres (1)
Bulk cement terminal, bagging facility St. Croix - 7.00 acres (5)
Concrete batch plant and office St. Croix - 3.20 acres
Quarry, rock crushing plant St. Croix - 61.34 acres
Maintenance shop St. Croix 7/10 6.00 acres (1)
Quarry St. Croix 5/03
Concrete batch plant, concrete Antigua 9/16 22.61 acres (1)
block plant, rock crushing plant,
asphalt plant, quarry and office
Bulk cement terminal and bagging facility Antigua - 8.00 acres (5)
Concrete batch plant, cement bagging Dominica 6/12 1.14 acres (1) (5)
plant, undeveloped land, silo and office Dominica - .77 acres (5)
Concrete batch plant and block plant St. Maarten 8/00 3.00 acres (1)
Cement terminal and barge unloading facility St. Maarten 6/05 .30 acres (1) (5)
Bagging facility St. Maarten 4/06 .30 acres (1) (5)
Office building St. Maarten 8/00 1.39 acres
Quarry, rock crushing plant, concrete Tortola - 30.00 acres (5)
batch plant, equipment maintenance
facility and office building
Quarry, rock crushing plant and Saba 12/02 6.00 acres (1)(3)
concrete batch plant
Concrete batch plant St. Kitts Month-to-Month 1.00 acre (1)(3)
Quarry, rock crushing plant, concrete St. Martin 7/10 123.50 acres (1)
batch plant and office building
Quarry, rock crushing plant and Guaynabo,
office building (1)(3) Puerto Rico 3/06 40.00 acres
Aggregate processing plant Aguadilla 94.00 acres (1)
Puerto Rico 6/01 (3)(4)
- -------------
(1) Underlying land is leased but equipment and machinery on the land are
owned by the Company.
(2) Leased from Donald L. Smith, Jr., the Company's Chief Executive. See Note
12 of Notes to Consolidated Financial Statements.
(3) Acreage is estimated.
(4) Land is owned by the same owners as the operating company with small
change of percentage ownership.
(5) Property and leases were in whole or in part sold or assigned
in transactions consummated in the first quarter of 2000.
9
ITEM 3. LEGAL PROCEEDINGS
We are sometimes involved in routine litigation arising in the ordinary course
of our business, primarily contracting.
On April 8, 1999, a final judgment was entered in our favor and against the
Greater Orlando Aviation Authority ("GOAA") in the amount of $542,688. On May 7,
1999, the Florida circuit court awarded prejudgment interest on the judgment
amount from August 8, 1995 until paid. We filed an appeal on the underlying
merits of the case to seek reimbursement of additional costs and profit in
connection with the construction project, which was performed between 1992 and
1995. On August 20, 1999, we settled this litigation with GOAA and were paid a
total of $850,000.
In 1992, Fore Golf, Inc. sued the Company in the Ninth Judicial Circuit, Orange
County, Florida, Case No. CI-92-5289. We were sued by Fore Golf, Inc. for work
which this subcontractor allegedly performed in 1990 and 1991 during
construction of two golf courses at Disney World in Orlando, Florida, the
alleged unpaid contract balance in connection with this project, and
inefficiency costs. In June 1997, the court issued an order establishing
liability and damages against the Company. The Court entered a final judgment in
favor of the plaintiff for damages and prejudgment interest. Subsequently, the
trial court also awarded the plaintiff attorneys' fees. We accrued a total of
$4.5 million in 1997 and posted a bond for the damages, prejudgment interest and
plaintiff's attorneys' fees. This bond is personally guaranteed by our
President. We settled the lawsuit with Fore Golf, Inc. and its creditors in
March 1999. The settlement called for a cash payment of approximately $300,000
and aggregate payments of $460,000 over a period of 4 years. We settled on
payment terms with the lawyers of Fore Golf during the third quarter of 1999 and
their request for hearing to receive a multiplier on the lawyer's fee award in
the Florida Supreme Court was denied in October of 1999. For further
information, see Note 16 of Notes to Consolidated Financial Statements.
In the late 1980s, Bouwbedrijf Boven Winden, N.V., ("BBW") currently a Devcon
subsidiary in the Netherlands Antilles, supplied concrete to a large apartment
complex on the French side of St. Maarten. In the early 1990s the buildings
began to develop exterior cracking and "popouts." In November 1993, BBW was
named one of several defendants including the building's insurer, in a suit
filed by Syndicat des Coproprietaires la Residence Le Flamboyant (condominium
owners association of Le Flamboyant), in the French court "Tribunal de Grande
Instance de Paris", case No. 510082/93. A French court assigned an expert to
examine the cause of the cracking and popouts and to determine if the
cracking/popouts are caused by a phenomenon known as alkali reaction (ARS). The
expert found in his report, dated December 3, 1998, BBW responsible for the ARS.
The plaintiff is seeking unspecified damages, including demolition and
replacement of the 272 apartments. Based on the advice of legal counsel, a
judgment assessed in a French court would not be enforceable against a
Netherlands Antilles company. Thus, the plaintiff would have to file the same
claim in an Antillean court. It is too early to predict the final outcome of
this matter. During 1999 no actions have been taken in or by the court.
Management believes our defenses to be meritorious and does not believe that the
outcome will have a material adverse effect on the consolidated financial
position, results of operations or cash flows of the Company.
10
We are subject to federal, state and local environmental laws and regulations.
Management believes that we are in compliance with all such laws and
regulations. Compliance with environmental protection laws has not had a
material adverse impact on our 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders during the
fourth quarter of 1999.
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
Our Common Stock is traded on the Nasdaq National Market System under the symbol
DEVC. The following table shows high and low prices for our Common Stock for
each quarter for the last two fiscal years as quoted by Nasdaq.
1999 High Low
---- ---- ---
First Quarter $2.75 $1.56
Second Quarter 3.44 1.44
Third Quarter 3.31 2.72
Fourth Quarter 5.78 2.88
1998 High Low
---- ---- ---
First Quarter $4.88 $3.50
Second Quarter 4.13 2.13
Third Quarter 3.63 2.13
Fourth Quarter 2.88 1.75
As of March 10, 2000, there were 183 holders of record of the 4,036,995
outstanding shares of Common Stock plus more than 575 beneficial owners holding
our Common Stock in their brokers' name. The closing sales price for the Common
Stock on March 20, 2000, was $7.19. We paid no dividends in 1999 or 1998. The
payment of cash dividends will depend upon the earnings, consolidated financial
position and cash requirements of the Company, its compliance with loan
agreements and other relevant factors. We do not presently intend to pay
dividends. No unregistered securities were sold or issued in 1999, 1998 or 1997.
ITEM 6. SELECTED FINANCIAL DATA
The following is our selected financial data which should be read in conjunction
with our Consolidated Financial Statements and accompanying notes and with our
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." This data is derived from our Consolidated Financial Statements
audited by KPMG LLP, independent certified public accountants. Our Consolidated
Financial Statements as of December 31, 1999 and 1998 and for each of the three
years ended December 31, 1999 and the independent auditors' report appears
elsewhere in this document.
12
Year Ended December 31,
-----------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands, except per share amounts)
EARNINGS STATEMENT DATA:
Concrete and related
products revenues $ 55,313 $ 50,448 $ 51,461 $ 52,987 $ 37,716
Contracting revenues 12,721 15,359 9,852 13,982 16,068
Other revenues - 371 2,931 2,509 2,367
-------- -------- -------- -------- --------
Total revenues $ 68,034 $ 66,178 64,244 69,478 56,151
Cost of concrete and
related products $ 46,364 $ 41,281 41,659 39,277 29,069
Cost of contracting 11,000 12,900 9,709 12,458 14,103
Cost of other - 246 2,311 1,913 1,721
-------- -------- -------- -------- --------
Gross profit 10,670 11,751 10,565 15,830 11,258
Operating expenses 12,888 10,806 23,143 12,359 10,984
-------- -------- -------- -------- --------
Operating (loss)
income (2,218) 945 (12,578) 3,471 274
Other deductions (820) (122) (2,651) (2,287) (1,961)
-------- -------- -------- -------- --------
(Loss)income from
continuing
operations before
income taxes (3,038) 823 (15,229) 1,184 (1,687)
Income taxes 274 339 307 383 145
-------- -------- -------- -------- --------
(Loss) income from
continuing
operations (3,312) 484 (15,536) 801 (1,832)
Loss from
discontinued
operations, net - - - (488) (915)
-------- --------- -------- -------- --------
Net (loss) earnings $ (3,312) $ 484 $(15,536) $ 313 $ (2,747)
========= ========= ======== ======== ========
Basic (loss )earnings per share:
From continuing
operations $ (0.74) $ 0.11 $ (3.45) $ .18 $ (.41)
From discontinued
operations - - - (.11) (.21)
-------- -------- ------- -------- ---------
$ (0.74) $ 0.11 $ (3.45) $ .07 $ (.62)
======== ======== ======= ======== =========
Weighted average number
of shares outstanding 4,481 4,499 4,499 4,490 4,431
======== ======== ======= ======== =========
Balance Sheet Data:
Working capital $ 6,281 $ 6,910 $ 8,713 $ 12,063 $ 4,848
Total assets 81,646 82,430 86,433 94,926 97,313
Long-term debt,
excl current portion 14,350 18,153 16,982 19,251 15,548
Stockholders' equity 39,436 43,641 42,816 59,552 59,159
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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-K 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
involve risks and uncertainties that are beyond our control, and actual results
may differ materially depending on many factors, including the financial
condition of our customers, changes in domestic and foreign economic and
political conditions, demand for our services, and changes in our competitive
environment.
These and other factors could cause actual results or outcomes to differ
materially from those expressed in our forward-looking statements. Any forward-
looking statement speaks only as of the date it is made. We undertake no
obligation to update any forward-looking statement to reflect events or
circumstances after the date it is made. It is not possible for management to
predict unanticipated factors or the effect they might have on our business.
COMPARISON OF YEAR ENDED DECEMBER 31, 1999 WITH YEAR ENDED DECEMBER 31, 1998
REVENUE
Our revenue was $68.0 million in 1999 and $66.2 million in 1998. This 2.8
percent increase reflects an increase in concrete and related products revenue,
partially offset by decreases in contracting revenue and in other revenue.
Our concrete and related products revenue increased 9.6 percent to $55.3 million
in 1999 from $50.4 million in 1998. This increase was primarily due to increased
demand for this division's products on certain Caribbean islands, partially
offset by decreased demand on other Caribbean islands, particularly due to
disruptions from hurricanes Georges and Lenny. At this time, we cannot predict
concrete and related products revenue levels in 2000. However, the total volume
will be decreased due to the separate sale of our concrete business in St.
Thomas and Dominica, our business in Tortola and our cement terminals.
Revenue from our contracting division decreased 17.2 percent to $12.7 million in
1999 from $15.4 million in 1998. This decrease resulted from finishing some
medium sized contracts during 1999 and a slowdown of our work in connection with
the $23.8 million contract in Exuma, Bahamas. Our backlog of unfilled portions
of land development contracts at December 31, 1999 was $18.7 million involving 6
projects, as compared to $16.3 million involving 10 projects at December 31,
1998. The backlog of the contract in the Bahamas at December 31, 1999 was $15.1
million. 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. We expect to receive interim payments from the project's cash
resources to cover our incremental costs while the project is seeking its total
financing and permits to proceed. We are monitoring the situation closely and we
cannot predict how long we will continue to operate in the current manner. See
further Note 12 of Notes to Consolidated Financial Statements and Item 7
"Liquidity and Capital Resources". Since December 31, 1999 we have entered into
new contracts in the Caribbean amounting to $2.8 million. We expect to complete
the other remaining contracts during 2000.
14
COST OF CONCRETE AND RELATED PRODUCTS
Cost of concrete and related products rose slightly to 83.8 percent of division
revenue in 1999 from 81.8 percent in 1998. The cost increase was due to higher
production costs in St. Martin, Saba and Puerto Rico, offset to a lesser extent
by improved sales volumes and, therefore, better margins on Antigua and
Dominica.
COST OF CONTRACTING
Cost of contracting increased to 86.5 percent of contracting revenue in 1999
from 84.0 percent in 1998. Increased costs as a percent of revenue were due to
lower profitability on some 1999 contracts. Our gross margins are also affected
by the profitability of each contract and the stage of completion.
OPERATING EXPENSES
Selling, general and administrative expenses ("SG&A expense") increased by 14.8
percent to $13.0 million in 1999 from $11.3 million in 1998. This increase is
primarily due to accruals in connection with collective bargaining agreements
and due to increased costs on some of the islands, most importantly Antigua and
St. Martin. SG&A expense as a percentage of revenue increased to 19.1 percent in
1999 from 17.1 percent in 1998.
In the fourth quarter of 1998 we accrued $1.5 million for legal fees and a write
off of a receivable related to a Florida State Court judgment. We also reduced
our provision for litigation by $2.0 million, due to the partial settlement on
another lawsuit. In 1999 we reduced our provision for litigation by $1.2 million
due to the settlement of two major lawsuits.
Due to hurricane damages and lower volumes, the management upon its review in
1999 of long-lived assets, determined that impairment had occurred to some of
our assets. A significant portion of our quarry assets in Saba were written down
due to hurricane damages on the island, particularly the adjacent harbor used
for export of aggregates. Idle assets on St. Kitts and St. Croix were also
impaired. An impairment expense was recognized of $805,000 in 1999, compared to
no expense in 1998.
Substantially due to the write down in 1999 of one note receivable in St. Croix
by $200,000, the provision for doubtful accounts in 1999 was an expense of
$231,000 compared to a benefit of $65,000 in 1998.
DIVISIONAL OPERATING INCOME
The operating loss was $2.2 million in 1999 compared to income of $946,000 in
1998. Our concrete and related products division had an operating loss of $2.2
million in 1999, representing a decrease of $2.9 million compared to a gain of
$693,000 in 1998. This decrease in profitability is primarily due to accruals in
connection with collective bargaining agreements, the impairment of assets on
Saba and St. Kitts, and losses incurred on Puerto Rico and St. Martin, offset to
a small extent by improved profit margin on some islands. Our land development
contracting division had an operating loss of $301,000 in 1999 compared to
income of $715,000 in 1998, a deterioration of $1.0 million. This decrease is
mainly attributable to lower activity specifically due to the slowdown of the
contract in the Bahamas and a $200,000 write down of a note.
15
OTHER INCOME
We had gains on sale of property and equipment of $14,000 in 1999 compared to
$507,000 in 1998. We recognized in 1998 $278,000 in profit on the sale of our
share of the CorbKinnon joint venture. Our interest expense was increased to
$2.4 million in 1999 from $2.1 million in 1998. This increase is due to
increased loan balances and rising interest rates in 1999. In 2000, we expect to
have lower interest expense due to substantially reduced outstanding debt. Our
interest income has decreased to $761,000 in 1999 compared to $1.4 million 1998.
In 2000, our interest income should increase due to higher anticipated levels of
cash and cash equivalents. This is due to our recognizing less income from cash
receipts in excess of anticipated amounts from agreed upon sources from the
notes receivable due from the Government of Antigua and Barbuda.
INCOME TAXES
Income taxes decreased to $273,000 in 1999 from $339,000 in 1998. Our tax rate
varies depending on the level of our earnings in the various tax jurisdictions
where we operate, the level of operating loss carry-forwards and tax exemptions
available to us. See Note 8 of Notes to Consolidated Financial Statements and
"Business - Tax Exemptions and Benefits."
NET EARNINGS (LOSS)
Our net loss was $3.3 million in 1999 compared to an income of $484,000 in 1998.
This change in profitability was primarily attributable to decreased gross
profit of $1.1 million, accrual of severance of $1.0 million, an impairment loss
of $805,000, increased provision for doubtful accounts and notes of $231,000,
increased interest cost of $295,000, reduced interest income of $601,000, offset
to a lesser extent by an increased credit for litigation of $700,000 and
increased minority interest benefit of $670,000.
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 WITH YEAR ENDED DECEMBER 31, 1997
REVENUE
Our revenue was $66.2 million in 1998 and $64.2 million in 1997. This 3.0
percent increase reflects an increase in contracting revenue, partially offset
by sales decreases in other and in our concrete and related products revenue.
Our concrete and related products revenue decreased 2.0 percent to $50.4 million
in 1998 from $51.5 million in 1997. This decrease was primarily due to decreased
demand for this division's products on certain Caribbean islands, partially
offset by increased demand on other Caribbean islands.
Revenue from our contracting division increased 55.9 percent to $15.4 million in
1998 from $9.9 million in 1997. This increase resulted from starting and
finishing some medium sized contracts and starting a $15.3 million contract in
Exuma, Bahamas. Our backlog of unfilled portions of land development contracts
at December 31, 1998 was $16.3 million involving 10 projects, as compared to
$4.4 million involving 12 projects at December 31, 1997.
COST OF CONCRETE AND RELATED PRODUCTS
Cost of concrete and related products rose slightly to 81.8 percent of division
revenue in 1998 from 80.9 percent in 1997. The cost increase was due to lower
sales, higher production costs, and a less-favorable mix of products.
16
COST OF CONTRACTING
Cost of contracting decreased to 84.0 percent of contracting revenue in 1998
from 98.6 percent in 1997. Lower costs as a percent of revenue were due to
improved profitability on 1998 contracts and on losses we took on a contract in
1997. Our gross margins are also affected by the profitability of each contract
and the stage of completion.
OPERATING EXPENSES
Selling, general and administrative expenses ("SG&A expense") decreased by 15.0
percent to $11.3 million in 1998 from $13.3 million in 1997. This decrease is
primarily due to cost reductions in the St. Martin companies and reduced legal
expense. Also, by not operating the marina, SG&A expenses were reduced by
$176,000. SG&A expense as a percentage of revenue decreased to 17.1 percent in
1998 from 20.8 percent in 1997.
In the fourth quarter of 1998 we accrued $1.5 million for legal fees and a write
off of a receivable related to a Florida State Court judgment. We also reduced
our provision for litigation by $2.0 million, due to the partial settlement on
another lawsuit. In the second quarter of 1997, we accrued a $4.5 million charge
for the estimated costs related to a Florida State court judgment. See item 3.
Legal Proceedings.
Due to lower volumes, the management upon its review in 1997 of long-lived
assets, determined that impairment had occurred on some of our assets. An
impairment expense was recognized of $2.4 million in 1997, compared to no
expense in 1998.
Through improved collections and more stringent credit review, the allowance for
doubtful accounts and notes was decreased during the year. The expense for
doubtful accounts in 1998 was a benefit of $65,000 compared to an expense of
$2.9 million in 1997.
DIVISIONAL OPERATING INCOME
The operating income was $946,000 in 1998 compared to a loss of $12.6 million in
1997. Our concrete and related products division had an operating income of
$693,000 in 1998, representing an increase of $5.0 million compared to an
operating loss of $4.3 million in 1997. This increase in profitability is
primarily attributable to the decrease in expense for doubtful accounts and
notes of $2.3 million, to impairment of long-lived assets of $1.9 million taken
in 1997 and to a reduction in expense in St. Martin. Our land development
contracting division had operating income of $715,000 in 1998 compared to a loss
of $3.5 million in 1997, an improvement of $4.2 million. This improvement is
mainly attributable to increased activity at much better margins. In 1997, we
took losses on a contract in the Caribbean. Our expense for doubtful accounts
was a benefit of $59,000 in 1998, compared to an expense of $659,000 in 1997.
Also, legal expenses were reduced.
OTHER INCOME
We had gains on sale of property and equipment of $507,000 in 1998 compared to a
loss of $372,000 in 1997. We recognized $278,000 in profit on the sale of our
share of the CorbKinnon joint venture. Our interest expense was reduced to $2.1
million in 1998 from $2.7 million in 1997. This decrease is due to decreased
loan balances and an improved cash position in 1998. Our interest income has
increased
17
to $1.4 million in 1998 compared to $538,000 in 1997. This is due to our
recognizing as income, cash receipts in excess of anticipated amounts from
agreed upon sources from the notes receivable due from the Government of Antigua
and Barbuda.
INCOME TAXES
Income taxes increased to $339,000 in 1998 from $307,000 in 1997. Our tax rate
varies depending on the level of our earnings in the various tax jurisdictions
where we operate, the level of operating loss carry-forwards and tax exemptions
available to us. See Note 8 of Notes to Consolidated Financial Statements and
"Business - Tax Exemptions and Benefits."
NET EARNINGS (LOSS)
Our net income was $484,000 in 1998 compared to a loss of $15.5 million in 1997.
This change in profitability was primarily attributable to increased gross
profit of $2.5 million in the contracting division, a reduced charge for
litigation expense of $5.0 million, a reduction in impairment losses of $2.4
million, a reduced expense for doubtful accounts and notes of $3.0 million, a
decrease in SG&A expense of $2.0 million, and a decrease in net interest of $1.4
million.
LIQUIDITY AND CAPITAL RESOURCES
We generally fund our working capital needs from operations and bank borrowings.
In the contracting business, we expend considerable funds for equipment, labor
and supplies. Our capital needs are greatest at the start of a new contract,
since we 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 the work is complete. We
sometimes provide long-term financing to customers who have previously utilized
our contracting services. Accounts receivable for concrete and related products
are typically outstanding for 60 days or longer. Our business requires a
continuing investment in plant and equipment, along with the related maintenance
and upkeep costs.
Management believes our cash flow from operations, existing working capital, and
funds available from lines of credit will be adequate to meet our needs during
the next 12 months.
As of December 31, 1999, our liquidity and capital resources included cash and
cash equivalents of $6.1 million and working capital of $6.3 million. After the
closing of the large sales transactions in the first quarter of 2000, we paid
off a large portion of our debt, approximately $13.7 million, and our cash and
cash equivalents have improved substantially. See additional information under
Item 7 - Subsequent Events. Included in working capital is $7.6 million of
equipment and real estate held for sale. Although management intends to sell
these assets during 2000, there can be no assurance that they will be sold. As
of December 31, 1999, total outstanding liabilities of $42.2 million compared to
$38.8 million as of December 31, 1998. As of December 31, 1999, available lines
of credit totaled $1.1 million.
Cash flow provided by operating activities for the year ended December 31, 1999
was $10.4 million compared with $5.3 million for the year ended December 31,
1998. The primary source of cash for operating activities during the year ended
December 31, 1999 was deposits on sale of assets of $8.0 million, increase in
billings in excess of costs and estimated earnings of $711,000, and a $625,000
reduction in inventories. The primary use of cash for operating activities was
an increase in accounts payable and accrued expenses of $1.0 million.
18
Net cash used in investing activities was $4.5 million in 1999. Purchases of
property, plant, and equipment were $8.3 million. The purchases were financed to
a large extent through equipment financing.
We turned our fiscal year-end accounts receivable, excluding notes and employee
receivables, approximately 5.8 times in 1999 compared to 7.2 times in 1998. The
reduction resulted from large contracting invoicing at the end of the year and
an increase in billings in excess of costs and estimated earnings. The concrete
division accounts receivable turnover rate did not change.
On November 1, 1999, we extended a $1.0 million note to the venture in the
Bahamas, secured by equipment. See Note 3 of Notes to Consolidated Financial
Statements. As of December 31, 1999 we had trade receivables, net of billings in
excess of costs and estimated earnings, from the venture of approximately
$920,000. Our President has personally guaranteed $1.2 million of the
outstanding trade receivables from the venture. We expect to receive interim
payments from the venture's cash resources to cover our incremental costs while
the venture is seeking its total financing.
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 is a
term loan for $6.0 million repayable in monthly installments through November
2002. We had $2.6 million of borrowings outstanding on this loan at December 31,
1999. This balance was paid off in January 2000. The second part is a revolving
line of credit of $1.0 million. The credit line has a review and re-approval
process in July of each year until 2002. We had $425,000 outstanding under this
line of credit at December 31, 1999. The interest rate on amounts borrowed under
both loans varies with the prime rate.
We have 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 December 31, 1999, the Company had no borrowings outstanding under
this line.
We have unsecured notes payable totaling $200,000 to a commercial bank in the
Caribbean. The note expires in January 2000, and was partially rolled over to
new notes expiring in July 2000. The notes were paid in February 2000.
At December 31, 1999 we had borrowed approximately $3.3 million and $1.6 million
from the Company President and a Director of our Board and his wife,
respectively. The note to the President is unsecured and bears interest at a
rate variable with the prime rate. One million is due on demand and $2.3 million
is due on April 1, 2001. The notes to the Director and his wife are secured by
equipment and are payable monthly over five years.
We purchase equipment as needed for our ongoing business operations. We are
currently replacing or upgrading some equipment used by the concrete and related
products division, principally concrete trucks and quarry equipment. This should
result in a net cash expenditure of approximately $3.0 million. At present,
management believes that our inventory of construction equipment is adequate for
our current contractual commitments and operating activities. New construction
contracts may, depending on the nature of the contract and job location and
duration, require us to make significant investments in heavy construction
equipment. During 1999, we sold equipment with an original cost basis of
approximately $1.5 million and a net book value of $687,000. The net proceeds
were approximately $787,000. We believe we have available funds or can obtain
sufficient financing for our contemplated equipment replacements and additions.
19
Historically, we have used a number of lenders to finance a portion of our
machinery and equipment purchases. At December 31, 1999, amounts outstanding to
these lenders totaled $13.2 million. These loans are typically repaid over a
three to five-year term in monthly principal and interest installments. A large
portion of these loans were paid in full during the first quarter of 2000.
A significant portion of our outstanding debt bears interest at variable rates.
A substantial increase in interest rates could negatively impact us.
Our notes receivable and accrued interest at December 31, 1999 include $8.4
million in promissory notes from the Government of Antigua with $2.0 million
classified as a current receivable.
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 we assessed our computer information systems. The majority of our
systems are purchased from outside vendors. We experienced very minimal downtime
from the systems at the beginning of year 2000 and all software is today fully
functional.
We took an inventory of all computers and software and we made the changes
needed for these systems to become Year 2000 compliant. We implemented a new
information system for our financial reporting, and we are installing new
distribution systems for the island subsidiaries.
We contacted suppliers and customers regarding their Year 2000 compliance
status. We have not been affected by any of the suppliers or customers year 2000
problems.
We estimated to spend around $350,000 on our Year 2000 project. This consisted
of PCs, software and other related costs. Most of these monies have been spent.
SUBSEQUENT EVENTS
On January 7, 2000 we 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 book value of the assets sold, including certain
expenses and contingency accrual, was $8.3 million. Therefore we will realize in
the first quarter of 2000 a gain before tax of $2.6 million on this transaction.
On February 3, 2000 we 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 realizing in the first quarter a gain on the transaction of
approximately $348,000 before taxes.
On February 22, 2000 we closed a transaction to sell certain bulk cement
terminal assets on four of the 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
20
expenses and contingency accruals, was $3.6 million. We entered at the same time
into an agreement to manage the terminals for one year, with a 90 day
termination option for both parties. We also entered into a supply agreement,
whereby we will buy cement from the terminals for five years, for our own use in
our batch and block plants. The agreement has stipulations so that we will be
able to enjoy the best price available in the local market from any cement
supplier. We sold cement to third parties in 1999 and we entered into a
renewable one year contract to distribute cement on these four islands. This
distribution agreement has a 90-day termination option for both parties. We will
recognize a gain in the first quarter of 2000 of approximately $16.0 million
before taxes.
On March 16, 2000 we closed on a related transaction to sell our company in
Dominica to an affiliated company of UMAR. The selling price was $3.9 million
plus an earnout of 50% of the profits or losses of a portion of the company's
operations. The book value of the assets, including certain expenses and
contingency accruals, was $3.0 million. The gain on the transaction will be
deferred to the first quarter of 2002, when the earnout period has finished.
We have used the proceeds from these transactions to pay off most of our
equipment financing debt, bank debt and other debt. The total amount of
prepayments to creditors in year 2000 through March 15 was $13.7 million.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the FASB issued SFAS No. 137 "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF FASB
STATEMENT 133" which amended SFAS 133 to change the effective date to fiscal
quarters of fiscal years beginning after June 15, 2000. SFAS No. 133 requires
companies to recognize all derivative contracts as either assets or liabilities
in the balance sheet and to measure them at fair value. Management of the
Company does not anticipate a significant impact of the adoption of SFAS No. 133
on the Company's consolidated financial position, results of operations, or cash
flows.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information and the supplementary data required in response to
this Item are as follows:
Page
Number(s)
---------
Independent Auditors' Report 23
Financial Statements:
Consolidated Balance Sheets
December 31, 1999 and 1998 24-25
Consolidated Statements of Operations
For Each of the Years in the Three-Year Period
Ended December 31, 1999 26
Consolidated Statements of Stockholders' Equity
and Comprehensive Income for Each of the Years
in the Three-Year Period Ended December 31, 1999 27
Consolidated Statements of Cash Flows
For Each of the Years in the Three-Year Period
Ended December 31, 1999 28-29
Notes to Consolidated Financial Statements 30-53
Schedule II - Valuation and Qualifying Accounts 59
22
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Devcon International Corp.:
We have audited the consolidated financial statements of Devcon International
Corp. and subsidiaries (the "Company") as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and this financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and this
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Devcon International
Corp. and subsidiaries as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999 in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG LLP
Fort Lauderdale, Florida
March 29, 2000
23
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
Assets 1999 1998
- ------ ---------- --------
Current assets:
Cash $ 1,406,941 $ 899,605
Cash equivalents 4,737,311 1,359,253
Receivables, net 12,878,643 12,611,437
Costs in excess of billings and
estimated earnings 258,780 710,557
Inventories 3,829,450 4,468,718
Assets held for sale 7,559,066 2,868,922
Prepaid expenses and other assets 535,146 398,592
----------- -----------
Total current assets 31,205,337 23,317,084
Property, plant and equipment, net
Land 1,920,539 2,167,318
Buildings 2,372,240 3,560,545
Leasehold interests 3,516,202 6,632,206
Equipment 52,380,167 58,340,451
Furniture and fixtures 785,359 642,314
Construction in process 3,091,160 406,344
----------- -----------
64,065,667 71,749,178
Less accumulated depreciation (25,722,376) (28,715,682)
----------- -----------
38,343,291 43,033,496
Investments in unconsolidated joint
ventures and affiliates, net 277,081 237,370
Receivables, net 9,556,539 13,173,472
Intangible assets, net of accumulated
amortization 936,829 1,165,692
Other assets 1,326,917 1,503,005
----------- -----------
Total assets $81,645,994 $82,430,119
=========== ===========
See accompanying notes to consolidated financial statements.
24
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets (continued)
1999 1998
----------- --------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, trade and other $ 4,926,700 $ 6,917,119
Accrued expenses and other liabilities 3,103,083 3,186,375
Deposit on sale of assets 8,000,000 -
Notes payable to banks 625,000 88,108
Current installments of long-term debt 6,956,246 5,539,151
Billings in excess of costs and
estimated earnings 1,026,316 315,007
Income taxes 287,423 361,071
----------- -----------
Total current liabilities 24,924,768 16,406,831
Long-term debt, excluding current
installments 14,349,708 18,153,451
Minority interest in consolidated
subsidiaries 932,325 1,762,809
Deferred income taxes 379,652 399,056
Other liabilities 1,623,331 2,067,413
----------- -----------
Total liabilities 42,209,784 38,789,560
Stockholders' equity
Common stock, $0.10 par value.
Authorized 15,000,000 shares,
issued 4,498,935 shares in
1999 and 1998, outstanding
4,457,135 and 4,498,935
shares in 1999 and 1998,
respectively 449,894 449,894
Additional paid-in capital 12,064,133 12,064,133
Accumulated other comprehensive income -
cumulative translation adjustment (1,594,577) (859,376)
Retained earnings 28,674,264 31,985,908
Treasury stock (157,504) -
----------- --------
Total stockholders' equity 39,436,210 43,640,559
----------- -----------
Commitments and contingencies
Total liabilities and
stockholders' equity $81,645,994 $82,430,119
=========== ===========
See accompanying notes to consolidated financial statements.
25
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Operations
For Each of the Years in the Three-Year Period Ended December 31, 1999
1999 1998 1997
------------ ------------ ------------
Concrete and related products
revenues $ 55,312,885 $ 50,448,275 $ 51,460,633
Contracting revenues 12,720,918 15,358,591 9,851,775
Other revenues - 371,386 2,931,343
------------ ------------ ------------
Total revenues 68,033,803 66,178,252 64,243,751
Cost of concrete and related
products 46,364,378 41,281,263 41,659,401
Cost of contracting 10,999,585 12,899,491 9,708,684
Cost of other - 245,880 2,310,628
------------ ------------ ------------
Gross profit 10,669,840 11,751,618 10,565,038
Operating expenses:
Selling, general and
administrative 13,012,443 11,331,398 13,337,564
Provision for doubtful accounts
and notes 230,517 (64,692) 2,932,245
Impairment of long-lived assets 804,695 - 2,373,288
(Credit) charge for litigation (1,160,137) (460,794) 4,500,000
------------ ------------ ------------
Operating (loss) income (2,217,678) 945,706 (12,578,059)
------------ ------------ ------------
Other income (deductions):
Joint venture equity loss (17,700) (39,000) (150,000)
Gain (loss) on sale of property
and equipment 13,620 507,256 (372,104)
Interest expense (2,408,414) (2,113,224) (2,668,277)
Interest and other income 761,275 1,362,156 537,651
Minority interest 830,484 160,820 1,776
------------ ------------ ------------
(820,735) (121,992) (2,650,954)
------------ ------------ ------------
(Loss) income before
income taxes (3,038,413) 823,714 (15,229,013)
Income taxes 273,231 339,441 307,010
------------ ------------ ------------
Net (loss)earnings $ (3,311,644) $ 484,273 $(15,536,023)
============ ============ ============
(Loss )earnings per common
share - basic $ (0.74) $ 0.11 $ (3.45)
============ ============ ============
(Loss) earnings from common
share - diluted $ (0.74) $ 0.11 $ (3.45)
============ ============ ============
Weighted average number of common
shares outstanding - basic 4,481,304 4,498,935 4,498,935
============ ============ ============
Weighted average number of common
shares outstanding - diluted 4,481,304 4,520,460 4,498,935
============ ============ ============
See accompanying notes to consolidated financial statements.
26
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income
For Each of the Years in the Three-Year Period Ended December 31, 1999
Accum-
ulated
Other
Compre- Compre-
Common Paid-In hensive hensive Retained Treasury
Stock Capital Income Income Earnings Stock Total
----- ------- ------ ------ -------- ----- -----
Balances at
December 31, 1996 449,894 12,064,133 -- 47,037,658 59,551,685
Comprehensive income
Net loss (15,536,023) (15,536,023) (15,536,023)
Other comprehensive
income, net of tax
Foreign currency
translation adjustment (1,200,000) (1,200,000) (1,200,000)
-----------
Other comprehensive income (1,200,000)
-----------
Comprehensive income (16,736,023)
===========
------- ---------- ----------- ---------- ---------- -------- ----------
Balances at
December 31, 1997 449,894 12,064,133 (1,200,000) 31,501,635 42,815,662
Comprehensive income
Net earnings 484,273 484,273 484,273
-----------
Other comprehensive
income, net of tax
Foreign currency
translation adjustment 340,624 340,624 340,624
-----------
Other comprehensive income 340,624
-----------
Comprehensive income 824,897
===========
------- ---------- ----------- ---------- ---------- -------- ----------
Balances at
December 31, 1998 449,894 12,064,133 (859,376) 31,985,908 43,640,559
Comprehensive income
Repurchase of 41,800 shares (157,504) (157,504)
Net earnings (3,311,644) (3,311,644) (3,311,644)
Other comprehensive
income, net of tax
Foreign currency
translation adjustment (735,201) (735,201) (735,201)
-----------
Other comprehensive income (735,201)
-----------
Comprehensive income (4,046,845)
===========
------- ---------- ----------- ---------- ---------- -------- ----------
Balances at
December 31, 1999 449,894 12,064,133 (1,594,577) 28,674,264 (157,504)39,436,210
See accompanying notes to consolidated financial statements.
27
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For Each of the Years in the Three-Year Period Ended December 31, 1999
1999 1998 1997
----------- ------------ --------
Cash flows from operating activities:
Net (loss) earnings $(3,311,644) $ 484,273 $(15,536,023)
Adjustments to reconcile net (loss)
earnings to net cash provided by operating
activities:
Depreciation and amortization 6,371,683 5,864,659 6,143,726
Deferred income tax benefit - (735) (95,609)
Joint venture equity loss 17,700 39,000 150,000
Joint venture advance write-off - 50,000 -
Provision for doubtful accounts
and notes 230,517 (66,892) 2,932,245
Impairment on long-lived assets 804,695 - 2,373,288
(Gain) loss on sale of property
and equipment (13,620) (507,256) 372,104
(Credit) charge for litigation (1,160,137) (460,794) 4,500,000
Decrease in minority
interest in consolidated
subsidiaries (830,484) (160,820) (1,776)
Changes in operating assets and liabilities:
(Increase)decrease in receivables (512,426) 632,885 (3,103,435)
Decrease (increase) in costs
in excess of billings and
estimated earnings 451,777 (380,850) 2,795,153
Decrease in inventories 625,161 310,403 388,218
(Increase) decrease in other
current assets (136,555) 538,697 (111,438)
(Increase)decrease in other assets (56,761) 5,975 (13,220)
Increase (decrease) in accounts
payable and accrued expenses (956,287) (553,814) 1,473,637
Increase in deposit on sale of assets 8,000,000 -
Increase in billings in
excess of costs and estimated
earnings 711,309 177,599 24,756
Increase (decrease) in income
taxes payable 33,642 (216,407) (148,532)
Increase (decrease) in other non-
current liabilities 90,640 (486,724) (295,070)
----------- ------------ ------------
Net cash provided by operating
activities $10,359,210 $ 5,269,199 $ 1,848,024
=========== ============ ============
See accompanying notes to consolidated financial statements.
28
For Each of the Years in the Three-Year Period Ended December 31, 1999
1999 1998 1997
----------- ------------ ------------
Cash flows from investing activities:
Purchases of property, plant and
equipment $(8,282,294) $(7,589,323) $(8,534,518)
Proceeds from disposition of
property, plant and equipment 787,425 3,861,128 572,724
Payment to acquire subsidiary company - (71,803)
Issuance of notes (1,016,000) (514,135) -
Payments on notes 4,101,724 2,751,379 2,822,968
Advances to affiliates (57,411) (153,020) (123,350)
Advances from affiliates - 89,067 452,592
----------- ----------- -----------
Net cash used in
investing activities (4,466,556) (1,554,904) (4,881,387)
----------- ----------- -----------
Cash flows from financing activities:
Purchase of treasury stock (157,504) - -
Proceeds from debt 6,952,371 7,956,147 6,795,917
Principal payments on debt (9,339,019) (10,116,587) (4,514,833)
Net borrowings (repayments) from bank
overdrafts 536,892 (296,365) (150,347)
----------- ----------- -----------
Net cash (used in) provided by
financing activities (2,007,260) (2,456,805) 2,130,737
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents 3,885,394 1,257,490 (902,626)
Cash and cash equivalents at
beginning of year 2,258,858 1,001,368 1,903,994
----------- ----------- -----------
Cash and cash equivalents at
end of year $ 6,144,252 $ 2,258,858 $ 1,001,368
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 2,415,150 $ 2,241,507 $ 2,641,531
=========== =========== ===========
Income taxes $ 237,790 $ 264,986 $ 249,523
=========== =========== ===========
Supplemental non-cash items:
During each of 1999, 1998 and 1997, the Company recorded a translation
adjustment of $(735,201), $340,624 and $(1.2) million, respectively, related to
its subsidiary in St. Martin.
During 1998 the Company exchanged shares in a joint venture and $260,000 cash
for three concrete pump trucks valued at $885,000.
See accompanying notes to consolidated financial statements.
29
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------------------------
(a) DESCRIPTION OF BUSINESS
Devcon International Corp. and its subsidiaries (the "Company")
produce and distribute ready-mix concrete, crushed stone, concrete
block, and asphalt and distribute bulk and bagged cement in the
Caribbean. The Company also performs earthmoving, excavating and
filling operations and builds golf courses, roads, utility
infrastructures, dredges waterways and constructs deep-water piers and
marinas in the Caribbean.
(b) PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of Devcon
International Corp. and its majority-owned subsidiaries. Significant
intercompany balances and transactions have been eliminated in
consolidation.
The Company's investments in unconsolidated joint ventures and
affiliates are accounted for by the equity method. Under the equity
method, original investments are recorded at cost and then adjusted by
the Company's share of undistributed earnings or losses of these
ventures.
Other investments are accounted for by using the cost method.
(c) REVENUE RECOGNITION
Concrete and Related Products
Revenue is recognized when the products are delivered.
Contracting
The Company uses the percentage-of-completion method of accounting for
both financial statements and tax reports. Revenues and related costs
are recorded based on the Company's estimates of the completion
percentage of each project. Anticipated contract losses, when probable
and estimatable, are charged to earnings. Changes in estimated
contract profits are recorded in the period of change. Selling,
general and administrative expenses are not allocated to contract
costs. Monthly billings are based on the percentage of work completed
in accordance with a specific contract. While some contracts extend
longer, most are completed within one year.
Other
Other revenue consists of revenue from a marina that the Company sold
in 1998. Revenue is recognized when products or services are
delivered.
30
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(d) CASH AND CASH EQUIVALENTS
The Company considers financial instruments which mature within three
months at the time of purchase to be cash equivalents.
(e) NOTES RECEIVABLE
Notes receivable are recorded at cost, less the related allowance for
impaired notes receivable. Management, considering current information
and events regarding the borrowers' ability to repay their
obligations, considers a note to be impaired when it is probable that
the Company will be unable to collect all amounts due according to the
contractual terms of the note agreement. When a loan is considered to
be impaired, the amount of the impairment is measured based on the
present value of expected future cash flows discounted at the note's
effective interest rate. Impairment losses are included in the
allowance for doubtful accounts through a charge to bad debt expense.
Cash receipts for anticipated amounts from agreed upon sources on
impaired notes receivable are applied to reduce the principal amount
of such notes and any excess is recognized as interest income.
(f) INVENTORIES
The cost of sand, stone, cement and concrete block inventories is
determined using average costs approximating the first-in, first-out
(FIFO) method and is not in excess of market. All other inventories
are stated at the lower of average cost or market.
(g) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is
calculated on the straight-line method over the estimated useful life
of each asset. Leasehold improvements are amortized using the
straight-line method over the shorter of the lease term or the
estimated useful life of the asset.
Useful lives or lease terms for each asset type are summarized below:
Buildings 15 - 40 years
Leasehold interests 3 - 55 years
Equipment 3 - 20 years
Furniture and fixtures 3 - 10 years
Assets not required for the Company's current or future business
operations are classified as assets held for sale. Such assets include
real estate, earth-moving machinery, other construction equipment and
all of the bulk cement and bagging facility assets in 1999.
31
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(h) FOREIGN CURRENCY TRANSLATION
All balances in foreign currencies are remeasured at year-end rates to
the respective functional currency of each consolidating company.
For those subsidiaries which function in Eastern Caribbean dollars and
French francs, their assets and liabilities have been translated into
U.S. dollars at year-end exchange rates. Income statement accounts are
translated into U.S. dollars at average exchange rates during the
period. The translation adjustment decreased equity by $735,201 in
1999, increased equity by $340,624 in 1998 and decreased equity by
$1.2 million in 1997.
(i) INTANGIBLE ASSETS
The excess of cost over the fair value of net assets in acquired
subsidiaries, and costs of non-compete agreements, are amortized over
five to fifteen year periods on a straight-line basis. The Company
regularly evaluates the recoverability of its intangible assets and
their amortization periods to determine whether an adjustment to the
carrying value or a revision to the estimated useful lives is
appropriate. Based on the Company's policy, management believes that
there is no impairment of value related to the intangible assets as of
December 31, 1999.
Accumulated amortization on intangible assets amounted to $931,602 in
1999, $746,379 in 1998, and $550,795 in 1997.
(j) EARNINGS (LOSS) PER SHARE
The Company computed earnings per share in accordance with the
provision of Statement of Financial Accounting Standards No. 128,
EARNINGS PER SHARE ("SFAS 128") which establishes standards for
computing and presenting basic and diluted earnings per share.
Basic earnings per share are computed by dividing net earnings (loss)
by the weighted average number of shares outstanding during the
period. Diluted earnings per share are computed assuming the exercise
of stock options and the related income tax effects if not
antidilutive. For loss periods, common share equivalents are excluded
from the calculation as their effect would be antidilutive. See Note 2
of Notes to Consolidated Financial Statements for the computation of
basic and diluted earnings per share.
(k) FOREIGN OPERATIONS
Some of the Company's operations are conducted in foreign areas of the
Caribbean. In 1999, 56.0 percent of the Company's revenue was derived
from foreign operations. Overseas contract work performed by the
parent U.S. corporation is not considered foreign revenue for purposes
of this calculation.
32
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(l) INCOME TAXES
The Company and certain of our domestic subsidiaries file consolidated
federal and state income tax returns. Subsidiaries located in U.S.
possessions and foreign countries file individual income tax returns.
Deferred income taxes are recognized for income and expense items that
are reported in different years for financial statement and income tax
purposes.
U.S. income taxes are not provided on undistributed earnings which are
expected to be permanently reinvested by foreign subsidiaries.
The Company adopted the Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes." This uses an asset and
liability approach to financial reporting for income taxes. Under this
method, deferred tax assets and liabilities are recognized based on
differences between financial statement and tax bases of assets and
liabilities using current tax rates. Deferred income taxes result from
temporary differences between income reported in the financial
statements and taxable income.
(m) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from these
estimates.
(n) IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company accounts for long-lived assets in accordance SFAS No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED Of.
This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset
may not be recoverable. Recoverability of assets to be held and used
is measured by comparing the carrying amount of an asset to future net
cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
In accordance with its policy, the Company recorded a charge of
approximately $805,000 in 1999, no expense in 1998 and $2.4 million in
1997 for the impairment of long-lived assets. The impairment of the
assets on Saba occurred due to hurricane damages on the island,
33
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
particularly the adjacent harbor used for export of aggregates. The
impairment of part of the Company's assets on St. Kitts and St. Croix
was due to lower volumes. The dredge in Antigua was impaired due to
obsolescence. The contracting segment had $334,000 of impairment
expense and the concrete and related products segment had $471,000 of
impairment expense in 1999.
(o) STOCK OPTION PLANS
Stock-based compensation is recognized in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations.
Compensation expense is recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise
price. For disclosure purposes, pro forma net income and pro forma
earnings per share are provided as if the fair- value-based method
defined in SFAS No. 123 had been applied.
(p) COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME. SFAS No. 130 establishes standards for reporting
and presentation of comprehensive income and its components in a full
set of financial statements. Comprehensive income consists of net
income and cumulative foreign currency translation and is presented in
the consolidated statements of stockholders equity and comprehensive
income. The statement requires only additional disclosures in the
consolidated financial statements; it does not affect the Company's
financial position or results of operations. Prior year financial
statements have been reclassified to conform to the requirements of
SFAS No. 130.
(q) SEGMENT REPORTING
Effective December 31, 1998, the Company adopted SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION.
This statement establishes standards for reporting information about a
company's operating segments and related disclosures about its
products, services, geographic areas of operations and major
customers. Adoption of this statement did not impact the Company's
results of operations or financial position. The "Segment Reporting"
note provides further information.
(r) Reclassification
Certain prior year amounts have been reclassified to conform with the
current year presentation.
34
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share data:
1999 1998 1997
--------- --------- -------
Weighted average number of
common shares outstanding -
basic 4,481,304 4,498,935 4,498,935
Effect of dilutive securities:
Options - 21,525 -
--------- --------- ------
Weighted average number of
common shares outstanding -
diluted 4,481,304 4,520,460 4,498,935
========= ========= =========
Options to purchase 560,300 and 148,300 shares of common stock at
prices ranging from $2.17 to $3.75 per share, were outstanding for the
years ended December 31, 1999 and 1997, respectively, but were not
included in the computation of diluted earnings per share because the
inclusion of the options would be antidilutive. The options expire on
various dates.
The Company retired a total of 461,940 shares in the first quarter of
2000, of which 420,140 were in partial consideration for the sale of
the St. Thomas and Tortola operations in 2000 and 41,800 shares were
repurchased in 1999 on the Nasdaq market.
(3) RECEIVABLES
Receivables consist of the following:
December 31,
------------
1999 1998
---- ----
Concrete and related products
division trade accounts receivable $ 11,549,371 $ 11,672,685
Land development contracting
division trade accounts
receivable, including retainages 3,078,395 2,917,563
Accrued interest and other receivables 86,277 99,001
Notes and other receivables due from the
Government of Antigua and Barbuda, net 8,421,855 10,854,407
Trade notes receivable - other 4,282,719 5,294,250
Due from employees and officers 282,390 334,563
------------ ------------
27,701,007 31,172,469
Allowance for doubtful accounts
and notes (5,265,825) (5,387,560)
------------ ------------
$ 22,435,182 $ 25,784,909
============ ============
35
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Receivables are classified in the consolidated balance sheets as follows:
December 31,
------------
1999 1998
----------- -----------
Current assets $12,878,643 $12,611,437
Noncurrent assets 9,556,539 13,173,472
----------- -----------
$22,435,182 $25,784,909
=========== ===========
Included in notes and other receivables are unsecured notes due from the
Government of Antigua and Barbuda totaling a net amount of $7,392,138 and
$9,745,542 in 1999 and 1998, respectively, $2.0 million of which is classified
as a current receivable. The Company currently accounts for the notes under the
cost recovery method. The gross balance of the notes is $34.0 million. The notes
called for both quarterly and monthly principal and interest payments until
maturity in 1997. The notes were not satisfied at maturity but the Antiguan
government has advised the Company that payments from agreed upon sources will
continue until the obligation is satisfied. The agreed upon sources are lease
proceeds from a rental of a United States military base, fuel tax revenues and
proceeds from a real estate venture. Cash receipts during 1999 from agreed upon
sources was $2.4 million. Interest income recognized for amounts received in
excess of amounts from agreed upon sources in 1999, 1998 and 1997 was $417,147,
$746,120 and $202,420, respectively.
Notes receivable from an Antiguan government agency, amounting to $855,803 in
1999 and 1998, are included in the total due from the government of Antigua,
along with Antigua-Barbuda Government Development Bonds 1994-1997 series
amounting to $173,914 and $253,062 in 1999 and 1998, respectively.
The Company also has net trade receivables from various Antiguan government