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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, 2001
Commission file number 0-7152
DEVCON INTERNATIONAL CORP.
Florida Corporation TIN 59-0671992
1350 East Newport Center Drive, 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 5, 2002, Devcon International Corp. had 3,592,985 shares
outstanding. The aggregate market value of the Common Stock held by
non-affiliates of Devcon International Corp. as of March 5, 2002 was
approximately $8.8 million, based on the closing price on that date of $6.35 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 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.
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
St. Maarten Netherlands Antilles
St. Martin French West Indies
Antigua West Indies
Our construction 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 construction, 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
during low activity periods.
The following table sets forth financial highlights of our materials and
construction business. During the first quarter 2000 we sold our operations in
Tortola and Dominica, our concrete operations in St. Thomas and all our bulk
cement terminals. See further information in Note 11 of Notes to Consolidated
Financial Statements.
2001 2000 1999
-------- -------- --------
(In thousands)
Revenue (net of intersegment sales):
Materials $ 39,703 $ 50,956 $ 55,313
Construction 15,185 14,292 12,721
-------- -------- --------
$ 54,888 $ 65,248 $ 68,034
======== ======== ========
Operating (loss) income (by segment)
Materials $ 23 $ (1,608) $ (2,198)
Construction 1,173 1,266 (301)
Credit for litigation -- -- 1,160
Unallocated corporate overhead (1,188) (818) (879)
-------- -------- --------
$ 8 $ (1,160) $ (2,218)
======== ======== ========
2
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
From time to time, we investigate opportunities to expand our operations to
areas of the Caribbean where we presently have no business, and also
opportunities to expand our existing operations in related areas of operations.
The Company decided in 2001 to stop its operations in Aguadilla, Puerto Rico and
have leased all its equipment on the site to a company affiliated with one of
the joint venture owners of the subsidiary in Puerto Rico.
Risks of Foreign Operations
Portions of our operation in 2001 were conducted in Caribbean foreign countries,
primarily Antigua and Barbuda, St. Maarten, St. Martin and the Bahamas. In 2001,
60.7 percent of our revenue was derived from foreign geographic areas. For a
summary of our revenue and earnings from foreign operations, see Notes 9 and 11
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 are United States territories. 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.
Materials Division
General In 2001 we manufactured and distributed ready-mix concrete, block and
crushed aggregate. We also distributed bagged cement. The different activities
on the islands are shown below:
Concrete
Ready-Mix Quarry Block Bagged
Concrete Aggregates Production Cement
-------- ---------- ---------- ------
Puerto Rico X
St. Thomas, U.S.V.I X X X
St. Croix, U.S.V.I X X
St. Maarten X X X X
St. Martin X X X
Antigua X X X
3
Our materials business employed assets in 2001 such as:
. Quarries . Concrete Batch Plants
. Rock Crushing Plants . Fleet of Concrete Mixer Trucks
. Concrete Block Plants . Asphalt Plants
See additional information under Item 1 - Business-General.
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 delivers 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 four Caribbean islands. It is often less expensive to manufacture
crushed rock at our quarries than to import aggregate from off-island sources.
Bagged Cement In prior years, we owned and operated several bulk cement
terminals. In the beginning of 2000, all of the Company's cement terminals were
sold. As a result of this transaction we now enter the supply chain for cement
at a later stage, and purchase cement directly from the terminals we sold. The
Company purchases cement from these terminals for use in its concrete batch
plants, block plants and on some islands for resale in the form of bagged
cement.
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. We
believe our ability to produce our own sand and stone gives us a competitive
advantage because of the substantial investment required to produce aggregates,
the difficulty in obtaining the necessary environmental permits to establish
quarries and the moratorium on mining beach sand imposed by most Caribbean
countries. We purchase cement from cement terminals located on the islands where
our operations are established and bulk cement is readily available from a
number of manufacturers located throughout the Caribbean basin.
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 to the customers' job sites.
Competition We have some competitors in the materials 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 materials market share, resources, facilities, local presence and
cost structure give us a competitive advantage in the eastern Caribbean markets
where we operate.
4
Construction Division
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 what we believe to be the more 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 construction 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 the 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. Our Vice President
of Construction Operations and/or our President review project proposals and
bids. After a customer accepts our proposal, a formal contract is negotiated. We
are normally the prime contractor. We assign one of our 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 construction contracts at
December 31, 2001 was $10.5 million involving 7 projects. One Bahamian project's
backlog amounts to $7.2 million at the end of 2001. A subsidiary and two of our
directors are minority partners, and our President is a member of the managing
committee of the entity developing this project. In January 2002, the
partnership received the necessary financing to complete the development of the
project. The backlog of $10.5 million involving 7 projects at the end of 2001
compares to $13.0 million involving 7 projects at December 31, 2000. Since
December 31, 2001 we have not entered into any new significant construction
contracts in the Caribbean. We are actively bidding and negotiating additional
projects. We expect most of the current backlog to be completed during 2002.
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 construction is extremely competitive. Primary
competitive factors include price, prior experience and relationships, the
equipment 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
5
guarantees contract completion. We believe that we compete effectively and have
a favorable competitive position in our Caribbean markets.
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 materials division
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 and St. Maarten operations, would subject
us to U.S. federal income tax on the amounts distributed, less applicable taxes
paid in those jurisdictions. At December 31, 2001, $37.8 million of accumulated
earnings had not been distributed to our U.S. operations. We have not provided
for U. S. federal income tax on the undistributed earnings of foreign
subsidiaries because we intend to permanently reinvest those earnings offshore,
unless the earnings can be repatriated in a tax-free manner.
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
reduce our income tax expense. For further information on our tax exemptions and
income taxes, see Note 8 of Notes to Consolidated Financial Statements.
Equipment
Both of our businesses require us to lease or purchase and maintain equipment.
As of December 31, 2001, our equipment included cranes, bulldozers, road
graders, rollers, backhoes, earthmovers, a hydraulic dredge, barges, rock
crushers, 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 construction and materials division.
During the period 1998 through 2001, we invested a total of $186,000 for a 1.2
percent interest in a real estate joint venture in the Bahamas. The upscale
resort project received final financing to finish its development in January
2002. Two of our directors have an interest in the joint venture. See Note 12 of
Notes to Consolidated Financial Statements.
During the last three years we invested a total of $181,000 for a 33.3 percent
interest in a real estate joint venture in Puerto Rico that owns the land where
the Aguadilla aggregate processing plant was operating. During 2001 we
recognized earnings of $29,000 from this joint venture under the equity method
of accounting.
6
Executive Officers
The executive officers of the Company are as follows:
Donald L. Smith, Jr., 80, a co-founder of the Company, has served as its
Chairman of the Board, President and Chief Executive Officer since its formation
in 1951.
Richard L. Hornsby, 66, 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, 72, was appointed Vice President-Engineering of the Company in
March 1989, after having served as Vice President of the Company since 1977. The
Company has employed Mr. Obenauf for over 33 years.
Jan A. Norelid, 48, 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, 49, was appointed Vice President-Construction Operations
for the Company in December 1992. Mr. Smith joined the Company in 1976 and has
served in supervisory and managerial positions within the Company since that
time.
Employees
At December 31, 2001 we employed 92 persons in the construction business in the
Caribbean, of whom 10 are members of a union. As of the same date, we employed
288 persons in our materials division, of whom 88 are members of a union.
Employee relations are considered satisfactory.
Item 2. Property
General
Nearly all of the real property that the Company owns or leases is utilized by
its materials division.
Other Property
We own undeveloped parcels of land in the U.S. Virgin Islands and Antigua.
7
The following table shows information on the property and facilities that we
owned or leased for our operations at December 31, 2001:
Lease Expiration
Description Location with all Options Area
----------- -------- ---------------- -----
Shared facilities
- -----------------
Principal executive offices Deerfield Beach 5/07 8,410 sq. ft.(1)
Maintenance shop for heavy equipment Deerfield Beach 6/12 3.44 acres (1)(2)
Materials Segment
- -----------------
Concrete block plant and equipment St. Thomas 6/04 11.00 acres (1)
maintenance facility
Quarry St. Thomas -- 8.50 acres
Quarry St. Thomas 2/08 44.00 acres (1)
Barge terminal St. Thomas Month-to-Month 1.50 acres (1)
Quarry St. Thomas 8/06 7.49 acres (1)
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 10.78 acres (1)
Concrete batch plant, concrete block Antigua 9/16 22.61 acres (1)
plant, rock crushing plant, asphalt
plant, quarry and office
Concrete block plant St. Maarten Month-to-Month 3.00 acres (1)
Barge unloading facility St. Maarten 5/05 .30 acres (1)
Office building, batch plant, shop St. Maarten Month-to-Month 1.39 acres
Quarry, rock-crushing plant, concrete
batch plant and office building St. Martin 7/10 123.50 acres (1)
Quarry, rock crushing plant and
office building Guaynabo, P.R. 3/06 40.00 acres (1)(3)
(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.
Item 3. Legal Proceedings
We are sometimes involved in routine litigation arising in the ordinary course
of our business, primarily construction.
In the fall of 2000, Virgin Islands Cement and Building Products, Inc.
("VICBP"), a subsidiary of the Company, was under contract with the Virgin
Islands Port Authority ("VIPA") for the construction of the expansion of the St.
Croix Airport. During the project, homeowners and residents of the Yellow Cedar
Housing Community, located next to the end of the expansion project, claimed to
have experienced several days of excessive dust in their area as a result of the
ongoing construction work. The homeowners of Yellow Cedar have filed two
separate lawsuits against VIPA and VICBP as co-defendants. One suit, filed in
the U.S. District Court by Mariepaul Antoine, Benjamin Ashe, et. al, vs. VIPA
et. al, case #2001,63 R/F, seeks equitable relief from nuisance, specific
performance and damages. The second suit, Louisa Williams et. al vs. VIPA et. al
filed in the Territorial Court of the U.S.V.I. case #548/2000 seeks equitable
relief from nuisance, specific performance and damages. In both cases, VICBP, as
defendant, has agreed to indemnify VIPA for any civil action as a result of the
construction work. Reliance Insurance Company ("Reliance"), the general
liability carrier for VICBP during that
8
period, has taken the legal position that "dust" is a pollutant and, therefore,
the pollution exclusion clause applies and as a result denies liability
insurance coverage to VICBP. The Company has started litigation against Reliance
to obtain insurance coverage. Corporate counsel in Florida, as well as in the
U.S. Virgin Islands, have advised the Company that laws now in place should
enable the courts to force Reliance to defend VICBP against both legal actions
brought by the lawsuits mentioned above. Reliance filed for rehabilitation in
October 2001 and subsequently filed for liquidation, and we have informed the
Florida Insurance Guarantee Association of our claim. It is too early to predict
the final outcome of this matter or to estimate the potential risk of loss, if
any, to the Company.
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, that BBW was 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, in order to obtain an enforceable judgment,
the plaintiff would have to file a successful claim in an Antillean court. It is
too early to predict the final outcome of this matter or to estimate the
potential risk of loss, if any, to the Company. Due to the lack of
enforceability, the Company decided not to continue the defense in the French
court. Therefore, the Company may not be aware of recent developments in the
proceedings. 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.
We are subject to federal, state and local environmental laws and regulations.
We believe 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 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 2001.
9
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.
2001 High Low
- ---- ----- -----
Fourth Quarter $6.80 $5.70
Third Quarter 7.28 6.55
Second Quarter 7.50 6.43
First Quarter 7.25 6.19
2000 High Low
- ---- ----- -----
Fourth Quarter $7.06 $5.31
Third Quarter 7.47 6.25
Second Quarter 7.50 6.38
First Quarter 7.38 5.13
As of March 5, 2002 there were 145 holders of record of the outstanding shares
of Common Stock and more than 500 beneficial owners holding our Common Stock in
their brokers' name. The closing sales price for the Common Stock on March 5,
2002, was $6.35. We paid no dividends in 2001 or 2000. 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 2001, 2000 or 1999.
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, 2001 and 2000 and for each of the years
in the three-year period ended December 31, 2001 and the independent auditors'
report appear elsewhere in this document.
10
Year Ended December 31,
------------------------------------------------------
2001 2000 1999 1998 1997
------- -------- -------- -------- --------
(In thousands, except per share amounts)
Earnings Statement Data:
Materials revenue $39,703 $ 50,956 $ 55,313 $ 50,448 $ 51,461
Construction revenue 15,185 14,292 12,721 15,359 9,852
Other revenue -- -- -- 371 2,931
------- -------- -------- -------- --------
Total revenue 54,888 65,248 68,034 66,178 64,244
Cost of materials 32,182 42,608 46,364 41,281 41,659
Cost of construction 12,447 11,461 11,000 12,900 9,709
Cost of other -- -- -- 246 2,311
------- -------- -------- -------- --------
Gross profit 10,259 11,179 10,670 11,751 10,565
Operating expenses 10,251 12,339 12,888 10,806 23,143
------- -------- -------- -------- --------
Operating income (loss) 8 (1,160) (2,218) 945 (12,578)
Other income (deductions) 3,252 20,362 (821) (122) (2,651)
------- -------- -------- -------- --------
Income (loss) from
continuing operations
before income taxes 3,260 19,202 (3,039) 823 (15,229)
Income taxes 830 715 273 339 307
------- -------- -------- -------- --------
Net earnings (loss) $ 2,430 $ 18,487 $ (3,312) $ 484 $(15,536)
======= ======== ======== ======== ========
Earnings (loss) per share:
Basic $ 0.67 $ 4.80 $ (0.74) $ 0.11 $ (3.45)
Diluted $ 0.61 $ 4.40 $ (0.74) $ 0.11 $ (3.45)
Weighted average number of shares outstanding:
Basic 3,632 3,851 4,481 4,499 4,499
Diluted 3,963 4,202 4,481 4,520 4,499
Balance Sheet Data:
Working capital $16,203 $ 14,035 $ 6,549 $ 6,910 $ 8,713
Total assets 67,952 72,136 81,914 82,430 86,433
Long-term debt, excl
current portion 2,455 2,465 14,350 18,153 16,982
Stockholders' equity 53,845 52,434 39,436 43,641 42,816
11
The following is our selected quarterly 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."
Income
Net Gross Net Per Share
Sales Profit Income Basic Diluted
------- ------ ------- ------ -------
(in thousands except for per share amounts)
2001
Fourth Quarter $12,413 $2,095 $ 475 $ 0.13 $ 0.12
Third Quarter 14,673 3,332 1,036 0.29 0.26
Second Quarter 14,586 2,926 870 0.24 0.22
First Quarter 13,216 1,906 49 0.01 0.01
2000
Fourth Quarter $15,584 $2,553 $ 441 $ 0.12 $ 0.11
Third Quarter 17,433 3,609 1,584 0.42 0.39
Second Quarter 16,494 3,006 671 0.17 0.16
First Quarter 15,737 2,011 15,791 3.94 3.66
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, without limitation,
the financial condition of our customers, changes in domestic and foreign
economic and political conditions, demand for our services, changes in our
competitive environment, changes in infrastructure requirements, changes in
available financing and/or cash flow, fixed price contract risks, bidding
errors, unanticipated increase in costs, penalty clauses, United States currency
fluctuations versus other currencies, foreign nations' exchange controls,
restrictions on withdrawal of foreign investments and terrorist acts that
directly or indirectly could affect our business.
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 what factors might have an affect on our business in the future.
Critical Accounting Policies and Estimates
Our discussion of our financial condition and results of operations is an
analysis of the Consolidated Financial Statements, which have been prepared in
accordance with accounting principles generally accepted in the United
12
States of America ("GAAP"), consistently applied. The preparation of these
Consolidated Financial Statements requires our management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues,
expenses, and related disclosure of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates, including those related to bad debts,
inventories, cost to complete construction contracts, assets held for sale,
intangible assets, income taxes, warranty obligations, restructuring, business
divestitures, pensions and other employee benefit plans or arrangements,
environmental matters, and contingencies and litigation. We base our estimates
on historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates.
We believe the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of our Consolidated
Financial Statements:
. We estimate costs to complete our construction contracts based on
experience from similar work in the past. If the conditions of the
work to be performed changes or if the estimated costs are not
accurately projected, the gross profit from construction contracts may
vary significantly in the future.
. We maintain allowances for doubtful accounts for estimated losses
resulting from management's review and assessment of our customers'
ability to make required payments. If the financial condition of our
customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances might be required. If
the customers pay a previous impaired receivable, income will be
taken.
. We maintain reserves for estimated obsolescence or unmarketable
inventory for the difference between the cost of inventory and the
estimated market value based upon assessments about current and future
demand and market conditions. If actual market conditions were to be
less favorable than those projected by management, additional
inventory reserves could be required. If the actual market demand
surpasses the projected levels, certain inventory reserves would be
removed and the result of operations would be higher than expected.
. We maintain an accrual for deferred compensation agreements with the
Company's President and certain other employees. This accrual is based
on the life expectancy of these persons. Should the actual longevity
vary significantly from the United States insurance norms, the accrual
may have to be significantly increased or diminished at that time.
. Based on written legal opinion, we have not recorded a liability of
$6.1 million for taxes assessed by the Government of Antigua and
Barbuda for the years 1995 through 1999. The Government may also
assess further taxes for the years prior and subsequent to the
assessed tax years. We are appealing said assessments. However, if our
appeal is not successful, a significant tax liability may have to be
recorded. We do not believe losing the appeal would have an immediate
effect on our cash flow, as the Government of Antigua and Barbuda owes
us in excess
13
of $30 million. See Notes 3 and 8 of Notes to Consolidated Financial
Statements.
. We have $37.8 million of un-repatriated earnings in our foreign
subsidiaries. We have no intention of bringing these earnings back to
the United States, unless we can do so in a tax-free manner. However,
should we be forced to repatriate the earnings, we would have to
recognize and pay a substantial U.S. federal income tax. The tax would
be approximately 34 percent of the repatriated amount, or potentially
$12.9 million.
. We were accounting for the notes receivable from the Government of
Antigua and Barbuda under the cost-recovery method until April 2000.
Subsequent to a restructuring of the notes, we started to account for
the notes using the accrual method. Should the payments from the
government diminish or become uncertain, we may have to revert to the
cost-recovery method or impair the notes. This could decrease our
earnings significantly. See Note 3 to Consolidated Financial
Statements.
. We record a valuation allowance to reduce our deferred tax assets to
the amount that is more likely than not to be realized. While we have
considered future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for the valuation allowance,
in the event that we were to determine that we would be able to
realize our deferred tax assets in the future in excess of its net
recorded amount, an adjustment to the deferred tax asset would
increase income in the period such determination was made. Likewise,
should we determine that we would not be able to realize all or part
of our net deferred tax asset in the future, an adjustment to the
deferred tax asset would be charged to income in the period such
determination was made.
Comparison of Year Ended December 31, 2001 with Year Ended December 31, 2000
Revenue
Our revenue was $54.9 million in 2001 and $65.2 million in 2000. This 15.9
percent decrease reflects a decrease in materials revenue, partially offset by
an increase in construction revenue.
Our materials revenue decreased 22.1 percent to $39.7 million in 2001 from $51.0
million in 2000. This decrease was primarily due to the sale of our cement
terminals in the Caribbean and the sale of our operations in Dominica in 2000
and to the termination of a cement distribution agreement in March 2001.
Excluding these operations, materials revenue decreased by 7.2 percent,
primarily due to decreased demand for block and concrete in St. Martin and
Antigua. We have, during the fourth quarter of 2001, seen significantly
diminished demand in our St. Martin and Antigua operations. We believe this is a
result of a slowdown in the islands' economy due to reduced tourism in those
islands in the aftermath of the events of September 11, 2001. However, we have
seen continued strengthening demand in the U.S. Virgin Islands over the last
year. At this time, we cannot predict materials revenue levels in 2002.
14
Revenue from our construction division increased 6.2 percent to $15.2 million in
2001 from $14.3 million in 2000. This increase resulted primarily from increased
activity with our dredge in St. Martin, partially offset by lower activity in
the U.S. Virgin Islands and Antigua. Our backlog of unfilled portions of land
development contracts at December 31, 2001 was $10.5 million involving 7
projects, as compared to $13.0 million involving 7 projects at December 31,
2000. The backlog of the contract in the Bahamas at December 31, 2001 was $7.2
million. We expect most of the current backlog to be completed during 2002.
Since December 31, 2001 we have not entered into any new significant
construction and dredging contracts in the Caribbean. We are actively bidding
and negotiating additional projects. If no significant new construction
contracts are finalized in the next few months, the construction division will
experience a reduction in revenue in 2002.
Cost of Materials
Cost of materials decreased slightly to 81.1 percent of materials revenue from
83.6 percent in 2000. The cost decrease was due to the reduction of sales of
cement that had a lower margin than the rest of our business. The cost of
materials for the materials division, excluding cement, decreased to 80.5
percent in 2001 as compared to 81.5 percent in 2000.
Cost of Construction
Cost of construction increased to 82.0 percent of construction revenue in 2001
from 80.2 percent in 2000. Increased costs as a percent of revenue were due to
lower profitability on some 2001 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") decreased by 11.0
percent to $10.1 million in 2001 from $11.3 million in 2000. This decrease is
primarily due a reduction in labor cost, fees and other taxes.
Due to lower profitability, lower volumes and hurricane damages affecting
certain assets, management upon its review in 2001 and 2000 of long-lived
assets, determined that impairment had occurred to some of our assets. An
impairment expense of $31,000 was recognized in 2001 compared to $702,000 in
2000. In 2000, goodwill recorded in connection with the purchase of our
subsidiary in St. Martin was written down by $378,000 due to low profitability.
In addition, in 2000 the remaining assets in Saba were determined to be impaired
due to the closure of its operations, and certain obsolete equipment was also
determined to be impaired.
Divisional Operating Income (Loss)
Operating income was $8,000 in 2001 compared to a loss of $1.2 million in 2000.
Our materials division had operating income of $23,000 in 2001, compared to a
loss of $1.6 million in 2000. This improvement is primarily due to improved
profitability in most islands relating primarily to reduced cost of production
as well as reduced SG&A expenses. Over the last two years we have seen an
improvement in the operating earnings of the materials division. However, there
are risks that this trend cannot be sustained and that the division's results
may decrease in the near future. Our construction division had operating income
of $1.2 million in 2001 compared to $1.3 million in 2000. This is primarily
attributable to lower margins on some contracts. Due
15
to possible lower activity in 2002, we may see reduced earnings, however, the
remaining backlog is estimated to have reasonable gross profit margins.
Other Income
In 2000, we recognized a gain on the sale of our cement terminals and the
concrete business in St. Thomas and the Tortola operation, in the aggregate
amount of $18.3 million. We had gains on sale of other property and equipment of
$71,000 in 2001 compared to $154,000 in 2000. Our interest expense decreased to
$435,000 in 2001 from $913,000 in 2000 due to a substantial reduction of
outstanding debt, utilizing the proceeds of our sales of operations as mentioned
above. Our interest income increased to $3.5 million in 2001 compared to $2.5
million in 2000. Our interest income increased due to interest recognized on
notes receivable due from the Government of Antigua and Barbuda, and to interest
received on outstanding accounts and notes receivable. The minority interest
allocation of losses decreased to $52,000 in 2001 from $314,000 in 2000, mainly
because the losses in Puerto Rico cannot be allocated to the joint venture
partners as their equity has been exhausted.
Income Taxes
Income taxes increased to $829,000 in 2001 from $716,000 in 2000. Our tax rate
varies depending on the level of our earnings in the various tax jurisdictions
where we operate, the tax loss carry-forwards and tax exemptions available to
us. See Notes 8 and 16 of Notes to Consolidated Financial Statements.
Net Earnings (Loss)
Our net income was $2.4 million in 2001 compared to a net income of $18.5
million in 2000. This reduction in profitability was primarily attributable to
the $18.3 million profit recognized on the sales of assets in the beginning of
year 2000, partially offset by a net interest income increase from $1.6 million
in 2000 to $3.1 million in 2001, and a reduction of our operating loss by $1.2
million.
Comparison of Year Ended December 31, 2000 with Year Ended December 31, 1999
Revenue
Our revenue was $65.2 million in 2000 and $68.0 million in 1999. This 4.1
percent decrease reflects a decrease in materials revenue, partially offset by
an increase in construction revenue.
Our materials revenue decreased 7.9 percent to $51.0 million in 2000 from $55.3
million in 1999. This decrease was primarily due to the sale of the concrete
operations on St. Thomas, Tortola and Dominica. Excluding the sale of these
operations, materials revenue increased by 20.8 percent, primarily due to
increased demand for quarry products in St. Martin and Puerto Rico and increased
sales of cement in St. Croix.
Revenue from our construction division increased 12.3 percent to $14.3 million
in 2000 from $12.7 million in 1999. This increase resulted primarily from
increased activity with our dredge. Our backlog of unfilled portions of land
development contracts at December 31, 2000 was $13.0 million involving 7
projects, as compared to $18.7 million involving 6 projects at December 31,
16
1999. The backlog of the contract in the Bahamas at December 31, 2000 was $12.3
million.
Cost of Materials
Cost of materials decreased slightly to 83.6 percent of materials revenue in
2000 from 83.8 percent in 1999. The cost decrease was due to improved sales
volumes and, therefore, better margins on St. Martin and Puerto Rico, offset to
a lesser extent by higher production costs in Antigua and lower margin on our
cement sales.
Cost of Construction
Cost of construction decreased to 80.2 percent of construction revenue in 2000
from 86.5 percent in 1999. Decreased costs as a percent of revenue were due to
higher profitability on some 2000 contracts, especially dredging contracts, and
the completion of contracts with very low or negative margins in 1999. 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 13.1
percent to $11.3 million in 2000 from $13.0 million in 1999. This decrease is
primarily due to the sale of the operations in St. Thomas and Tortola and to
accruals established in 1999 in connection with collective bargaining
agreements. SG&A expense as a percentage of revenue decreased to 17.3 percent in
2000 from 19.1 percent in 1999.
In 1999 we reduced our provision for litigation by $1.2 million due to the
settlement of two major lawsuits.
Due to lower profitability, lower volumes and hurricane damages, management upon
its review in 2000 and 1999 of long-lived assets, determined that impairment had
occurred to some of our assets. An impairment expense was recognized of $702,000
in 2000 compared to $805,000 in 1999. In 2000, goodwill recorded in connection
with our purchase of our subsidiary in St. Martin was written down by $378,000
due to low profitability. In addition, the remaining assets in Saba were
determined to be impaired due to the closure of its operations, and certain
obsolete equipment was also determined to be impaired. In 1999, a significant
portion of our quarry assets in Saba were written down and idle assets on St.
Kitts and St. Croix were also determined to be impaired.
Divisional Operating Loss
The operating loss was $1.2 million in 2000 compared to an operating loss of
$2.2 million in 1999. Our materials division had an operating loss of $1.6
million in 2000, representing an improvement of $591,000 compared to an
operating loss of $2.2 million in 1999. This reduction in the loss is primarily
due to improved profitability in St. Martin and Puerto Rico and accruals
recorded in 1999 in connection with collective bargaining agreements, offset to
a lesser extent by higher cement cost and the effect that the sale of our
operations in St. Thomas, Tortola and Dominica had on our operating income in
2000. Our construction division had operating income of $1.3 million in 2000
compared to an operating loss of $301,000 in 1999, an
17
improvement of $1.6 million. This increase is primarily attributable to improved
margins and a $200,000 write down of a note in 1999.
Other Income (Deductions)
We recognized a gain on the sale of our cement terminals and the concrete
business in St. Thomas and the Tortola operation, in the aggregate amount of
$18.3 million. We had gains on sale of other property and equipment of $154,000
in 2000 compared to $14,000 in 1999. Our interest expense decreased to $913,000
in 2000 from $2.4 million in 1999 due to a substantial reduction of outstanding
debt, utilizing the proceeds of our sales of operations as mentioned above. Our
interest income increased to $2.5 million in 2000 compared to $630,000 in 1999.
Our interest income increased due to interest recognized on notes receivable due
from the Government of Antigua and Barbuda, and to a lesser extent, to higher
levels of cash and cash equivalents. Previously we had estimated we would record
$2.1 million for year 2000 in interest from these Antigua notes, however, due to
the fact that the payments received were less than anticipated, the interest
recorded was $1.5 million. The decrease in payments was due to a delay in the
implementation of property taxes. The minority interest allocation of losses
decreased to $314,000 in 2000 from $830,000 in 1999, mainly due to improved
result in our operations in Puerto Rico.
Income Taxes
Income taxes increased to $716,000 in 2000 from $273,000 in 1999. Our tax rate
varies depending on the level of our earnings in the various tax jurisdictions
where we operate, the tax 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 $18.5 million in 2000 compared to a net loss of $3.3 million
in 1999. This change in profitability was primarily attributable to the profit
recognized on the sales of assets in the beginning of the year, net interest
income, and to a lesser extent, reduced operating loss.
Liquidity and Capital Resources
We generally fund our working capital needs from operations and bank borrowings.
In the construction 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 construction services. Accounts receivable for the materials division 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. Historically, we have used a number of lenders to finance a
portion of our machinery and equipment purchases. At December 31,
18
2001 there were no amounts outstanding to these lenders. Management believes it
has significant collateral and financial stability to be able to obtain
significant financing, should it be required.
As of December 31, 2001, our liquidity and capital resources included cash and
cash equivalents of $8.0 million, working capital of $16.2 million and an
available line of credit of $1.0 million. Total outstanding liabilities were
$14.1 million as of December 31, 2001 compared to $19.7 million a year earlier.
Cash flow provided by operating activities for the year ended December 31, 2001
was $3.3 million compared with $2.3 million for the year ended December 31,
2000. The primary use of cash for operating activities during the year ended
December 31, 2001 was a decrease in accounts payable and accrued expenses of
$3.2 million, an increase in receivables of $1.8 million and an increase in
inventory of $807,000. The primary source of cash from operating activities was
a decrease in costs and estimated earnings in excess of billings of $1.2 million
and an increase in taxes payable of $467,000.
Net cash used in investing activities was $2.2 million in 2001, including
purchases of property, plant, and equipment of $4.5 million. Net cash used in
financing activities was $1.3 million, including purchases of treasury stock of
$701,000.
We turned our fiscal year-end accounts receivable, excluding notes and employee
receivables, approximately 4.6 times in 2001 compared to 5.1 times in 2000. The
reduction resulted from a lower turnover rate for the construction division
accounts receivable of 3.2 in 2001 as compared to 3.7 in 2000, mainly due to a
$3.3 million receivable from the project in the Bahamas. This receivable was
greatly reduced in January 2002 by a cash payment of $3.0 million. The materials
division showed a small improvement in the turnover rate from 5.8 to 6.0.
Another reason for our total turnover rate reduction is that the materials
division, which had a better turnover rate than the construction division, had
significantly reduced sales and receivables greatly reduced in 2001, therefore
its weight in the composite turnover rate diminished. See Notes 3 and 12 of
Notes to Consolidated Financial Statements.
We have financed some construction projects during the last six months. Included
in our receivables are $3.5 million expected to be paid back within a four-year
period.
On November 1, 1999, we extended a $1.0 million note to the venture in the
Bahamas, secured by equipment and guarantees. The note has been paid in full. As
of December 31, 2001, we had trade receivables from the venture of approximately
$3.3 million. Subsequent to the year-end we have received $3.6 million in
payments and billed an additional $1.2 million.
We 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, which was fully paid in 2000. The second part was a revolving
line of credit of $1.0 million. We did not seek to renew the credit line in July
2001.
We have a $1.0 million unsecured overdraft facility from a commercial bank in
the United States. The facility is due on demand and bears interest at a rate
variable with LIBOR. The bank can demand repayment of the loan and
19
cancellation of the overdraft facility, if certain financial or other covenants
are in default. At December 31, 2001, we had no borrowings outstanding under
this line. This facility was put in place to help cash management strategies and
is seldom utilized.
At December 31, 2001 we had borrowed $2.8 million from the Company President.
The note to the President is unsecured and bears interest at the prime rate.
Presently, $1.0 million is due on demand and $1.8 million is due on July 1,
2003. The President has the option to make the note due on demand should a
"Change of Control" occur. A Change of Control has occurred if a person or group
acquires 15 percent or more of the common stock or announces a tender offer
that, if successful, would result in ownership by a person or group of 15
percent or more of the common stock.
We purchase equipment as needed for our ongoing business operations. We are
currently replacing or upgrading some equipment used by the materials division,
principally concrete trucks and quarry equipment. This resulted in a net cash
expenditure of $4.5 million in 2001. 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 2001 we sold
equipment with an original cost basis of $1.3 million and a net book value of
$879,000. The net proceeds consisting of cash and notes receivable were
$968,000. We realized a gain of approximately $71,000 on these transactions. We
believe we have available funds or can obtain sufficient financing for our
contemplated equipment replacements and additions.
In September 2001 the Company decided to stop its operations on Aguadilla,
Puerto Rico. There was no material impact on the Consolidated Financial
Statements. The Company has leased, with option to buy, its equipment on this
site to a company controlled by one of the joint venture owners of the Company's
subsidiary in Puerto Rico. The lease rate should generate a small income after
depreciation and interest on the equipment.
Our notes receivable at December 31, 2001 include $7.2 million in promissory
notes from the Government of Antigua with approximately $205,000 classified as a
current receivable. See Notes 3, 8 and 16 of Notes to Consolidated Financial
Statements.
We have not guaranteed any other person's or company's debt. We have not entered
into any currency or interest options, swaps or future contracts, nor do we have
any off-balance sheet debts or transactions.
We are sometime involved in litigation; the outcome of such litigation may in
the future have an impact on our liquidity. See item 3 above.
Related Party Transactions
We have certain transactions with some of our Directors or employees. See Note
12 of Notes to the Consolidated Financial Statements.
We lease from the Company President, Mr. Donald L. Smith, Jr. a 3.4-acre parcel
of real property in Deerfield Beach, Florida. This property is being
20
used for our equipment logistics and maintenance activities. The annual rent for
the period 1996 through 2001 was $49,000, which was below market rent. In
January 2002 a new 5-year agreement was signed, the rent was increased to
$90,000. This rent was based on comparable rental contracts for similar
properties in Deerfield Beach.
We have borrowed $2.8 million from Mr. Smith to provide long-term financing to
the Company. The loan is documented with an unsecured note; of which one million
is payable on demand and $1.8 million is due on July 1, 2003. The interest
charged by Mr. Smith is the prime rate. We believe that these terms are similar
to what the Company would be able to achieve if we were to borrow this money
from a bank. See Liquidity and Capital Resources above.
We have a $24 million construction contract with an entity in the Bahamas. Mr.
Smith and one of the Directors, Mr. Robert A. Steele, are minority shareholders
in the entity. Mr. Smith is member of the entity's managing committee. We
believe the contract has been entered into at arm's length and at terms and
conditions that we would offer our other customers. Prices established for the
work are dependant on market conditions and unique conditions to the environment
of the Bahamas. In connection with this contract, the Company has recorded
revenue of $5.2 million during 2001. The backlog on the contract as of December
31, 2001 was $7.2 million. The project received its final financing in January
2002. As of December 31, 2001 we had trade receivables from the venture of
approximately $3.3 million. Subsequent to year-end the Company received $3.6
million in payments from the venture and billed an additional $1.2 million.
Our joint venture subsidiary in Puerto Rico has transactions with the joint
venture partners. A company controlled by one of the partners provides drilling
and blasting services for our quarry in Guaynabo. The price for the services are
negotiated periodically, and primarily by comparison to the cost of performing
that work by ourselves. The subsidiary recently entered into a 36-month lease
agreement for equipment located in the Aguadilla facility with another company
controlled by this partner. The agreement also contains an option to buy the
equipment. The price of the lease and the sales price of the equipment were
negotiated between the parties at arm's length. There are no clear comparable
prices in the market place, and no third party evaluation of the fairness of the
transaction was completed. The subsidiary will recuperate its recorded book
value of the assets, should the purchase option be exercised.
The same subsidiary sells a significant portion of its products to a company
controlled by another joint venture partner. This partner is controlled by one
of our Directors, Jose A. Bechara, Jr. esq. The price of the products is
governed by firm supply agreements, renegotiated every other year. Comparable
prices from other quarries are studied and used in the price negotiation.
Other assets include amounts due from officers and employees as a result of
payments made by the Company pursuant to a split-dollar life insurance plan. Our
advances to pay premiums are secured by a pledge of the cash value of the issued
policies. Amounts due to the Company under the split-dollar life insurance plan
were $943,638 in 2001 and $853,488 in 2000, respectively.
New Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB") approved the
issuance of Statements of Financial Accounting Standards ("SFAS") No. 141,
21
"Business Combinations"; SFAS No. 142, "Goodwill and Other Intangible Assets";
and SFAS No. 143, "Accounting for Asset Retirement Obligations."
SFAS No. 141 supersedes Accounting Principles Board ("APB") Opinion No. 16,
"Business Combinations." The most significant changes made by SFAS No. 141 are
requiring the purchase method of accounting for all business combinations
initiated after June 30, 2001, establishing specific criteria for the
recognition of intangible assets separately from goodwill, and requiring that
unallocated negative goodwill be written off immediately as an extraordinary
gain. We do not expect a material impact from the adoption of SFAS No. 141 on
our Consolidated Financial Statements.
SFAS No. 142 supersedes APB 17, "Intangible Assets," and primarily addresses
accounting for goodwill and intangible assets subsequent to their acquisition
(i.e., the post-acquisition accounting). The provisions of SFAS No. 142 will be
effective for fiscal years beginning after December 15, 2001. The most
significant changes made by SFAS No. 142 are that goodwill and intangible assets
with indefinite lives will no longer be amortized, goodwill will be tested for
impairment at least annually at the reporting unit level, intangible assets
deemed to have an indefinite life will be tested for impairment at least
annually, and the amortization period of intangible assets with finite lives
will no longer be limited to forty years. We do not expect a material impact
from the adoption of SFAS No. 142 on our Consolidated Financial Statements.
SFAS No. 143 requires that entities record as a liability obligations associated
with the retirement of a tangible long-lived asset when such obligations are
incurred, and capitalize the cost by increasing the carrying amount of the
related long-lived asset. SFAS No. 143 will be effective for fiscal years
beginning after June 15, 2002. We do not expect a material impact from the
adoption of SFAS No. 143 on our Consolidated Financial Statements.
In August 2001, the FASB approved the issuance of SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," and certain parts of APB Opinion No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." SFAS No. 144 establishes an accounting model based on SFAS No.
121 for long-lived assets to be disposed of by sale, previously accounted for
under APB Opinion No. 30. This Statement is effective for fiscal years beginning
after December 15, 2001. We are currently assessing the impact of the adoption
of this statement, but believe it will not materially affect our financial
position or results of operations.
Environmental Matters
We are involved, on a continuing basis, in monitoring our 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 our business, results of
operations, or financial condition.
22
Item 7A 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, French Francs 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 French Franc or Euro exchange rate
will materially affect the Company's financial position or result of operations.
The French operations are less than 10 percent of the Company's total
operations.
23
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 25
Financial Statements:
Consolidated Balance Sheets 26-27
December 31, 2001 and 2000
Consolidated Statements of Operations 28
For Each of the Years in the Three-Year Period
Ended December 31, 2001
Consolidated Statements of Stockholders' Equity 29
and Comprehensive Income for Each of the Years
in the Three-Year Period Ended December 31, 2001
Consolidated Statements of Cash Flows 30-31
For Each of the Years in the Three-Year Period
Ended December 31, 2001
Notes to Consolidated Financial Statements 32-54
Schedule II - Valuation and Qualifying Accounts 60
24
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 auditing standards generally accepted
in the United States of America. 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, 2001 and 2000, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America. 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 19, 2002
25
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2001 and 2000
Assets 2001 2000
- ------ ------------ -------------
Current assets:
Cash and cash equivalents $ 7,994,327 $ 8,166,954
Receivables, net 12,162,049 13,800,628
Costs and estimated earnings
in excess of billings 229,056 1,405,898
Inventories 3,736,759 2,938,099
Prepaid expenses and other assets 645,665 593,691
------------ ------------
Total current assets 24,767,856 26,905,270
Property, plant and equipment, net
Land 1,462,068 1,455,045
Buildings 1,135,954 1,217,706
Leasehold improvements 3,159,536 3,203,760
Equipment 49,567,905 51,090,785
Furniture and fixtures 684,849 802,615
Construction in process 2,793,580 1,024,035
------------ ------------
58,803,892 58,793,946
Less accumulated depreciation (27,578,652) (25,643,780)
------------ ------------
31,225,240 33,150,166
Investments in unconsolidated joint
ventures and affiliates, net 315,858 281,819
Receivables, net 10,596,702 10,797,177
Other assets 1,046,091 1,001,639
------------ ------------
Total assets $ 67,951,747 $ 72,136,071
============ ============
See accompanying notes to consolidated financial statements.
26
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets (continued)
December 31, 2001 and 2000
Liabilities and Stockholders' Equity 2001 2000
- ------------------------------------ ------------ ------------
Current liabilities:
Accounts payable, trade and other $ 4,093,229 $ 7,175,610
Accrued expenses and other liabilities 2,214,575 2,945,490
Notes payable to banks -- 300,000
Current installments of long-term debt 1,143,097 1,501,656
Billings in excess of costs and
estimated earnings 414,837 535,547
Income taxes 699,118 412,454
------------ ------------
Total current liabilities 8,564,856 12,870,757
Long-term debt, excluding current
installments 2,454,809 2,464,834
Minority interest in consolidated
subsidiaries -- 474,444
Deferred income taxes 205,344 366,095
Deferred gain on sale of businesses 1,142,537 2,070,859
Other liabilities 1,738,930 1,454,618
------------ ------------
Total liabilities 14,106,476 19,701,607
Stockholders' equity
Common stock, $0.10 par value
Authorized 15,000,000 shares,
Issued 3,741,285 in 2001 and
3,836,285 in 2000, outstanding
3,586,585 and 3,664,985
shares in 2001 and 2000,
respectively 374,128 383,628
Additional paid-in capital 10,133,527 10,279,284
Accumulated other comprehensive loss -
cumulative translation adjustment (2,516,382) (2,037,502)
Retained earnings 46,941,249 45,018,868
Treasury stock, at cost (1,087,251) (1,209,814)
------------ ------------
Total stockholders' equity 53,845,271 52,434,464
------------ ------------
Commitments and contingencies
Total liabilities and
stockholders' equity $ 67,951,747 $ 72,136,071
============ ============
See accompanying notes to consolidated financial statements.
27
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Operations
For Each of the Years in the Three-Year Period Ended December 31, 2001
2001 2000 1999
------------ ------------ ------------
Materials revenue $ 39,702,788 $ 50,956,382 $ 55,312,885
Construction revenue 15,184,727 14,291,801 12,720,918
------------ ------------ ------------
Total revenue 54,887,515 65,248,183 68,033,803
Cost of materials (32,181,968) (42,607,478) (46,364,378)
Cost of construction (12,446,142) (11,461,423) (10,999,585)
------------ ------------ ------------
Gross profit 10,259,405 11,179,282 10,669,840
Operating expenses:
Selling, general and
administrative (10,057,669) (11,302,430) (13,012,443)
Provision for doubtful accounts
and notes (162,695) (334,811) (230,517)
Impairment of long-lived assets (30,570) (702,345) (804,695)
Credit for litigation -- -- 1,160,137
------------ ------------ ------------
Operating income (loss) 8,471 (1,160,304) (2,217,678)
------------ ------------ ------------
Other income (deductions):
Joint venture equity earnings (loss) 28,733 (23,166) (17,700)
Gain on sale of property
and equipment 70,678 153,561 13,620
Gain on sale of businesses -- 18,293,045 --
Interest expense (434,802) (913,456) (2,408,414)
Interest income 3,524,784 2,464,971 629,735
Minority interest 51,798 313,748 830,484
Other income 10,041 73,965 131,540
------------ ------------ ------------
3,251,232 20,362,668 (820,735)
------------ ------------ ------------
Income (loss) before
income taxes 3,259,703 19,202,364 (3,038,413)
Income taxes (829,334) (715,756) (273,231)
------------ ------------ ------------
Net earnings (loss) $ 2,430,369 $ 18,486,608 $ (3,311,644)
============ ============ ============
Earnings (loss) per common
share - basic $ 0.67 $ 4.80 $ (0.74)
============ ============ ============
Earnings (loss) per common
share - diluted $ 0.61 $ 4.40 $ (0.74)
============ ============ ============
Weighted average number of common
shares outstanding - basic 3,631,703 3,850,566 4,481,304
============ ============ ============
Weighted average number of common
shares outstanding - diluted 3,963,278 4,201,537 4,481,304
============ ============ ============
See accompanying notes to consolidated financial statements.
28
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, 2001
Accumulated
Additional Other
Common Paid-in Comprehensive Retained Treasury
Stock Capital (Loss)Income Earnings Stock Total
------- ---------- ------------- ---------- ---------- ----------
Balance at
Dec. 31, 1998 449,894 12,064,133 (859,376) 31,985,908 -- 43,640,559
Comprehensive loss:
Net loss (3,311,644) (3,311,644)
Currency translation
adjustment (735,201) (735,201)
---------- ---------- ----------
Comprehensive loss (4,046,845)
Repurchase of 41,800 shares (157,504) (157,504)
------- ---------- ---------- ---------- ---------- ----------
Balance at
Dec. 31, 1999 449,894 12,064,133 (1,594,577) 28,674,264 (157,504) 39,436,210
Comprehensive income:
Net earnings 18,486,608 18,486,608
Currency translation
adjustment (442,925) (442,925)
---------- ---------- ----------
Comprehensive income 18,043,683
Repurchase of
805,350 shares (5,074,229) (5,074,229)
Retirement of
675,850 shares (67,586) (1,812,329) (2,142,004) 4,021,919 --
Exercise of stock options 1,320 27,480 28,800
------- ---------- ---------- ---------- ---------- ----------
Balance at
Dec. 31, 2000 383,628 10,279,284 (2,037,502) 45,018,868 (1,209,814) 52,434,464
Comprehensive income:
Net earnings 2,430,369 2,430,369
Currency translation
adjustment (478,880) (478,880)
---------- ---------- ----------
Comprehensive income 1,951,489
Repurchase of
97,000 shares (700,925) (700,925)
Retirement of
113,600 shares (11,360) (304,140) (507,988) 823,488 --
Noncash stock compensation 127,843 127,843
Exercise of stock options 1,860 30,540 32,400
------- ---------- ---------- ---------- ---------- ----------
Balance at
Dec. 31, 2001 374,128 10,133,527 (2,516,382) 46,941,249 (1,087,251) 53,845,271
======= ========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
29
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For Each of the Years in the Three-Year Period Ended December 31, 2001
2001 2000 1999
----------- ------------ -----------
Cash flows from operating activities:
Net earnings (loss) $ 2,430,369 $ 18,486,608 $(3,311,644)
Adjustments to reconcile net earnings
(loss) to net cash provided by operating
activities:
Depreciation and amortization 4,895,406 5,174,699 6,371,683
Deferred income tax benefit (152,775) (253,898) (19,404)
Joint venture equity
(earnings)loss (28,733) 23,166 17,700
Noncash stock compensation 127,843 -- --
Provision for doubtful accounts
and notes 162,695 334,811 230,517
Impairment on long-lived assets 30,570 702,345 804,695
Gain on sale of property
and equipment (70,678) (153,561) (13,620)
Gain on sale of business -- (18,293,045) --
Credit for litigation -- -- (1,160,137)
Minority interest in loss of
consolidated subsidiaries (51,798) (313,748) (830,484)
Changes in operating assets and liabilities:
(Increase) in receivables (1,781,028) (4,455,005) (512,426)
Decrease (increase) in costs
and estimated earnings
in excess of billings 1,176,842 (1,147,118) 451,777
(Increase) decrease in
inventories (806,664) 2,788 625,161
(Increase) decrease in other
current assets (59,950) 135,356 (136,555)
(Increase) decrease in other
assets (90,151) 951 (56,761)
(Decrease) increase in accounts
payable and accrued expenses (3,162,787) 2,268,072 (956,287)
(Decrease) increase in billings
in excess of costs and estimated
earnings (120,710) (490,769) 711,309
Increase in income taxes payable 467,391 228,684 53,046
Increase in other non-current
liabilities 355,989 45,177 90,640
----------- ------------ -----------
Net cash provided by operating
activities $ 3,321,831 $ 2,295,513 $ 2,359,210
----------- ------------ -----------
See accompanying notes to consolidated financial statements.
30
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
For Each of the Years in the Three-Year Period Ended December 31, 2001
2001 2000 1999
----------- ------------ -----------
Cash flows from investing activities:
Purchases of property, plant and
equipment $(4,515,495) $ (4,981,110) $(8,282,294)
Proceeds from disposition of
property, plant and equipment 219,617 845,325 787,425
Proceeds and deposits from
disposition of business -- 23,196,405 8,000,000
Issuance of notes (564,000) (414,000) (1,016,000)
Payments on notes 2,682,638 1,888,224 4,101,724
Investments in affiliates (5,306) (27,904) (57,411)
----------- ------------ -----------
Net cash (used in) provided by
investing activities (2,182,638) 20,506,940 3,533,444
----------- ------------ -----------
Cash flows from financing activities:
Issuance of stock 32,400 28,800 --
Purchase of treasury stock (700,925) (2,684,700) (157,504)
Proceeds from debt 1,896,761 810,389 6,952,371
Principal payments on debt (2,240,056) (18,609,240) (9,339,019)
Net (repayments) borrowings on
notes payable to banks (300,000) (325,000) 536,892
----------- ------------ -----------
Net cash used in financing
activities (1,311,820) (20,779,751) (2,007,260)
----------- ------------ -----------
Net (decrease) increase in cash
and cash equivalents (172,627) 2,022,702 3,885,394
Cash and cash equivalents at
beginning of year 8,166,954 6,144,252 2,258,858
----------- ------------ -----------
Cash and cash equivalents at
end of year $ 7,994,327 $ 8,166,954 $ 6,144,252
=========== ============ ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 416,472 $ 986,386 $ 2,415,150
=========== ============ ===========
Cash paid for income taxes $ 288,223 $ 732,702 $ 237,790
=========== ============ ===========
Supplemental non-cash items:
Issuance of notes in settlement
of receivables $ 3,972,607 $ 269,220 $ 44,644
=========== ============ ===========
Reduction of note receivable
and deferred income $ 1,000,000 $ -- $ --
=========== ============ ===========
Translation loss adjustment $ (478,880) $ (442,925) $ (735,201)
=========== ============ ===========
See accompanying notes to consolidated financial statements.
31
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Description of Business and Summary of Significant Accounting Policies
(a) Devcon International Corp. and its subsidiaries (the "Company")
produce and distribute ready-mix concrete, crushed stone, concrete
block, and asphalt and distribute bagged cement in the Caribbean. The
Company also 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.
(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 under the equity and cost methods. 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 in unconsolidated joint ventures in
which the Company owns less than 20 percent are accounted for by using
the cost method.
(c) Revenue Recognition
-------------------
Materials Division
------------------
Revenue is recognized when the products are delivered, invoiced at a
fixed price and the collectibility of the invoice is reasonably
assured.
Construction Division
---------------------
The Company uses the percentage-of-completion method of accounting for
both financial statements and tax reports. Revenue is recorded based
on the Company's estimates of the completion percentage of each
project, based on the cost-to-cost method. 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 each specific contract. While some
contracts extend longer, most are completed within one year. Revenue
is recognized under the percentage-of-completion method when there is
a contract for the work, with a fixed price for the work performed or
a fixed price for a quantity of work delivered, and the collectibility
is reasonably assured.
32
(d) Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include cash, time deposits and all highly
liquid debt instruments with an original maturity of three months or
less.
(e) Allowance for Doubtful Accounts
-------------------------------
The Company performs periodic credit evaluations of its customers and
maintains an allowance for potential credit losses based on historical
experience and other information available to management.
(f) 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.
(g) Inventories
-----------
Inventories are stated at the lower of average cost or market.
(h) 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 improvements 3 - 35 years
Equipment 3 - 20 years
Furniture and fixtures 3 - 10 years
33
(i) Impairment of Long-Lived Assets and for Long-Lived Assets to Be
---------------------------
Disposed Of
-----------
The Company accounts for long-lived assets in accordance with
Statement of Financial Accounting Standard ("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 exceeds 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 charges for
impairment losses in the materials segment in 2001, 2000 and 1999 of
approximately $14,000, $659,000 and $471,000, respectively. The
construction segment recorded charges for impairment losses in 2001,
2000 and 1999 of $17,000, $43,000 and $334,000, respectively.
Other assets, dredge equipment, asphalt plant, batch plant,
generators, and other assets, not in use in Puerto Rico, St. Croix,
St. Kitts and other islands were written down to net realizable value
with an impairment charge of $31,000 in 2001 and $174,000 in 2000. In
2000, impairment of goodwill in St. Martin of $378,000 was determined
based on future projected undiscounted cash flows compared to
remaining asset value as of the end of the period. There is no
remaining goodwill relating to the operations in St Martin. In 1999,
due to the planned closing of the Saba operations, the asset values in
Saba were reduced to estimated net realizable value, by an impairment
charge of $267,000. During the actual closing of the plant, additional
impairment of $150,000 was recognized in 2000 due to an additional
write-down of inventories, unforeseen additional dismantling costs and
lower than expected proceeds received upon the sale of the fixed
assets. There were no remaining assets in Saba as of December 31,
2000. A dredge was impaired due to obsolescence in 1999.
(j) Foreign Currency Translation
----------------------------
All balances denominated in foreign currencies are remeasured at
year-end rates to the respective functional currency of each
consolidating company.
For those subsidiaries, with a functional currency other than the US
dollar, assets and liabilities have been translated into U.S.
34
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 $478,880 in
2001, $442,925 in 2000, and $735,201 in 1999. Gains or losses on
foreign currency transactions are reflected in the net income of the
period.
The French subsidiary does not record a foreign exchange loss or gain
on long-term inter-company debt. This gain or loss is deferred and
combined with the translation adjustment of said subsidiary. If and
when the debt is paid, in part or whole, the deferred loss or gain
will be realized and will affect the net respective result of the
period.
(k) Earnings (Loss) Per Share
-------------------------
The Company computes earnings per share in accordance with the
provisions of SFAS No. 128, "Earnings per Share," 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.
(l) Income Taxes
------------
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carry-forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date. The Company and certain of its domestic subsidiaries
file consolidated federal and state income tax returns. Subsidiaries
located in U.S. possessions and foreign countries file individual
income tax returns. U.S. income taxes are not provided on
undistributed earnings, which are expected to be permanently
reinvested by foreign subsidiaries, unless the earnings can be
repatriated in a tax-free manner.
(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
35
prepare these consolidated financial statements in conformity with
generally accepted accounting principles. Actual results could differ
from these estimates.
(n) Stock Option Plans
------------------
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
interpretations, in accounting for its fixed plan stock options. As
such, compensation expense would be recorded on the date of grant only
if the current market price of the underlying stock exceeded the
exercise price. SFAS No. 123, "Accounting for Stock-Based
Compensation," established accounting and disclosure requirements
using a fair value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS No. 123, the Company has
elected to continue to apply the intrinsic value-based method of
accounting described above, and has adopted the disclosure
requirements of SFAS No. 123.
(o) Reclassification
----------------
Certain prior year amounts have been reclassified to conform to the
current year presentation.
(2) Earnings Per Share
------------------
The following table sets forth the computation of basic and diluted
earnings per share data:
2001 2000 1999
--------- --------- ---------
Weighted average number of
common shares outstanding -
basic 3,631,703 3,850,566 4,481,304
Effect of dilutive securities:
Options 331,575 350,971 --
--------- --------- ---------
Weighted average number of
common shares outstanding -
diluted 3,963,278 4,201,537 4,481,304
========= ========= =========
Options to purchase 560,300 shares of common stock at prices ranging from
$2.17 to $3.75 per share were outstanding for the year ended December 31,
1999 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 acquired a total of 97,000 of its outstanding common shares and
retired 113,600 shares in 2001. As of December 31, 2001, the Company had
154,700 shares of treasury stock, which may be used for exercise of stock
options, may be used for other Company purposes or retired.
36
(3) Receivables
-----------
Receivables consist of the following:
December 31,
-----------------------------
2001 2000
------------ ------------
Materials division trade accounts $ 7,984,474 $ 10,679,035
Construction division trade
accounts receivable, including
retainages 4,942,402 4,248,595
Accrued interest and other receivables 25,938 338,214
Notes and bonds due from the
Government of Antigua and Barbuda, net 7,318,035 7,669,420
Trade notes receivable - other 5,951,291 5,373,493
Due from employees and officers 64,604 247,101
------------ ------------
26,286,744 28,555,858
Allowance for doubtful accounts
and notes (3,527,993) (3,958,053)
------------ ------------
$ 22,758,751 $ 24,597,805
============ ============
Receivables are classified in the consolidated balance sheets as follows:
December 31,
----------------------------
2001 2000
----------- ----------
Current assets $12,162,049 $13,800,628
Non-current assets 10,596,702 10,797,177
----------- ----------
$22,758,751 $24,597,805
=========== ===========
Included in notes and other receivables are unsecured notes due from the
Government of Antigua and Barbuda (the "Government") totaling a net amount
of $7,249,375 and $7,483,329 in 2001 and 2000, respectively, approximately
$205,000 of which is classified as a current receivable in 2001. These
notes were originally executed in connection with a construction contract
in 1987. During the following nine years, eight amendments to the agreement
were executed, primarily due to additional work contracted. In 1987, the
notes were placed on the cost recovery method, and all payments received
from the Government from agreed upon sources were recorded as reduction of
the principal balance of the notes. Payments from agreed upon sources were
derived from lease proceeds from a rental of a United States military base,
fuel tax revenues and proceeds from a real estate venture. The contractual
outstanding balance of the notes, including the balance of prepayment of
taxes and duties, was $31.7 million and $32.8 million as of December 31,
2001 and 2000, respectively.
In April 2000, the Company executed the ninth amendment to the agreement
with the Government and the notes were removed from the cost recovery
method. The original notes receivable were consolidated into two new
15-year notes and the stated interest rate was reduced from 10 percent to 6
percent annually. Payments from agreed upon sources were expanded to
include an additional monthly payment of $61,400, starting in August 2000,
and up to $2.5 million in offsets against future duties and taxes to be
incurred by the Company. In total, the agreement calls for $155,000 to be
received monthly and $312,000 to be received
37
quarterly, until maturity in 2015. Since April 28, 2000 the Company has
been recognizing interest income on the notes under the accrual basis. The
Company expects to receive principal payments against the book balance of
$205,000, $196,000, $134,000, $230,000, and $372,000 during each of the
next 5 years, respectively.
From time to time in the future the Company expects to incur taxes and
duties in excess of the $2.5 million stipulated in the agreement. As a
result, the contractual outstanding balance of the notes may be further
reduced to pay these additional taxes and duties; and the notes may be paid
off prior to the scheduled maturity. At the time of recording the actual
duty or taxes incurred the Company will record the offsetting payment from
the Government.
Receipts on the notes were $2.9 million and $2.1 million, in 2001 and 2000,
respectively. Interest income recognized in 2001, 2000 and 1999 was
$2,385,842, $1,538,540 and $417,147, respectively. The Government was
delayed in implementing certain property taxes, which were to provide funds
for increased payments of $61,400 monthly; therefore, additional
agreed-upon payments of approximately $1.0 million were not received during
a 17-month period ending in December 2001. Subsequent to the ninth
amendment, a new agreement was signed by the Government, which stipulates
that the additional payments of $61,400 will start in 2002. The Company has
received the first two additional payments in the first quarter of 2002.
The Company records payments received, first to the projected principal
reductions for the period, then to accrued interest, and lastly to
additional reduction of principal. Interest income is recognized on the
notes only to the extent payments are recorded for accrued interest.
Antigua-Barbuda Government Development Bonds 1994-1997 series amounting to
$68,660 and $186,091 in 2001 and 2000, respectively, are included in the
total due from the Government.
The Company also has net trade receivables from various Government agencies
of $31,331 and $29,796 in 2001 and 2000, respectively.
Trade notes receivable - other consist of the following:
38
December 31,
-----------------------
2001 2000
---------- ----------
Unsecured promissory notes receivable
with varying terms and maturity dates $ 249,869 $ 455,992
Notes receivable with varying terms and
maturity dates, secured by real estate
or equipment 2,362,128 951,058
8.0 percent note receivable, due on demand,
secured by first mortgage on real property 817,788 817,788
Unsecured notes receivable bearing interest
at 1.0 percent over the prime rate,
due in monthly installments through 2005 1,946,506 --
8.0 percent note receivable, due in
installments through July 2005, secured
by land and building 575,000 600,000
Note receivable bearing interest at the
prime rate due in installments through
November 2001 secured by equipment -- 826,433
Note receivable bearing interest at the
prime rate due in installments
through December 2003, secured by land, equipment
and stock -- 1,722,222
---------- ----------
$5,951,291 $5,373,493
========== ==========
(4) Inventories
-----------
December 31,
--------------------------
2001 2000
---------- ----------
Inventories consist of the following:
Sand, stone, cement and concrete block $3,240,910 $2,422,566
Maintenance parts 175,589 275,589
Other 320,260 239,944
---------- ----------
$3,736,759 $2,938,099
========== ==========
(5) Investments in Unconsolidated Joint Ventures and Affiliates
-----------------------------------------------------------
At December 31, 2001 and 2000, the Company had investments in
unconsolidated joint ventures and affiliates consisting of equity interests
in a 1.2 percent equity interest in a real estate project in the Bahamas
(see Note 12) and a 33.3 percent interest in a real estate company in
Puerto Rico. Equity earnings of $28,733 were recognized in 2001 and an
equity loss of $23,166 was recognized in 2000, on ventures accounted for
under the equity method.
39
(6) Fair Value of Financial Instruments
-----------------------------------
The carrying amount of financial instruments including cash, cash
equivalents, most of the receivables - net, other current assets, accounts
payable trade and other, accrued expenses and other liabilities, and notes
payable to banks approximated fair value at December 31, 2001 because of
the short maturity of these instruments. The carrying value of debt and
most notes receivable approximated fair value at December 31, 2001 based
upon the present value of estimated future cash flows. Given the nature of
the notes and lack of comparable instruments, estimation of fair value of
the notes due from the Government of Antigua and Barbuda is not
practicable. The carrying amount of these notes as of December 31, 2001 was
$7.4 million. The effective interest rate of the notes was 33 percent in
2001. The notes call for monthly and quarterly payments until maturity in
2015.
(7) Long-term Debt
--------------
Long-term debt consists of the following:
December 31,
-----------------------------
2001 2000
---------- ----------
Installment notes payable in
monthly installments through
2005, bearing interest at a
weighted average rate of 7.8
percent and secured by equipment
with a carrying value of
approximately $265,000 $ 200,006 $1,284,878
Unsecured note payable to the Company's
President, $1,000,000 due on demand with
the balance due July 1, 2003 and
bearing interest at the prime interest
rate 2,780,000 2,075,000
Unsecured notes payable due through
2011 bearing interest at a weighted
average rate of 6.8 percent 617,900 465,987
Notes and mortgages payable in
installments, bearing
interest at 9.50 percent -- 140,625
Note payable to a bank under a $1,000,000
line of credit, due on demand, bearing
interest at 1 percent over the prime
rate secured by equipment and property -- 300,000
---------- ----------
Total debt outstanding $3,597,906 $4,266,490
========== ==========
The effective interest on all debt outstanding was 8.5 percent at December
31, 2001 and 9.5 percent at December 31, 2000.
Outstanding debt is shown in the consolidated balance sheets under the
following captions:
40
December 31,
-----------------------------
2001 2000
---------- ----------
Current installments of long-term debt $1,143,097 $1,501,656
Notes payable to banks -- 300,000
Long-term debt 2,454,809 2,464,834
---------- ----------
$3,597,906 $4,266,490
========== ==========
The total maturities of all outstanding debt subsequent to December 31,
2001 are as follows:
2002 $1,143,097
2003 1,826,992
2004 50,893
2005 44,892
2006 -
Thereafter 532,032
----------
$3,597,906
==========
(8) Income Taxes
------------
Income tax expense (benefit) consists of:
Current Deferred Total
--------- --------- ---------
2001:
Federal $ 358,435 $(190,162) $ 168,273
State -- -- --
Foreign 623,674 37,387 661,061
--------- --------- --------
$ 982,109 $(152,775) $829,334
========= ========= ========
2000:
Federal $ 502,826 $ (32,539) $ 470,287
State -- -- --
Foreign 466,828 (221,359) 245,469
--------- --------- --------
$ 969,654 $(253,898) $715,756
========= ========= ========
1999:
Federal $ -- $ (19,404) $(19,404)
State -- -- --
Foreign 292,635 -- 292,635
--------- --------- --------
$ 292,635 $ (19,404) $273,231
========= ========= ========
The actual expense differs from the "expected" tax expense
(benefit)computed by applying the U.S. federal corporate income tax rate of
34 percent to income (loss) before income taxes is as follows:
2001 2000 1999
---------- ---------- -----------
Computed "expected"
tax expense (benefit) $1,108,300 $6,528,804 $(1,033,060)
Increase (reduction) in
income taxes resulting from:
State taxes net of federal
tax expense -- -- --
Distribution of deemed
dividends 141,100 2,035,275 901,000
41
2001 2000 1999
--------- ----------- ---------
Intercompany interest income
untaxed by foreign
jurisdiction (137,194) -- (27,600)
Tax incentives granted to
foreign subsidiaries (399,403) (2,864,131) --
Nontaxable capital gains -- (1,156,048) --
Adjustment to prior year
deemed dividends from
foreign subsidiaries -- -- (155,852)
Net operating loss not
utilized 27,985 47,594 20,696
Change in deferred tax
valuation allowance (845,729) (2,902,361) 648,759
Differences in effective
rate in foreign
jurisdiction and other 934,275 (973,377) (80,712)
--------- ----------- ---------
$ 829,334 $ 715,756 $ 273,231
========= =========== =========
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes,
and (b) net operating loss carryforwards.
Significant portions of the deferred tax assets and liabilities results
from the tax effects of temporary difference:
December 31,
----------------------------
2001 2000
----------- -----------
Deferred tax assets:
Allowance for bad debts $ 165,889 $ 220,380
Net operating loss carry-forwards 4,076,320 4,949,521
Reserves and other 493,805 435,492
Deferred income 388,464 366,958
----------- -----------
Total gross deferred tax assets 5,124,478 5,972,351
Less valuation allowance (4,464,784) (5,310,513)
----------- -----------
Net deferred tax assets 659,694 661,838
----------- -----------
Deferred tax liabilities:
Plant and equipment, principally
due to differences in depreciation
and capitalized interest (632,673) (787,592)
Total gross deferred tax
liabilities (632,673) (787,592)
----------- -----------
Net deferred tax asset
(liabilities) $ 27,021 $ (125,754)
=========== ===========
Net deferred tax assets (liabilities):
Net current deferred tax assets $ 232,365 $ 240,341
Net non-current deferred
tax liabilities (205,344) (366,095)
----------- -----------
$ 27,021 $ (125,754)
=========== ===========
42
The valuation allowance for deferred tax assets as of December 31, 2001 was
$4.5 million or about 87.1 percent of the potential deferred tax benefit.
In April 1988, the U.S. Virgin Islands Industrial Development Commission
(IDC) granted one of the Company's subsidiaries a 10-year tax exemption
expiring in April 1998. With some conditions and exceptions, the Company's
operations related to (1) production and sale of ready-mix concrete; (2)
production and sale of concrete block on St. Thomas and St. Johns and
outside of the U.S. Virgin Islands; (3) production and sale of sand and
aggregate; and (4) bagging of cement from imported bulk cement, are 100
percent exempt from U.S. Virgin Islands real property, gross receipts
(currently 4 percent) and excise taxes, 90 percent exempt from U.S. Virgin
Islands income taxes, and about 83 percent exempt from U.S. Virgin Islands
customs duties. In 1998, the Company was granted a five-year extension,
through April 2003, of the exemptions.
At December 31, 2001, approximately $37.8 million of foreign subsidiaries'
earnings have not been distributed and no U.S. income taxes have been
provided on them. These earnings are considered permanently reinvested in
the subsidiaries' operations, unless the earnings can be repatriated in a
tax-free manner, and when earned, did not require income tax recognition
under U.S. laws. Should the foreign subsidiaries distribute these earnings
to the parent company or provide access to these earnings, taxes of
approximately $12.9 million at the U.S. federal tax rate of 34 percent, net
of foreign tax credits, may be incurred.
At December 31, 2001, the Company had accumulated net operating loss
carryforwards available to offset future taxable income in its Caribbean
operations of about $12.2 million, which expire at various times through
the year 2010.
During the fourth quarter 2001, the Company's three subsidiaries in Antigua
were assessed $6.1 million in income taxes and withholding taxes for the
years 1995 through 1999. The Company is appealing the assessments in the
appropriate venues. The Company is owed a total of $31.7 million from the
Government of Antigua and Barbuda; see further Note 3, of which $7.4
million is reflected as a receivable in the Company's financial statements.
The difference between the gross balance and the reflected balance is the
result of the notes receivable being on the cost recovery method from the
notes inception through April 2000. In the event that the appeal is denied,
the Company believes it has the right to offset any amounts owed to the
Government against what is owed to the Company. Therefore, 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 receivables outstanding. 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.
43
(9) Foreign Subsidiaries
--------------------
Combined financial information for the Company's foreign Caribbean
subsidiaries, except for those located in the U.S. Virgin Islands and
Puerto Rico, are summarized here:
December 31,
----------------------------
2001 2000
----------- -----------
Current assets $11,822,302 $ 7,225,459
Advances to the Company 7,734,792 9,923,726
Property, plant and equipment, net 10,933,035 11,963,903
Investments in joint ventures and
affiliates, net 186,490 184,184
Notes receivable, net 9,752,049 8,218,904
Other assets 11,147 56,848
----------- -----------
Total assets $40,439,815 $37,573,024
=========== ===========
Current liabilities $ 2,512,409 $ 3,161,433
Long-term debt 946,725 --
Equity 36,980,681 34,411,591
----------- -----------
Total liabilities and equity $40,439,815 $37,573,024
=========== ===========
2001 2000 1999
----------- ----------- ------------
Revenue $25,607,906 $32,419,421 $ 38,093,152
Gain on sale of business -- 9,751,585 --
Income (loss) before
income taxes 3,440,105 10,343,782 (904,252)
Net earnings(loss) 2,853,800 10,309,560 (1,170,284)
(10) Lease Commitments
-----------------
The Company leases real property, buildings and equipment under operating
leases that expire over periods of one to thirty-one years. Future minimum
lease payments under noncancellable operating leases with terms in excess
of one year as of December 31, 2001 are as follows:
Operating
Leases
-----------
Years ending December 31,
2002 $ 1,731,406
2003 1,687,306
2004 1,559,249
2005 1,491,523
2006 1,172,523
Thereafter 2,847,334
-----------
Total minimum lease payments $10,489,341
===========
Total operating lease expense for real property and buildings was
$1,977,537 in 2001, $3,473,000 in 2000 and $4,118,946 in 1999. Total
operating lease and rental expense for equipment was $903,455 in 2001,
$904,709 in 2000 and $788,360 in 1999. The equipment leases are normally on
a month-to-month basis. Some operating leases provide for contingent
rentals or royalties based on related sales and production;
44
contingent expense amounted to $10,755 in 2001, $112,770 in 2000 and $9,422
in 1999. Included in the above minimum lease commitments are royalty
payments due to the owners of the Societe des Carrieres de Grand Case
(SCGC) quarry. See Note 16.
(11) Segment Reporting
-----------------
The Company is organized based on the products and services it provides.
Under this organizational structure the Company has two reportable
segments: materials and construction. Materials segment includes
manufacturing and distribution of ready-mix concrete, block, crushed
aggregate and cement. Construction segment consists of land development
construction projects. The accounting policies of the segments are the same
as those described in the summary of significant accounting policies.
December 31,
---------------------------------------------
2001 2000 1999
------------ ------------ ------------
Revenue (incl. inter-segment):
Materials $ 40,985,155 $ 51,466,445 $ 55,718,952
Construction 15,282,867 14,421,338 13,289,689
Elimination of inter-segment
revenue (1,380,507) (639,600) (974,838)
------------ ------------ ------------
Total $ 54,887,515 $ 65,248,183 $ 68,033,803
============ ============ ============
Operating income (loss):
Materials $ 23,330 $ (1,607,653) $ (2,198,221)
Construction 1,173,141 1,266,349 (300,594)
Credit for litigation -- -- 1,160,137
Unallocated corporate
overhead (1,188,000) (819,000) (879,000)
------------ ------------ ------------
Total $ 8,471 $ (1,160,304) $ (2,217,678)
============ ============ ============
Total assets:
Materials $ 43,787,877 $ 46,852,093 $ 55,210,123
Construction 13,441,816 10,983,399 10,720,392
Other 10,722,054 14,300,579 15,983,499
------------ ------------ ------------
Total $ 67,951,747 $ 72,136,071 $ 81,914,014
============ ============ ============
Depreciation and
amortization:
Materials $ 3,309,717 $ 3,596,902 $ 4,723,099
Construction 1,585,689 1,577,797 1,648,584
------------ ------------ ------------
Total $ 4,895,406 $ 5,174,699 $ 6,371,683
============ ============ ============
Capital expenditures:
Materials $ 3,709,789 $ 2,854,719 $ 7,924,195
Construction 805,706 2,126,391 358,099
------------ ------------ ------------
Total $ 4,515,495 $ 4,981,110 $ 8,282,294
============ ============ ============
Operating income (loss) is revenue less operating expenses. In computing
operating income (loss), the following items have not been added or
deducted: interest expense, income tax expense, equity in earnings from
unconsolidated joint ventures and affiliates, interest and other income,
minority interest and gain or loss on sales of equipment. The note
receivable from the Government of Antigua and Barbuda is included in total
assets, other.
45
Revenue by geographic area includes only sales to unaffiliated customers,
as reported in the Company's consolidated statements of operations. The
Company moves its equipment from country to country, therefore, to make
this disclosure meaningful the geographic area separation for assets is
based on the location of the legal entity owning the assets.
December 31,
-----------------------------------------
2001 2000 1999
----------- ----------- -----------
Revenue by geographic areas:
U.S. and its territories $21,562,985 $25,235,399 $22,970,710
Netherlands Antilles 9,459,217 12,689,209 8,725,220
Antigua and Barbuda 10,534,677 12,593,564 11,822,155
French West Indies 6,384,890 9,158,988 8,718,285
Other foreign areas 6,945,746 5,571,023 15,797,433
----------- ----------- -----------
Total $54,887,515 $65,248,183 $68,033,803
=========== =========== ===========
Property, plant and equipment,
net, by geographic areas:
U.S. and its territories $20,292,205 $21,186,263 $18,849,542
Netherlands Antilles 285,045 344,305 1,232,142
Antigua and Barbuda 6,720,267 7,280,881 8,501,170
French West Indies 3,873,834 4,206,217 4,581,460
Other foreign areas 53,889 132,500 5,178,977
----------- ----------- -----------
Total $31,225,240 $33,150,166 $38,343,291
=========== =========== ===========
(12) Related Party Transactions
--------------------------
The Company leases a 3.4-acre parcel of real property in Deerfield Beach,
Florida from the Company's President. Annual rent on the property was
$49,303 in 2001, 2000, and 1999, respectively. The lease was renewed for
five years from January 1, 2002 with an annual rent of $90,000.
At December 31, 2001, the Company had a note payable of $2.8 million to the
Company's President resulting from various advances made to the Company in
previous years. The note is unsecured and bears interest at the prime rate.
Presently, one million dollars is due on demand and $1.8 million is due on
July 1, 2003. The President has the option to make the note due on demand
should a "Change of Control" occur. A Change of Control has occurred if a
person or group acquires 15 percent or more of the common stock or
announces a tender offer that, if successful, would result in ownership by
a person or group of 15 percent or more of the common stock. See Note 7 of
Consolidated Financial Statements.
At December 31, 2001 the Company had an investment and advances totaling
$186,091 representing 1.2 percent interest in a real estate joint venture
in the Bahamas in which the President and one Board member also participate
with equity interests of 11.3 percent and 1.0 percent, respectively. The
investment is carried at cost; accordingly no income or loss has been
recorded from this investment. The Company has a $23.8 million contract
with the venture to perform land preparation services. In connection with
this contract, the Company has
46
recorded revenue of $5.2 million during 2001. The backlog on the contract
as of December 31, 2001 was $7.2 million. The project received its final
financing in January 2002.
On November 1, 1999, the Company extended a $1.0 million note to the
venture in the Bahamas, secured by equipment. This note was fully paid
during 2001. See Note 3 of Notes to Consolidated Financial Statements.
As of December 31, 2001 the Company had trade receivables from the venture
of approximately $3.3 million. Subsequent to year-end the Company received
$3.6 million in payments from the venture and billed an additional $1.2
million.
Other assets include amounts due from officers and employees as a result of
payments made by the Company pursuant to a split-dollar life insurance
plan. The Company's advances to pay premiums are secured by a pledge of the
cash value of the issued policies. Amounts due to the Company under the
split-dollar life insurance plan were $943,638 in 2001 and $853,488 in
2000, respectively.
(13) Stock Option Plans
------------------
The Company adopted stock option plans for officers and employees in 1986,
1992 and 1999. While each plan terminates 10 years after the adoption date,
issued options have their own schedule of termination. Until 1996, 2002 and
2009, options to acquire up to 300,000, 350,000 shares, and 350,000 shares
respectively, of common stock may be granted at no less than fair market
value on the date of grant.
All stock options granted pursuant to the 1986 Plan not already
exercisable, vest and become fully exercisable (1) on the date the optionee
reaches 65 years of age and for the six-month period thereafter or as
otherwise modified by the Company's Board of Directors, (2) on the date of
permanent disability of the optionee and for the six-month period
thereafter, (3) on the date of a change of control and for the six-month
period thereafter, and (4) on the date of termination of the optionee from
employment by the Company without cause and for the six-month period after
termination.
Stock options granted under the 1992 and 1999 Plan vest and become
exercisable in varying terms and periods set by the Compensation Committee
of the Board of Directors. Options issued under the 1992 and 1999 Plan
expire after 10 years.
The Company adopted a stock-option plan for directors in 1992 that
terminates in 2002. Options to acquire up to 50,000 shares of common stock
may be granted at no less than the fair-market value on the date of grant.
The 1992 Directors' Plan provides each director an initial grant of 8,000
shares and additional grants of 1,000 shares annually immediately
subsequent to their reelection as a director. Stock optionsgranted under
the Directors' Plan have 10-year terms, vest and become fully exercisable
six months after the issue date. As the director's plan was fully granted
in 2000, the directors have received their annual options since then from
the employee plans.
47
Stock option activity by year was as follows:
Employee Plans Directors' Plan
------------------ -----------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------- -------- ------ --------
Balance at
12/31/98 501,775 4.67 38,000 10.21
Granted 318,000 1.57 11,000 2.97
Exercised -- -- -- --
Expired (30,000) 3.75 -- --
------- ------ -----
Balance at
12/31/99 789,775 3.45 49,000 8.59
Granted 13,000 5.76 1,000 6.63
Exercised (13,200) 1.50 -- --
Expired (5,000) 1.50 -- --
------- ------
Balance at
12/31/00 784,575 3.53 50,000 8.55
Granted 6,500 6.92 -- --
Exercised (18,600) 1.74 -- --
Expired (9,180) 7.00 -- --
Balance at
12/31/01 763,295 3.56 50,000 8.55
======= ======
Exercisable 515,135 4.27 50,000 8.55
======= ======
Available for
future grant 55,500 --
======= ======
Weighted average information:
Total Outstanding Options Exercisable Options
------------------------------ -------------------
Weighted Weighted
Number Average Weighted Number Average
of Exercise Remaining of Exercise
Price Range Shares Price Life Shares Price
- ----------- ------- -------- --------- ------- --------
1.50 - 2.33 455,500 1.83 7.92 251,325 2.01
2.94 - 6.25 113,000 3.99 6.41 73,000 3.99
6.63 - 7.00 184,795 6.76 3.74 180,810 6.75
7.75 - 14.00 60,000 10.16 2.52 60,000 10.16
The per-share weighted-average fair value of stock options granted during
2001, 2000 and 1999 was $3.88, $1.10 and $1.89 respectively, on the grant
date using the Black Scholes option-pricing model with the following
assumptions:
2001 2000 1999
------- ------- -------
Expected dividend yield -- -- --
Expected price volatility 34.0% 39.8% 51.5%
Risk-free interest rate 5.3% 6.5% 5.4%
Expected life of options 10 years 10 years 10 years
The Company applies APB Opinion No. 25 in accounting for its plan and,
accordingly, stock compensation cost of $127,843 was recognized in 2001 in
the consolidated financial statements for the extension of certain stock
options. Had the Company determined compensation costs based on
48
fair value at the grant date for our stock options under SFAS 123, the
Company's consolidated net earnings or loss would have been the pro forma
amounts below:
2001 2000 1999
----------- ----------- -----------
Net earnings (loss),
as reported $ 2,430,369 $18,486,608 $(3,311,644)
Net earnings (loss),
pro forma $ 2,317,103 $18,288,801 $(3,471,627)
Basic earnings (loss)
per share from
continuing operations,
as reported $ 0.67 $ 4.80 $ (0.74)
=========== =========== ===========
Basic earnings (loss)
per share from
continuing operations,
pro forma $ 0.64 $ 4.75 $ (0.77)
=========== =========== ===========
(14) Employee Benefit Plans
----------------------
The Company sponsors a 401(k) plan for some employees over the age of 21
with 1,000 hours of service in the previous 12 months of employment. The
Company matches employee contributions up to 3.0 percent of an employee's
salary. Company contributions totaled $138,544 in 2001, $140,257 in 2000,
and $167,975 in 1999.
(15) Costs and Estimated Earnings on Contracts
-----------------------------------------
Included in the accompanying consolidated balance sheets under the
following captions:
December 31,
---------------------------
2001 2000
------------ ------------
Costs and estimated earnings
in excess of billings $ 229,056 $ 1,405,898
Billings in excess of costs
and estimated earnings (414,837) (535,547)
------------ ------------
$ (185,781) $ 870,351
============ ============
2001 2000
------------ ------------
Costs incurred on uncompleted contracts $ 19,770,486 $ 4,810,581
Costs incurred on completed contracts 7,866,967 22,345,159
Estimated earnings 5,730,422 6,212,302
------------ ------------
33,367,875 33,368,042
Less: Billings to date 33,553,656 (32,497,691)
------------ ------------
$ (185,781) $ 870,351
============ ============
(16) Commitments and Contingencies
-----------------------------
The Company has contingent obligations and has made guarantees in
connection with acquisitions, joint ventures, employee and construction
bonding and a tax exemption. As part of the 1995 acquisition of Societe
49
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 August 2005. The agreement may be renewed, at
the Company's option, for a successive five-year period and would require
annual payments of $550,000 per year. At the end of the 15-year royalty
period, the Company has the option to purchase this 50-hectare property for
$4.4 million.
In June 2000, the Company entered into an amended Life Insurance and Salary
Continuation Agreement with the Company President. The President shall
receive a retirement benefit upon the sooner of his retirement from his
position after March 31, 2003, or a change in control of the Company.
Benefits to be received shall equal 75 percent of his base salary, and
shall continue for the remainder of his life. In the event that a spouse
survives him, then the surviving spouse shall receive a benefit equal to
100 percent of his base salary for the shorter of five years or the
remainder of the surviving spouse's life. The Company will recognize the
expense of the retirement agreement over his expected remaining period of
active employment with the Company. The expense related to this agreement
was $480,000 and $220,000 in 2001 and 2000, respectively. The accrued
liability in connection with this agreement was $700,000 and $220,000 as of
December 31, 2001 and 2000, respectively, and the Company estimates to
accrue an additional $612,000 through March 2003. At that point the Company
estimates that the total accrual will be sufficient to cover its
obligations under the aforementioned agreement.
During the fourth quarter 2001, the Company's three subsidiaries in Antigua
were assessed $6.1 million in income taxes and withholding taxes for the
years 1995 through 1999. The Company is appealing the assessments in the
appropriate venues. The Company is owed a total of $31.7 million from the
Government of Antigua and Barbuda; see further Note 3, of which $7.4
million is reflected as a receivable in the Company's financial statements.
The difference between the gross balance and the reflected balance is the
result of the notes receivable being on the cost recovery method from the
notes inception through April 2000. In the event that the appeal is denied,
the Company believes it has the right to offset any amounts owed to the
Government against what is owed to the Company. Therefore, 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 receivables outstanding. 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.
In the fall of 2000, Virgin Islands Cement and Building Products, Inc.
("VICBP"), a subsidiary of the Company, was under contract with the Virgin
Islands Port Authority ("VIPA") for the construction of the expansion of
the St. Croix Airport. During the project, homeowners and residents of the
Yellow Cedar Housing Community, located next to the end of the expansion
project, claimed to have experienced several days
50
of excessive dust in their area as a result of the ongoing construction
work. The homeowners of Yellow Cedar have filed two separate lawsuits
against VIPA and VICBP as co-defendants. One suit, filed in the U.S.
District Court by Mariepaul Antoine, Benjamin Ashe, et. al, vs. VIPA et.
al, case #2001,63 R/F, seeks equitable relief from nuisance, specific
performance and damages. The second suit, Louisa Williams et. al vs. VIPA
et. al filed in the Territorial Court of the U.S.V.I. case #548/2000 seeks
equitable relief from nuisance, specific performance and damages. In both
cases, VICBP as defendant has agreed to indemnify VIPA for any civil action
created during the course of work. Reliance Insurance Company ("Reliance"),
the general liability carrier for VICBP, has taken the legal position that
"dust" is a pollutant and, therefore, the pollution exclusion clause
applies and as a result denies liability insurance coverage to VICBP. The
Company has started litigation against Reliance to obtain insurance
coverage. Corporate counsel in Florida, as well as in the U.S. Virgin
Islands, have advised the Company that laws now in place should enable the
courts to force Reliance Insurance Company to defend VICBP against both
legal actions brought by the lawsuits mentioned above. Reliance declared
bankruptcy in October 2001 and the Company has informed the Florida
Guarantee Insurance Fund of its claim. It is too early to predict the final
outcome of this matter or to estimate the potential risk of loss, if any,
to the Company.
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, that BBW was 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, in order to obtain an enforceable judgment, the plaintiff
would have to file a successful claim in an Antillean court. It is too
early to predict the final outcome of this matter or to estimate the
potential risk of loss, if any, to the Company. Due to the lack of
enforceability, the Company decided not to continue the defense in the
French court. Therefore, the Company may not be aware of developments of
the court proceedings. Management believes the Company's 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.
The Company sold substantially all of its interest in a real estate joint
venture with the Government of Antigua and Barbuda to a third party in
1990. In connection with this sale, the purchaser assumed the Company's
guarantee of payment to the Government of Antigua and Barbuda made upon the
formation of the joint venture. This guarantee, which would become an
obligation of the Company in the event of a default by
51
the purchaser, provides that net profits from the joint venture's
operations will equal or exceed $20,000 per month. No liability has been
incurred by the Company nor have payments been made by the Company or the
purchaser in connection with this guarantee. The guarantee expires upon the
earlier of the sale or disposal by the venture of its real estate or
September 2003. There are no current plans to sell or dispose of any of the
venture's property.
The Company is subject to federal, state and local environmental laws and
regulations. Management believes that the Company is in compliance with
these laws and regulations. Compliance with environmental protection laws
has not had a material adverse impact on the Company's consolidated
financial condition or results of operations and is not expected to have a
material adverse impact in the foreseeable future.
The Company is involved in other litigation and claims arising in the
normal course of business. The Company believes that such litigation and
claims will be resolved without a material adverse effect on the Company's
consolidated financial position or results of operations.
(17) Business and Credit Concentrations
----------------------------------
The Company's customers are concentrated in the Caribbean and are primarily
involved in contracting. Credit risk may be affected by economic and
political conditions in the countries where the Company operates. Potential
concentrations of credit risk include receivables and costs and estimated
earnings in excess of billings. No single customer accounted for more than
10 percent of the Company's sales in 2001, 2000 or 1999 and there are no
receivables from a single customer that represent more than 10 percent of
total receivables as of December 31, 2001 or 2000, other than the notes
receivable from the Government of Antigua and Barbuda and the receivable
from the construction project in the Bahamas. Although receivables are
generally not collateralized, the Company may place liens or their
equivalent in the event of nonpayment. The Company estimates an allowance
for doubtful accounts based on the creditworthiness of customers as well as
general economic conditions of the countries where it operates. An adverse
change in these factors would affect the Company's estimate of bad debts.
The Company has a construction project with a backlog of $7.2 million. A
subsidiary and two of the Company's directors are minority partners of, and
the Company's President is a member of, the managing committee of the
entity developing the project. See further Note 12.
The Company has separate union agreements with its employees on St. Thomas,
St. Croix and Antigua. The agreement on St. Thomas expires March 2003, on
St. Croix March 2006 and on Antigua November 2003. The Company renewed the
union contracts for St. Croix and Antigua during 2001. In the past there
have been no labor conflicts.
Management believes that the Company's ability to produce its own sand and
stone gives it a competitive advantage because of the substantial
investment required to produce sand and stone, the difficulty in obtaining
the necessary environmental permits to establish quarries, and the
moratorium on mining beach sand imposed by most Caribbean countries. If the
Company is unable to produce its own sand and stone,
52
the consolidated financial position, results of operations, or cash flows
could be adversely affected.
(18) Sale of Businesses
------------------
In January 7, 2000, the Company closed a transaction to sell certain
concrete related assets on St. Thomas, USVI and the subsidiary Devcon
Masonry Products (BVI), Ltd. to a purchaser and the purchaser's related
parties. The selling price was $6 million in cash, a note for $2.5 million
payable over three years and 420,100 shares of Devcon International Corp.
held by the buyer. The shares were valued at $2.4 million at the day of
closing. The book value of the assets sold, including certain expenses and
deferred gain due to a $1 million contingency accrual, was $8.7 million.
Therefore, the Company realized in the first quarter of 2000 a gain on this
transaction before tax of $2.2 million. During 2001 the contingency was
resolved and the outstanding note was reduced by $1.0 million and the
remaining note was fully paid during 2001.
On February 3, 2000, the Company closed a transaction to sell real property
in St. Croix. The selling price was $2.3 million in cash, and the book
value of the property was $1.9 million. As a result, the Company realized a
gain on the transaction of approximately $336,000 before taxes.
On February 22, 2000, the Company 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 expenses and contingency accruals,
was $3.8 million, resulting in a gain on the transaction of $15.8 million
before taxes. The Company simultaneously entered into an agreement to
manage the terminals for one year. This management agreement was amended
and renewed on March 1, 2001 for an additional year, with a 90-day
termination option for both parties. The Company also entered into a supply
agreement to buy cement from the terminals for five years for its own use
in the Company's batch and block plants. The agreement has stipulations so
that the Company will be able to enjoy the best price available in the
local market from any cement supplier. The Company sold cement to third
parties in 1999 and entered into a one-year contract to distribute cement
on these four islands. This distribution agreement was terminated on March
1, 2001. The Company has continued to distribute cement on a non-exclusive
basis on some of the islands for the buyers.
On March 16, 2000, the Company closed on a related transaction to sell its
subsidiary in Dominica to an affiliated company of UMAR. The selling price
was $4.1 million plus an earnout of 50 percent 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 of approximately $1.1 million on the transaction will be deferred to
the first quarter of 2002, when the earnout period has finished. The
Company received earnout payments from the former subsidiary of $72,000 in
2001, which has been added to the deferred income.
53
The Company has used the proceeds from these transactions to pay off most
of its equipment financing debt, bank debt and other debt. The original
gain on sale of businesses during 2000 was computed as follows:
Aggregate selling price $36,849,822
Assets sold:
Receivables (2,155,172)
Inventory (857,146)
Property, plant and equipment (11,562,801)
Intangibles (573,323)
Other assets (528,947)
-----------
(15,677,389)
Liabilities assumed:
Accounts payable 353,768
Income taxes 84,153
-----------
437,921
Selling expenses (269,965)
Sales related accruals (976,485)
-----------
Total gain on sale of businesses 20,363,904
Deferred gain on sale of businesses (2,070,859)
-----------
Gain on sale of businesses $18,293,045
===========
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
We have had no changes in or disagreements with our independent certified public
accountants on accounting and financial disclosure.
54
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information on our directors and executive officers is incorporated by
reference to the our Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year covered by this report. Information as to
executive officers is included in Part I of this report.
Item 11. Executive Compensation.
The information required for this item is also incorporated by reference to
our Proxy Statement. The information included in the proxy statement
pursuant to Rule 402(i), (k) and (l) is not incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required for this item is also incorporated by reference to
our Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information required for this item is also incorporated by reference to
our Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements.
An index to consolidated financial statements for the year ended December
31, 2001 appears on page 20.
(2) Financial Statement Schedule.
The following financial statement schedule for each of the years in the
three-year period ended December 31, 2001 is submitted herewith:
Form 10-K
(Page Number(s)
---------------
Item
- ----
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts.................. 60
All other financial schedules are omitted because they are not required,
inapplicable, or the information is otherwise shown in the consolidated
financial statements or notes thereto.
55
(3) Exhibits.
Exhibit Description
- ------- -----------
3.1 Registrant's Restated Articles of Incorporation (1)(3.1)
3.2 Registrant's Amended and Restated Bylaws (11) (3.2)
10.1 Registrant's 1986 Non-Qualified Stock Option Plan (2)(10.1)
10.2 Registrant's 1992 Stock Option Plan (7)(A)
10.3 Registrant's 1992 Directors' Stock Option Plan (7)(B)
10.4 V. I. Cement and Building Products Inc. 401(k) Retirement and Savings
Plan (10)(10.4)
10.5 Form of Indemnification Agreement between the Registrant, and its
directors and certain of its officers (4)(A)
10.6 St. John's Dredging and Deep Water Pier Construction Agreement dated
as of April 3, 1987, by and between Antigua and Barbuda and Antigua
Masonry Products, Limited (the "Set. Johns Agreement") (4)(10.1)
10.7 Amendment No. 1 to the St. John's Agreement dated June 15,
1988(5)(10.2)
10.8 Amendment No. 2 to the St. John's Agreement dated December 7, 1988 (6)
(10.34)
10.9 Amendment No. 3 to the St. John's Agreement dated January 23, 1989 (6)
(10.35)
10.10 Amendment No. 4 to the St. John's Agreement dated April 5, 1989 (6)
(10.36)
10.11 Amendment No. 5 to the St. John's Agreement dated January 29, 1991 (6)
(10.37)
10.12 Amendment No. 6 to the St. Johns Agreement dated November 30, 1993
(8)(10.39)
10.13 Amendment No. 7 to the St. John's Agreement, dated December 21, 1994
(10) (10.14)
10.14 Amendment No. 8 to the St. John's Agreement, dated October 23, 1996
(10) (10.15)
10.15 Guarantee dated June 12, 1989, from the Registrant to Banco Popular de
Puerto Rico (5)(10.6)
10.16 Lease dated October 31, 1989, between William G. Clarenbach and
Pricilla E. Clarenbach, as lessors, and Controlled Concrete Products,
Inc., as lessee (1)(10.26)
10.17 Lease dated April 13, 1981, between Mariano Lima and Genevieve Lima,
as lessors, and the Registrant, as lessee (1)(10.28)
10.18 Lease dated February 24, 1989, between Felix Pitterson, as lessor, and
V.I. Cement and Building Products, Inc., as lessee (1)(10.30)
10.19 Lease dated September 1, 1989, between Donald L. Smith, Jr., as
lessor, and the Registrant, as lessee (1)(10.31)
10.20 Lease dated September 12, 1966, between His Honour Hugh Burrowes, a
Commander of the British Empire of Government House in the Island of
Antigua, as lessor, and The Antigua Sand and Aggregate Limited, as
lessee (1)(10.32)
10.21 Material Purchase Agreement, dated August 17, 1995, between
Bouwbedrijf Boven Winden, N.V. and Hubert Petit, Francois Petit and
Michel Petit (9) (10.41)
10.22 Stock Purchase Agreement, dated August 17, 1995, between the
Registrant and Hubert Petit, Francois Petit and Michel Petit
(9)(10.42)
10.23 Form of Note between Devcon International Corp. and Donald L. Smith,
Jr. (11)(10.31)
56
10.24 Asset Purchase Agreement between Caricement B.V., Union Maritima
International S.A. and Devcon International Corp. and its subsidiaries
dated February 22, 2000 (14)
10.25 Stock Purchase Agreement between Caribbean Construction and
Development, Ltd., Devcon International Corp. and Caricement Antilles
N.V. dated February 22, 2000 (14)
10.26 Purchase Agreement by and among Devcon International Corp., V.I.
Cement and Building Products, Inc., Paulina Dean, St. Thomas Concrete,
Inc. and W. Kemble Ketcham dated January 7, 2000 (12)
10.27 Supply Agreement between Union Maritima International S.A. and Devcon
International Corp. dated December 29, 1999 (15)(10.36)
10.28 Registrant's 1999 Stock Option Plan (13)
10.29 Second Amended and Restated Salary Continuation and Retirement Benefit
Agreement dated June 30, 2000 (16)(10.32)
10.30 Amendment No. 9 to the St. John's Agreement, dated April 28, 2000
(16)(10.33)
10.31 Antigua Delinquent Letter dated March 12, 2001 (17) (10.1)
21.1 Registrant's Subsidiaries (18)
23.1 Consent of KPMG LLP (18)
(1) Incorporated by reference to the exhibit shown in parenthesis and
filed with the Registrant's Registration statement on Form S-2 (No.
33-31107).
(2) Incorporated by reference to the exhibit shown in the parenthesis and
filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1987 (the "1987 10-K").
(3) Incorporated by reference to the exhibit shown in the parenthesis and
filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1988 (the "1988 10-K").
(4) Incorporated by reference to the exhibit shown in parenthesis and
filed with the Registrant's Proxy Statement dated May 30, 1989.
(5) Incorporated by reference to the exhibit shown in parenthesis and
filed with the Registrant's Form 8 dated August 17, 1989 to the 1988
10-K.
(6) Incorporated by reference to the exhibit showing in parenthesis and
filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991.
(7) Incorporated by reference to the exhibit showing in parenthesis and
filed with the Registrant's Proxy Statement dated May 6, 1992.
(8) Incorporated by reference to the exhibit showing in parenthesis and
filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993.
(9) Incorporated by reference to the exhibit showing in parenthesis and
filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995.
(10) Incorporated by reference to the exhibit showing in parenthesis and
filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996.
(11) Incorporated by reference to the exhibit showing in parenthesis and
filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1998.
(12) Incorporated by reference to the exhibit showing in parenthesis and
filed with the Registrant's Report on Form 8K dated January 7, 2000.
(13) Incorporated by reference to the exhibit showing in parenthesis and
filed with the Registrant's Report on Form S-8 dated December 7, 1999.
(14) Incorporated by reference to the exhibit showing in parenthesis and
filed with the Registrant's Report on Form 8K dated February 22, 2000.
57
(15) Incorporated by reference to the exhibit showing in parenthesis and
filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1999
(16) Incorporated by reference to the exhibit showing in parenthesis and
filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 2000
(17) Incorporated by reference to the exhibit showing in parenthesis and
filed with the Registrant's Report on Form 10-Q dated November 9, 2001
(18) Filed herewith
Management employee contracts, compensatory plans and other arrangements
included as part of the exhibits referred to above are as follows:
10.1 Registrant's 1986 Non Qualified Stock Option Plan (2) (10.1)
10.2 Registrant's 1992 Stock Option Plan (7)(A)
10.3 Registrant's 1992 Directors' Stock Option Plan (7) (B)
10.4 V. I. Cement and Building Products, Inc. 401(k) Retirement and Savings
Plan (10) (10.4)
10.5 Second Amended and Restated Salary Continuation and Retirement Benefit
Agreement dated June 30, 2000. (16) (10.32)
10.6 Registrant's 1999 Stock Option Plan (13)
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed by the Registrant during the last quarter of
the period covered by this report.
58
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
March 19, 2002 DEVCON INTERNATIONAL CORP.
BY:/S/ DONALD L. SMITH, JR.
-----------------------------
Donald L. Smith, Jr.
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
March 19, 2002 DEVCON INTERNATIONAL CORP.
By:/S/ DONALD L. SMITH, JR.
-----------------------------
Donald L. Smith, Jr.
Chairman, President and
Chief Executive Officer
March 19, 2002 By:/S/ RICHARD L. HORNSBY
-----------------------------
Richard L. Hornsby
Executive Vice President
and Director
March 19, 2002 By:/S/ JAN A. NORELID
-----------------------------
Jan A. Norelid
Vice President of Finance,
Chief Financial Officer and
Treasurer
March 19, 2002 By:/S/ ROBERT A. STEELE
-----------------------------
Robert A. Steele
Director
March 19, 2002 By:/S/ ROBERT L. KESTER
-----------------------------
Robert L. Kester
Director
March 19, 2002 By:/S/ W. DOUGLAS PITTS
-----------------------------
W. Douglas Pitts
Director
March 19, 2002 By:/S/ JOSE A. BECHARA, JR.
-----------------------------
Jose A. Bechara, Jr.
Director
59
Schedule II
Valuation and Qualifying Accounts
Allowance for
Doubtful Accounts Balance at Additions Balance
For the Year Beginning Charged to at End
Ended December 31, of Year Expense Deductions of Year
- ------------------ ---------- ----------- ------------ ----------
1999 $4,705,035 $ (174) $ (352,252) $4,352,609
========== =========== ============ ==========
2000 $4,352,609 $ 174,209 $ (1,704,861) $2,821,957
========== =========== ============ ==========
2001 $2,821,957 $ 278,960 $ (469,582) $2,631,335
========== =========== ============ ==========
Allowance for
Doubtful Notes
Receivable Accounts Balance at Additions Balance
For the Year Beginning Charged to at End
Ended December 31, of Year Expense Deductions of Year
- ------------------ ---------- ----------- ------------ ----------
1999 $ 682,525 $ 230,691 $ -- $ 913,216
========== =========== ============ ==========
2000 $ 913,216 $ 160,602 $ 62,278 $1,136,096
========== =========== ============ ==========
2001 $1,136,096 $ (116,265) $ (123,173) $ 896,658
========== =========== ============ ==========
Notes:
Deductions include amounts to reflect the sale of CCD and DMP in the year 2000.
Reduction in Allowance for Doubtful Notes Receivable in the year 2001 represents
collection of previously reserved amounts.
60
EXHIBIT SCHEDULE
Exhibit Description
21.1 Registrant's Subsidiaries
23.1 Consent of KPMG LLP
Exhibits will be furnished upon request.