SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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
----- -----
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act):
YES NO X
----- -----
As of May 1, 2003 the number of shares outstanding of the Registrant's Common
Stock was 3,338,473.
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
INDEX
Page Number
Part I. Financial Information:
Item 1. Condensed Consolidated Balance Sheets
March 31, 2003 and December 31, 2002 (unaudited)......... 3-4
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2003 and 2002
(unaudited).............................................. 5
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2003 and 2002
(unaudited)............................................... 6-7
Notes to Condensed Consolidated Financial Statements
(unaudited).............................................. 8-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................................. 14-22
Item 3. Quantitative and Qualitative Disclosures About Market
Risk.................................................... 23
Item 4. Controls and Procedures................................. 23
Part II. Other Information....................................... 24
Certifications ........................................................ 26-27
2
PART I Financial Information
- --------------------------------------------------------
Item 1. Financial Statements
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, 2003 and December 31, 2002
(Unaudited)
March 31, December 31,
2003 2002
--------------- --------------
Assets
Current assets:
Cash and cash equivalents $ 9,385,817 $ 8,977,293
Receivables, net 10,773,610 12,261,687
Costs and estimated earnings
in excess of billings 1,631,091 1,990,353
Inventories 4,302,032 4,416,278
Prepaid expenses and other current assets 644,070 667,174
-------------- --------------
Total current assets 26,736,620 28,312,785
Property, plant and equipment, net:
Land 1,462,068 1,462,068
Buildings 1,111,954 1,111,954
Leasehold improvements 2,953,856 3,494,392
Equipment 50,833,354 53,109,586
Furniture and fixtures 727,167 712,124
Construction in process 817,892 744,448
-------------- -----------
57,906,291 60,634,572
Less accumulated depreciation (31,439,830) (30,606,467)
------------ ------------
Total property, plant & equipment, net 26,466,461 30,028,105
Investments in unconsolidated
joint ventures and affiliates 377,609 373,251
Receivables, net 8,657,102 8,460,887
Other assets 1,585,363 1,262,333
------------- -------------
Total assets $63,823,155 $68,437,361
=========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
3
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, 2003 and December 31, 2002
(Unaudited)
(Continued)
March 31, December 31,
2003 2002
--------------- --------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, trade and other $ 4,432,697 $ 4,131,087
Accrued expenses and other liabilities 3,589,557 3,197,545
Line of credit - 11,000
Current installments of long-term debt 343,321 378,500
Billings in excess of costs and estimated earnings 107,512 1,958
Income taxes payable 948,552 933,734
-------------- -------------
Total current liabilities 9,421,639 8,653,824
Long-term debt, excluding current installments 2,357,274 2,334,974
Deferred income taxes 38,379 65,356
Other long-term liabilities 3,383,453 2,357,952
------------- -------------
Total liabilities 15,200,745 13,412,106
Stockholders' equity:
Common stock, $0.10 par value. Authorized
15,000,000 shares, issued 3,550,269 in 2003
and 3,591,269 in 2002 , outstanding 3,351,573
in 2003 and 3,469,169 shares in 2002 355,026 359,126
Additional paid-in capital 9,592,136 9,704,937
Accumulated other comprehensive loss -
cumulative translation adjustment (1,457,083) (1,611,983)
Retained earnings 41,496,382 47,417,954
Treasury stock, at cost, 198,696 and 122,100
Shares in 2003 and 2002, respectively (1,364,051) (844,779)
------------ -----------
Total stockholders' equity 48,622,410 55,025,255
----------- ------------
Commitments and contingencies
Total liabilities and stockholders' equity $63,823,155 $68,437,361
=========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
4
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2003 and 2002
(Unaudited)
March 31, March 31,
2003 2002
--------------- --------------
Materials revenue $ 8,607,767 $ 8,957,566
Construction revenue 3,454,867 4,428,657
------------- -------------
Total revenue 12,062,634 13,386,223
Cost of materials (7,701,398) (7,840,538)
Cost of construction (3,964,954) (3,522,801)
------------- -------------
Gross profit 396,282 2,022,884
Operating expenses:
Selling, general and administrative expenses 4,345,176 2,857,250
Impairment of long-lived assets 2,859,235 7,423
------------- ---------------
Operating loss (6,808,129) (841,789)
Other income (expense):
Joint venture equity gain 403 1,074
Gain on sale of equipment and property 6,413 85,448
Gain on sale of business - 1,048,395
Interest expense (36,705) (75,848)
Interest income 957,028 1,015,642
-------------- ------------
927,139 2,074,711
-------------- ------------
(Loss) income before income taxes (5,880,990) 1,232,922
Income tax benefit (expense) 256,963 (295,535)
--------------- -------------
Net (loss) income $ (5,624,027) $ 937,387
============== ============
(Loss) earnings per share
Basic $ (1.63) $ 0.26
================== ===============
Diluted $ (1.63) $ 0.24
================== ===============
Weighted average number of shares outstanding
Basic 3,455,962 3,588,336
============== ============
Diluted 3,455,962 3,895,711
============== ============
See accompanying notes to unaudited condensed consolidated financial statements.
5
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2003 and 2002
(Unaudited)
March 31, March 31,
2003 2002
--------------- --------------
Cash flows from operating activities:
Net (loss) income $(5,624,027) $ 937,387
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,513,753 1,200,876
Deferred income taxes benefit (276,521) (54,747)
Provision for doubtful accounts and notes 249,686 72,127
Impairment of long-lived assets 2,859,235 7,423
Gain on sale of equipment and property (6,413) (85,448)
Gain on sale of business - (1,048,395)
Joint venture equity gain (403) (1,074)
Changes in operating assets and liabilities:
(Decrease) increase in receivables (894,468) 258,263
Decrease (increase) in costs and estimated
earnings in excess of billings 359,262 (1,026,339)
Decrease in inventories 133,929 237,549
Decrease in prepaid expenses and
other current assets 51,568 84,678
Increase in other assets (101,950) (22,461)
Increase (decrease) in accounts payable,
accruals and other liabilities 693,459 (326,253)
Increase (decrease) in billings in excess
of costs and estimated earnings 105,554 (21,012)
Increase in income taxes payable 14,818 317,733
Increase in other long-term liabilities 1,025,501 97,832
------------ ------------
Net cash provided by operating activities $ 102,983 $ 628,139
----------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment $ (731,112) $ (609,881)
Proceeds from sale of property and equipment 15,881 6,149
Payments received on notes 2,098,684 591,553
Investment in unconsolidated joint ventures (3,955) -
Issuance of notes (124,421) (164,500)
-------------- ------------
Net cash provided by (used in) investing activities $ 1,255,077 $ (176,679)
------------ -----------
See accompanying notes to unaudited condensed consolidated financial statements.
6
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2003 and 2002
(Unaudited)
(Continued)
March 31, March 31,
2003 2002
------------ --------------
Cash flows from financing activities:
Proceeds from issuance of stock $ 77,880 $ 17,100
Purchase of treasury stock (1,011,598) (32,500)
Proceeds from debt - -
Principal payments on debt (12,879) (176,207)
Net repayments of credit lines (11,000) -
-------------- -------------
Net cash used in financing activities $ (957,597) $ (191,607)
-------------- --------------
Effect of exchange rate changes on cash 8,061 6,931
Net increase in cash and cash equivalents $ 408,524 $ 266,784
Cash and cash equivalents, beginning of period 8,977,293 7,994,327
------------- ------------
Cash and cash equivalents, end of period $ 9,385,817 $ 8,261,111
============= ===========
Supplemental disclosures of cash flow information
Cash paid for:
Interest $ 35,775 $ 80,994
============= =============
Income taxes $ 3,750 $ 18,168
=============== ============
Supplemental disclosures of non-cash investing activities:
Receipt of notes in settlement
of receivables $ 1,630,709 $724,439
============ ========
Translation gain (loss) adjustment $ 154,900 $ (67,999)
============= ==========
See accompanying notes to unaudited condensed consolidated financial statements.
7
DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
The unaudited condensed consolidated financial statements include the accounts
of Devcon International Corp. and its majority-owned subsidiaries (the
"Company"). 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, 2002 (the "2002 Form 10-K").
The unaudited condensed financial statements for the three months ended March
31, 2003 and 2002 included herein have been prepared in accordance with the
instructions for Form 10-Q under the Securities Exchange Act of 1934, as
amended, and Article 10 of Regulation S-X under the Securities Act of 1933, as
amended. Certain information and footnote disclosures normally included in
financial statements prepared in conformity with accounting principles generally
accepted in the United States of America have been condensed or omitted pursuant
to such rules and regulations relating to interim financial statements.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments necessary to present fairly the
Company's financial position as of March 31, 2003 and the results of its
operations and cash flows for the three months ended March 31, 2003 and 2002.
The results of operations for the three months ended March 31, 2003 and 2002 are
unaudited and are not necessarily indicative of the results to be expected for
the full year. The unaudited condensed consolidated financial statements
included herein should be read in conjunction with the financial statements and
related footnotes included in the Company's 2002 Form 10-K.
Earnings Per Share
Basic earnings-per-share is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share is 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, by application of the treasury stock method. In 2003,
the dilutive potential common shares were not included in the computation of
diluted earnings per share, because the inclusion of the options would be
antidilutive. Certain options were not included in the 2002 computation of
diluted earnings per share because the options' exercise prices were greater
than the average market prices of the common shares.
March 31, 2003 March 31, 2002
Option price Options Option price Options
From To outstanding From To outstanding
---- ---- ----------- ---- ---- -----------
Anti-dilutive options 1.50 6.81 723,500 - - -
Included options - - - 1.50 5.50 555,100
Not included options 7.00 9.38 40,295 6.25 14.00 246,795
8
Notes to Unaudited Condensed Consolidated Financial Statements
(Continued)
Weighted average number of shares outstanding Three Months Ended March 31,
2003 2002
------------ -----------
Basic 3,455,962 3,588,336
Effect of dilutive securities: Options - 307,375
-------------- ----------
Diluted 3,455,962 3,895,711
For additional disclosures regarding the employee stock options, see the 2002
Form 10-K.
Stock-based compensation
The Company accounts for its stock option plans under the recognition and
measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to
Employees and Related Interpretations." No stock-based compensation cost is
reflected in net (loss) income for these plans, as all options granted under
these plans had an exercise price equal to or higher than the market value of
the underlying common stock on the date of grant. The following table
illustrates the effect on net (loss) income and (loss) income per share as if
the Company had applied the fair value recognition provisions of FASB Statement
No. 123, "Accounting for Stock Based Compensation", to stock based compensation:
Three Months Ended March 31,
2003 2002
-------------- -----------
Net (loss) income, as reported $(5,624,027) $ 937,387
Deduct: total stock-based employee compensation
expense determined under fair value based method
for all awards, net of taxes (24,750) (24,256)
-------------- -----------
Net (loss) income, as adjusted $(5,648,777) $ 913,131
(Loss) earning per share:
Basic, as reported $(1.63) $0.26
Diluted, as reported (1.63) 0.24
Basic, as adjusted (1.63) 0.25
Diluted, as adjusted (1.63) 0.23
The fair value of each stock option is estimated on the date of grant using the
Black-Scholes option-pricing model.
Comprehensive (Loss) Income
The Company's total comprehensive (loss) income, comprised of net (loss) income
and foreign currency translation adjustments, for the three months ended March
31, 2003 and 2002 was as follows:
9
Notes to Unaudited Condensed Consolidated Financial Statements
(Continued)
Three Months Ended March 31,
2003 2002
-------------- -----------
Net (loss) income $(5,624,027) $ 937,387
Other comprehensive income (loss)
- foreign currency transaction adjustments 154,900 (67,999)
------------- -----------
Total comprehensive (loss) income $ (5,469,127) $ 869,388
============ ==========
Segment Reporting
The following sets forth the revenue and income before income taxes for each of
the Company's business segments for the three months ended March 31, 2003 and
2002:
Three Months Ended March 31,
2003 2002
--------------- --------------
Revenue (including inter-segment)
Materials $ 8,734,764 $ 9,320,852
Construction 3,517,055 4,437,908
Elimination of inter-segment (189,185) (372,537)
-------------- -------------
Total revenue $12,062,634 $13,386,223
=========== ===========
Operating (loss) income
Materials $(4,574,000) $ (837,000)
Construction (1,097,000) 324,000
Unallocated corporate overhead (1,137,129) (328,789)
-------------- ------------
Total operating loss (6,808,129) (841,789)
Other income, net 927,139 2,074,711
------------- -------------
(Loss) income before income taxes $(5,880,990) $ 1,232,922
============ ===========
Retirement and severance expense
Included in selling, general and administrative expenses the Company recorded
retirement and severance expense during the quarters ended March 31, 2003 and
2002 as follows.
Three Months Ended March 31,
2003 2002
-------------- -----------
Accrual of benefit obligations $ 405,755 $ 137,874
One time termination benefits 187,381 -
Other severance 338,931 8,599
---------- ------------
Total $ 932,067 $ 146,473
========= =========
10
Impairment of long-lived assets
The Company recorded impairment expense of $2.9 million in the quarter. This
consisted of the following items:
St. Martin crusher & concrete operations $2,119,000
Sint Maarten block plant 232,014
Aguadilla crusher plant 438,080
Other assets 70,141
-----------
Total $2,859,235
The St. Martin/Sint Maarten operations were determined to be impaired due to
continuing losses. The Company cannot at this point project sufficient future
earnings to cover the long-lived assets. An impairment charge of $2,119,000 was
recorded to write down the St. Martin crusher and concrete plant to their
estimated fair value, using an estimated probable sales price as determinant of
the value. Management is reviewing its alternatives and has not yet made a
decision about future operational changes. The Sint Maarten concrete and
aggregate sales operations have an estimated fair value in excess of recorded
long-lived assets, and therefore no impairment was recorded for this part of the
business. The Sint Maarten block plant was impaired and an operational decision
has been made to close the plant and dismantle it within a short time. The
Company is currently importing part of its need for blocks from Devcon plants on
other islands.
The plant in Aguadilla, Puerto Rico, is leased to a third party, whose
extraction permit was cancelled in February this year. On April 10, the lessee
asked for a moratorium on payments, at the same time as he gave notice of the
extraction permit being cancelled. As a result of these actions, management's
expectation of future cash flows and the fact that the only source of revenue
for the plant has come from the lessee, the Company recorded an impairment
charge of $438,080 to write down the plant to its estimated fair value.
The Company has two batch plants on Antigua and has decided to consolidate its
operations to the main facility. This is estimated to take place in the second
quarter of this year. Accordingly, the installation cost of the plant that is
being moved will be depreciated through its relocation date and the plant that
will be functioning as a spare plant will have its book value depreciated
through accelerated depreciation to its estimated fair value. The Company
estimates that the depreciation, impairment and moving costs to be incurred in
the second quarter are approximately $335,000.
New Accounting Standards
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS 143"). SFAS 143 requires the Company to record the fair
value of an asset retirement obligation as a liability in the period in which it
incurs a legal obligation associated with the retirement of tangible long-lived
assets that result from the acquisition, construction, development, and/or
normal use of the assets. The Company also records a corresponding asset
11
Notes to Unaudited Condensed Consolidated Financial Statements
(Continued)
that is depreciated over the life of the asset. Subsequent to the initial
measurement of the asset retirement obligation, the obligation will be adjusted
at the end of each period to reflect the passage of time and changes in the
estimated future cash flows underlying the obligation. The Company was required
to adopt SFAS 143 on January 1, 2003. The adoption of SFAS 143 in the first
quarter 2003 did not have a material effect on the Company's financial position
and results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections"
("SFAS 145"). SFAS 145 amends existing guidance on reporting gains and losses on
the extinguishments of debt to prohibit the classification of the gain or loss
as extraordinary, as the use of such extinguishments have become part of the
risk management strategy of many companies. SFAS 145 also amends SFAS No. 13 to
require sale-leaseback accounting for certain lease modifications that have
economic effects similar to sale-leaseback transactions. The provisions of the
Statement related to the rescission of Statement No. 4 are applied in fiscal
years beginning after May 15, 2002. Earlier application of these provisions is
encouraged. The provisions of the Statement related to Statement No. 13 were
effective for transactions occurring after May 15, 2002, with early application
encouraged. The adoption of SFAS 145 in the first quarter 2003 did not have a
material effect on the Company's financial position and results of operations.
In July 2002, the FASB issued Statement of Financial Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS
146"). SFAS 146 is effective for the Company for disposal activities initiated
after December 31, 2002. The adoption of SFAS 146 in the first quarter of 2003
did not have a material impact on the Company's financial position and results
of operations.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123" ("SFAS 148"). SFAS 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS 148 amends the disclosure requirements
of SFAS 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
provisions of SFAS 148 are effective for fiscal years ending after December 15,
2002 and the interim disclosure provisions are effective for interim periods
beginning after December 15, 2002. The Company currently plans to continue to
apply the intrinsic-value based method to account for stock options and has
adopted the disclosure requirements of SFAS 148 in the notes to these unaudited
condensed consolidated financial statements. The application of the disclosure
portion of this standard will have no impact on our consolidated financial
position or results of operations. The Financial Accounting Standards Board
recently indicated that it will require stock-based employee compensation to be
recorded as a charge to earnings pursuant to a standard it is are currently
deliberating, which it believes will become effective on January 1, 2004. The
Company will continue to monitor the progress on the issuance of this standard
as well as evaluate the Company's position with respect to current guidance.
12
Notes to Unaudited Condensed Consolidated Financial Statements
(Continued)
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107
and a rescission of FASB Interpretation No. 34" ("FIN 45"). This Interpretation
elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under guarantees issued. The
Interpretation also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002. The disclosure requirements are effective for financial statements of
interim and annual periods ending after December 31, 2002. The adoption of FIN
45 did not have a material impact on the Company's financial position and
results of operations.
During November 2002, the Emerging Issues Task Force ("EITF") reached a
consensus on EITF Issue 00-21, Multiple-Deliverable Revenue Arrangements, which
addresses how to account for arrangements that may involve the delivery or
performance of multiple products, services, and/or rights to use assets. The
final consensus will be applicable to agreements entered into in fiscal periods
beginning after June 15, 2003, with early adoption permitted. The Company does
not expect that the adoption will have an impact on the Company's financial
position and results of operations.
Environmental Matters
The Company is involved, on a continuing basis, in monitoring its compliance
with environmental laws and in making capital and operating improvements
necessary to comply with existing and anticipated environmental requirements.
While it is impossible to predict with certainty, management currently does not
foresee such expenses in the future as having a material effect on the Company's
business, results of operations, or financial condition.
Antigua Tax Assessment
During the fourth quarter of 2001, the Company's three subsidiaries in Antigua
were assessed $6.1 million in income and withholding taxes for the years 1995
through 1999. The Company is appealing the assessments in the appropriate
venues. The Company believes that if any tax is accrued in the future, it will
not have an immediate cash flow effect on the Company, but will result in an
offset between tax owed and the approximately $30 million receivable from the
Government of Antigua. It is too early to predict the final outcome of the
appeals process or to estimate the ultimate amount of loss, if any, to the
Company. Based on the advice from local Antiguan tax consultants and local
Antiguan counsel, management believes the Company's defenses to be meritorious
and does not believe that the ultimate outcome will have a material adverse
effect on the consolidated financial position or results of operations of the
Company.
Contingent Liabilities
Details regarding the Company's other contingent liabilities are described fully
in the Company's 2002 Form 10-K. During 2003, there have been no material
changes to the Company's contingent liabilities.
13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the accompanying
unaudited condensed consolidated financial statements, as well as the financial
statements and related notes included in the Company's 2002 Form 10-K. 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.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (the Reform Act) provides a
safe harbor for forward-looking statements made by or on behalf of the
Corporation. The Company and its representatives may, from time to time, make
written or verbal forward-looking statements, including statements contained in
the Company's filings with the Securities and Exchange Commission and in its
reports to stockholders. Generally, the inclusion of the words "believe,"
"expect," "intend," "estimate," "anticipate," "will," and similar expressions
identify statements that constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 and that are intended to come within the safe
harbor protection provided by those sections. All statements addressing
operating performance, events, or developments that we expect or anticipate will
occur in the future, including statements relating to sales growth, earnings or
earnings per share growth, and market share, as well as statements expressing
optimism or pessimism about future operating results, are forward-looking
statements within the meaning of the Reform Act.
The forward-looking statements are and will be based upon our management's
then-current views and assumptions regarding future events and operating
performance, and are applicable only as of the dates of such statements. We
undertake no obligation to update or revise any forward-looking statements,
whether as a result of new information, future events, or otherwise.
By their nature, all forward-looking statements involve risks and uncertainties.
Actual results, including our revenues from both our Construction and Materials
divisions, expenses, gross margins, cash flows, financial condition, and net
income, as well as factors such as our competitive position, inventory levels,
backlog, the demand for our products and services, customer base and the
liquidity and needs of our customers, may differ materially from those
contemplated by the forward-looking statements or those currently being
experienced by the Company for a number of reasons, including but not limited
to:
o The strength of the construction economies on various islands in the
Caribbean, primarily in the United States Virgin Islands, Sint Maarten, St.
Martin, Antigua and Puerto Rico. Our business is subject to economic
conditions in our markets, including recession, inflation, deflation,
general weakness in construction and housing markets, and changes in
infrastructure requirements.
o Our ability to maintain mutually beneficial relationships with key
customers. We have a number of significant customers. The loss of
significant customers, the financial condition
14
of our customers or an adverse change to the financial condition of our
significant customers could have a material adverse effect on our business
or the collectibility of our receivables.
o Unforeseen inventory adjustments or significant changes in purchasing
patterns by our customers and the resultant impact on manufacturing volumes
and inventory levels.
o Changes in estimation of fair values of long-lived assets and their
retirement obligations due to changes in the used equipment market could
have a material effect on the consolidated financial statements.
o Adverse changes in currency exchange rates or raw material commodity
prices, both in absolute terms and relative to competitors' risk profiles.
We have businesses in various foreign countries in the Caribbean. As a
result, we are exposed to movements in the exchange rates of various
currencies against the United States dollar. We believe our most
significant foreign currency exposure is the Euro.
o Increased competition. The Materials division operates in markets that are
highly competitive on the basis of price and quality. We compete with local
suppliers of ready-mix, and foreign suppliers of aggregates and concrete
block. Competition from certain of these manufacturers has intensified in
recent years and is expected to continue. The Construction division has
local and foreign competitors in its markets. Customer and competitive
pressures sometimes have an adverse effect on our pricing.
o Our foreign operations may be affected by factors such as tariffs,
nationalization, exchange controls, interest rate fluctuations, civil
unrest, governmental changes, limitations on foreign investment in local
business and other political, economic and regulatory conditions, risks or
difficulties.
o The effects of litigation, environmental remediation matters, and product
liability exposures, as well as other risks and uncertainties detailed from
time to time in our filings with the Securities and Exchange Commission.
o Our ability to generate sufficient cash flows to support capital expansion,
business acquisition plans, our share repurchase program and general
operating activities, and our ability to obtain necessary financing at
favorable interest rates.
o Changes in laws and regulations, including changes in accounting standards,
taxation requirements, including tax rate changes, new tax laws and revised
tax law interpretations, and environmental laws, in both domestic and
foreign jurisdictions, and restrictions on repatriation of foreign
investments.
o The impact of unforeseen events, including war or terrorist activities, on
economic conditions and consumer confidence.
o Interest rate fluctuations and other capital market conditions.
15
o Construction contracts with a fixed price sometimes suffer penalties that
cannot be recovered by additional billing, which penalties may be due to
circumstances in completing construction work, errors in bidding contracts,
or changed conditions.
o Adverse weather conditions, specifically heavy rains or hurricanes, which
could reduce demand for our products.
The foregoing list is not exhaustive. There can be no assurance that we have
correctly identified and appropriately assessed all factors affecting our
business or that the publicly available and other information with respect to
these matters is complete and correct. Additional risks and uncertainties not
presently known to us or that we currently believe to be immaterial also may
adversely impact us. Should any risks and uncertainties develop into actual
events, these developments could have material adverse effects on our business,
financial condition, and results of operations. For these reasons, you are
cautioned not to place undue reliance on our forward-looking statements.
Critical Accounting Policies and Estimates
The Company has identified significant accounting policies that, as a result of
the judgments, uncertainties, uniqueness and complexities of the underlying
accounting standards and operations involved could result in material changes to
its financial condition or results of operations under different conditions or
using different assumptions. The Company believes its most significant
accounting policies are related to the following areas: estimations of cost to
complete construction contracts, allowance for credit losses, loss reserves for
inventories, estimation of fair value of long-lived assets and their retirement
obligations, accruals for deferred compensation agreements, Antiguan tax
assessment evaluation, tax on un-repatriated earnings, valuation of the Antigua
and Barbuda Government notes and the valuation allowance of deferred taxes.
Details regarding the Company's use of these policies and the related estimates
are described fully in the Company's 2002 Form 10-K. During 2003, there have
been no material changes to the Company's significant accounting policies that
impacted the Company's financial condition or results of operations.
Comparison of Three Months Ended March 31, 2003 with Three Months Ended
March 31, 2002
Revenue
The Company's revenue during the first quarter of 2003 was $12.1 million as
compared to $13.4 million during the same period in 2002. This 9.9 percent
decrease was due to a decrease of $350,000 in materials revenue and $974,000 in
construction revenue.
The Company's materials division revenue decreased 3.9 percent to $8.6 million
during the first quarter of 2003 as compared to $9.0 million for the same period
in 2002, primarily due to a decrease in aggregates volumes sold on St. Croix and
Puerto Rico, resulting from weakening of their construction industries, offset
to a lesser extent by increased sales on Antigua.
16
Revenue from the Company's construction division decreased 22.0 percent to $3.5
million during the first quarter of 2003 as compared to $4.4 million for the
same period in 2002. This decrease is the result of the cycle of the
construction contracts, where the volume during the first quarter of 2003 was
lower than in the same period of 2002. Additionally, the Company had larger
revenue from a specific contract in the Bahamas in the first quarter of 2002 as
compared to the same period in 2003, as this contract is coming to its end. The
Company's backlog of unfilled portions of land development contracts at March
31, 2003 was $9.9 million, involving 9 contracts. The backlog of two contracts
for a project in the Bahamas amounted to $2.9 million. A Company subsidiary and
the President are minority partners of the entity developing this project. The
Company expects that most of these contracts will be completed during this year.
During the first quarter of this year, the Company increased its backlog by
entering into four agreements for a total of $7.1 million. The Company is
actively bidding and negotiating additional projects in various areas of the
Caribbean. The Company cannot currently determine whether demand for this
division's services will increase, decrease or remain the same throughout 2003.
Cost of Materials
Cost of materials as a percentage of materials revenue increased to 89.5 percent
during the first quarter of 2003 as compared to 87.5 percent in the same period
in 2002. This was the result of a decrease in revenue with stable fixed costs in
St. Croix and Puerto Rico, offset by improved margins in Antigua.
Cost of Construction
Cost of construction as a percentage of construction revenue increased to 114.8
percent during the first quarter of 2003 from 79.5 percent during the same
period in 2002. This increase is primarily attributable to additional costs
incurred for the construction of the golf course on Exuma, Bahamas that were not
contemplated in the contract, and the elimination of a portion of the contract
from estimation-of-contract-performance measurement due to uncertainties
surrounding the engineering design and related costs. The dredging equipment was
idle during the quarter, and the increased cost of construction as a percent of
revenue was also dependent of the varying profitability levels of individual
contracts and the stage of completion of such contracts.
Operating Expenses
Selling, general and administrative expense ("SG&A expense") increased by 52.1
percent to $4.3 million for the first quarter of 2003 from $2.9 million for the
same period in 2002. The increase in SG&A expense was primarily due to
retirement and severance expense, termination of consulting agreements,
increased depreciation, bad debt expense and foreign exchange losses, offset to
a lesser extent by reduced labor expense. The Company experienced other
immaterial increases and decreases that effectively offset each other. As a
percentage of revenue, SG&A expense increased to 36.0 percent during the first
quarter as compared to 21.3 percent for the same period last year. The Company
recorded retirement and severance expense of $932,000 in the quarter compared to
$146,000 in the same period in 2002, as a result of the Company providing
severance and retirement benefits to certain employees and the accretion of
previously established benefit obligations. Part of this expense will be paid
out over several years.
17
The Company recorded impairment expense of $2.9 million in the quarter. This
consisted of the following items:
St. Martin crusher & concrete operations $2,119,000
Sint Maarten block plant 232,000
Aguadilla crusher plant 438,000
Other assets 70,000
-----------
Total $2,859,000
The St. Martin/Sint Maarten operations were determined to be impaired due to
continuing losses. The Company cannot at this point project sufficient future
earnings to cover the long-lived assets. An impairment charge of $2,119,000 was
recorded to write down the St. Martin crusher and concrete plant to their
estimated fair value, using an estimated probable sales price as determinant of
the value. Management is reviewing its alternatives and has not yet made a
decision about future operational changes. The Sint Maarten concrete and
aggregate sales operations have an estimated fair value in excess of recorded
long-lived assets, and therefore no impairment was recorded for this part of the
business. The Sint Maarten block plant was impaired and an operational decision
has been made to close the plant and dismantle it within a short time. The
Company is currently importing part of its need for blocks from Devcon plants on
other islands.
The plant in Aguadilla, Puerto Rico, is leased to a third party, whose
extraction permit was cancelled in February this year. On April 10, the lessee
asked for a moratorium on payments, at the same time as he gave notice of the
extraction permit being cancelled. As a result of these actions, management's
expectation of future cash flows and the fact that the only source of revenue
for the plant has come from the lessee, the Company recorded an impairment
charge of $438,000 to write down the plant to its estimated fair value.
The Company has two batch plants on Antigua and has decided to consolidate its
operations to the main facility. This is estimated to take place in the second
quarter of this year. Accordingly, the installation cost of the plant that is
being moved will be depreciated through the relocation date and the plant that
will be functioning as a spare plant will have its book value depreciated
through accelerated depreciation to its estimated fair value. The Company
estimates that the depreciation, impairment and moving costs to be incurred in
the second quarter are approximately $335,000.
Operating Loss
The Company had an operating loss of $6.8 million for the first quarter of 2003,
compared to $842,000 for the same period in 2002. The Company's materials
division operating loss was $4.6 million during the first quarter of 2003
compared to $837,000 during the same period in 2002. This increase in operating
loss is primarily attributable to impairment of assets in St. Martin and other
islands of $2.9 million, to losses on St. Martin and St. Croix and to accrual of
retirement and severance costs on Antigua.
18
The Company's construction division had an operating loss of $1.1 million during
the first quarter of 2003 compared to operating income of $324,000 during the
same period in 2002. This decrease was attributable to additional construction
costs on contracts in the Bahamas, idle dredge equipment, varying profitability
levels of individual contracts, and the stage of completion of such contracts.
Other Income (Expenses)
At the time of sale of the operations in Dominica in 2000, the Company entered
into a profit and loss participation agreement until March 31, 2002. During this
time the gain on the sale of the operations were deferred, and in the first
quarter of 2002 the Company recognized a gain of $1.0 million. Gain on sale of
equipment and property was $6,000 compared to $85,000 for the same period in
2002. Interest income decreased in the first quarter of 2003 to $957,000
compared to $1.0 million for the same period in 2002, primarily due to an
decrease in the interest recognized on the note receivable from the Government
of Antigua, offset to a lesser extent by an increase of interest income from
financed construction projects.
Income Taxes
The Company operates in various tax jurisdictions with various tax rates, and,
depending on where profits or losses are recognized during the period, the
effective tax rate will vary. In certain jurisdictions certain income is not
taxable, and in certain jurisdictions, the Company enjoys certain tax
exemptions. The effective tax benefit rate for the first quarter of 2003 was 4.4
percent as compared to a tax rate of 24.0 percent for the same period in 2002,
due to establishment of a valuation allowance on net operating losses created
during the quarter.
Net Income
The Company had a net loss of $5.6 million during the first quarter of 2003 as
compared to net income of $937,000 during the same period in 2002.
Liquidity and Capital Resources
The Company generally funds its working capital needs from operations and bank
borrowings. In the land development construction 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. During the first quarter
of 2003, the Company provided long-term financing in the amount of $1.6 million
to certain customers who utilized its land development construction services and
purchased materials. The outstanding balances of the previously financed
construction services and materials totaled $4.5 million as of March 31, 2003,
all of which is due to be paid within the next three years. The Company has also
provided financing for other business ventures from time to time. With respect
to the Company's materials division,
19
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. These purchases of equipment should result in cash expenditures of
approximately $3.0 million during 2003. The Company has, since the beginning of
2000, funded most of these expenditures out of its current working capital.
Management believes the cash flow from operations, existing working capital, and
funds available from lines of credit will be adequate to meet the Company's
needs during the next 12 months. Historically, the Company has used a number of
lenders to finance a portion of its machinery and equipment purchases, however,
since 2001 there are no outstanding amounts owed to these lenders. Management
believes it has significant collateral and financial stability to be able to
obtain significant financing, should it be required, though no assurance can be
made.
As of March 31, 2003, the Company's liquidity and capital resources included
cash and cash equivalents of $9.4 million and working capital of $17.3 million.
As of March 31, 2003, total outstanding liabilities were $15.2 million. As of
March 31, 2003, the Company had available lines of credit totaling $1.4 million.
Cash flows provided by operating activities for the three months ended March 31,
2003 were $103,000 compared to $628,000 for the same period in 2002. The primary
source of cash for the first three months in 2003 was an increase in other
long-term liabilities of $1.0 million and an increase in accounts payable,
accrual and other liabilities of 693,000, offset to a lesser extent by a
decrease in receivables of $894,000.
Net cash provided by investing activities was $1.3 million in the first three
months of 2003. Purchases of property, plant and equipment were $731,000. The
Company issued new notes receivable for $124,000 and receipts on notes
receivable were $2.1 million. Net cash used in financing activities was $958,000
for the first three months of 2003, consisting primarily of the purchase of
treasury stock.
The Company's accounts receivable averaged 54 days of sales outstanding as of
March 31, 2003. This is a slight increase compared to 53 days at the end of
December 2002. The Company's materials segment slowed down to 58 days as
compared to 50 days at the end of last quarter, mainly due to delayed payments
in St. Croix and Puerto Rico. The construction segment has improved
substantially to 43 days as compared to 61 days at the end of last year. The
improvement was primarily due to the reclassification of certain accounts
receivable balances to notes receivable in the beginning of the year. Also, due
to the recent start of new construction projects, amounts invoiced to customers
have been lower this quarter. The Company does not consider notes receivable in
this calculation.
The Company has an unsecured credit line of $1.0 million with a bank in Florida.
The credit line expires in May 2003 and the bank can also demand repayment of
the loan and cancellation of the overdraft facility, if certain financial or
other covenants are in default. The Company is in compliance with the covenants
as of March 31, 2003. The Company has requested a renewal of
20
the credit line. There was no outstanding balance as of March 31, 2003.
The interest rate on indebtedness outstanding under the credit line is at a
rate variable with LIBOR.
The Company has borrowed approximately $2.1 million from the Company President.
The note is unsecured and bears interest at the prime rate. Three hundred
thousand is due on demand, and $1.8 million is due on July 1, 2004. The
President has the option of making the note due on demand should a "Change of
Control" occur. A Change of Control has occurred if a person or group acquires
15.0 percent or more of the common stock or announces a tender offer, the
consummation of which would result in ownership by a person or group of 15.0
percent or more of the common stock.
The Company entered into an agreement with the Company President in September
2000, whereby Mr. Smith shall receive a retirement benefit. The accrued
liability as of March 31, 2003 was $1.6 million. The Company estimates that the
total accrual will be sufficient to cover its obligations under the
aforementioned agreement.
In September 2001, the Company decided to stop its operations on Aguadilla,
Puerto Rico. The plant in Aguadilla, Puerto Rico, is leased to a third party,
whose extraction permit was cancelled in February this year. On April 10, the
lessee asked for a moratorium on payments, at the same time as he gave notice of
the extraction permit being cancelled. As a result of these actions and the fact
that the only source of revenue for the plant has come from the lessee, the
Company recorded an impairment charge of $438,000 to write down the plant to its
estimated fair value.
As part of the 1995, subsequently renegotiated in 1999, acquisition of Societe
des Carrieres de Grand Case ("SCGC"), a French company operating a ready-mix
concrete plant and quarry in St. Martin, the Company agreed to pay the quarry
owners, who were also the owners of SCGC, a royalty payment of $550,000 per year
through July 2004 and rent of $50,000 per year through July 2005. The agreements
may be renewed, at the Company's option, for a successive five-year period and
would require annual payments of $550,000 and $50,000 per year, respectively. At
the end of the 15-year royalty period, the Company has the option to purchase
this 50-hectare property for $4.4 million.
Receivables at March 31, 2003 include a net balance of $6.3 million, consisting
of promissory notes due from the Government of Antigua and Barbuda, of which
$5.7 million is classified as a long-term receivable. The gross balance of the
notes is $28.9 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 are paid from agreed upon sources, which consist of lease
proceeds from the rental of a United States military base, fuel tax revenue,
proceeds from a real estate venture and other sources. Receipts recorded for the
three months ended March 31, 2003 were $1.4 million, of which $596,000 was
recorded as reduction of principal. This amount was $521,000 in excess of
projected reduction of principal, due to payments made in the first quarter by
the Government of Antigua and Barbuda for past due amounts.
During the second quarter of 2002, the Company issued a construction contract
performance guarantee together with one of the Company's customers for $5.1
million. The Company issued a letter of credit for $500,000 as collateral for
the transaction and has not yet had any expenses in
21
connection with this transaction. The construction project is estimated to be
finished within two years from its commencement and the guarantee expires two
years after completion. The Company received an up front fee of $154,000, and
has recognized a receivable for an additional $52,000. At the same time, a
long-term liability of the total amount has been recorded, which may be
recognized to income, once it is determined that no liability exists for the
project, less any amounts paid by us in connection with the performance
guarantee.
Repurchase of Company Shares
On August 9, 2002 the Board of Directors ("Board") approved a plan for the
Company 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 or
management affect the advisability of purchasing Devcon shares. The Company
repurchased 146,996 shares through March 31, 2003 at an average price of $6.88.
As of March 31, 2003 the Company had 198,696 shares of treasury stock as
compared to 122,100 as of December 31, 2002.
Related Party Transactions
The Company has certain transactions with some of the Directors or employees.
Details regarding the Company's transactions with related parties are described
fully in the Company's 2002 Form 10-K. In April of 2003, the Company purchased
12,000 shares of Company stock from a director at the prevailing market rate.
As of January 1, 2003, the Company entered into a payment deferral agreement
with a resort project in the Bahamas, in which the President and a Company
subsidiary are minority partners. The loan agreement calls for 50 percent
deferral of payments due for construction contract obligations incurred after
November 1, 2002, up to a maximum of $2.5 million. Several notes, which are
guaranteed, partly or in full, by owners of the project, will evidence the loan
and the President of the Company has issued a personal guarantee for the total
amount due to the Company as of March 31, 2003. There have been no other
material changes to the Company's related party transactions.
The Company has a $28.0 million construction contract with an entity in the
Bahamas. The President and a subsidiary of the Company are minority shareholders
in the entity, owning 11.3 percent and 1.2 percent, respectively. Mr. Smith, the
President, is also a member of the entity's managing committee. Management
believes the contract has been entered into at arm's length and at terms and
conditions that the Company would offer its other customers. Prices established
for the work are dependent on market conditions and unique conditions to the
environment of the Bahamas. In connection with this contract, the Company
recorded revenue of $8.4 million during 2002, and $721,000 during the first
quarter of 2003. The backlog on the contract as of March 31, 2003 was $2.7
million. As of March 31, 2003 the Company had trade and notes receivables from
the venture of approximately $2.1 million and the cost and estimated earnings in
excess of billings was $905,000. Mr. Smith has guaranteed the payment of the
receivables from the entity, up to a maximum of $2.5 million.
22
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to financial market risks due primarily to changes in
interest rates, which it manages primarily by managing the maturities of its
financial instruments. The Company does not use derivatives to alter the
interest characteristics of its financial instruments. Management does not
believe a change in interest rate will materially affect the Company's financial
position or results of operations.
The Company has significant operations overseas. Generally, all significant
activities of the overseas affiliates are recorded in their functional currency,
which is generally the currency of the country of domicile of the affiliate. The
foreign functional currencies that the Company deals with are Netherlands
Antilles Guilders, Eastern Caribbean Units and Euros. The first two are pegged
to the U.S. dollar and have remained fixed for many years. Management does not
believe a change in the Euro exchange rate will materially affect the Company's
financial position or result of operations. The French operations are
approximately 10% of the Company's total operations.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Within the 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and participation of the Company's Chief
Executive Officer and Chief Financial Officer (the "Officers") of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Securities Exchange Act Rule 13a-14. Based upon that
evaluation, the Officers concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company required to be included the in the Company's periodic
SEC filings, including this report. There have been no significant changes in
the Company's internal controls or in other factors that could significantly
affect internal controls subsequent to the date the Company carried out its
evaluation.
Internal Controls
There were no significant changes made in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
23
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 construction 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:
Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
(b) Reports on Form 8-K:
The Company filed form 8-K on March 5, 2003 given information
about other events, including a new executive committee and hiring
of consultants. The Company filed form 8-K on May 13, 2003 giving
information about earnings and an upcoming conference call with
analysts.
24
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: May 15, 2003 /S/ JAN A. NORELID
-------------------
Jan A. Norelid
Vice President - Finance
25
CERTIFICATIONS
I, Donald L. Smith, Jr. certify that:
1. I have reviewed this quarterly report on Form 10-Q of Devcon
International Corp.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared.
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the Evaluation
Date).
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation of the Evaluation Date.
5. The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's Board of Directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial
data and have identified for the registrants auditors any
material weaknesses in internal controls.
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrants internal controls.
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 15, 2003 /s/ Donald L. Smith, Jr.
Donald L. Smith, Jr.
President and
Chairman of the Board
26
CERTIFICATIONS
I, Jan A. Norelid, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Devcon
International Corp.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared.
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the Evaluation
Date).
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation of the Evaluation Date.
5. The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's Board of Directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial
data and have identified for the registrants auditors any
material weaknesses in internal controls.
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrants internal controls.
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 15, 2003 /s/ Jan A. Norelid
Jan A. Norelid
Chief Financial Officer
27
EXHIBIT INDEX
Exhibit No. Exhibit Description
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.1
CERTIFICATION PURSUANT TO
U.S.C. SECTION 1350,
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Devcon International Corp. (the
"Company") on Form 10-Q for the period ending March 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Jan A.
Norelid, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the report fairly presents, in
all material respects, the financial condition and result of
operations of the Company.
Date: May 15, 2003 /s/ Jan A. Norelid
Jan A. Norelid
Chief Financial Officer
Exhibit 99.2
CERTIFICATION PURSUANT TO
U.S.C. SECTION 1350,
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Devcon International Corp. (the
"Company") on Form 10-Q for the period ending March 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Donald
L. Smith, Jr., Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The report fully complies with the requirements of section 13
(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the report fairly presents, in
all material respects, the financial condition and result of
operations of the Company.
Date: May 15, 2003 /s/ Donald L. Smith, Jr.
Donald L. Smith, Jr.
Chief Executive Officer