Devcon to sell U.S. Virgin Island materials operations for $10.7 million
Sale prompted by loss due to dip in construction income and purchase of Adelphia's electronic security services...
DEERFIELD BEACH, FL, Aug. 16, 2005 (PRNewswire) -- Devcon International Corp. today reported a net loss for the three months ended June 30, 2005 of $420,000, compared to net income of $622,000 for the comparable period in 2004. The loss is primarily attributable to a $650,000 decrease in Construction Division operating income, a $456,000 increase in interest expense associated with the purchase of Adelphia Communications' electronic security services business completed on Feb. 28, and a $306,000 severance charge resulting from a Materials Division management realignment.
For the six months ended June 30, 2005, revenues were $49.4 million compared with $30.0 million for the first six months of 2004. The net loss for the first half of 2005 was $2.0 million compared with a net income of $0.8 million for the first six months of 2004.
As a result of an on-going in-depth review of our Materials Division, the company has entered into a definitive agreement to sell the operating assets of its U.S. Virgin Islands materials operations to a private investor group for $10.7 million in cash plus a three year 5% note equal to the net realizable value of accounts receivable and a certain asset associated with these operations as of the closing date. As of June 30, the net realizable value of these assets amounted to $1.9 million. It is currently anticipated that the closing will occur on, or prior to, September 30.
Stephen J. Ruzika, Devcon President and CEO, stated, "The cash proceeds to be realized from the U.S. Virgin Island materials operations will supply additional resources to be used to expand our Security Division and it was good to see that our Materials Division, as a whole, has shown improvement. Our Construction Division's marine dredging operation continued to perform well; however, difficulties encountered on a U.S. Virgin Islands marina project kept the division from reporting better results."
In the second quarter of 2005 total revenue increased 76% to $26.9 million, compared to second quarter 2004 revenue of $15.3 million. Construction Division revenue increased $5.8 million and Security Division revenue was up $4.5 million. Security Division revenue included Adelphia operations from the date of acquisition and Security Equipment Corporation, Inc., the company's initial security acquisition. During the first and second quarter of 2004, the company had no security service operations.
The Construction Division reported second quarter operating income of $269,000 compared to $919,000 for the corresponding period of 2004. This decrease was primarily attributable to a substantial increase in the estimated costs to complete a current marina project in the U.S. Virgin Islands, offset by increased revenue and gross margin on construction contracts in the Bahamas, as well as increased utilization of marine dredging equipment during the quarter. As of June 30, 2005, the Construction Division backlog totaled $18.5 million. The company is actively bidding and negotiating additional projects in the Caribbean and, since June 30, 2005, the division has added $1.4 million in construction contracts.
The Materials Division reported a $74,000 operating profit during the second quarter versus an operating loss of $42,000 during the comparable period in 2004. A $594,000 reduction in operating income at the Sint Maarten/St. Martin operations was offset by a $331,000 increase in the U.S. Virgin Islands operations and a $316,000 increase in the Antigua operations.
The Security Division during the second quarter of 2005 reported a breakeven operating income, after $903,000 in amortization expense associated with the contractual agreements and customer relationships acquired and a $462,000 net loss on the installation of new security systems. The division also incurred approximately $145,000 of expenses associated with the contractual commitment to cease using the name "Adelphia Security." During May 2005 the division sold its Buffalo operation, acquired as part of the Starpoint acquisition, for $1.7 million cash, subject to certain adjustments. Cash consideration of $1.3 million received at closing was utilized to reduce debt outstanding under the CIT credit facility and the remaining balance was placed in escrow to collateralize any post-closing adjustments. Approximately $62,000 of recurring monthly revenue was sold with the Buffalo operation.
Devcon (www.devc.com) has three operating divisions and an operating joint venture. The new Security Division provides electronic security services to commercial and residential customers in selected markets. The Construction Division dredges harbors, builds marine facilities, constructs golf courses and prepares residential, commercial and industrial sites, primarily in the Bahamas and the eastern Caribbean. The Materials Division produces and distributes crushed stone, ready-mix concrete and concrete block in the eastern Caribbean with principal operations on St. Croix and St. Thomas in the U.S. Virgin Islands, on St. Maarten in the Netherlands Antilles, on St. Martin in the French West Indies, on Puerto Rico, and on Antigua in the independent nation of Antigua and Barbuda. DevMat (www.devc.com/Level2/level2b_3.htm), an 80%-owned joint venture, was formed in 2003 to build, own and operate fresh water, wastewater treatment and power systems.