SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 2001
Commission File Number 000 - 25161
MODTECH HOLDINGS, INC.
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Delaware 33 -- 0825386
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
2830 Barrett Avenue, Perris, CA 92571
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(Address of principal executive (Zip Code)
office)
Registrant's telephone number: (909) 943-4014
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Indicate by check mark, whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of November 7, 2001, there were 13,452,099 of the Registrant's Common Stock
outstanding.
MODTECH HOLDINGS, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
PART I. STATEMENT REGARDING FINANCIAL INFORMATION
The condensed consolidated financial statements included herein
have been prepared by Modtech Holdings, Inc. and subsidiaries (the "Company"),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America has been omitted pursuant to such rules and
regulations. However, the Company believes that the condensed consolidated
financial statements, including the disclosures herein, are adequate to make the
information presented not misleading. The results of operations for the quarter
and nine months ended September 30, 2000 and 2001 are not necessarily indicative
of the results to be expected for the full fiscal years. The condensed
consolidated financial statements should be read in conjunction with the
Company's consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K as of and for the year ended December 31,
2000 as filed with the Securities and Exchange Commission.
MODTECH HOLDINGS, INC.
Condensed Consolidated Balance Sheets
December 31, September 30,
2000 2001
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(Audited) (Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 416,000 $ 2,100,000
Contracts receivable, net, including costs in excess of
billings of $9,724,000 and $8,632,000 in 2000 and
2001, respectively 43,813,000 56,939,000
Inventories 9,815,000 10,099,000
Due from affiliates 702,000 1,212,000
Deferred tax assets 3,407,000 3,407,000
Other current assets 1,010,000 1,488,000
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Total current assets 59,163,000 75,245,000
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Property and equipment, net 14,538,000 15,357,000
Other assets
Goodwill, net 111,157,000 110,370,000
Covenants not to compete, net 1,188,000 623,000
Debt issuance costs, net 1,205,000 1,153,000
Deferred tax assets 56,000 56,000
Other assets 395,000 614,000
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$187,702,000 $203,418,000
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 23,107,000 $ 27,582,000
Billings in excess of costs 4,003,000 4,918,000
Current revolving credit line 6,500,000 13,000,000
Current maturities of long-term debt 8,400,000 9,300,000
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Total current liabilities 42,010,000 54,800,000
Long-term debt, excluding current portion 23,600,000 16,400,000
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Total liabilities 65,610,000 71,200,000
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Shareholders' Equity:
Series A preferred stock, $.01 par. Authorized
5,000,000 shares; issued and outstanding 388,939 in
2000 and 2001 4,000 4,000
Common stock, $.01 par. Authorized 25,000,000 shares;
issued and outstanding 13,348,015 and 13,452,099 in
2000 and 2001, respectively 133,000 135,000
Additional paid-in capital 78,008,000 78,331,000
Retained earnings 43,947,000 53,748,000
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Total shareholders' equity 122,092,000 132,218,000
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$187,702,000 $203,418,000
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
MODTECH HOLDINGS, INC.
Condensed Consolidated Statements of Income
(Unaudited)
Quarter Ended Nine Months Ended
September 30, September 30,
2000 2001 2000 2001
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Net sales $ 76,450,000 $ 63,559,000 $ 185,354,000 $ 167,323,000
Cost of goods sold 63,140,000 51,106,000 156,503,000 137,773,000
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Gross profit 13,310,000 12,453,000 28,851,000 29,550,000
Selling, general, and administrative expenses 2,235,000 1,987,000 6,063,000 5,960,000
Goodwill and covenant amortization 925,000 925,000 2,776,000 2,776,000
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Income from operations 10,150,000 9,541,000 20,012,000 20,814,000
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Other income (expense):
Interest expense, net (1,464,000) (671,000) (3,688,000) (2,414,000)
Other, net 25,000 45,000 52,000 92,000
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(1,439,000) (626,000) (3,636,000) (2,322,000)
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Income before income taxes 8,711,000 8,915,000 16,376,000 18,492,000
Income taxes (4,181,000) (4,190,000) (7,707,000) (8,691,000)
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Net income $ 4,530,000 $ 4,725,000 $ 8,669,000 $ 9,801,000
============= ============= ============= =============
Series A Preferred stock dividend 39,000 39,000 117,000 117,000
Net income available to common stock $ 4,491,000 $ 4,686,000 $ 8,552,000 $ 9,684,000
============= ============= ============= =============
Basic earnings per common share $ 0.34 $ 0.35 $ 0.65 $ 0.72
============= ============= ============= =============
Basic weighted-average shares
outstanding 13,254,000 13,452,000 13,202,000 13,397,000
============= ============= ============= =============
Diluted earnings per common share $ 0.31 $ 0.33 $ 0.60 $ 0.69
============= ============= ============= =============
Diluted weighted-average shares
outstanding 14,408,000 14,465,000 14,355,000 14,405,000
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
MODTECH HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
2000 2001
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Cash flows from operating activities:
Net income $ 8,669,000 $ 9,801,000
Adjustments to reconcile net income to net cash (used
in) provided by operating activities:
Depreciation and amortization 4,435,000 4,679,000
Loss (gain) on sale of equipment 1,000 (48,000)
(Increase) decrease in assets, net of effects from
acquisitions:
Contracts receivable (45,448,000) (12,600,000)
Inventories (6,578,000) 561,000
Due from affiliates 14,000 (510,000)
Other current and noncurrent assets (327,000) (645,000)
Increase (decrease) in liabilities, net of effects
from acquisitions:
Accounts payable and accrued liabilities 18,834,000 3,233,000
Billings in excess of costs (1,203,000) 915,000
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Net cash (used in) provided by operating
activities (21,603,000) 5,386,000
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Cash flows from investing activities:
Proceeds from sale of equipment -- 97,000
Purchase of property and equipment (2,338,000) (711,000)
Purchase of covenants not to compete -- (25,000)
Acquisition of subsidiaries, net of cash acquired -- (3,406,000)
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Net cash used in investing activities (2,338,000) (4,045,000)
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Cash flows from financing activities:
Net principal borrowings under revolving credit line 27,825,000 6,500,000
Net principal payments on long-term debt (3,500,000) (6,300,000)
Payment of debt issuance costs -- (182,000)
Proceeds from exercise of stock options 319,000 325,000
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Net cash provided by financing activities 24,644,000 343,000
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Net increase in cash and cash equivalents 703,000 1,684,000
Cash and cash equivalents at beginning of period 1,198,000 416,000
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Cash and cash equivalents at end of period $ 1,901,000 $ 2,100,000
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
MODTECH HOLDINGS, INC.
Notes To Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2001
1) Management Opinion
In the opinion of management, the condensed consolidated financial
statements reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position and
results of operations as of and for the periods presented.
The results of operations for the quarter and nine months ended
September 30, 2000 and 2001 are not necessarily indicative of the
results to be expected for the full fiscal years.
Certain statements in this report constitute "forward looking
statements" within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. Such
forward looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance, or achievements of the Company to be materially different
from any future results, performance, or achievements, expressed or
implied by such forward looking statements.
2) Inventories
Inventories consist of the following:
2000 2001
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Raw materials $ 8,394,000 $ 7,617,000
Work in process 1,413,000 2,474,000
Finished goods 8,000 8,000
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$ 9,815,000 $10,099,000
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3) Earnings Per Share
The following table presents the calculation of basic and diluted
earnings per common share under the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings per Share":
Quarter Ended Nine Months Ended
September 30, September 30,
2000 2001 2000 2001
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BASIC
Net income $ 4,530,000 $ 4,725,000 $ 8,669,000 $ 9,801,000
Dividends on preferred stock (39,000) (39,000) (117,000) (117,000)
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Net income available to
common stock $ 4,491,000 $ 4,686,000 $ 8,552,000 $ 9,684,000
============ ============ ============ ============
Basic weighted-average shares
outstanding 13,254,000 13,452,000 13,202,000 13,397,000
============ ============ ============ ============
Basic earnings per common share $ 0.34 $ 0.35 $ 0.65 $ 0.72
============ ============ ============ ============
Quarter Ended Nine Months Ended
September 30, September 30,
2000 2001 2000 2001
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DILUTED
Net income $ 4,530,000 $ 4,725,000 $ 8,669,000 $ 9,801,000
=========== =========== =========== ===========
Basic weighted-average shares
outstanding 13,254,000 13,452,000 13,202,000 13,397,000
Add:
Conversion of preferred stock 389,000 389,000 389,000 389,000
Exercise of stock options 765,000 624,000 764,000 619,000
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Diluted weighted-average
shares outstanding 14,408,000 14,465,000 14,355,000 14,405,000
=========== =========== =========== ===========
Diluted earnings per common
share $ 0.31 $ 0.33 $ 0.60 $ 0.69
=========== =========== =========== ===========
Options to purchase 221,000 and 223,000 shares of common stock were
outstanding during the quarter and nine months ended September 30, 2000,
respectively, and options to purchase 602,000 and 608,000 shares of
common stock were outstanding during the quarter and nine months ended
September 30, 2001, respectively, but were not included in the
computation of diluted earnings per share because the option exercise
price was greater than the average market price of the common shares and
therefore, the effect would be anti-dilutive.
4) Acquisition
IMS Acquisition. On March 8, 2001, the Company purchased 100% of the
stock of Innovative Modular Structures, Inc. (IMS). IMS designs and
manufactures modular relocatable classrooms and other modular buildings
for commercial use. IMS is based in St. Petersburg, Florida. Pro forma
amounts for the IMS acquisition are not included, as the effect is not
material to the Company's condensed consolidated financial statements.
This acquisition has been accounted for as a purchase.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
The following table sets forth certain items in the Condensed Consolidated
Statements of Income as a percent of net sales.
Percent of Net Sales Percent of Net Sales
Quarter Ended Nine Months Ended
September 30, September 30,
2000 2001 2000 2001
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Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 17.4 19.6 15.6 17.7
Selling, general and
administrative expenses 2.9 3.1 3.3 3.6
Goodwill and covenant amortization 1.2 1.5 1.5 1.7
Income from operations 13.3 15.0 10.8 12.4
Interest expense, net (1.9) (1.1) (2.0) (1.4)
Income before income taxes 11.4 14.0 8.8 11.1
Net sales for the quarter and nine months ended September 30, 2001, decreased by
$12,891,000 or 16.9% and $18,031,000 or 9.7%, respectively. Net sales declined
on a comparative basis due to the continuing shift in product mix toward lower
volume, higher gross margin customized buildings, as well as the general
business and economic decline and the resulting slowdown in September of new
orders and customers delaying deliveries.
Gross profit as a percentage of net sales for the quarter and nine months ended
September 30, 2001 increased to 19.6% and 17.7%, respectively, from 17.4% and
15.6% for the same periods in 2000. The increase was due to product mix as well
as certain operational efficiencies.
Selling, general and administrative expenses decreased for the quarter and nine
months ended September 30, 2001 by $248,000 or 11.1% and $103,000 or 1.7%,
respectively. As a percentage of net sales, selling, general, and administrative
expenses for the quarter and nine months ended September 30, 2001 are 3.1% and
3.6%, respectively. The percentages were 2.9% and 3.3% for the same periods in
2000.
Goodwill was recorded for both the SPI Merger and the Coastal Acquisition in
1999 and for the IMS acquisition in 2001 and has been amortized from the
respective dates of acquisition.
Interest expense, net decreased for the quarter and nine months ended September
30, 2001 by $793,000 or 54.2% and $1,274,000 or 34.5%, respectively. The
decrease is attributable to decreased line of credit borrowings, decreased
long-term debt due to repayments and decreased interest rates for the quarter
and nine months ended September 30, 2001. As a percentage of net sales, interest
expense decreased from 1.9% and 2.0% in the quarter and nine months ended
September 30, 2000, respectively, to 1.1% and 1.4% in the quarter and nine
months ended September 30, 2001, respectively.
INFLATION
In the past, the Company has not been adversely affected by inflation, because
it has been generally able to pass along to its customers increases in the costs
of labor and materials.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has generated cash from operations, bank borrowings and
public offerings to meet its needs. At September 30, 2001, the Company had
$2,100,000 in cash and cash equivalents. During the nine months ended September
30, 2001, the Company generated cash from operating activities of $5,386,000.
The Company has a $75,000,000 credit facility, of which $30,000,000 represents a
revolving loan commitment. For the period September 1 through December 31 of
each year, the revolving loan commitment increases to $41,000,000. The credit
facility is secured by all the Company's assets, as well as the Company's stock
ownership in its subsidiaries. The credit facility expires in February 2004. On
September 30, 2001, $13,000,000 was outstanding under the revolving loan
commitment, compared to $27,825,000 outstanding at September 30, 2000. The
credit facility contains various covenants. The Company was in compliance with
such covenants as of September 30, 2001.
Management believes that the Company's existing product lines and manufacturing
capacity will enable the Company to generate sufficient cash through operations,
supplemented by periodic use of its existing bank line of credit, to finance the
Company's business at current levels over the next 12 months. Additional cash
resources may be required if the Company is able to expand its business beyond
current levels. For example, it will be necessary for the Company to construct
or acquire additional manufacturing facilities in order for the Company to
compete effectively in new market areas or states which are beyond a 300 mile
radius from one of its production facilities. The construction or acquisition of
new facilities would require significant additional capital. For these reasons,
among others, the Company may need additional debt or equity financing in the
future. There can be, however, no assurance that the Company will be successful
in obtaining such additional financing, or that any such financing will be
available on terms acceptable to the Company.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141),
and Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). SFAS 141 requires that all business combinations
be accounted for under a single method -- the purchase method. Use of the
pooling-of-interests method is no longer permitted. SFAS 141 requires that the
purchase method be used for business combinations initiated after June 30, 2001.
SFAS 142 requires that goodwill no longer be amortized to earnings, but instead
reviewed for impairment. Under SFAS 142, the amortization of goodwill ceases
upon adoption of the Statement and is effective for fiscal years beginning after
December 15, 2001, which for calendar year-end companies, will be January 1,
2002.
The Company has historically amortized its goodwill over its estimated useful
lives. Beginning with the adoption of SFAS 142, the Company will cease
amortizing its goodwill. The Company recorded amortization expense in the amount
of $2,916,000 for the year ended December 31, 2000, $729,000 for the quarter
ended September 30, 2001 and $2,187,000 for the nine months ended September 30,
2001. To the extent that no impairment charges are recorded upon adoption or
application of SFAS 142, similar amounts of amortization will not be recorded in
future periods.
In September 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143 is
effective for fiscal years beginning after June 15, 2002, which addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. Management has not assessed whether the application of this standard will
have a material effect on the Company's financial position, results of
operations or liquidity.
In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS
144). SFAS 144 is effective for fiscal years beginning after December 15, 2001.
SFAS 144 addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. Management has not assessed whether the
application of this standard will have a material effect on the Company's
financial position, results of operations or liquidity.
Item 3. Quantitative And Qualitative Disclosures About Market Risk
We are exposed to market risks related to fluctuations in interest rates on our
$75 million credit facility. During the quarter and nine months ended September
30, 2001, we did not use interest rate swaps or other types of derivative
financial instruments. The carrying value of the credit facility approximates
fair value as the interest rate is variable and resets frequently. Indebtedness
under the credit facility bears interest at the lower of (1) LIBOR plus
additional interest of between 1.5% and 2.25%, or (2) a rate equal to the
greater of (i) the Federal funds rate plus 0.5% or (ii) the bank's prime rate,
plus in either case an additional interest of between 0.25% to 1.0%. We estimate
that the average amount of debt outstanding under the credit facility for 2001
will be $40 million. Therefore, a one percentage point increase in interest
rates would result in an increase in interest expense of $400,000 for the year.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements 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.
Modtech Holdings, Inc.
Date: November 9, 2001 by: /s/ Shari L. Walgren
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Shari L. Walgren
Chief Financial Officer