-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B2HF/EDimU3V4Earjwp9JBk9cCeZL1DVDIAmdNIPC+A2FaRkQ9PPhRzGHqKgTCs4 YzJEaQVjjjN3I+uBGqXc4w== 0000950170-01-000405.txt : 20010328 0000950170-01-000405.hdr.sgml : 20010328 ACCESSION NUMBER: 0000950170-01-000405 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEVCON INTERNATIONAL CORP CENTRAL INDEX KEY: 0000028452 STANDARD INDUSTRIAL CLASSIFICATION: CONCRETE GYPSUM PLASTER PRODUCTS [3270] IRS NUMBER: 590671992 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-07152 FILM NUMBER: 1580647 BUSINESS ADDRESS: STREET 1: 1350 E NEWPORT CENTER DR STREET 2: STE 201 CITY: DEERFIELD BEACH STATE: FL ZIP: 33443 BUSINESS PHONE: 3054291500 MAIL ADDRESS: STREET 1: 1350 E NEWPORT CENTER DR STREET 2: SUITE 201 CITY: DEERFIELD BEACH STATE: FL ZIP: 33442 10-K 1 0001.txt 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, 2000 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 16, 2001, Devcon International Corp. had 3,662,985 shares outstanding. The aggregate market value of the Common Stock held by non-affiliates of Devcon International Corp. as of March 16, 2000 was approximately $9.1 million, based on the closing price on that date of $6.25 for the Common Stock as reported on the Nasdaq National Market System. In this calculation all executive officers, directors and 5 percent beneficial owners of Devcon International Corp. are considered to be affiliates. This is not an admission that such executive officers, directors or 5 percent beneficial owners are, in fact, affiliates of the registrant. DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III (Items 10, 11, 12 and 13) is incorporated by reference from Devcon's definitive proxy statement (to be filed pursuant to Regulation 14A) PART I Item 1. Business General In the Caribbean, Devcon International Corp. (the "Company") produces and distributes ready-mix concrete, crushed stone, concrete block, and asphalt and distributes bulk and bagged cement. We also perform site preparation work as a land development contractor. We have established a significant market share in most locations where we have facilities. In prior years we referred to our business as the concrete and related products and contracting divisions segments. We will from hereafter refer to them as the materials and construction divisions respectively. During the first quarter of 2000 we sold our operations in Tortola and Dominica, our concrete operations in St. Thomas and all our bulk cement terminals. Due to these sales, our materials revenue in 2000 has diminished compared to 1999. The operations in Tortola and Dominica had revenue of $9.5 million in 1999 and $946,000 in 2000. The concrete operations in St. Thomas had revenue of $6.3 million in 1999 and no revenue in 2000. However, our quarry in St. Thomas continues to supply sand and stone to the St. Thomas concrete operation. The revenue from this supply was $2.1 million in 2000, therefore the net decrease in revenue by selling the concrete operation in St. Thomas was approximately $4.2 million. The cement terminals we sold had sales of cement to third parties of approximately $7.3 million in 1999. However, after the sale we entered into an agreement with the buyer to distribute cement from the terminals we sold and, pursuant to this arrangement, the sales of cement were $10.2 million to third parties in 2000. The distribution agreement has been terminated as of March 1, 2001 and we have entered into a renewed terminal management contract with the owners of the cement terminals. The loss of distribution offset by the renewed terminal management contract will have a negative effect on our sales volume of approximately $7.3 million in 2001 and on gross margins before allocation of overhead cost of approximately $500,000. 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 2 land development contracts, our ability to mobilize quickly can sometimes cause us to incur higher expense. The following table sets forth financial highlights of our materials, construction and other business. See further information in Note 11 of Notes to Consolidated Financial Statements. 2000 1999 1998 -------- -------- -------- (In thousands) Revenue (net of intersegment sales): Materials $ 50,956 $ 55,313 $ 50,448 Construction 14,292 12,721 15,359 Other -- -- 371 -------- -------- -------- $ 65,248 $ 68,034 $ 66,178 ======== ======== ======== Operating (loss) income (by segment) Materials $ (1,608) $ (2,198) $ 693 Construction 1,266 (301) 714 Credit for litigation -- 1,160 461 Other -- -- 116 Unallocated corporate overhead (818) (879) (1,038) -------- -------- -------- $ (1,160) $ (2,218) $ 946 ======== ======== ======== 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. During the first quarter of 2000 we sold our operations in Tortola and Dominica, our concrete operations in St. Thomas and all our bulk cement terminals. Due to hurricane damages we have decided to close our Saba operations. See additional information under Item 1 - Business-General. Risks of Foreign Operations Portions of our operation in 2000 were conducted in Caribbean foreign countries, primarily Antigua and Barbuda, St. Maarten and St. Martin. In 2000, 49.7 percent of our revenue was derived from foreign operations. Overseas contract work performed by the parent U.S. corporation is not considered foreign-source revenue for this calculation. For a summary of our revenue and earnings from foreign operations, see Note 9 of Notes to Consolidated Financial Statements. The risks of doing business in foreign areas include potential adverse changes in U.S. diplomatic relations with foreign countries, changes in the relative purchasing power of the U.S. dollar, hostility from local populations, adverse effects of exchange controls, restrictions on the withdrawal of foreign investment and earnings, government policies against businesses owned by non-nationals, expropriations of property, the instability of foreign governments, and any insurrection that could result in uninsured losses. We are not subject to these risks in Puerto Rico or the U.S. Virgin Islands since these territories use the U.S. dollar as currency. The Company is also subject to U.S. federal income tax 3 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 2000 we manufactured and distributed ready-mix concrete, block and crushed aggregate. We also distributed bulk and bagged cement. The different activities on the islands are shown below: Concrete Bulk and Ready-Mix Quarry Block Bagged Concrete Aggregates Production Cement --------- ---------- ---------- --------- Puerto Rico X St. Thomas, U.S.V.I. S X X S St. Croix, U.S.V.I. X X S Tortola, British V.I. S S Saba C C C St. Maarten X X X S St. Martin X X Antigua X X X S Dominica S S The "S" in the above table corresponds to operations sold in the first quarter of 2000 and "C" corresponds to closed operations during 2000. Our materials business employed assets in 2000 such as: o Quarries o Concrete Batch Plants o Rock Crushing Plants o Fleet of Concrete Mixer Trucks o Bulk Cement Terminals o Concrete Block Plants o Cement Bagging Facilities o Asphalt Plants See additional information under Item 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 deliver the concrete to the customer's job site. At our concrete block plants, a low-moisture concrete mixture is machine-formed, then dried and stored for later sale. Usually, our ready-mix concrete operations and concrete block plants are the area's largest or only facility. Quarry Operations and Crushed Stone We own or lease quarry sites at which we blast rock from exposed mineral formations. This rock is crushed to sizes ranging from 3 1/2-inch stones down to manufactured sand. The resulting aggregate is then sorted, cleaned and stored. The aggregate is sold to customers and used in our operations to make concrete products. Our quarries are the largest on five Caribbean islands. It is often less expensive to manufacture crushed rock at our quarries than to import aggregate from off-island sources. 4 Bulk and Bagged Cement In prior years, we owned and operated several bulk cement terminals and leased a 6,000 metric ton cement ship. The cement for the Company's terminals was purchased from a number of manufacturers located throughout the Caribbean basin and delivered to the terminals via the bulk cement ship. In the beginning of 2000, all of the Company's cement terminals were sold, and the charter on the bulk cement ship was terminated. The effect of this transaction was that 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, and for resale of bulk and bagged cement under an exclusive distribution agreement with the owner of the terminals. The distribution agreement was cancelled as of March 1, 2001. 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 and bulk cement 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. 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 the most profitable land development contracts available in the Caribbean, rather than attempting to maintain a high volume. The revenue related to the work performed by our 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. 5 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. Project proposals and bids are reviewed by our Vice President of Construction Operations and/or our President. After a customer accepts our proposal, a formal contract is negotiated. We are normally the prime contractor. We assign a project manager and one of our seven field superintendents to maintain close contact with the customer and its engineers, to supervise personnel and the relocation, purchase, lease and maintenance of equipment, and to schedule and monitor our operations. Backlog Our backlog of unfulfilled portions of construction contracts at December 31, 2000 was $13.0 million involving 7 projects. One Bahamian project's backlog amounts to $12.3 million at the end of 2000. A subsidiary and two of our directors are minority partners, and our President is Chairman of the entity developing this project. This partnership does not yet have the necessary financing to complete the development of the project and there is uncertainty as to whether it will obtain necessary financing. Therefore, the amount of the backlog could substantially diminish and the timing of completion could vary. The backlog of $13.0 million at the end of 2000 compares to $18.7 million involving 6 projects at December 31, 1999. Since December 31, 2000 we have entered into new construction and dredging contracts in the Caribbean amounting to $8.1 million. We expect most of the current backlog to be completed during 2001, except for the project in the Bahamas. Bonding We must obtain a performance bond to bid on government construction contracts and some private contracts. We have, in the past, been able to bond all contracts that so required. Competition Land development 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 guarantees contract completion. We believe that we compete effectively and have a favorable competitive position in our Caribbean markets. Other Operations Marina Two of our subsidiaries owned a Virgin Islands general partnership formed in 1988 to construct and operate a marina on a 4.92 acre parcel of land leased from the U.S. Virgin Islands government. The marina was sold for $3.3 million on February 3, 1998 and we recognized a loss of $108,000 in 1997. Tax Exemptions and Benefits Most of our offshore earnings are taxed at rates lower than U.S. statutory federal income tax rates due to tax exemptions and lower prevailing tax rates offshore. The U.S. Virgin Islands Industrial Development Commission granted us tax exemptions on most of our U.S. Virgin Islands earnings through 2003. 6 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, 2000, $37.6 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, 2000, our equipment included cranes, bulldozers, road graders, rollers, backhoes, earthmovers, a hydraulic dredge, barges, rock crushers, bulk cement handling equipment and concrete batch and block plants, concrete mixer trucks, asphalt processing and paving equipment and other items. Some of this equipment is encumbered by chattel mortgages. See Notes 7 and 10 of Notes to Consolidated Financial Statements. Miscellaneous Investments and Joint Ventures We have invested or participated in several joint ventures in connection with our construction and materials division. During 1998, 1999 and 2000 we invested a total of $184,000 for a 1.2 percent interest in a real estate joint venture in the Bahamas. The upscale resort project awaits final financing to finish its development, however, there is uncertainty whether it will obtain this financing. Two of our directors have an interest in the joint venture. See Note 12 of Notes to Consolidated Financial Statements. During the last three years we invested a total of $177,000 for a 33.3 percent interest in a real estate company in Puerto Rico that owns the land where the Aguadilla aggregate processing plant operates. During 2000 we recognized a loss of $23,000 using the equity method of accounting. Executive Officers The executive officers of the Company are as follows: Donald L. Smith, Jr., 79, a co-founder of the Company, has served as its Chairman of the Board, President and Chief Executive Officer since its formation in 1951. 7 Richard L. Hornsby, 65, 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, 71, was appointed Vice President-Engineering of the Company in March 1989, after having served as Vice President of the Company since 1977. Mr. Obenauf has been employed by the Company for over 33 years. Jan A. Norelid, 47, 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, 48, was appointed Vice President-Construction Operations for the Company in December 1992. Starting in March 1992, he served as Assistant Vice President for Construction Operations-South Florida and Caribbean. Mr. Smith joined the Company in 1976 and has served in supervisory and managerial positions within the Company since that time. Employees At December 31, 2000 we employed 94 persons in the construction business in the Caribbean, of whom 17 are members of a union. As of the same date, we employed 308 persons in our materials division, of whom 91 are members of a union. Employee relations are considered satisfactory. 8 Item 2. Property General Nearly all of the real property that the Company owns or leases is utilized by its materials division. Other Property We own undeveloped parcels of land in the U.S. Virgin Islands and Antigua. The following table shows information on the property and facilities that we owned or leased for our operations at December 31, 2000:
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 Month-to-Month 4.40 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, and concrete batch plant Saba 12/02 6.00 acres (1) (3) Concrete batch plant St. Kitts Month-to-Month 1.00 acre (1) (3) 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) Aggregate processing plant Aguadilla, P.R. 6/01 100.00 acres (1)(3)(4)
- ------------ (1) Underlying land is leased but equipment and machinery on the land are owned by the Company. (2) Leased from Donald L. Smith, Jr., the Company's Chief Executive. See Note 12 of Notes to Consolidated Financial Statements. (3) Acreage is estimated. (4) Land is owned by the same owners as the operating company with small change of percentage ownership. 9 Item 3. Legal Proceedings We are sometimes involved in routine litigation arising in the ordinary course of our business, primarily construction. In the late 1980s, Bouwbedrijf Boven Winden, N.V., ("BBW") currently a Devcon subsidiary in the Netherlands Antilles, supplied concrete to a large apartment complex on the French side of St. Maarten. In the early 1990s the buildings began to develop exterior cracking and "popouts." In November 1993, BBW was named one of several defendants including the building's insurer, in a suit filed by Syndicat des Coproprietaires la Residence Le Flamboyant (condominium owners association of Le Flamboyant), in the French court "Tribunal de Grande Instance de Paris", case No. 510082/93. A French court assigned an expert to examine the cause of the cracking and popouts and to determine if the cracking/popouts are caused by a phenomenon known as alkali reaction (ARS). The expert found, in his report dated December 3, 1998, BBW 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, the plaintiff would have to file the same claim in an Antillean court. It is too early to predict the final outcome of this matter. During 2000 no actions have been taken in or by the court. Management believes our defenses to be meritorious and does not believe that the outcome will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. 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 2000. 10 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. 2000 High Low ---- ---- --- First Quarter $7.38 $5.13 Second Quarter 7.50 6.38 Third Quarter 7.47 6.25 Fourth Quarter 7.06 5.31 1999 High Low ---- ---- --- First Quarter $2.75 $1.56 Second Quarter 3.44 1.44 Third Quarter 3.31 2.72 Fourth Quarter 5.78 2.88 As of March 7, 2001 there were 175 holders of record of the outstanding shares of Common Stock plus more than 800 beneficial owners holding our Common Stock in their brokers' name. The closing sales price for the Common Stock on March 16, 2001, was $6.25. We paid no dividends in 2000 or 1999. 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 2000, 1999 or 1998. 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, 2000 and 1999 and for each of the three years ended December 31, 2000 and the independent auditors' report appear elsewhere in this document. 11
Year Ended December 31, ---------------------------------------------------- 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- (In thousands, except per share amounts) Earnings Statement Data: Materials revenue $ 50,956 $ 55,313 $ 50,448 $ 51,461 $ 52,987 Construction revenue 14,292 12,721 15,359 9,852 13,982 Other revenue -- -- 371 2,931 2,509 -------- -------- -------- -------- -------- Total revenue 65,248 68,034 66,178 64,244 69,478 Cost of materials 42,608 46,364 41,281 41,659 39,277 Cost of construction 11,461 11,000 12,900 9,709 12,458 Cost of other -- -- 246 2,311 1,913 -------- -------- -------- -------- -------- Gross profit 11,179 10,670 11,751 10,565 15,830 Operating expenses 12,339 12,888 10,806 23,143 12,359 -------- -------- -------- -------- -------- Operating (loss) income (1,160) (2,218) 945 (12,578) 3,471 Other income (deductions) 20,362 (821) (122) (2,651) (2,287) -------- -------- -------- -------- -------- Income (loss) from continuing operations before income taxes 19,202 (3,039) 823 (15,229) 1,184 Income taxes 715 273 339 307 383 -------- -------- -------- -------- -------- Income (loss) from continuing operations 18,487 (3,312) 484 (15,536) 801 Loss from discontinued operations, net -- -- -- -- (488) -------- -------- -------- -------- -------- Net earnings (loss) $ 18,487 $ (3,312) $ 484 $(15,536) $ 313 ======== ======== ======== ======== ======== Earnings (loss) per share from continuing operations: Basic $ 4.80 $ (0.74) $ 0.11 $ (3.45) $ 0.18 Diluted $ 4.40 $ (0.74) $ 0.11 $ (3.45) $ 0.17 Weighted average number of shares outstanding: Basic 3,851 4,481 4,499 4,499 4,490 Diluted 4,202 4,481 4,520 4,499 4,597 Balance Sheet Data: Working capital $ 14,035 $ 6,549 $ 6,910 $ 8,713 $ 12,063 Total assets 72,136 81,914 82,430 86,433 94,926 Long-term debt, excl current portion 2,465 14,350 18,153 16,982 19,251 Stockholders' equity 52,434 39,436 43,641 42,816 59,552
12 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."
Net Income (Loss) Net Gross Income Per Share Sales Profit (Loss) Basic Diluted ----- ------ ------ ----- ------- (in thousands except for per share amounts) 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 1999 Fourth Quarter $14,532 $1,192 $(3,832) $(0.86) $(0.86) Third Quarter 16,842 2,467 (70) (0.02) (0.02) Second Quarter 18,425 3,791 463 0.10 0.10 First Quarter 18,235 3,220 127 0.03 0.03
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Dollar amounts of $1.0 million or more are rounded to the nearest one tenth of a million; all other dollar amounts are rounded to the nearest one thousand and all percentages are stated to the nearest one tenth of one percent. This Form 10-K contains certain "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which represent the Company's expectations and beliefs. These statements involve risks and uncertainties that are beyond our control, and actual results may differ materially depending on many factors, including the financial condition of our customers, changes in domestic and foreign economic and political conditions, demand for our services, and changes in our competitive environment. These and other factors could cause actual results or outcomes to differ materially from those expressed in our forward-looking statements. Any forward-looking statement speaks only as of the date it is made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date it is made. It is not possible for management to predict unanticipated factors or the effect they might have on our business. Comparison of Year Ended December 31, 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 13 of these operations, materials revenue increased by 20.8%, primarily due to increased demand for quarry products in St. Martin and Puerto Rico and increased sale of cement in St. Croix. At this time, we cannot predict materials revenue levels in 2001. However, the total volume may be decreased due to the termination of our distribution agreement for the sale of cement. 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, 1999. The backlog of the contract in the Bahamas at December 31, 2000 was $12.3 million. We expect most of this contract not to be completed during 2001. There is uncertainty whether or not the project will receive its final financing. Therefore, the amount of the backlog could substantially diminish and timing of completion could vary. See Note 12 of Notes to Consolidated Financial Statements and Item 7 "Liquidity and Capital Resources". Since December 31, 2000 we have entered into new construction and dredging contracts in the Caribbean amounting to $8.1 million. We expect to complete the other remaining contracts during 2001. 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, 14 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 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 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. We expect to record interest of $1.9 million from these notes in 2001. 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. 15 Comparison of Year Ended December 31, 1999 with Year Ended December 31, 1998 Revenue Our revenue was $68.0 million in 1999 and $66.2 million in 1998. This 2.8 percent increase reflects an increase in materials revenue, partially offset by decreases in construction and in other revenue. Our materials revenue increased 9.6 percent to $55.3 million in 1999 from $50.4 million in 1998. This increase was primarily due to increased demand for this division's products on certain Caribbean islands, partially offset by decreased demand on other Caribbean islands, particularly due to disruptions from hurricanes Georges and Lenny. Revenue from our construction division decreased 17.2 percent to $12.7 million in 1999 from $15.4 million in 1998. This decrease resulted from finishing some medium-sized contracts during 1999 and a slowdown of our work in connection with the $23.8 million contract in Exuma, Bahamas. Our backlog of unfilled portions of land development contracts at December 31, 1999 was $18.7 million involving 6 projects, as compared to $16.3 million involving 10 projects at December 31, 1998. The backlog of the contract in the Bahamas at December 31, 1999 was $15.1 million. See Note 12 of Notes to Consolidated Financial Statements and Item 7 "Liquidity and Capital Resources". Cost of Materials Cost of materials rose slightly to 83.8 percent of revenue in 1999 from 81.8 percent in 1998. The cost increase was due to higher production costs in St. Martin, Saba and Puerto Rico, offset to a lesser extent by improved sales volumes and, therefore, better margins on Antigua and Dominica. Cost of Construction Cost of construction increased to 86.5 percent of revenue in 1999 from 84.0 percent in 1998. Increased costs as a percent of revenue were due to lower profitability on some 1999 contracts. Our gross margins were also affected by the profitability of each contract and the stage of completion. Operating Expenses Selling, general and administrative expenses ("SG&A expense") increased by 14.8 percent to $13.0 million in 1999 from $11.3 million in 1998. This increase is primarily due to accruals in connection with collective bargaining agreements and due to increased costs on some of the islands, most notably Antigua and St. Martin. SG&A expense as a percentage of revenue increased to 19.1 percent in 1999 from 17.1 percent in 1998. In the fourth quarter of 1998 we accrued $1.5 million for legal fees and a write off of a receivable related to a Florida State Court judgment. We also reduced our provision for litigation by $2.0 million, due to the partial settlement on another lawsuit. In 1999 we reduced our provision for litigation by $1.2 million due to the settlement of two major lawsuits. Due to hurricane damages and lower volumes, management upon its review in 1999 of long-lived assets, determined that impairment had occurred to some of our assets. A significant portion of our quarry assets in Saba were written down due to hurricane damages on the island, particularly the adjacent harbor 16 used for export of aggregates. Idle assets on St. Kitts and St. Croix were also impaired. An impairment loss was recognized of $805,000 in 1999, compared to no expense in 1998. Substantially due to the write down in 1999 of one note receivable in St. Croix by $200,000, the provision for doubtful accounts in 1999 was an expense of $231,000 compared to a benefit of $65,000 in 1998. Divisional Operating (Loss) Income The operating loss was $2.2 million in 1999 compared to income of $945,000 in 1998. Our materials division had an operating loss of $2.2 million in 1999, representing a decrease of $2.9 million compared to income of $693,000 in 1998. This decrease in profitability was primarily due to accruals in connection with collective bargaining agreements, the impairment of assets on Saba and St. Kitts, and losses incurred on Puerto Rico and St. Martin, offset to a small extent by improved profit margin on some islands. Our construction division had an operating loss of $301,000 in 1999 compared to income of $714,000 in 1998, a deterioration of $1.0 million. This decrease is mainly attributable to lower activity specifically due to the slowdown of the contract in the Bahamas and a $200,000 write down of a note. Other Income We had gains on sale of property and equipment of $14,000 in 1999 compared to $507,000 in 1998. We recognized in 1998 $278,000 in profit on the sale of our share of the CorbKinnon joint venture. Our interest expense increased to $2.4 million in 1999 from $2.1 million in 1998. This increase is due to increased loan balances and rising interest rates in 1999. Our interest income decreased to $630,000 in 1999 compared to $1.1 million 1998. This is due to our recognizing less income from cash receipts in excess of anticipated amounts from agreed upon sources from the notes receivable due from the Government of Antigua and Barbuda. Income Taxes Income taxes decreased to $273,000 in 1999 from $339,000 in 1998. Our tax rate varies depending on the level of our earnings in the various tax jurisdictions where we operate, the level of operating loss carry-forwards and tax exemptions available to us. See Note 8 of Notes to Consolidated Financial Statements and "Business - Tax Exemptions and Benefits." Net (Loss) Earnings Our net loss was $3.3 million in 1999 compared to income of $484,000 in 1998. This change in profitability was primarily attributable to decreased gross profit of $1.1 million, accrual of severance of $1.0 million, an impairment loss of $805,000, increased provision for doubtful accounts and notes of $231,000, increased interest cost of $295,000, reduced interest income of $448,000, offset to a lesser extent by an increased credit for litigation of $699,000 and increased minority interest income of $670,000. 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 17 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. As of December 31, 2000, our liquidity and capital resources included cash and cash equivalents of $8.2 million and working capital of $14.0 million. As of December 31, 2000, total outstanding liabilities were $19.7 million compared to $42.5 million as of December 31, 1999. As of December 31, 2000, available lines of credit totaled $1.3 million. Cash flow provided by operating activities for the year ended December 31, 2000 was $2.3 million compared with $2.4 million for the year ended December 31, 1999. The primary use of cash for operating activities during the year ended December 31, 2000 was an increase in receivables of $4.5 million and an increase in costs in excess of billings and estimated earnings of $1.1 million. The primary source of cash from operating activities was an increase in accounts payable and accrued expenses of $2.3 million. Net cash provided by in investing activities was $17.8 million in 2000. Purchases of property, plant, and equipment were $5.0 million. The purchases were to a large extent paid in cash. Proceeds from disposition of businesses were $23.2 million and purchases of treasury stock was $2.7 million. We turned our fiscal year-end accounts receivable, excluding notes and employee receivables, approximately 5.1 times in 2000 compared to 5.7 times in 1999. The reduction resulted from a lower turnover rate for the materials division accounts receivable, due to a reduction in the turnover rate in the U.S. Virgin Islands and St. Martin. The construction division showed a small improvement. On November 1, 1999, we extended a $1.0 million note to the venture in the Bahamas, secured by equipment and guarantees. As of December 31, 2000 $826,000 was outstanding. See Note 3 of Notes to Consolidated Financial Statements. As of December 31, 2000 we had trade receivables, net of billings in excess of costs and estimated earnings, from the venture of approximately $2.0 million; subsequent to the year-end we received $778,000 in payments and issued $630,000 in additional contract billings. Our President has personally guaranteed $1.2 million of the outstanding trade receivables from the venture. We expect to receive interim payments from the venture's cash resources to cover our incremental costs while the venture is seeking its total financing. The Company entered into a credit agreement with a Caribbean bank in November 1996 for a total credit of $7.0 million. One part of the credit agreement is a term loan for $6.0 million, which was fully paid in 2000. The second part is a revolving line of credit of $1.0 million. The credit line has a review and re-approval process in July of each year until 2002. We had $300,000 18 outstanding under this line of credit at December 31, 2000. The interest rate on amounts borrowed under both loans varies with the prime rate. We have a $500,000 unsecured overdraft facility from a commercial bank in the Caribbean. The facility is due on demand and bears interest at 14.0 percent per annum. At December 31, 2000, the Company had no borrowings outstanding under this line. At December 31, 2000 we had borrowed approximately $2.1 million from the Company President. The note to the President is unsecured and bears interest at a rate variable with the prime rate. Eight hundred thousand is due on demand and $1.3 million is due on April 1, 2002. 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 should result in a net cash expenditure of approximately $3.5 million. At present, management believes that our inventory of construction equipment is adequate for our current contractual commitments and operating activities. New construction contracts may, depending on the nature of the contract and job location and duration, require us to make significant investments in heavy construction equipment. During 2000 we sold equipment with an original cost basis of approximately $657,000 and a net book value of approximately $146,000. The net proceeds were approximately $254,000. During 2000 we also sold real property in the Caribbean with net proceeds of $591,000. We realized a gain of approximately $154,000 on these transactions. We believe we have available funds or can obtain sufficient financing for our contemplated equipment replacements and additions. Historically, we have used a number of lenders to finance a portion of our machinery and equipment purchases. At December 31, 2000, amounts outstanding to these lenders totaled $1.3 million. These loans are typically repaid over a three to five-year term in monthly principal and interest installments. A significant portion of our outstanding debt bears interest at variable rates. A substantial increase in interest rates could negatively impact us. Our notes receivable at December 31, 2000 include $7.5 million in promissory notes from the Government of Antigua with approximately $138,000 classified as a current receivable. Item 7A Quantitative and Qualitative Disclosures about Market Risk We do not believe that there is any material market risk exposure with respect to derivative or other financial instruments that would require disclosure under this item. 19 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 21 Financial Statements: Consolidated Balance Sheets 22-23 December 31, 2000 and 1999 Consolidated Statements of Operations 24 For Each of the Years in the Three-Year Period Ended December 31, 2000 Consolidated Statements of Stockholders' Equity 25 and Comprehensive Income for Each of the Years in the Three-Year Period Ended December 31, 2000 Consolidated Statements of Cash Flows 26-27 For Each of the Years in the Three-Year Period Ended December 31, 2000 Notes to Consolidated Financial Statements 28-50 Schedule II - Valuation and Qualifying Accounts 57 20 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, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000 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 26, 2001 21 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Consolidated Balance Sheets December 31, 2000 and 1999 Assets 2000 1999 - ------ ------------ ------------ Current assets: Cash $ 2,056,963 $ 1,406,941 Cash equivalents 6,109,991 4,737,311 Receivables, net 13,800,628 12,878,643 Costs in excess of billings and estimated earnings 1,405,898 258,780 Inventories 2,938,099 3,829,450 Assets held for sale -- 7,559,066 Prepaid expenses and other assets 593,691 803,166 ------------ ------------ Total current assets 26,905,270 31,473,357 Property, plant and equipment, net Land 1,455,045 1,920,539 Buildings 1,217,706 2,372,240 Leasehold improvements 3,203,760 3,516,202 Equipment 51,090,785 52,380,167 Furniture and fixtures 802,615 785,359 Construction in process 1,024,035 3,091,160 ------------ ------------ 58,793,946 64,065,667 Less accumulated depreciation (25,643,780) (25,722,376) ------------ ------------ 33,150,166 38,343,291 Investments in unconsolidated joint ventures and affiliates, net 281,819 277,081 Receivables, net 10,797,177 9,556,539 Intangible assets, net of accumulated amortization -- 936,829 Other assets 1,001,639 1,326,917 ------------ ------------ Total assets $ 72,136,071 $ 81,914,014 ============ ============ See accompanying notes to consolidated financial statements. 22 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Consolidated Balance Sheets (continued) December 31, 2000 and 1999 2000 1999 ------------ ------------ Liabilities and Stockholders' Equity - ------------------------------------ Current liabilities: Accounts payable, trade and other $ 7,175,610 $ 4,926,700 Accrued expenses and other liabilities 2,945,490 3,103,083 Deposit on sale of assets -- 8,000,000 Notes payable to banks 300,000 625,000 Current installments of long-term debt 1,501,656 6,956,246 Billings in excess of costs and estimated earnings 535,547 1,026,316 Income taxes 412,454 287,423 ------------ ------------ Total current liabilities 12,870,757 24,924,768 Long-term debt, excluding current installments 2,464,834 14,349,708 Minority interest in consolidated subsidiaries 474,444 932,325 Deferred income taxes 366,095 647,672 Deferred gain on sale of businesses 2,070,859 -- Other liabilities 1,454,618 1,623,331 ------------ ------------ Total liabilities 19,701,607 42,477,804 Stockholders' equity Common stock, $0.10 par value Authorized 15,000,000 shares, Issued 3,836,285 in 2000 and 4,498,935 in 1999, outstanding 3,664,985 and 4,457,135 shares in 2000 and 1999, respectively 383,628 449,894 Additional paid-in capital 10,279,284 12,064,133 Accumulated other comprehensive loss - cumulative translation adjustment (2,037,502) (1,594,577) Retained earnings 45,018,868 28,674,264 Treasury stock (1,209,814) (157,504) ------------ ------------ Total stockholders' equity 52,434,464 39,436,210 ------------ ------------ Commitments and contingencies Total liabilities and stockholders' equity $ 72,136,071 $ 81,914,014 ============ ============ See accompanying notes to consolidated financial statements. 23 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Consolidated Statements of Operations For Each of the Years in the Three-Year Period Ended December 31, 2000
2000 1999 1998 ------------ ------------ ------------ Materials revenue $ 50,956,382 $ 55,312,885 $ 50,448,275 Construction revenue 14,291,801 12,720,918 15,358,591 Other revenue -- -- 371,386 ------------ ------------ ------------ Total revenue 65,248,183 68,033,803 66,178,252 Cost of materials (42,607,478) (46,364,378) (41,281,263) Cost of construction (11,461,423) (10,999,585) (12,899,491) Cost of other -- -- (245,880) ------------ ------------ ------------ Gross profit 11,179,282 10,669,840 11,751,618 Operating expenses: Selling, general and administrative (11,302,430) (13,012,443) (11,333,598) (Provision for) recovery of doubtful accounts and notes (334,811) (230,517) 66,892 Impairment of long-lived assets (702,345) (804,695) -- Credit for litigation -- 1,160,137 460,794 ------------ ------------ ------------ Operating (loss) income (1,160,304) (2,217,678) 945,706 ------------ ------------ ------------ Other income (deductions): Joint venture equity loss (23,166) (17,700) (39,000) Gain on sale of property and equipment 153,561 13,620 507,256 Gain on sale of businesses 18,293,045 -- -- Interest expense (913,456) (2,408,414) (2,113,224) Interest income 2,464,971 629,735 1,078,186 Minority interest 313,748 830,484 160,820 Other income 73,965 131,540 283,970 ------------ ------------ ------------ 20,362,668 (820,735) (121,992) ------------ ------------ ------------ Income (loss) before income taxes 19,202,364 (3,038,413) 823,714 Income taxes (715,756) (273,231) (339,441) ------------ ------------ ------------ Net earnings (loss) $ 18,486,608 $ (3,311,644) $ 484,273 ============ ============ ============ Earnings (loss) per common share - basic $ 4.80 $ (0.74) $ 0.11 ============ ============ ============ Earnings (loss) per common share - diluted $ 4.40 $ (0.74) $ 0.11 ============ ============ ============ Weighted average number of common shares outstanding - basic 3,850,566 4,481,304 4,498,935 ============ ============ ============ Weighted average number of common shares outstanding - diluted 4,201,537 4,481,304 4,520,460 ============ ============ ============
See accompanying notes to consolidated financial statements. 24 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, 2000
Accumulated Additional Other Common Paid-in Comprehensive Retained Treasury Stock Capital (Loss)Income Earnings Stock Total ------- ---------- ---------- ---------- ---------- ---------- Balance at Dec. 31, 1997 449,894 12,064,133 (1,200,000) 31,501,635 -- 42,815,662 Comprehensive income: Net earnings 484,273 484,273 Currency translation adjustment 340,624 340,624 ---------- ---------- --------- Comprehensive income 340,624 484,273 824,897 ------- ---------- ---------- ---------- ---------- ---------- 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 (735,201) (3,311,644) (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 (442,925) 18,486,608 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 ======= ========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements. 25 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows For Each of the Years in the Three-Year Period Ended December 31, 2000
2000 1999 1998 ------------ ------------ ------------ Cash flows from operating activities: Net earnings (loss) $ 18,486,608 $ (3,311,644) $ 484,273 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 5,174,699 6,371,683 5,864,659 Deferred income tax benefit (253,898) (19,404) (735) Joint venture equity loss 23,166 17,700 39,000 Joint venture advance write-off -- -- 50,000 Provision for (recovery of) doubtful accounts and notes 334,811 230,517 (66,892) Impairment on long-lived assets 702,345 804,695 -- Gain on sale of property and equipment (153,561) (13,620) (507,256) Gain on sale of business (18,293,045) -- -- Credit for litigation -- (1,160,137) (460,794) Minority interest in loss of consolidated subsidiaries (313,748) (830,484) (160,820) Changes in operating assets and liabilities: (Increase) decrease in receivables (4,455,005) (512,426) 632,885 (Increase) decrease in costs in excess of billings and estimated earnings (1,147,118) 451,777 (380,850) Decrease in inventories 2,788 625,161 310,403 Decrease (increase) in other assets 136,307 (193,316) 544,672 Increase (decrease) in accounts payable and accrued expenses 2,268,072 (956,287) (553,814) (Decrease) increase in billings in excess of costs and estimated earnings (490,769) 711,309 177,599 Increase (decrease) in income taxes payable 228,684 53,046 (216,407) Increase (decrease) in other non-current liabilities 45,177 90,640 (486,724) ------------ ------------ ------------ Net cash provided by operating activities $ 2,295,513 $ 2,359,210 $ 5,269,199 ------------ ------------ ------------
See accompanying notes to consolidated financial statements. 26 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Continued) For Each of the Years in the Three-Year Period Ended December 31, 2000
2000 1999 1998 ------------ ------------ ------------ Cash flows from investing activities: Purchases of property, plant and equipment $ (4,981,110) $ (8,282,294) $ (7,589,323) Proceeds from disposition of property, plant and equipment 845,325 787,425 3,861,128 Proceeds and deposits from disposition of business 23,196,405 8,000,000 -- Issuance of notes (414,000) (1,016,000) (514,135) Payments on notes 1,888,224 4,101,724 2,751,379 Purchase of treasury stock (2,684,700) (157,504) -- Advances to affiliates (27,904) (57,411) (153,020) Advances from affiliates -- -- 89,067 ------------ ------------ ------------ Net cash provided by (used in) investing activities 17,822,240 3,375,940 (1,554,904) ------------ ------------ ------------ Cash flows from financing activities: Issuance of stock 28,800 -- -- Proceeds from debt 810,389 6,952,371 7,956,147 Principal payments on debt (18,609,240) (9,339,019) (10,116,587) Net (repayments) borrowings from bank overdrafts (325,000) 536,892 (296,365) ------------ ------------ ------------ Net cash (used in) financing activities (18,095,051) (1,849,756) (2,456,805) ------------ ------------ ------------ Net increase in cash and cash equivalents 2,022,702 3,885,394 1,257,490 Cash and cash equivalents at beginning of year 6,144,252 2,258,858 1,001,368 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 8,166,954 $ 6,144,252 $ 2,258,858 ============ ============ ============ Supplemental disclosures of cash flow information: Cash paid for interest $ 986,386 $ 2,415,150 $ 2,241,507 ============ ============ ============ Cash paid for income taxes $ 732,702 $ 237,790 $ 264,986 ============ ============ ============
Supplemental non-cash items: During each of 2000, 1999 and 1998, the Company recorded a translation adjustment of $(442,925), $(735,201) and $340,624 respectively, related to its subsidiary in St. Martin. During 1998 the company exchanged shares in a joint venture and $260,000 cash for three concrete pump trucks valued at $885,000. See accompanying notes to consolidated financial statements 27 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 bulk and 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% are accounted for by using the cost method. (c) Revenue Recognition Materials Division Revenue is recognized when the products are delivered. 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. Other Other revenue consists of revenue from a marina that the Company sold in 1998. Revenue was recognized when products or services were delivered. 28 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (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) 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. (f) Inventories The cost of sand, stone, cement and concrete block inventories is determined using average costs approximating the first-in, first-out (FIFO) method and is not in excess of market. All other inventories are stated at the lower of average cost or market. (g) Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation is calculated on the straight-line method over the estimated useful life of each asset. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the asset. Useful lives or lease terms for each asset type are summarized below: Buildings 15 - 40 years Leasehold improvements 3 - 55 years Equipment 3 - 20 years Furniture and fixtures 3 - 10 years Assets not required for the Company's current or future business operations are classified as assets held for sale. (h) Foreign Currency Translation All balances denominated in foreign currencies are remeasured at year-end rates to the respective functional currency of each consolidating company. 29 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements For those subsidiaries, with a functional currency other than the US dollar, assets and liabilities have been translated into U.S. dollars at year-end exchange rates. Income statement accounts are translated into U.S. dollars at average exchange rates during the period. The translation adjustment decreased equity by $442,925 in 2000, $735,201 in 1999, and increased equity by $340,624 in 1998. (i) Intangible Assets The excess of cost over the fair value of net assets in acquired subsidiaries, and costs of non-compete agreements, are amortized over five to fifteen year periods on a straight-line basis. The Company regularly evaluates the recoverability of its intangible assets and their amortization periods to determine whether an adjustment to the carrying value or a revision to the estimated useful lives is appropriate. No intangible assets were remaining as of December 31, 2000. (j) Earnings (Loss) Per Share The Company computes earnings per share in accordance with the provisions of Statement of Financial Accounting Standards 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. (k) Foreign Operations Some of the Company's operations are conducted in foreign areas of the Caribbean. In 2000, 49.7 percent of the Company's revenue was derived from foreign operations. Overseas contract work performed by the parent U.S. corporation is not considered foreign revenue for purposes of this calculation. (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 30 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements 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 prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from these estimates. (n) Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of The Company accounts for long-lived assets in accordance SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. In accordance with its policy, the Company recorded a charge of approximately $702,000 in 2000 and $805,000 in 1999 for the impairment of long-lived assets. The impairment of the assets on Saba occurred due to the decision to close the business. Impairment of goodwill recognized for the subsidiary on St. Martin was due to low profitability. The materials segment had $659,000 and the construction segment had $43,000 of impairment losses in 2000. 31 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (o) 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. (p) Reclassification Certain prior year amounts have been reclassified to conform with the current year presentation. (2) Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share data: 2000 1999 1998 --------- --------- --------- Weighted average number of common shares outstanding - basic 3,850,566 4,481,304 4,498,935 Effect of dilutive securities: Options 350,971 -- 21,525 --------- --------- --------- Weighted average number of common shares outstanding - diluted 4,201,537 4,481,304 4,520,460 ========= ========= ========= 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 805,350 of its outstanding common shares in 2000, of which 420,100 were received in partial consideration for the sale of the concrete operation in St. Thomas and the Tortola operation and 385,250 shares were repurchased on the Nasdaq market at an average cost of $6.97 per share. During 2000, the Company retired 675,850 shares and as of December 31, 2000 the Company had 171,300 shares of treasury stock, which may be used for exercise of stock options or may be retired. 32 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (3) Receivables Receivables consist of the following: December 31, ----------------------------- 2000 1999 ----------- ----------- Materials division trade accounts $10,679,035 $11,549,371 Construction division trade accounts receivable, including retainages 4,248,595 3,078,395 Accrued interest and other receivables 338,214 86,277 Notes and other receivables due from the Government of Antigua and Barbuda, net 7,669,420 8,421,855 Trade notes receivable - other 5,373,493 4,282,719 Due from employees and officers 247,101 282,390 ----------- ----------- 28,555,858 27,701,007 Allowance for doubtful accounts and notes (3,958,053) (5,265,825) ----------- ----------- $24,597,805 $22,435,182 =========== =========== Receivables are classified in the consolidated balance sheets as follows: December 31, ----------------------------- 2000 1999 ----------- ----------- Current assets $13,800,628 $12,878,643 Non-current assets 10,797,177 9,556,539 ----------- ----------- $24,597,805 $22,435,182 =========== =========== Included in notes and other receivables are unsecured notes due from the Government of Antigua and Barbuda totaling a net amount of $7,483,329 and $8,247,941 in 2000 and 1999, respectively, approximately $138,000 of which is classified as a current receivable. In April 2000 the Company amended the agreement with the Government of Antigua and Barbuda. The interest rate on the notes receivable was reduced from 10% to 6%. Since April 28, 2000 the Company has been recognizing interest income on the notes receivable for all payments. Prior to that date the Company recognized interest only for payments received in excess of agreed upon amounts. The gross balance of the notes is $30.7 million. The notes call for both quarterly and monthly principal and interest payments until maturity in 2015. The notes are being paid with the government's revenue from certain defined sources. The agreed upon sources are lease proceeds from a rental of a United States military base, fuel tax revenues and proceeds from a real estate venture. From time to time in the future the Company expects to forgive part of the gross balance to pay taxes and duties; therefore the notes may be paid off prior to the scheduled maturity. Cash receipts during 2000 were $2.1 million. Interest income recognized in 2000, 1999 and 1998 was $1,538,540, $417,147 and $746,120, respectively. The government has been delayed in their implementation of certain property taxes which were to provide funds for increased payments and, therefore, the agreed to additional payments of approximately $730,000 have not been received. Previously the Company had estimated that the Company would 33 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements 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 was anticipated, the interest recorded was $1.5 million. We expect to record interest of $1.9 million from these notes in 2001. The Company will only record interest on the notes for payments received. Antigua-Barbuda Government Development Bonds 1994-1997 series amounting to $186,091 and $173,914 in 2000 and 1999, respectively, are included in the total due from the government of Antigua and Barbuda. The Company also has net trade receivables from various Antiguan government agencies of $29,796 and $75,179 in 2000 and 1999, respectively. Several of the Company's customers perform services for the Antiguan government and depend on payments from the government to satisfy their obligations to the Company. Trade notes receivable - other consist of the following: December 31, ------------------------ 2000 1999 ---------- ---------- Unsecured promissory notes receivable with varying terms and maturity dates $455,992 $ 456,729 Notes receivable with varying terms and maturity dates, secured by real estate and equipment 951,058 858,800 8.0 percent note receivable, due on demand, secured by first mortgage on real property 817,788 817,788 Notes receivable bearing interest at 2.0 percent over prime interest rate, secured by real estate -- 549,402 8.0 percent note receivable, due in installments from August 2001 through July 2005, secured by land and building 600,000 600,000 Note receivable bearing interest at the prime rate due in installments through November 2001 secured by equipment 826,433 1,000,000 Note receivable bearing interest at the prime rate due in installments from January 2001 through December 2003, secured by land, equipment and stock 1,722,222 -- ---------- ---------- $5,373,493 $4,282,719 ========== ========== 34 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (4) Inventories December 31, ------------------------- 2000 1999 ---------- ---------- Inventories consist of the following: Sand, stone, cement and concrete block $2,422,566 $2,539,005 Maintenance parts 275,589 971,818 Other 239,944 318,627 ---------- ---------- $2,938,099 $3,829,450 ========== ========== (5) Investments in Unconsolidated Joint Ventures and Affiliates December 31, ------------------------- 2000 1999 ---------- ---------- Real Estate $281,819 $277,081 At December 31, 2000, the Company had equity interests in two real estate ventures consisting of 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 losses of $23,166 and $17,700 were recognized in 2000 and 1999, respectively, on all ventures accounted for under the equity method. (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, notes payable to banks, and current installments of long-term debt approximated fair value at December 31, 2000 because of the short maturity of these instruments. The carrying value of debt and most notes receivable approximated fair value at December 31, 2000 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. (7) Long-term Debt Long-term debt consists of the following: December 31, ------------------------------- 2000 1999 ---------- ----------- Installment notes payable in monthly installments through June 2004, bearing interest at a weighted average rate of 8.5 percent and secured by equipment with a carrying value of approximately $1,530,000 $1,284,878 $13,352,505 35 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, ------------------------------- 2000 1999 ---------- ----------- Notes and mortgages payable in installments through July 2003, bearing interest at 9.50 percent and secured by real property with a carrying value of approximately $249,000 140,625 158,213 Unsecured notes payable due through 2002 bearing interest at a weighted average rate of 5.9 percent 465,987 903,594 Unsecured note payable to the Company's President, $800,000 due on demand with the balance due April 1, 2002 and bearing interest at the prime interest rate 2,075,000 3,275,000 Unsecured note payable due in installments from 2001 through 2005, balloon payment of $500,000 due on January 1, 2006, interest at 2.0 percent over prime interest rate (note was paid off in March 2000) -- 1,000,000 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 300,000 425,000 Notes payable to a bank under a $200,000 line of credit, due on demand, bearing interest at the prime rate -- 200,000 Bank term loan of $6,000,000 due in monthly installments from December 1996 through November 2002 and bearing interest at 1 percent over the prime interest rate. Secured by notes receivable from the Government of Antigua and real property and equipment (Note was paid off in January 2000) -- 2,616,642 ---------- ----------- Total debt outstanding $4,266,490 $21,930,954 ========== =========== The effective interest on all debt outstanding was 9.5 percent at December 31, 2000 and 9.3 percent at December 31, 1999. A large portion of this debt was paid off in the first quarter of 2000. For further information see Note 18 of Notes to Consolidated Financial Statements. 36 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements Outstanding debt is shown in the consolidated balance sheets under the following captions: December 31, --------------------------- 2000 1999 ---------- ----------- Current installments of long-term debt $1,501,656 $ 6,956,246 Notes payable to banks 300,000 625,000 Long-term debt 2,464,834 14,349,708 ---------- ----------- $4,266,490 $21,930,954 ========== =========== The total maturities of all outstanding debt subsequent to December 31, 2000 are as follows: 2001 $1,801,656 2002 2,054,902 2003 399,315 2004 10,617 2005 -- Thereafter -- ---------- $4,266,490 ========== (8) Income Taxes Income tax expense (benefit) consists of: Current Deferred Total --------- --------- --------- 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 ========= ========= ========= 1998: Federal $ -- $ (735) $ (735) State -- -- -- Foreign 340,176 -- 340,176 --------- --------- --------- $ 340,176 $ (735) $ 339,441 ========= ========= ========= The significant components of deferred income tax benefit attributable to income or loss from continuing operations for the year ended December 31, 2000, 1999 and 1998 are as follows: December 31, --------------------------------------- 2000 1999 1998 ----------- ----------- ----------- Deferred income tax expense (benefit) $ 2,648,463 $ (668,163) $(1,691,364) (Decrease) increase in valuation allowance for deferred tax assets (2,902,361) 648,759 1,690,629 ----------- ----------- ----------- $ (253,898) $ (19,404) $ (735) =========== =========== =========== 37 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements The actual expense differs from the "expected" tax expense computed by applying the U.S. federal corporate income tax rate of 34% to income (loss) before income taxes is as follows:
2000 1999 1998 ----------- ----------- ----------- Computed "expected" tax expense (benefit) $ 6,528,804 $(1,033,060) $ 280,063 Increase (reduction) in income taxes resulting from: State taxes net of federal tax expense -- -- 36,928 Repatriated earnings of foreign subsidiary 2,035,275 901,000 561,000 Intercompany interest income untaxed by foreign jurisdiction -- (27,600) (451,008) Tax incentives granted to foreign subsidiaries (2,864,131) -- (496,580) Nontaxable capital gains (1,156,048) -- -- Adjustment to prior year deemed dividends from foreign subsidiaries -- (155,852) (1,496,000) Net operating loss not utilized 47,594 20,696 41,012 Change in deferred tax valuation allowance (2,902,361) 648,759 1,690,629 Differences in effective rate in foreign jurisdiction and other (973,377) (80,712) 173,397 ----------- ----------- ----------- $ 715,756 $ 273,231 $ 339,441 =========== =========== ===========
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, ------------------------- 2000 1999 ----------- ----------- Deferred tax assets: Allowance for bad debts $ 220,380 $ 254,849 Net operating loss carry-forwards 4,949,521 7,532,204 Reserves and other 435,492 1,278,110 Deferred income 366,958 -- ----------- ----------- Total gross deferred tax assets 5,972,351 9,065,163 Less valuation allowance (5,310,513) (8,212,874) ----------- ----------- Net deferred tax assets 661,838 852,289 ----------- ----------- 38 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, ------------------------- 2000 1999 ----------- ----------- Deferred tax liabilities: Plant and equipment, principally due to differences in depreciation and capitalized interest (787,592) (1,231,941) Total gross deferred tax liabilities (787,592) (1,231,941) ----------- ----------- Net deferred tax liabilities $ (125,754) $ (379,652) =========== =========== Net deferred tax liabilities: Net current deferred tax assets $ 240,341 $ 268,020 Net non-current deferred tax liabilities (366,095) (647,672) ----------- ----------- $ (125,754) $ (379,652) =========== =========== The valuation allowance for deferred tax assets as of December 31, 2000 was $5.3 million or about 89 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 (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 previous benefits. At December 31, 2000, approximately $37.6 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 at the U.S. federal tax rate, net of foreign tax credits, may be incurred. At December 31, 2000, the Company had accumulated net operating loss carryforwards available to offset future taxable income in its Caribbean operations of about $14.6 million, which expire at various times through the year 2010. 39 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (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, ------------------------ 2000 1999 ----------- ----------- Current assets $ 7,225,459 $14,529,863 Advances to the Company 9,923,726 4,135,354 Property, plant and equipment, net 11,963,903 15,727,631 Investments in joint ventures and affiliates, net 184,184 183,207 Notes receivable, net 8,218,904 7,685,329 Other assets 56,848 925,723 ----------- ----------- Total assets $37,573,024 $43,187,107 =========== =========== Current liabilities $ 3,161,433 $ 6,560,519 Long-term debt -- 1,527,621 Equity 34,411,591 35,098,967 ----------- ----------- Total liabilities and equity $37,573,024 $43,187,107 =========== =========== 2000 1999 1998 ------------ ------------ ------------ Revenue $ 32,419,421 $ 38,093,152 $ 34,361,166 Gain on sale of business 9,751,585 -- -- Income (loss) pretax 10,343,782 (904,252) 256,140 Net income (loss) 10,309,560 (1,170,284) (111,385) (10) Lease Commitments The Company leases real property, buildings and equipment under operating leases that expire over one to fifty-five years. Future minimum lease payments under noncancellable operating leases as of December 31, 2000 are as follows: Operating Leases ----------- Years ending December 31, 2001 $ 1,454,050 2002 1,342,427 2003 1,281,994 2004 1,207,556 2005 1,122,886 Thereafter 7,415,566 ----------- Total minimum lease payments $13,824,479 =========== Total operating lease expense was $3,473,030 in 2000, $4,118,946 in 1999 and $3,985,965 in 1998. Some operating leases provide for contingent rentals or royalties based on related sales and production; contingent expense amounted to $112,770 in 2000, $9,422 in 1999 and $130,370 in 1998. Included in the above minimum lease commitments are 40 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements royalty payments due to the owners of the Societe des Carrieres de Grand Case (SCGC) quarry. See Note 16. During November 1997, the Company sold its leasehold right on a long term land lease with the Dutch government of St. Maarten, and recorded a $240,000 loss on disposition of leasehold. The property was partially vacated during 1998, and the Company entered into a month-to-month lease for a portion of the property. On February 3, 1998, the Company sold Crown Bay Marina on St. Thomas, U.S. Virgin Islands, for $3.3 million, which approximated the net book value and related costs of disposition. Proceeds were utilized to repay about $3.0 million in debt on the property. The related long term operating lease was assigned to the new owner. (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 includes manufacturing and distribution of ready-mix concrete, block, crushed aggregate and cement. Construction 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, ------------------------------------------ 2000 1999 1998 ------------ ------------ ------------ Revenue (incl. inter-segment): Materials $ 51,466,445 $ 55,718,952 $ 50,923,706 Construction 14,421,338 13,289,689 15,358,591 Other -- -- 371,386 Elimination of inter-segment revenue (639,600) (974,838) (475,431) ------------ ------------ ------------ Total $ 65,248,183 $ 68,033,803 $ 66,178,252 ============ ============ ============ Operating (loss) income: Materials $ (1,607,653) $ (2,198,221) $ 693,331 Construction 1,266,349 (300,594) 713,689 Other -- -- 115,686 Credit for litigation -- 1,160,137 460,794 Unallocated corporate Overhead (819,000) (879,000) (1,037,794) ------------ ------------ ------------ Total $ (1,160,304) $ (2,217,678) $ 945,706 ============ ============ ============ Total assets: Materials $ 46,852,093 $ 55,210,123 $ 55,369,245 Construction 10,983,399 10,720,392 12,906,969 Other 14,300,579 15,983,499 14,153,905 ------------ ------------ ------------ Total $ 72,136,071 $ 81,914,014 $ 82,430,119 ============ ============ ============
41 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, ---------------------------------- 2000 1999 1998 ---------- ---------- ---------- Depreciation and amortization: Materials $3,596,902 $4,723,099 $4,285,242 Construction 1,577,797 1,648,584 1,556,891 Other -- -- 22,526 ---------- ---------- ---------- Total $5,174,699 $6,371,683 $5,864,659 ========== ========== ========== Capital expenditures: Materials $2,854,719 $7,924,195 $4,565,167 Construction 2,126,391 358,099 3,024,156 ---------- ---------- ---------- Total $4,981,110 $8,282,294 $7,589,323 ========== ========== ========== Operating (loss) income is revenue less operating expenses. In computing operating (loss) income, 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 identifiable assets, other. Revenue by geographic area includes only sales to unaffiliated customers, as reported in the Company's consolidated statements of operations. Foreign contract work performed by a U.S. domiciled company of $7,593,363 is considered foreign revenue for the purpose of the following table:
December 31, ------------------------------------- 2000 1999 1998 ----------- ----------- ----------- Revenue by geographic areas: U.S. and its territories $25,235,399 $22,970,710 $24,374,409 Netherlands Antilles 12,689,209 8,725,220 8,646,509 Antigua and Barbuda 12,593,564 11,822,155 10,785,627 French West Indies 9,158,988 8,718,285 6,324,012 Other foreign areas 5,571,023 15,797,433 16,047,695 ----------- ----------- ----------- Total $65,248,183 $68,033,803 $66,178,252 =========== =========== =========== Long-lived assets by geographic areas: U.S. and its territories $21,186,263 $18,849,542 $25,860,450 Netherlands Antilles 344,305 1,232,142 2,218,336 Antigua and Barbuda 7,280,881 8,501,170 6,105,165 French West Indies 4,206,217 4,581,460 5,749,216 Other foreign areas 132,500 5,178,977 6,006,396 ----------- ----------- ----------- Total $33,150,166 $38,343,291 $45,939,563 =========== =========== ===========
42 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (12) Related Party Transactions The Company leases a 4.4 acre parcel of real property in Florida from the Company's President. Annual rent on the property was $49,303 in 2000, 1999, and 1998, respectively. At December 31, 2000, the Company had a note payable of $2.1 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 a rate variable with the prime rate. Eight hundred thousand dollars is due on demand and $1.3 million is due on April 1, 2002. 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. At December 31, 2000 the Company had an investment and advances totaling $184,000 representing 1.2 percent interest in a real estate joint venture 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 recorded revenue of $2.7 million during 2000. The backlog on the contract as of December 31, 2000 was $12.3 million. The project has not yet received its total financing and completion of the project is pending additional financing. The Company has been advised by this entity that it has received a loan commitment letter from a bank, has entered into a contract with a reputable hotel chain for management of the hotel being built, and has received further financial commitments from other sources. All commitments are subject to significant conditions that the entity is currently working on fulfilling. Until the financing transaction is consummated there is uncertainty whether or not the project will receive its final financing. The Company is monitoring the situation closely. On November 1, 1999, the Company extended a $1.0 million note to the venture, secured by equipment. See Note 3 of Notes to Consolidated Financial Statements. As of December 31, 2000 the Company had trade receivables, net of billings in excess of costs and estimated earnings, from the venture of approximately $2.0 million. The Company's President has personally guaranteed up to $1.2 million of the outstanding trade receivables from the venture, subject to exhaustion by the Company of all other remedies. The Company expects to receive interim payments from the venture's cash resources to cover its incremental costs while the venture is seeking its total financing. Subsequent to year-end the Company received $778,000 in payments from the venture and issued $636,000 in additional contract billings. 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 43 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements Company under the split-dollar life insurance plan was $853,488 in 2000 and $763,337 in 1999, 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 options have 10-year terms, vest and become fully exercisable six months after the issue date. Stock option activity by year was as follows: Employee Plans Directors' Plan --------------------- ------------------- Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price ------ -------- ------ --------- Balance at 12/31/97 395,775 $5.11 35,000 $10.83 Granted 110,000 3.15 3,000 3.00 Exercised -- -- -- -- Expired (4,000) 6.75 -- -- ------- ------ 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 -- -- ------- ------- 44 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements Employee Plans Directors' Plan ------------------- ---------------- Exercise Exercise Shares Price Shares Price ------ -------- ------ -------- Balance at 12/31/00 784,575 $3.53 50,000 $8.55 ======= ====== Exercisable 437,125 $4.56 50,000 $8.55 ======= ====== Available for future grant 62,000 ======= Weighted average information: Total Outstanding Options Exercisable Options ----------------------------- ------------------- Weighted Weighted Number Averag Weighted Number Average of Exercise Remaining of Exercise Price Range Shares Price Life Shares Price ----------- ------- -------- --------- ------- -------- $1.50 - $ 2.33 472,100 $1.82 8.0 years 196,075 $2.10 $2.94 - $ 6.25 115,000 $3.98 7.4 years 55,000 $3.97 $6.63 - $14.00 247,475 $7.59 4.1 years 236,050 $7.60 The per-share weighted-average fair value of stock options granted during 2000, 1999 and 1998 was $1.10, $1.89 and $2.46 respectively, on the grant date using the Black Scholes option-pricing model with the following assumptions: 2000 1999 1998 -------- -------- -------- Expected dividend yield -- -- -- Expected price volatility 39.8% 51.5% 38.5% Risk-free interest rate 6.5% 5.4% 5.6% Expected life of options 10 years 10 years 10 years The Company applies APB Opinion No. 25 in accounting for its plan and, accordingly, no compensation cost has been recognized for stock options in the consolidated financial statements. Had the Company determined compensation costs based on 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: 2000 1999 1998 -------------- ------------- ----------- Net earnings (loss), as reported $ 18,486,608 $ (3,311,644) $ 484,273 Net earnings (loss), pro forma $ 18,288,801 $ (3,471,627) $ 335,277 Basic earnings (loss) per share from continuing operations, as reported $ 4.80 $ (0.74) $ 0.11 ============== ============= =========== Basic earnings (loss) per share from continuing operations, pro forma $ 4.75 $ (0.77) $ 0.07 ============== ============= =========== 45 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (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 $140,257 in 2000, $167,975 in 1999, and $160,446 in 1998. (15) Costs and Estimated Earnings on Contracts Included in the accompanying consolidated balance sheets under the following captions: December 31, --------------------------- 2000 1999 ------------ ------------ Costs in excess of billings and estimated earnings $ 1,405,898 $ 258,780 Billings in excess of costs and estimated earnings (535,547) (1,026,316) ------------ ------------ $ 870,351 $ (767,536) ============ ============ 2000 1999 ------------ ------------ Costs incurred on uncompleted contracts $ 4,810,581 $ 8,164,993 Costs incurred on completed contracts 22,395,159 17,463,450 Estimated earnings 6,212,302 5,622,786 ------------ ------------ 33,368,042 31,251,229 Less: Billings to date (32,497,691) (32,018,765) ------------ ------------ $ 870,351 $ (767,536) ============ ============ (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 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% of his base salary, and shall continue for the remainder of his life. In the event that he is survived by a spouse, then the surviving spouse shall receive a benefit equal to 100% of his base salary for the shorter of five years 46 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements 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 $220,000 in 2000. In the late 1980s, Bouwbedrijf Boven Winden, N.V., ("BBW") currently a Devcon subsidiary in the Netherlands Antilles, supplied concrete to a large apartment complex on the French side of St. Maarten. In the early 1990s the buildings began to develop exterior cracking and "popouts." In November 1993, BBW was named one of several defendants including the building's insurer, in a suit filed by Syndicat des Coproprietaires la Residence Le Flamboyant (condominium owners association of Le Flamboyant), in the French court "Tribunal de Grande Instance de Paris", case No. 510082/93. A French court assigned an expert to examine the cause of the cracking and popouts and to determine if the cracking/popouts are caused by a phenomenon known as alkali reaction (ARS). The expert found, in his report dated December 3, 1998, BBW 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, the plaintiff would have to file the same claim in an Antillean court. It is too early to predict the final outcome of this matter and no actions have been taken in or by the court during 1999 and 2000. 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 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. 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 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 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. 47 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (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 in excess of billings and estimated earnings. No single customer accounted for more than 10% of the Company's sales in 2000, 1999 or 1998 and there are no receivables from a single customer that represent more than 10% of total receivables as of December 31, 2000 or 1999, 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 $12.3 million. A subsidiary and two of the Company's directors are minority partners of, and the Company's President is Chairman of, the entity developing the project. This partnership does not yet have the financing to complete the project, therefore, the amount of the backlog could substantially diminish and the timing of completion of the contract could vary. 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 2001 and on Antigua November 2000. The Company is currently finalizing new contracts for the unions on St. Croix and Antigua. There can be no assurance that said agreements will be renewed without labor disturbances or conflicts. In the past there have been no labor conflicts. Management believes 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, the consolidated financial position, results of operations, or cash flows could be adversely affected. 48 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (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. 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 in the first quarter 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. 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% 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 $1.1 million on the transaction will be deferred to the first quarter of 2002, when the earnout period has finished. 49 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements The Company has used the proceeds from these transactions to pay off most of its equipment financing debt, bank debt and other debt. The gain on sale of businesses is 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 ============ 50 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. 51 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, 2000 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, 2000 is submitted herewith: Form 10-K Item (Page Number(s) ---- -------------- Financial Statement Schedule Schedule II - Valuation and Qualifying Accounts............. 57 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. 52 (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 Loan Agreement dated November 12, 1996 between V. I. Cement and Building Products, Inc.and Banco Popular de Puerto Rico (10) (10.31) 53 10.24 $1,000,000 Promissory Note dated November 12, 1996 between V. I. Cement and Building Products, Inc. and Banco Popular de Puerto Rico (10) (10.33) 10.25 Form of Note between Devcon International Corp. and Donald L. Smith, Jr. (11)(10.31) 10.26 Asset Purchase Agreement between Caricement B.V., Union Maritima International S.A. and Devcon International Corp. and its subsidiaries dated February 22, 2000 (14) 10.27 Stock Purchase Agreement between Caribbean Construction and Development, Ltd., Devcon International Corp. and Caricement Antilles N.V. dated February 22, 2000 (14) 10.28 Purchase Agreement by and among Dev on International Corp., V.I. Cement and Building Products, Inc., Paulina Dean, St. Thomas Concrete, Inc. and W. Kemble Ketcham dated January 7, 2000 (12) 10.29 Supply Agreement between Union Maritima International S.A. and Devcon International Corp. dated December 29, 1999 (15)(10.36) 10.30 Distributorship Agreement between Union Maritima International S.A. and Devcon International Corp. dated February 22, 2000 (15)(10.36) 10.31 Registrant's 1999 Stock Option Plan (13) 10.32 Second Amended and Restated Salary Continuation and Retirement Benefit Agreement dated June 30, 2000 (16) 10.33 Amendment No. 9 to the St. John's Agreement, dated April 28, 2000 (16) 21.1 Registrant's Subsidiaries (16) 23.1 Consent of KPMG LLP (16) (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. 54 (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. (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) 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) 10.6 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. 55 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 27, 2001 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 27, 2001 DEVCON INTERNATIONAL CORP. By:/S/ DONALD L. SMITH, JR. ------------------------ Donald L. Smith, Jr. Chairman, President and Chief Executive Officer March 27, 2001 By:/S/ RICHARD L. HORNSBY ---------------------- Richard L. Hornsby Executive Vice President and Director March 27, 2001 By:/S/ JAN A. NORELID ------------------ Jan A. Norelid Vice President of Finance, Chief Financial Officer and Treasurer March 27, 2001 By:/S/ ROBERT A. STEELE -------------------- Robert A. Steele Director March 27, 2001 By:/S/ ROBERT L. KESTER -------------------- Robert L. Kester Director March 27, 2001 By:/S/ W. DOUGLAS PITTS -------------------- W. Douglas Pitts Director March 27, 2001 By:/S/ JOSE A. BECHARA, JR. ------------------------ Jose A. Bechara, Jr. Director 56 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 - ------------------ ------- ------- ---------- ------- 1998 $4,984,839 $ (36,191) $ (243,613) $4,705,035 ========== =========== =========== ========== 1999 $4,705,035 $ (174) $ (352,252) $4,352,609 ========== ============ ============ ========== 2000 $4,352,609 $ 174,209 $ (1,704,861) $2,821,957 ========== =========== ============ ==========
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 - ------------------ ------- ------- ---------- ------- 1998 $ 813,226 $ (30,701) $ (100,000) $ 682,525 ========== =========== ========== ========== 1999 $ 682,525 $ 230,691 $ -- $ 913,216 ========== =========== ========== ========== 2000 $ 913,216 $ 160,602 $ 62,277 $1,136,095 ========== =========== ========== ==========
Note: Deductions include amounts to reflect the sale of CCD and DMP in the year 2000. 57 EXHIBIT INDEX Exhibit Description ------- ----------- 10.32 Second Amended and Restated Salary Continuation and Retirement Benefit Agreement dated June 30, 2000 10.33 Amendment No. 9 to the St. John's Agreement, dated April 28, 2000 21.1 Registrant's Subsidiaries 23.1 Consent of KPMG LLP EX-10.32 2 0002.txt EXHIBIT 10.32 SECOND AMENDED AND RESTATED SALARY CONTINUATION AND RETIREMENT BENEFIT AGREEMENT THIS AGREEMENT is amended and restated as of the 30th day of June, 2000 (the "Effective Date"), by and between DEVCON INTERNATIONAL CORP., a Florida corporation (the "Company"), and DONALD L. SMITH, JR., an individual residing in Palm Beach County, Florida (the "Employee"). RECITATIONS WHEREAS the Company and the Employee entered into a Stock Retirement and Salary Continuation Agreement dated June 1974 (the "Retirement Agreement"); and WHEREAS the Company and the Employee amended and restated the Retirement Agreement pursuant to a Life Insurance and Salary Continuation Agreement by and between the Company and the Employee dated March 29, 1989 (the "Life Insurance and Salary Continuation Agreement"); and WHEREAS the Company and the Employee wish to recognize the contributions by the Employee to the Company and to provide an additional incentive to retain the Employee, upon whose services, effort, and judgment the success of the Company is in part dependent; and WHEREAS the Company and the Employee therefore wish to amend and restate the Life Insurance and Salary Continuation Agreement as the Salary Continuation and Retirement Benefit Agreement so as to provide the Employee with a Retirement Benefit, and to provide the Surviving Spouse of the Employee with a Survivor Benefit in accordance with the terms set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the foregoing, of the mutual promises hereinafter set forth and of other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby amend and restate the Life Insurance and Salary Continuation Agreement as the Salary Continuation and Retirement Benefit Agreement (the "Agreement"), and agree as follows: Section 1. Salary Continuation Death Benefit. If the Employee shall cease to be employed by the Company as a result of his Disability (as defined below) or death, the Company shall pay monthly payments (as calculated below) as provided herein for a period of sixty (60) consecutive months, commencing on the first day of the calendar month coinciding with or immediately following the date the Employee's employment is terminated by reason of his Disability or death. For purposes of this Agreement, Disability shall be defined to mean the Employee's permanent mental or physical disability as determined by a licensed medical physician satisfactory to the Company. The amount of each monthly payment shall be equal to the sum of (i) the Employee's monthly salary for the last full month immediately preceding the month the Employee's employment is terminated, and (ii) one-twelfth of the Employee's annual bonus in the calendar year immediately preceding such termination. The monthly payments shall be paid to the Employee, or if the Employee should die before all of the payments required under this provision have been made, to the beneficiary or beneficiaries designated by the Employee by written notice to the Company, or if no beneficiary has been designated or then shall be living, to the Employee's estate. Section 2. Retirement Benefits. (a) If the Employee's employment with the Company terminates on or after the earlier of (i) March 31, 2003, or (ii) the date on which a Change in Control of the Company occurs, and such termination is for any reason other than the death or Disability (as defined in Section 1 hereof) of the Employee, then the Company shall pay the Employee a monthly retirement benefit (the "Retirement Benefit") equal to seventy-five percent (75%) of the Employee's highest monthly base salary during the twenty-four-month period immediately preceding the date on which the Employee's employment terminates (the "Retirement Date"). Payment of the Retirement Benefit shall commence on the first day of the calendar month coinciding with or immediately following the Employee's Retirement Date and shall continue with the final payment being due on the first day of the calendar month coinciding with or immediately preceding the date of the Employee's death. (b) In the event that the Employee dies after his Retirement Date and is survived by a spouse to whom he was married on his Retirement Date (the "Surviving Spouse"), then the Company shall pay the Surviving Spouse a monthly benefit equal to one hundred percent (100%) of the Employee's highest monthly base salary during the twenty-four-month period immediately preceding his Retirement Date (the "Survivor Benefit"). The Survivor Benefit shall be payable to the Surviving Spouse on a monthly basis commencing on the first day of the month immediately following the date on which the Employee dies and continuing with the final payment being due on the earlier of (i) the first day of the sixtieth calendar month following the date on which the Employee dies, or (ii) the first day of the calendar month coinciding with or immediately preceding the date of the Surviving Spouse's death. (c) For the purposes of this Agreement, the term "Change in Control" shall mean: (i) Approval by the shareholders of the Company of a reorganization, merger, consolidation or other form of corporate transaction or series of transactions, in each case, with respect to which persons who were the shareholders of the Company immediately 2 prior to such reorganization, merger or consolidation or other transaction do not, immediately thereafter, own more than fifty percent (50%) of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities, in substantially the same proportions as their ownership immediately prior to such reorganization, merger, consolidation or other transaction, or a liquidation or dissolution of the Company or the sale of all or substantially all of the assets of the Company (unless such reorganization, merger, consolidation or other corporate transaction, liquidation, dissolution or sale is subsequently abandoned); or (ii) Individuals who, as of the Effective Date, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Company) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (iii) The acquisition (other than from the Company) by any person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act, of beneficial ownership (within the meaning of Rule 13-d promulgated under the Securities Exchange Act) of more than twenty-five percent (25%) of either the then outstanding shares of the Company's Common Stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors (hereinafter referred to as the ownership of a "Controlling Interest") excluding, for this purpose, any acquisitions by (1) the Company or its Subsidiaries, (2) any person, entity or "group" that as of the Effective Date owns beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act) of a Controlling Interest, or (3) any employee benefit plan of the Company or its subsidiaries. Section 3. Claims Procedure. In the event that any Employee or any beneficiary claims to be entitled to benefits under this Agreement and the Company determines that such claim should be denied in whole or in part, the Company shall, in writing, notify such claimant within ninety (90) days of receipt of such claim that his claim has been denied, setting forth the specific reasons for such denial. Such notification shall be written in a manner reasonably expected to be understood by such Employee or any beneficiary and shall set forth the pertinent sections of the Agreement relied on, and where appropriate, an explanation of how the claimant can obtain review of such denial. Within sixty (60) days after the mailing or delivery by the Company of such notice, such claimant may request, by mailing or delivery of written notice to the Company, a review and/or hearing by the Company of the decision denying the claim. If the claimant fails to request such a review and/or hearing within such sixty (60) day period, it shall be conclusively determined for all purposes of this Agreement that the denial of such claim by the Company is correct. If such claimant requests a hearing within such sixty (60) day period, 3 the Company shall designate a time (which time shall not be less than seven (7) nor more than sixty (60) days from the date of such claimant's notice to the Company) and a place for such hearing, and shall promptly notify such claimant of such time and place. A claimant or his authorized representative shall be entitled to inspect all pertinent documents and to submit issues and comments in writing. If only a review is requested, the claimant shall have sixty (60) days after filing a request for review to submit additional written material in support of the claim. After such review and/or hearing, the Company shall promptly determine whether such denial of the claim was correct and shall notify such claimant in writing of its determination with sixty (60) days after such review and/or hearing or after receipt of any additional information submitted. Section 4. Unfunded Arrangement. The obligations of the Company under this Agreement shall be paid from the general assets of the Company and not from any particular fund. It is intended that this arrangement shall constitute an "unfunded" arrangement for a select group of management or highly compensated employees under the Employee Retirement Income Security Act of 1974, as amended. Any assets acquired by the Company relating to this arrangement shall be subject to the claims of the Company's creditors, shall be considered general assets of the Company and shall not be subject to any claims by the Employee or any beneficiary thereof. Nothing contained in this Agreement shall be interpreted to grant to any Employee or any beneficiary, any right, title or interest in any assets of the Company, and the Employee and any beneficiaries shall be unsecured general creditors of the Company with respect to any rights they may have to benefits under the Agreement. Section 5. Notices. All notices under this Agreement shall be in writing and shall be given by personal delivery, by telegram, or by registered or certified mail, postage prepaid, return receipt requested, to the parties at the addresses as follows (or at such other address as any of the parties may hereafter specify in writing from time to time): To the Company: Devcon International Corp. 1350 E. Newport Center Drive Suite 201 Deerfield Beach, Florida 33443 Attention: Chief Financial Officer To the Employee: Donald L. Smith, Jr. 1161 Spanish River Road Boca Raton, Florida 33432 Notices, if personally delivered, shall be deemed to have been received on the date delivered; if by telegram, on the date sent; and if given by registered or certified mail, on the third business day after mailed. Section 6. Withholding Taxes. The Company shall withhold from any and all payments made by the Company pursuant to this Agreement an amount that shall satisfy the 4 Company's legal obligation to withhold any and all appropriate federal, state, and local taxes, including without limitation those taxes imposed upon the Employee by the Federal Insurance Contributions Act ("FICA"), as applicable to any and all payments made by the Company pursuant to this Agreement. Section 7. Certain Additional Payments by the Company. Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, distribution or other action by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, (including any additional payments required under this Section 7) (a "Payment") would be subject to an excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by the Employee with respect to any such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), the Company shall make a payment to the Employee (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any Excise Tax) imposed upon the Gross-Up Payment, the Employee retains (or has had paid to the Internal Revenue Service on his behalf) an amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the Payments and (y) the product of any deductions disallowed because of the inclusion of the Gross-Up Payment in the Employee's adjusted gross income and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made. For purposes of determining the amount of the Gross-Up Payment, the Employee shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Gross-Up Payment is to be made, and (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. Section 8. Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Florida without regard to its conflicts or choice of laws. Section 9. Entire Agreement. This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements, under-standings, negotiations and discussions, both written and oral, between or among the parties hereto with respect to such subject matter. This Agreement may not be amended or modified in any way except by a written instrument executed by both parties. Section 10. Benefits; Binding Effect. This Agreement shall be for the benefit of, and shall be binding upon, the parties hereto and their respective heirs, personal representatives, executors, legal representatives, successors and assigns. Section 11. No Waivers. The waiver by any party hereto of the other party's prompt and complete performance, or breach or violation of any provision of this Agreement shall not 5 operate as, nor be construed to be, a waiver of any subsequent breach or violation, and the waiver by any party hereto to exercise any right or remedy that he or it may possess shall not operate as, nor be construed to be, the waiver of such right or remedy by the other party or a bar to the exercise of such right or remedy by such party upon the occurrence of any subsequent breach or violation. Section 12. Severability. The invalidity of any provisions of this Agreement shall not affect the enforceabi1ity of the remaining provisions of this Agreement or any part hereof, all of which are inserted conditionally on their being valid in law, and, in the event that a provision of this Agreement shall be declared invalid by a court of competent jurisdiction, this Agreement shall be construed as if such invalid provision had not been inserted. Section 13. Section Headings; Other. The section and other headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of any or all of the provisions of this Agreement. Section 14. Attorneys' Fees. In the event of any litigation arising out of or relating to this Agreement, the prevailing party shall be entitled to recover all costs and expenses incurred therein, including, without limitation, reasonable attorneys' fees and costs, including appellate attorneys' fees and costs and other fees and costs resulting from any action to confirm the award or enforce the judgment resulting therefrom, and such costs, expenses and fees shall be included in and made a part of any judgment or award rendered in such litigation. Section 15. Counterparts. This Agreement may be executed in any number of counterparts and by the separate parties hereto in separate counterparts, all of which shall be deemed to be an original and one and the same instrument. [The signature page follows.] 6 IN WITNESS WHEREOF, each of the undersigned has executed as of the day first written above. THE COMPANY: DEVCON INTERNATIONAL CORP. By: /S/ RICHARD L. HORNSBY ----------------------------- Richard Hornsby, Executive Vice President THE EMPLOYEE: By: /S/ DONALD L. SMITH, JR. ----------------------------- Donald L. Smith, Jr. 7 EX-10.33 3 0003.txt EXHIBIT 10.33 AMENDMENT NO. 9 TO ST. JOHN'S DREDGING AND DEEP WATER PIER CONSTRUCTION AGREEMENT This Amendment No. 9 dated as of April 28, 2000 (the "Debt Consolidation Agreement") to the St. John's Dredging and Deep Water Pier Construction Agreement dated April 3, 1987 by and between ANTIGUA and BARBUDA acting by and through its government (hereinafter "Antigua") and ANTIGUA MASONRY PRODUCTS, LIMITED, a corporation organized and existing under the laws of Antigua and Barbuda and ANTIGUA HEAVY CONSTRUCTORS, LIMITED, a subsidiary of Antigua Masonry Products, Limited (hereinafter Antigua Masonry Products, Limited and Antigua Heavy Constructors, Limited, referred to collectively as "AMP"): WHEREAS, Antigua desires to consolidate and restructure the terms of the debt to AMP (as hereinafter defined), which debt resulted from the work performed under the terms of the following agreements by and between Antigua and AMP: o The St. John's Dredging and Deep Water Pier Construction Agreement dated April 3, 1987 which was amended as follows: o Amendment No. 1 dated June 15, 1988 o Amendment No. 2 dated December 7, 1988 o Amendment No. 3 dated January 23, 1989 o Amendment No. 4 dated April 5, 1989 o Amendment No. 5 dated January 29, 1991 o Amendment No. 6 dated November 30, 1993 o Amendment No. 7 dated November 30, 1993 o Amendment No. 8 dated October 1, 1996 o 1989 Paving Agreement No. 1 effective January 23, 1989 o 1989 Paving Agreement No. 2 effective April 5, 1989 o 1993 Paving Agreement effective November 31, 1993 The above agreements are hereinafter referred to as the "Construction Agreements". WHEREAS, Antigua desires to consolidate the Debt into two promissory notes and extend the repayment term and reduce the interest rate, and WHEREAS, Antigua desires that AMP make a prepayment of US$2,500,000 against future income taxes and Customs Duties and Taxes due from AMP and its subsidiaries, Antigua Heavy Constructors, Ltd., Antigua Cement, Ltd., and Antigua Development and Construction, Ltd. (hereinafter the "AMP Subsidiaries") which prepayment will be applied to reduce the Debt, and Amendment No. 9 Construction Agreement WHEREAS, AMP desires that Antigua confirm certain specific sources of funds and the security for debt repayment and assume certain debt due AMP from Deep Bay Development Co., Ltd. (hereafter "Deep Bay") as a direct obligation of Antigua, the payment of which has previously been guaranteed by Antigua under the terms of the Construction Agreements, and WHEREAS, the Construction Agreements provide that AMP and certain subsidiaries of AMP have the right to set off amounts due to Antigua against amounts due to AMP by Antigua, and WHEREAS, AMP currently owes Antigua EC$2,767,582 (US$1,025,030) for duties, consumption taxes and customs service tax ("Customs Duties and Taxes") as of April 28, 2000, which Antigua and AMP desire to be offset against the Debt in accordance with the Construction Agreements. NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, Antigua and AMP agree as follows: 1. As of April 28, 2000, the total indebtedness (including accrued interest) due to AMP from Antigua which is being consolidated under the terms of this Agreement is US$35,966,295 (hereinafter, including all interest accrued thereon the "Debt"). This includes the debt of Deep Bay to AMP which Antigua hereby accepts as a direct obligation of Antigua to pay AMP and AMP's accounts receivable from the Ministry of Public Works. A detailed summary of the Debt, showing the projected principal balance and interest accrued as of April 28, 2000 is contained in Exhibit "A" to this Agreement. 2. Antigua hereby agrees to offset EC$2,767,582 due from AMP and the AMP Subsidiaries for Customs Duties and Taxes as of April 28, 2000 against the Debt. The Financial Secretary will issue a letter to AMP to this effect at the closing of this Agreement. 3. AMP agrees to make a prepayment of US$2,500,000 against future income taxes, duties and consumption taxes due from AMP and the AMP Subsidiaries which prepayment will be applied to reduce the Debt. AMP will file a monthly report with the Minister of Finance setting forth the Customs Duties and Taxes and income taxes incurred by AMP, AHC and ACL for the month and cumulative since the closing of this Agreement and the balance of the US$2,500,000 prepayment. 4. The Debt, consisting of 39 unpaid promissory notes issued by Antigua, 3 unpaid promissory notes issued by Deep Bay Development Company, Ltd. and Public Works accounts receivable will be restructured into two promissory notes. a) Dredging/Harbour Construction (the "Harbour Note"). Amendment No. 9 Construction Agreement b) Road Work, Paving and Other Construction, including the indebtedness of Deep Bay Development and Public Works accounts receivable (the "Other Construction Note"). The amount of this note to be determined after deducting the current debt of AMP to Antigua for Customs Duties and Taxes, the US$2,500,000 prepayment and US$1,600,000 due from AMP to Antigua in connection with the sale of condominiums under the terms of the agreement between CorbKinnon Ltd. and Antigua. The amounts of this debt to be determined immediately prior to the closing of the Agreement. 5. The Harbour Note will have the following terms and conditions: a) Principal amount of debt US$18,589,637. b) Term of note - 15 years, three months. c) Interest rate - 6% per annum. d) Principal and interest payments as follows: o US$312,500 per quarter on the first day of February, May, August and October. Source of payment is rental of property to the United States Department of Defense (U.S. Air Force). o US$50,000 per month payable on the first day of each calendar month. Source of payment is Antigua's fuel tax collections on deposit at the Swiss American National Bank of Antigua. Antigua warrants that it has issued or will issue by the 30th of April 2000, an irrevocable letter to the Swiss American National Bank of Antigua instructing the bank to make this US$50,000 per month transfer on the first day of each month, such letter to be substantially in the form attached hereto as Exhibit "B". Antigua further warrants that should Antigua elect to change the depository bank for fuel tax collections to another bank (the "Successor Bank"), then Antigua will issue a similar irrevocable letter to the Successor Bank. e) Such other terms as set forth in the form of note attached hereto as Exhibit "C". If all payments are made on the due dates the Harbour Note (US$18,589,637) will be retired in July 2015. 6. The Other Construction Note will have the following terms and conditions: a) Principal amount of debt: o Debt amount US$17,376,658 Less: tax and duty prepayment (2,500,000) Customs Duties and Taxes from AMP, AHC and ACL (1,025,030) Amount due Antigua re: CorbKinnon (1,600,000) ------------- US$12,251,628 b) Term of note - 15 years. c) Interest rate - 6% per annum. d) Principal and interest payments as follows: o US$43,000 per month payable on the first day of each month. Source of payment is revenue due to Antigua from its ownership interest in NewPort (Antigua) Ltd. ("NewPort"). Antigua warrants that it will issue by the 30th of April 2000 an irrevocable letter to NewPort instructing NewPort to transfer all dividend payments due to Antigua to AMP bank accounts as designated by AMP. Such letter to be substantially in the form attached hereto as Exhibit "D". o US$61,400 per month payable on the first day of each month. Antigua warrants that it will issue by the 1st of July 2000 an irrevocable letter to its depository bank to make this $61,400 per month transfer on the first day of each month beginning the 1st of August 2000, such letter to be substantially in the form attached hereto as Exhibit "E". Antigua further warrants that should Antigua elect to change its depository bank to another bank (the "Successor Bank"), then Antigua will issue a similar irrevocable letter to the Successor Bank. Antigua further warrants that adequate funds will be maintained in its depository bank account to make the monthly payments. e) Such other terms as set forth in the form of note attached hereto as Exhibit "F". 7. Antigua represents and warrants that all of its revenues set forth below will be used by Antigua only for one purpose, to pay amounts due on the Harbour Note immediately upon receipt of such revenues by Antigua. Antigua grants AMP first priority security interest in all of the following sources: Amendment No. 9 Construction Agreement a) US$312,500 per quarter revenues to Antigua to be received from or paid by the United States Department of Defense (U.S. Air Force) for rental of property in Antigua ("Air Force Revenues"). b) US$50,000 to be transferred on the first business day of each month from Antigua's fuel tax collections on deposit at the Swiss American National Bank of Antigua to AMP's account at the Bank of Nova Scotia (account number 1101-16) ("Fuel Tax Payments"). c) All revenues due or paid to or received by Antigua from its interest in NewPort (Antigua), Limited, including the proceeds from any sale by Antigua of its ownership interest in NewPort (Antigua) Limited ("NewPort Payments"). d) US$61,400 to be transferred on the first business day of each month from its depository account to Antigua Heavy Constructors, Ltd.'s account at the Bank of Nova Scotia (account number 1101-16). 8. Antigua represents and warrants that all of its revenues set forth below will be used by Antigua only for one purpose, to pay amounts due on the Other Construction Note immediately upon receipt of such revenues by Antigua. Antigua grants AMP first priority security interest in the following source: o All revenues due or paid to or received by Antigua from its interest in CorbKinnon, Limited, including any proceeds from any sale by Antigua of its ownership interest in CorbKinnon, Limited ("CorbKinnon Payments"). 9. Antigua hereby reconfirms that AMP's income from the Construction Agreements and the related interest income from the Debt is exempt from income tax. 10. Antigua agrees to obtain Cabinet approval by April 30, 2000 and to undertake any other needed action and do whatever is constitutionally necessary to give full effect to this Agreement. 11. The Closing of the transactions hereunder shall take place at the Ministry of Finance on April 28, 2000. The following documents shall be exchanged at the Closing: a) AMP shall surrender the original unpaid 10% promissory notes to Antigua. b) Antigua shall issue the following to AMP: o The Harbour Note and the Other Construction Note executed by the Minister of Finance and witnessed by the Financial Secretary. Amendment No. 9 Construction Agreement o A copy of Cabinet Minutes authorizing the debt restructure. o A copy of the irrevocable letter to Swiss American National Bank as described in Exhibit "B" signed by the Financial Secretary. o A copy of the irrevocable letter to NewPort (Antigua) Ltd. as described in Exhibit "D" signed by the Financial Secretary. o A copy of the irrevocable letter to Antigua's depository bank as described in Exhibit "E" signed by the Financial Secretary. o A letter to AMP signed by the Financial Secretary setting forth the amount of Customs Duties and Taxes being offset against the Debt in determining the amount of the Other Construction Note. Amendment No. 9 Construction Agreement IN WITNESS WHEREOF, the parties hereto, by and through their respective undersigned signatories, have each executed and delivered this Agreement as of this ____ day of ________________, 2000. WITNESS: ANTIGUA AND BARBUDA, acting through its government /S/ LENNOX WESTON By: /S/ JOHN ST. LUCE - -------------------------------- ------------------------------------ John E. St. Luce, Finance Minister WITNESS: ANTIGUA HEAVY CONSTRUCTORS, LIMITED, as assignee of ANTIGUA MASONRY PRODUCTS, LIMITED /S/CHARLIE WETHERILL By: /S/ RICHARD L. HORNSBY - -------------------------------- ------------------------------------ Richard L. Hornsby, Director WITNESS: ANTIGUA MASONRY PRODUCTS, LIMITED /S/CHARLIE WETHERILL By: /S/ RICHARD L. HORNSBY - -------------------------------- ------------------------------------ Richard L. Hornsby, Director EXHIBITS A. SUMMARY OF ANTIGUA DEBT B. IRREVOCABLE LETTER TO BANK (US$50,000 Per Month Transfer) C. PROMISSORY NOTE (HARBOUR NOTE) D IRREVOCABLE LETTER TO NEWPORT (ANTIGUA) LTD. E. IRREVOCABLE LETTER TO BANK (US$65,000 Per Month Transfer) F. PROMISSORY NOTE (OTHER CONSTRUCTION NOTE) EXHIBIT "A" SUMMARY OF ANTIGUA DEBT Antigua Masonry Products, Ltd. And Antigua Heavy Constructors, Ltd. Summary of Amounts Due from the Government of Antigua Balances as of April 28, 2000
04/28/00 04/28/00 04/28/00 Date of Principal Interest Total Co. Description Note Balance Balance Balance - --- ----------- -------- ----------- ---------- ----------- AMP Dredging & Pier Construction Various $18,502,265 $ 87,372 $18,589,637 AMP Paving 1989 03/29/89 1,048,588 1,065,560 2,114,148 AMP Paving 1989 05/15/89 291,111 292,252 583,363 AMP Paving 1989 06/15/89 749,268 745,577 1,494,845 AMP Paving 1989 07/15/89 703,815 694,483 1,398,298 AMP Paving 1989 08/15/89 279,399 273,289 552,688 AMP Paving 1989 09/15/89 649,849 630,041 1,279,890 ----------- ---------- ----------- Subtotal - 1989 Paving 3,722,030 3,701,202 7,423,232 =========== ========== =========== AHC Paving 1993 06/15/94 4,600,960 2,452,567 7,053,527 AHC Deep Bay Development Co. 04/29/89 200,000 200,011 400,011 AHC Deep Bay Development Co. 04/29/89 128,000 128,551 256,551 AHC Deep Bay Development Co. 08/01/89 527,803 449,245 977,048 ----------- ---------- ----------- Subtotal - Deep Bay Dev. 855,803 777,807 1,633,610 =========== ========== =========== AMP Other Projects (1) 01/01/94 698,011 447,696 1,145,707 AMP Public Works Accounts (2) - 120,581 - 120,581 ----------- ---------- ----------- Grand Totals at 4/28/00 $28,499,650 $7,466,645 $35,966,295 =========== ========== =========== (1) Yasco Sports Complex $ 146,162 Bolans Bridge 72,500 High Point Oil Terminal Improv. 139,070 Concrete & Block for Road Improv. 340,279 ----------- Total $ 698,011 =========== (2) AMP Public Works Accounts: PUB 101 $ 12,092 PUB 102 45,895 PUB 103 62,593 ----------- Total $ 120,581 ===========
EXHIBIT "B" IRREVOCABLE LETTER TO BANK (US$50,000 Per Month Transfer) Manager - ----------------------- Swiss American Bank St. John's, Antigua Dear Sir: The Government of Antigua and Barbuda has executed Amendment No. 9 to the St. John's Dredging and Deep Water Pier Construction Agreement. This amendment provides that we issue you a standing order to transfer US$50,000 per month from the Government's fuel tax revenue deposit account in your bank to Antigua Heavy Constructors, Ltd.'s account in the Bank of Nova Scotia (Account number 1101-16). This transfer is currently being made and is to be continued on the first (1st) business day of each month. This letter is your standing instruction and is irrevocable without the written consent of Antigua Heavy Constructors, Ltd. or until all promissory notes issued to Antigua Heavy Constructors, Ltd. under the terms of the St. John's Dredging and Deep Water Pier Construction Agreement as amended are paid in full. Yours truly, - ----------------------- Lennox Weston Financial Secretary - ----------------------- Ludolph Brown Accountant General cc: Honourable Prime Minister Honourable Finance Minister Director of Audit EXHIBIT "C" PROMISSORY NOTE (Harbour Note) US$18,589,637.00 St. John's, Antigua Date: April 28, 2000 FOR VALUE RECEIVED, the undersigned promises to pay to the order of Antigua Heavy Constructors, Limited, an Antiguan corporation ("Payee"), at its offices at P.O. Box 423, St. John's Antigua, or at such other address as may be specified in writing from time to time by the holder hereof, the principal amount of Eighteen Million Five Hundred Eighty-Nine Thousand Six Hundred Thirty-Seven Dollars and No Cents (US$18,589,637) payable together with interest thereon in like lawful money from the date hereof at a rate per annum upon the unpaid balance from time to time until maturity, same being payable, in lawful money of the United States of America, at the applicable rate per annum set forth below: 1. Payments and Maturity Date Maker shall pay the interest and principal of this Note as follows: US$312,500.00 shall be due and payable each quarter commencing on May 1, 2000 and continuing each successive quarter thereafter on each August 1, November 1, February 1, and May 1 and $50,000 shall be due and payable on the first day of each month commencing May 1, 2000; both the quarterly and monthly payments to continue until the principal balance is paid in full. Maker shall pay all amounts owing under this Note when due in full and in immediately available funds without setoff, counterclaim, deduction or withholding for any reason whatsoever. If any payment falls due on a day other than a day on which commercial banks in St. John's, Antigua, are open for business (a "Business Day"), then such payment shall instead be made on the next succeeding Business Day, and interest shall accrue accordingly. Maker shall utilize the sources of payment set forth in that certain Amendment No. 9 to the St. John's Dredging and Deep Water Pier Construction Agreement and all exhibits thereto by and between Maker, Payee and Antigua Masonry Products, Limited ("Amendment No. 9") solely for the purpose of making payments under this Note. Harbour Note Page #2 2. Interest Rate This Note shall bear interest from the date of this Note until maturity at the rate of 6% per annum and thereafter at the rate provided in Item 5. 3. Dredging and Deep Water Pier Construction Agreement This Note is being issued pursuant to that certain Dredging and Deepwater Pier Construction Agreement and all exhibits thereto between Maker and Payee dated April 3, 1987 (the "Agreement") and all other amendments thereto (the "Amendments"). This Note consolidates and replaces the promissory notes listed in Exhibit A to this Promissory Note. It is expressly understood and agreed that the terms of this Note are subject to the terms of the Agreement and the Amendments. Terms defined in the Agreement and the Amendments shall have the same meaning when used herein. In the case of any conflict this Note shall prevail. 4. Events of Default The unpaid balance of the Note, including principal and accrued interest, shall at the option of Payee become immediately due and payable upon the occurrence of any one or more of the following events ("Events of Default"), regardless of the cause thereof and whether within or beyond the control of the Maker: (a) The failure of Maker to pay any sum due under this Note within 60 days after notice to Maker that a payment has not been made when due. (b) If it shall become unlawful for Maker to make payment(s) under this Note. 5. Default Rate of Interest From and after the occurrence and during the continuation of any Event of Default, regardless of whether Payee also elects to accelerate the maturity of the Note, at Payee's sole option the unpaid balance of the Note shall bear interest at 10% (the "Default Rate"); provided, however, that after judgment all such sums shall bear interest at the greater of the Default Rate or the rate prescribed by applicable law for judgments. All interest which accrues at the Default Rate shall be due and payable on Payee's demand from time to time. Harbour Note Page #3 6. Rights and Remedies of Payee Payee shall be entitled to pursue any and all rights and remedies provided by applicable law and/or under the terms of this Note, all of which shall be cumulative and may be exercised successively or concurrently. Payee's delay in exercising or failure to exercise any rights or remedies to which Payee may be entitled if any Event of Default occurs shall not constitute a waiver of any of Payee's rights or remedies with respect to that or any subsequent Event of Default, whether of the same or a different nature, nor shall any single or partial exercise of any right or remedy by Payee preclude any other or further exercise of that or any other right or remedy. No waiver of any right or remedy by Payee shall be effective unless made in writing and signed by Payee, nor shall any waiver on one occasion apply to any future occasion, but shall be effective only with respect to the specific occasion addressed in that signed writing. 7. Waiver and Consent To the fullest extent permitted by law Maker hereby: (a) waives demand, presentment, protest, notice of dishonor, suit against or joinder of any other person, and all other requirements necessary to charge or hold Maker liable with respect to the Note (except as otherwise expressly set forth herein); (b) waives any right to interpose any set-off or counterclaim or to plead any statute of limitations as a defense in any such action or proceeding. No provision of this Note shall limit Payee's right to serve legal process in any manner permitted by law or to bring any such action or proceeding in any competent jurisdiction. Until Payee receives all sums due under this Note in immediately available funds, Maker shall not be released from liability with respect to the Note unless Payee expressly releases Maker in a writing signed by Payee. 8. Costs, Indemnities and Expenses Maker agrees to pay all filing fees and similar charges and all costs incurred by Payee in collection or securing or attempting to collect or secure the Note, including reasonable attorney's fees, whether or not involving arbitration, litigation and/or appellate or administrative proceedings. Maker agrees to pay any documentary stamp taxes, intangible taxes, withholding tax or other taxes which may now or hereafter apply to any payment made in respect of the Note, and Maker agrees to indemnify and hold Payee harmless from and against any liability, reasonable costs, reasonable attorney's fees, penalties, interest or expenses relating to any such taxes, as and when the same may be incurred. Harbour Note Page #4 9. Maximum Interest Rate In no event shall any agreed to or actual exaction charged, reserved or taken as an advance or forbearance by Payee as consideration for the Note exceed the limits (if any) imposed or provided by the law applicable from time to time to the Note for the use or detention of money or for forbearance in seeking its collection; Payee hereby waives any right to demand such excess. In the event that the interest provisions of this Note or any exactions provided for in this Note shall result at any time or for any reason in an effective rate of interest that transcends the maximum interest rate permitted by applicable law (if any), then without further agreement or notice the obligation to be fulfilled shall be automatically reduced to such limit and all sums received by Payee in excess of those lawfully collectible as interest shall be applied against the principal of the Note immediately upon Payee's receipt thereof, with the same force and effect as though the Maker had specifically designated such extra sums to be applied to principal and Payee had agreed to accept such extra payment(s) as a premium-free prepayment or prepayments. During any time that the Note bears interest at the maximum lawful rate (whether by application of this paragraph, the Default Rate provisions of this Note or otherwise), interest shall be computed on the basis of the actual number of days elapsed and a year of 360 days. 10. Governing Law The Note shall be governed by, and construed and enforced in accordance with, the laws of Antigua and Barbuda, W.I., as currently in effect and subject to the principles of public international law. Antigua hereby irrevocably and unconditionally waives any and all defenses it may have based in whole or in part upon the doctrine of sovereign immunity. 11. Severability Any provision of this Note which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction only, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. 12. Interpretation The term "Payee" shall be deemed to include any subsequent holder(s) of this Note. Whenever used in this Note, words in the singular include the plural, words in the plural include the singular, and pronouns of any gender include the other genders, all as may be appropriate. Captions and paragraph headings in this Note are for convenience of reference only and shall not affect its interpretation. Harbour Note Page #5 13. Miscellaneous Time shall be of the essence with respect to the terms of this Note. This Note cannot be changed or modified orally. This Note may be prepaid in whole or in part at any time without penalty. Unless otherwise provided in the Agreement, no prepayment need include imputed interest not accrued through the date of prepayment, and no imputed interest shall accrue thereafter on any amount prepaid. In furtherance of the above, except as otherwise required by law or by the provisions of this Note or designated by Payee, payments received by Payee hereunder shall be applied first against interest accrued on the Note, and next in reduction of the remaining balance of the Note, except that during the continuance of any Event of Default Payee may apply such payments in any order to priority determined by Payee in its exclusive judgement. Except as otherwise required by the provisions of this Note or designated by Payee, any notice required to be given to Maker shall be deemed sufficient if made personally or if mailed, postage prepaid, to Maker's address as it appears on the signature page of this Note (as the same may hereinafter be changed by written notice to Payee from Maker). THIS NOTE IS SIGNED, SEALED, AND DELIVERED AS OF THE DATE FIRST WRITTEN ABOVE BY AND THROUGH ITS SIGNATORY DULY AUTHORIZED. MAKER WITNESS ANTIGUA AND BARBUDA, ACTING THROUGH ITS GOVERNMENT /S/ LENNOX WESTON By: /S/ JOHN ST. LUCE - -------------------------------- ------------------------------------ Lennox Weston Honorable John St. Luce Financial Secretary Minister of Finance EXHIBIT "D" IRREVOCABLE LETTER TO NEWPORT (ANTIGUA) LTD. The Managing Director NewPort (Antigua) Ltd. St. John's, Antigua Dear Sir: The Government of Antigua and Barbuda has executed Amendment No. 9 to the St. John's Dredging and Deep Water Pier Construction Agreement. This amendment provides that we issue you a standing order to transfer all dividend payments due to Antigua from NewPort (Antigua) Ltd. to Antigua Masonry Products, Ltd. ("AMP") bank accounts as designated by AMP. This transfer is currently being made and is to be continued on the first (1st) business day of each month. This letter is your standing instruction and is irrevocable without the written consent of Antigua Heavy Constructors, Ltd. or until all promissory notes issued to Antigua Heavy Constructors, Ltd. under the terms of the St. John's Dredging and Deep Water Pier Construction Agreement as amended are paid in full. Yours truly, - ----------------------- Lennox Weston Financial Secretary - ----------------------- Ludolph Brown Accountant General cc: Honourable Prime Minister Honourable Finance Minister Director of Audit EXHIBIT "E" IRREVOCABLE LETTER TO BANK (US$61,400 Per Month Transfer) Manager - --------------------------- Bank - --------------------------- St. John's, Antigua Dear Sir: The Government of Antigua and Barbuda has executed Amendment No. 9 to the St. John's Dredging and Deep Water Pier Construction Agreement. This Agreement provides that we issue you a standing order to transfer US$61,400 per month from the Government's depository account in your bank to Antigua Heavy Constructors, Ltd.'s account in the Bank of Nova Scotia (Account number 1101-16). This transfer is to be made on the first (1st) business day of each month commencing August 1, 2000. This letter is your standing instruction and is irrevocable without the written consent of Antigua Heavy Constructors, Ltd. or until all promissory notes issued to Antigua heavy Constructors, Ltd. under the terms of the St. John's Dredging and Deep Water Pier Construction Agreement as amended are paid in full. Yours truly, - ----------------------- Lennox Weston Financial Secretary - ----------------------- Ludolph Brown Accountant General cc: Honourable Prime Minister Honourable Finance Minister Director of Audit EXHIBIT "F" PROMISSORY NOTE (Other Construction Note) US$12,251,628.00 St. John's, Antigua Date: April 28, 2000 FOR VALUE RECEIVED, the undersigned promises to pay to the order of Antigua Heavy Constructors, Limited, an Antiguan corporation ("Payee"), at its offices at P. O. Box 423, St. John's Antigua, or at such other address as may be specified in writing from time to time by the holder hereof, the principal amount of Twelve Million Two Hundred Fifty One Thousand Six Hundred Twenty Eight Dollars and No Cents (US$12,251,628.00) payable together with interest thereon in like lawful money from the date hereof at a rate per annum upon the unpaid balance from time to time until maturity, same being payable, in lawful money of the United States of America, at the applicable rate per annum set forth below: 1. Payments and Maturity Date Maker shall pay the interest and principal of this Note each month in the amount of US$104,400 commencing on August 1, 2000 and continuing until the principal balance is paid in full (the US$104,400 amount consists of US$43,000 from NewPort Antigua and US$61,400 from the government depository account). Maker shall pay all amounts owing under this Note when due in full and in immediately available funds without setoff, counterclaim, deduction or withholding for any reason whatsoever. If any payment falls due on a day other than a day on which commercial banks in St. John's, Antigua, are open for business (a "Business Day"), then such payment shall instead be made on the next succeeding Business Day, and interest shall accrue accordingly. Maker shall utilize the sources of payment set forth in that certain Amendment No. 9 to the St. John's Dredging and Deep Water Pier Construction Agreement and all exhibits thereto by and between Maker, Payee and Antigua Masonry Products, Limited ("Amendment No. 9") solely for the purpose of making payments under this Note. Other Construction Note Page #2 2. Interest Rate This Note shall bear interest from the date of this Note until maturity at the rate of 6% per annum and thereafter at the rate provided in Item 5. 3. Dredging and Deep Water Pier Cconstruction Agreement This Note is being issued pursuant to that certain Dredging and Deepwater Pier Construction Agreement and all exhibits thereto between Maker and Payee dated April 3, 1987 (the "Agreement") and all other amendments thereto (the "Amendments"). This Note consolidates and replaces the promissory notes listed in Exhibit A to this Promissory Note. It is expressly understood and agreed that the terms of this Note are subject to the terms of the Agreement and the Amendments. Terms defined in the Agreement and the Amendments shall have the same meaning when used herein. In the case of any conflict this Note shall prevail. 4. Events of Default The unpaid balance of the Note, including principal and accrued interest, shall at the option of Payee become immediately due and payable upon the occurrence of any one or more of the following events ("Events of Default"), regardless of the cause thereof and whether within or beyond the control of the Maker: (a) The failure of Maker to pay any sum due under this Note within 60 days after notice that a payment has not been made when due. (b) If it shall become unlawful for Maker to make payment(s) under this Note. 5. Default Rate of Interest From and after the occurrence and during the continuation of any Event of Default, regardless of whether Payee also elects to accelerate the maturity of the Note, at Payee's sole option the unpaid balance of the Note shall bear interest at 10% (the "Default Rate"); provided, however, that after judgment all such sums shall bear interest at the greater of the Default Rate or the rate prescribed by applicable law for judgments. All interest which accrues at the Default Rate shall be due and payable on Payee's demand from time to time. Other Construction Note Page #3 6. Rights and Remedies of Payee Payee shall be entitled to pursue any and all rights and remedies provided by applicable law and/or under the terms of this Note, all of which shall be cumulative and may be exercised successively or concurrently. Payee's delay in exercising or failure to exercise any rights or remedies to which Payee may be entitled if any Event of Default occurs shall not constitute a waiver of any of Payee's rights or remedies with respect to that or any subsequent Event of Default, whether of the same or a different nature, nor shall any single or partial exercise of any right or remedy by Payee preclude any other or further exercise of that or any other right or remedy. No waiver of any right or remedy by Payee shall be effective unless made in writing and signed by Payee, nor shall any waiver on one occasion apply to any future occasion, but shall be effective only with respect to the specific occasion addressed in that signed writing. 7. Waiver and Consent To the fullest extent permitted by law Maker hereby: (a) waives demand, presentment, protest, notice of dishonor, suit against or joinder of any other person, and all other requirements necessary to charge or hold Maker liable with respect to the Note (except as otherwise expressly set forth herein); (b) waives any right to interpose any set-off or counterclaim or to plead any statute of limitations as a defense in any such action or proceeding. No provision of this Note shall limit Payee's right to serve legal process in any manner permitted by law or to bring any such action or proceeding in any competent jurisdiction. Until Payee receives all sums due under this Note in immediately available funds, Maker shall not be released from liability with respect to the Note unless Payee expressly releases Maker in a writing signed by Payee. 8. Costs, Indemnities and Expenses Maker agrees to pay all filing fees and similar charges and all costs incurred by Payee in collection or securing or attempting to collect or secure the Note, including reasonable attorney's fees, whether or not involving arbitration, litigation and/or appellate or administrative proceedings. Maker agrees to pay any documentary stamp taxes, intangible taxes, withholding tax or other taxes which may now or hereafter apply to any payment made in respect of the Note, and Maker agrees to indemnify and hold Payee harmless from and against any liability, reasonable costs, reasonable attorney's fees, penalties, interest or expenses relating to any such taxes, as and when the same may be incurred. Other Construction Note Page #4 9. Maximum Interest Rate In no event shall any agreed to or actual exaction charged, reserved or taken as an advance or forbearance by Payee as consideration for the Note exceed the limits (if any) imposed or provided by the law applicable from time to time to the Note for the use or detention of money or for forbearance in seeking its collection; Payee hereby waives any right to demand such excess. In the event that the interest provisions of this Note or any exactions provided for in this Note shall result at any time or for any reason in an effective rate of interest that transcends the maximum interest rate permitted by applicable law (if any), then without further agreement or notice the obligation to be fulfilled shall be automatically reduced to such limit and all sums received by Payee in excess of those lawfully collectible as interest shall be applied against the principal of the Note immediately upon Payee's receipt thereof, with the same force and effect as though the Maker had specifically designated such extra sums to be applied to principal and Payee had agreed to accept such extra payment(s) as a premium-free prepayment or prepayments. During any time that the Note bears interest at the maximum lawful rate (whether by application of this paragraph, the Default Rate provisions of this Note or otherwise), interest shall be computed on the basis of the actual number of days elapsed and a year of 360 days. 10. Governing Law The Note shall be governed by, and construed and enforced in accordance with, the laws of Antigua and Barbuda, W.I., as currently in effect and subject to the principles of public international law. Antigua hereby irrevocably and unconditionally waives any and all defenses it may have based in whole or in part upon the doctrine of sovereign immunity. 11. Severability Any provision of this Note which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction only, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. 12. Interpretation The term "Payee" shall be deemed to include any subsequent holder(s) of this Note. Whenever used in this Note, words in the singular include the plural, words in the plural include the singular, and pronouns of any gender include the other genders, all as may be appropriate. Captions and paragraph headings in this Note are for convenience of reference only and shall not affect its interpretation. Other Construction Note Page #5 13. Miscellaneous Time shall be of the essence with respect to the terms of this Note. This Note cannot be changed or modified orally. This Note may be prepaid in whole or in part at any time without penalty. Unless otherwise provided in the Agreement, no prepayment need include imputed interest not accrued through the date of prepayment, and no imputed interest shall accrue thereafter on any amount prepaid. In furtherance of the above, except as otherwise required by law or by the provisions of this Note or designated by Payee, payments received by Payee hereunder shall be applied first against interest accrued on the Note, and next in reduction of the remaining balance of the Note, except that during the continuance of any Event of Default Payee may apply such payments in any order to priority determined by Payee in its exclusive judgement. Except as otherwise required by the provisions of this Note or designated by Payee, any notice required to be given to Maker shall be deemed sufficient if made personally or if mailed, postage prepaid, to Maker's address as it appears on the signature page of this Note (as the same may hereinafter be changed by written notice to Payee from Maker). THIS NOTE IS SIGNED, SEALED, AND DELIVERED AS OF THE DATE FIRST WRITTEN ABOVE BY AND THROUGH ITS SIGNATORY DULY AUTHORIZED. MAKER WITNESS ANTIGUA AND BARBUDA, ACTING THROUGH ITS GOVERNMENT /S/ LENNOX WESTON By: /S/ JOHN ST. LUCE - -------------------------------- ------------------------------------ Lennox Weston Honorable John St. Luce Financial Secretary Minister of Finance EX-21.1 4 0004.txt EXHIBIT 21.1 Antigua Cement, Ltd. Antigua Development and Construction, Ltd. Antigua Heavy Constructors, Ltd. Antigua Masonry Products, Ltd. Bahamas Construction and Development, Ltd. Bouwbedrijf Boven Winden, N.V. Bouwbedrijf Boven Winden (Saba), N.V. Caribbean Cement Carriers, Ltd. Caribbean Heavy Construction, Ltd. Caribbean Masonry Products, Ltd. Cramer Construction, N.V. Devcon Caribbean Purchasing Corp. Marco, Inc. M21 Industries, Inc. Proar Construction Materials Company, N.V. Puerto Rico Crushing Company, Inc. Seaward Shipping & Dredging Co., Ltd. Societe des Carriers de Grand Case, S.A.R.L. V.I. Cement and Building Products, Inc. EX-23.1 5 0005.txt EXHIBIT 23.1 ACCOUNTANTS' CONSENT The Board of Directors Devcon International Corp. and Subsidiaries: We consent to incorporation by reference in the registration statements (No. 33-32968 and No. 33-59557) on Form S-8 of Devcon International Corp. and subsidiaries of our report dated March 26, 2001, relating to the consolidated balance sheets of Devcon International Corp. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2000 and the related financial statement schedule, which report appears in the December 31, 2000 annual report on Form 10-K of Devcon International Corp. and subsidiaries. KPMG LLP Fort Lauderdale, Florida March 26, 2001 -----END PRIVACY-ENHANCED MESSAGE-----