FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000
-------------------------------------
Commission File Number 0-25428
----------------------
MEADOW VALLEY CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of registrant as specified in its charter)
NEVADA 88-0328443
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(State or other Jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
4411 South 40th Street, Suite D-11, Phoenix, AZ 85040
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(Address of principal executive offices) (Zip Code)
(602) 437-5400
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(Registrant's telephone number, including area code)
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 ________
---------
Number of shares outstanding of the issuer's common stock:
Class Outstanding at October 30, 2000
----- -------------------------------
Common Stock, $.001 par value 3,559,938 shares
MEADOW VALLEY CORPORATION
INDEX
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
PART I. FINANCIAL INFORMATION Page
Number
Item 1. Financial Statements ------
Condensed Consolidated Statements of Operations (Unaudited) -
Nine Months Ended September 30, 2000 and September 30, 1999 3
Condensed Consolidated Statements of Operations (Unaudited) -
Three Months Ended September 30, 2000 and September 30, 1999 4
Condensed Consolidated Balance Sheets -
As of September 30, 2000 (Unaudited) and December 31, 1999 5
Condensed Consolidated Statements of Cash Flows (Unaudited)-
Nine Months Ended September 30, 2000 and September 30, 1999 6-7
Notes to Condensed Consolidated Financial Statements 8-10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11-14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
2
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended
September 30,
-----------------------------------
2000 1999
---------------- ---------------
(Unaudited) (Unaudited)
Revenue.............................................................. $ 128,402,900 $ 163,915,632
Cost of revenue...................................................... 123,462,464 156,028,623
---------------- ---------------
Gross profit......................................................... 4,940,436 7,887,009
General and administrative expenses.................................. 4,842,142 5,187,125
---------------- ---------------
Income from operations............................................... 98,294 2,699,884
---------------- ---------------
Other income (expense):
Interest income...................................................... 462,816 435,625
Interest expense..................................................... (174,500) (158,211)
Other income......................................................... 46,788 290,407
---------------- ---------------
335,104 567,821
---------------- ---------------
Income before income taxes........................................... 433,398 3,267,705
Income taxes......................................................... 173,353 1,306,582
---------------- ---------------
Net income........................................................... $ 260,045 $ 1,961,123
================ ===============
Basic net income per common share.................................... $ .07 $ .56
================ ===============
Diluted net income per common share.................................. $ .07 $ .55
================ ===============
Basic weighted average common shares outstanding..................... 3,546,016 3,524,327
================ ===============
Diluted weighted average common shares outstanding................... 3,546,016 3,555,240
================ ===============
3
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
September 30,
-----------------------------------------------
2000 1999
--------------- ---------------
(Unaudited) (Unaudited)
Revenue.......................................................... $ 44,434,571 $ 51,440,091
Cost of revenue.................................................. 42,692,537 48,968,562
--------------- ---------------
Gross profit..................................................... 1,742,034 2,471,529
General and administrative expenses.............................. 1,792,689 1,614,064
--------------- ---------------
Income (loss) from operations ................................... (50,655) 857,465
--------------- ---------------
Other income (expense):
Interest income.................................................. 162,886 160,431
Interest expense................................................. (95,172) (51,192)
Other income..................................................... 12,119 253,749
--------------- ---------------
79,833 362,988
--------------- ---------------
Income before income taxes ...................................... 29,178 1,220,453
Income taxes..................................................... 11,663 487,681
=============== ===============
Net income....................................................... $ 17,515 $ 732,772
=============== ===============
Basic net income per common share................................ $ .00 $ .21
=============== ===============
Diluted net income per common share.............................. $ .00 $ .21
=============== ===============
Basic weighted average common shares outstanding................. 3,559,938 3,501,250
=============== ===============
Diluted weighted average common shares outstanding............... 3,559,938 3,501,250
=============== ===============
4
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2000 1999 *
--------------- ---------------
Assets: (Unaudited)
Current Assets:
Cash and cash equivalents................................................... $ 1,258,006 $ 6,177,489
Restricted cash............................................................. 2,286,731 2,143,507
Accounts receivable, net.................................................... 23,946,740 19,256,882
Prepaid expenses and other.................................................. 1,362,171 1,193,912
Inventory................................................................... 4,851,638 3,603,517
Costs and estimated earnings in excess of billings on uncompleted
contracts................................................................ 7,851,298 8,858,933
--------------- ---------------
Total Current Assets.............................................. 41,556,584 41,234,240
Property and equipment, net...................................................... 18,548,989 15,077,673
Refundable deposits.............................................................. 179,747 83,680
Goodwill, net.................................................................... 1,520,740 1,580,762
Mineral rights................................................................... 240,858 255,168
Net assets of discontinued operations............................................ - 193,838
--------------- ---------------
Total Assets ..................................................... $ 62,046,918 $ 58,425,361
=============== ===============
Liabilities and Stockholders' Equity:
Current Liabilities:
Notes payable - other....................................................... $ 1,555,249 $ 1,304,092
Obligations under capital leases............................................ 1,061,138 1,114,722
Accounts payable............................................................ 18,861,837 20,807,792
Accrued liabilities......................................................... 3,267,122 3,387,320
Billings in excess of costs and estimated earnings on uncompleted
contracts................................................................. 10,460,115 8,453,153
--------------- ---------------
Total Current Liabilities......................................... 35,205,461 35,067,079
Deferred income taxes............................................................ 1,423,825 1,423,825
Obligations under capital leases................................................. 3,869,770 4,410,854
Notes payable - other............................................................ 6,474,994 2,710,780
--------------- ---------------
Total Liabilities................................................. 46,974,050 43,612,538
--------------- ---------------
Stockholders' Equity:
Preferred stock - $.001 par value; 1,000,000 shares authorized, none
issued and outstanding..................................................... - -
Common stock - $.001 par value; 15,000,000 shares authorized,
3,559,938 and 3,501,250 issued and outstanding............................. 3,601 3,601
Additional paid-in capital.................................................. 10,943,569 10,943,569
Capital adjustments......................................................... (799,147) (799,147)
Retained earnings........................................................... 4,924,845 4,664,800
--------------- ---------------
Total Stockholders' Equity........................................ 15,072,868 14,812,823
--------------- ---------------
Total Liabilities and Stockholders' Equity........................ $ 62,046,918 $ 58,425,361
=============== ===============
*Derived from audited financial statements
5
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
----------------------------------------------
2000 1999
-------------- --------------
(Unaudited) (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents:
Cash flows from operating activities:
Cash received from customers........................................ $ 126,583,669 $ 152,076,874
Cash paid to suppliers and employees................................ (129,938,998) (153,519,929)
Interest received................................................... 507,618 514,580
Interest paid....................................................... (174,500) (184,238)
Income taxes paid................................................... (71,911) (922,226)
-------------- --------------
Net cash used in operating activities ........................... (3,094,122) (2,034,939)
-------------- --------------
Cash flows from investing activities:
(Increase) decrease in restricted cash.............................. (143,224) 241,571
Collection of note receivable - other .............................. - 1,721
Decrease in net assets and reserves of discontinued
operations........................................................ - 333,383
Purchase of property and equipment.................................. (1,476,862) (915,040)
Proceeds from sale of property and equipment ....................... 270,425 382,220
Purchase of treasury stock held for funding employer
retirement plan contributions...................................... - (451,754)
-------------- --------------
Net cash used in investing activities ........................... (1,349,661) (407,899)
-------------- --------------
Cash flows from financing activities:
Repayment of notes payable - other.................................. (4,132,814) (1,032,020)
Proceeds received from notes payable - other........................ 4,555,515 -
Repayment of note payable - related party........................... - (1,000,000)
Repayment of capital lease obligations.............................. (898,401) (616,937)
-------------- --------------
Net cash used in financing activities ........................... (475,700) (2,648,957)
-------------- --------------
Net decrease in cash and cash equivalents............................ (4,919,483) (5,091,795)
Cash and cash equivalents at beginning of period..................... 6,177,489 10,993,025
-------------- --------------
Cash and cash equivalents at end of period........................... $ 1,258,006 $ 5,901,230
============== ==============
6
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Nine Months Ended
September 30,
--------------------------------------
2000 1999
------------- -------------
(Unaudited) (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents (Continued):
Reconciliation of Net Income to Net Cash Used in
Operating Activities:
Net income.....................................................
Adjustments to reconcile net income to net cash used in $ 260,045 $ 1,961,123
operating activities:
Depreciation and amortization.................................
Gain on sale of property and equipment........................ 1,851,812 1,515,226
(145,956) (45,469)
Changes in Operating Assets and Liabilities:
Accounts receivable, net...................................... (4,734,660) (7,476,978)
Prepaid expenses and other.................................... (75,863) (1,827,805)
Costs and estimated earnings in excess of billings on
uncompleted contracts........................................ 1,007,635 (1,291,209)
Inventory..................................................... (1,248,121) -
Refundable deposits........................................... (96,067) 103,301
Income tax payable............................................ - (26,027)
Accounts payable.............................................. (1,945,955) 8,185,644
Accrued liabilities........................................... (120,198) (280,547)
Billings in excess of costs and estimated earnings on
uncompleted contracts........................................ 2,006,962 (3,315,509)
Interest receivable........................................... 44,802 384,356
Income tax receivable......................................... 101,442 78,955
------------- ------------
Net cash used in operating activities ...................... $ (3,094,122) $ (2,034,939)
============= ============
7
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Corporation:
Meadow Valley Corporation "the Company" was organized under the laws of
the State of Nevada on September 15, 1994. The principal business purpose of the
Company is to operate as the holding Company of Meadow Valley Contractors, Inc.
(MVC) and Ready Mix, Inc. (RMI). MVC is a general contractor, primarily engaged
in the construction of structural concrete highway bridges and overpasses, and
the paving of highways and airport runways in the states of Nevada, Arizona,
Utah and New Mexico. RMI is a producer and retailer of ready-mix concrete
operating in the Las Vegas, NV and Phoenix, AZ metropolitan areas. Formed by the
Company, RMI commenced operations in 1997.
2. Presentation of Interim Information:
The amounts included in this report are unaudited; however, in the
opinion of management, all adjustments necessary for a fair statement of results
for the stated periods have been included. These adjustments are of a normal
recurring nature. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted as permitted by SEC rules
and regulations. It is suggested that these condensed consolidated financial
statements be read in conjunction with the audited financial statements and
notes thereto included in the Company's Annual Report on Form 10-K under the
Securities Exchange Act of 1934 as filed with the Securities and Exchange
Commission. The results of operations for the three months and nine months ended
September 30, 2000 are not necessarily indicative of operating results for the
entire year.
3. Revenue and Cost Recognition:
Revenues and costs from fixed-price and modified fixed-price
construction contracts are recognized for each contract on the percentage-of-
completion method, measured by the percentage of costs incurred to date to the
estimated total of direct costs. Direct costs include, among other things,
direct labor, field labor, equipment rent, subcontracting, direct materials, and
direct overhead. General and administrative expenses are accounted for as period
costs and are, therefore, not included in the calculation of the estimates to
complete construction contracts in progress. Project losses are provided in the
period in which such losses are determined, without reference to the percentage-
of-completion. As contracts can extend over one or more accounting periods,
revisions in costs and earnings estimated during the course of the work are
reflected during the accounting period in which the facts that required such
revisions become known.
Claims for additional contract revenue are recognized only to the
extent that contract costs relating to the claim have been incurred and evidence
provides a legal basis for the claim. The Company believes it has taken a
conservative posture in accruing claim revenue to offset claim-related costs
incurred to date. At September 30, 2000, claim revenue in the amount of
$4,620,895 has been recorded while claim costs incurred by both MVC and its
subcontractors and for which claims have been filed or will be filed exceed
$20,660,000. Of the $20,660,000 in claims, approximately $5,000,000 represents
costs incurred by MVC subcontractors for which claims are filed by MVC on their
behalf leaving the balance of $15,660,000 as MVC costs. The Company must obtain
at least $4,620,895 in proceeds from its $15,660,000 portion of the total claims
or there would be a reduction in earnings.
8
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Notes payable - other:
Summary of third quarter additions to notes payable - other and their
balances at September 30, 2000:
Note payable, variable interest rate at 9.5%, with monthly principal
payments of $20,417, due 9/29/09, collateralized by equipment............. $ 2,062,128
Note payable, interest rate at 6.49%, with monthly payments of
$5,068, due 7/05/02, collateralized by equipment.......................... 100,346
Note payable, variable interest rate at 9.75%, Chase Manhattan Bank's
prime plus .25%, with interest only monthly payments until 1/31/02,
due 12/31/05, collaterized by all assets of the Company................... 1,537,808
-----------------
3,700,282
Less: current portion (158,031)
-----------------
$ 3,542,251
=================
Following are maturities of the above long-term debt for each of the next 5
years:
2001 .............................................................. $ 158,031
2002 .............................................................. 534,166
2003 .............................................................. 600,355
2004 .............................................................. 636,590
2005 .............................................................. 676,526
Subsequent to 2005 ................................................ 1,094,614
-----------------
$ 3,700,282
=================
5. Line of Credit:
In July 2000, the Company entered into a revolving loan agreement
("line of credit"). Under the terms of the agreement, the Company may borrow
$7,000,000 at Chase Manhattan Bank's prime, plus .25% through December 31, 2001.
As of September 30, 2000, the Company had withdrawn $1,537,808 from the line of
credit.
6. Discontinued Operations:
In June 1998, the Company adopted a formal plan ("the plan") to
discontinue the operations of Prestressed Products Incorporated ("PPI"). The
plan included the completion of approximately $2.8 million of uncompleted
contracts and the disposition of approximately $1.2 million of equipment. The
Company recorded an estimated loss of $1.95 million (net of income tax benefit
of $1.3 million), related to the disposal of assets for PPI, which included a
provision of $1.35 million for estimated operating losses during the phase-out
period.
9
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Discontinued Operations (Continued):
The accompanying consolidated balance sheets as of September 30, 2000
and December 31, 1999, have been restated to reflect the net liabilities and the
estimated loss as a single amount as follows:
September 30, December 31,
2000 1999
------------- ------------
Current assets............................................................. $ - $ 653,668
Non-current assets......................................................... - -
Liabilities................................................................ - (242,113)
------------- ------------
Net assets.............................................................. - 411,555
Estimated loss on disposition.............................................. - (217,717)
------------- ------------
Net assets of discontinued operations...................................... $ - $ 193,838
============= ============
7. Commitments:
During the quarter ended September 30, 2000, the Company entered into
two operating lease agreements expiring in the year 2006. Minimum future rental
payments under the non-cancelable operating leases having remaining terms in
excess of one year as of September 30, 2000 for each of the next five years in
aggregate are:
2001................................................................ $ 546,709
2002................................................................ 546,709
2003................................................................ 546,709
2004................................................................ 546,709
Subsequent to 2004.................................................. 596,458
---------------
Total minimum lease payments........................................ $ 2,783,294
===============
During the quarter ended September 30, 2000, the Company purchased
equipment under a capital lease expiring in the year 2006. The asset and
liability under the capital lease is initially recorded at the lower of the
present value of the minimum lease payments or the fair value of the asset. The
asset is depreciated over its expected useful life.
Minimum future lease payments under the above mentioned capital lease
as of September 30, 2000 for each of the next five years and in aggregate are:
2001................................................................ $ 66,788
2002................................................................ 66,788
2003................................................................ 66,788
2004................................................................ 66,788
2005................................................................ 66,788
Subsequent to 2005.................................................. 61,224
---------------
Total minimum lease payments........................................ 395,164
Less: amount representing interest.................................. (94,567)
---------------
Present value of net minimum lease payment.......................... $ 300,597
===============
8. Statement of Cash Flows:
Non-Cash Investing and Financing Activities:
The Company recognized investing and financing activities that affected
assets, liabilities, and equity, but did not result in cash receipts or
payments. These non-cash activities are as follows:
During the nine months ended September 30, 2000, the Company financed the
purchase of property, plant and equipment in the amount of $3,896,405.
9. Subsequent Events:
During October 2000, the Company financed the purchase of equipment in
the amount of $147,924. The note payable obligation has an interest rate of
6.9%, with monthly payments of $3,535, and is due October 2004.
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The following is management's discussion and analysis of certain
significant factors affecting the Company's financial position and operating
results during the periods included in the accompanying condensed consolidated
financial statements.
Except for the historical information contained herein, the matters set
forth in this report are forward-looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are subject to risks and uncertainties
that may cause actual results to differ materially. The Company disclaims any
intent or obligation to update these forward-looking statements.
The Company's backlog (anticipated revenue from the uncompleted portions of
awarded projects) was approximately $72.9 million at September 30, 2000,
compared to approximately $126.2 million at September 30, 1999. At September 30,
2000, the Company's backlog included approximately $21.6 million of work that is
scheduled for completion during 2000. Accordingly, revenue in 2000 and 2001 will
be significantly reduced if the Company is unable to obtain substantial new
projects during the remainder of 2000 and early in 2001. During the third
quarter ended September 30, 2000, the Company obtained new projects totaling
$18.5 million.
Revenue on uncompleted fixed price contracts is recorded under the
percentage-of-completion method of accounting. The Company begins to recognize
revenue on its contracts when it first accrues direct costs. Contracts often
involve work periods in excess of one year and revisions in cost and profit
estimates during construction are reflected in the accounting period in which
the facts that require the revision become known. Losses on contracts, if any,
are provided in total when determined, regardless of the percent complete.
Claims for additional contract revenue are recognized only to the extent that
contract costs relating to the claim have been incurred or evidence provides a
legal basis for the claim. At September 30, 2000, claim revenue in the amount of
$4.6 million has been recorded while claim costs incurred by both MVC and its
subcontractors and for which claims have been filed or will be filed exceed
$20.7 million. Of the $20.7 million in claims, approximately $5.0 million
represents costs incurred by MVC subcontractors for which claims are filed by
MVC on their behalf leaving the balance of $15.7 million as MVC costs. The
Company must obtain at least $4.6 million in proceeds from its $15.7 million
portion of the total claims or there would be a reduction in earnings.
Results of Operations
The following table sets forth, for the nine and the three months ended
September 30, 2000 and 1999, certain items derived from the Company's Condensed
Consolidated Statements of Operations expressed as a percentage of revenue.
Nine months ended Three months ended
September 30, September 30,
--------------------------- --------------------------
2000 1999 2000 1999
------------ ------------ ----------- -----------
Revenue ....................................... 100.0% 100.0% 100.0% 100.0%
Gross Profit .................................. 3.8 4.8 3.9 4.8
General and administrative expenses ........... 3.8 3.2 4.0 3.1
Interest income ............................... 0.4 0.3 0.4 0.3
Interest expense .............................. 0.1 0.0 0.2 0.0
Income before income taxes .................... 0.3 2.0 0.1 2.4
Income taxes .................................. 0.1 0.8 0.0 1.0
11
Nine Months Ended September 30, 2000 Compared to Nine Months Ended
September 30, 1999
Revenue and Backlog. Revenue for the nine months ended September 30, 2000
("interim 2000") was $128.4 million compared to $163.9 million for the nine
months ended September 30, 1999 ("interim 1999"). The decrease in revenue was
the result of a $36.9 million decrease in contract revenue offset by a $1.4
million increase in revenue generated from construction materials production and
manufacturing sold to non-affiliates. Backlog decreased 42% to approximately
$72.9 million at September 30, 2000 from approximately $126.2 million at
September 30, 1999. Revenue may be impacted in any one period by the backlog at
the beginning of the period.
Gross Profit. As a percentage of revenue, gross profit margin decreased
from 4.8% for interim 1999 to 3.8% for interim 2000. The decrease in MVC's gross
profit margin was the result of cost overruns on certain projects offset, in
part, by increased profit recognition related to several projects nearing
completion at September 30, 2000. Gross profit margins are affected by a variety
of factors including construction delays and difficulties due to weather
conditions, availability of materials, the timing of work performed by other
subcontractors and the physical and geological condition of the construction
site.
General and Administrative Expenses. General and administrative expenses
decreased to $4.8 million for interim 2000 from $5.2 million for interim 1999.
The decrease resulted primarily from reduction of costs related to various
employee incentive plans amounting to $.6 million offset, in part, by a
$.21 million increase in general and administrative expenses attributable to
expanding construction material operations.
Interest Income and Expense. Interest income for interim 2000 increased to
$462,816 from $435,625 in interim 1999 due to an increase in interest bearing
retention receivables. Interest expense increased in interim 2000 to $174,500
from $158,211 in interim 1999, due primarily to the Company borrowing on the
line of credit.
Net Income After Income Taxes. Net income after income taxes was $260,045
in interim 2000 as compared to $1,961,123 for interim 1999. The decrease
resulted from lower revenues along with decreased gross profit margins, offset,
in part, by higher interest income and a decrease in general and administrative
expenses.
Three Months Ended September 30, 2000 Compared to Three Months Ended
September 30, 1999
Revenue and Backlog. Revenue for the three months ended September 30, 2000
("interim 2000") was $44.4 million compared to $51.4 million for the three
months ended September 30, 1999 ("interim 1999"). The decrease in revenue was
the result of a $7.8 million decrease in contract revenue offset by a $.8
million increase in revenue generated from construction materials production and
manufacturing sold to non-affiliates. Backlog decreased 42% to approximately
$72.9 million at September 30, 2000 from approximately $126.2 million at
September 30, 1999. Revenue may be impacted in any one period by the backlog at
the beginning of the period.
Gross Profit. As a percentage of revenue, consolidated gross profit margin
decreased from 4.8% for interim 1999 to 3.9% for interim 2000. The decrease in
MVC's gross profit margin was the result of cost overruns on certain projects
and start-up costs from expansion of construction materials operations offset,
in part, by increased profit recognition related to several projects nearing
completion at September 30, 2000. Gross profit margins are affected by a variety
of factors including construction delays and difficulties due to weather
conditions, availability of materials, the timing of work performed by other
subcontractors and the physical and geological condition of the construction
site.
General and Administrative Expenses. General and administrative expenses
increased to $1.8 million for interim 2000 from $1.6 million for interim 1999.
The increase resulted primarily from an increase of $.15 million associated with
the expansion of construction materials operations, an increase of bad debt
expense of $.04 million, also associated with construction materials, and an
increase of office rent of $.03 million due to expanding facilities in Utah in
anticipation of materials operations in that market.
Interest Income and Expense. Interest income for interim 2000 increased to
$162,886 from $160,431 in interim 1999 due to a decrease in interest bearing
retention receivables. Interest expense increased in interim 2000 to $95,172
from $51,192, due primarily to the Company borrowing on the line of credit.
Net Income After Income Taxes. Net income after income taxes was $17,515
in interim 2000 as compared to $732,772 for interim 1999. The decrease resulted
from lower revenues along with decreased gross profit margins and an increase in
general and administrative expenses.
12
Liquidity and Capital Resources
The Company's primary need for capital has been to finance expansion and
capital expenditures. Historically, the Company's primary source of cash has
been from operations. The Company's expansion into construction materials has
required additional capital to finance expanded receivables, increased
inventories and capital expenditures as well as to address fluctuations in the
work-in-process billing cycle.
The following table sets forth for the nine months ended September 30, 2000
and 1999, certain items from the condensed consolidated statements of cash
flows.
Nine months ended
September 30,
-------------------------------------
2000 1999
---------------- -----------------
Cash flows Used in Operating Activities ...................... $ (3,094,122) $ (2,034,939)
Cash flows Used in Investing Activities ...................... (1,349,661) (407,899)
Cash flows Used in Financing Activities ...................... (475,700) (2,648,957)
As the Company expands its operations, particularly its aggregate, ready
mix concrete and asphalt production, cash may be reduced to finance receivables,
build inventories and for customer cash retention required under contracts
subject to completion. Management continually monitors the Company's cash
requirements in an effort to maintain adequate cash reserves. The Company is
currently experiencing a decline in its backlog and several larger projects are
nearing final stages of completion, resulting in a significant decline in the
Company's cash reserves. It is not unusual for cash flows from construction
projects nearing the final stages of completion to have negative cash flows.
Accordingly, in July 2000 the Company secured a $7.0 million operating line of
credit. The Company believes the $7.0 million operating line of credit,
together with the Company's historical ability to acquire new work may be
sufficient to meet the Company's cash requirements for the next twelve months.
As of September 30, 2000, the Company had withdrawn $1,537,808 from the line of
credit.
Cash used in operating activities during interim 2000 amounted to $3.1
million, primarily the result of a decrease in accounts payable of $1.9 million,
a decrease in accrued liabilities of $.1 million, an increase in inventory of
$1.2 million, an increase in accounts receivable, net of $4.7 million offset, in
part, by net income of $.3 million, depreciation and amortization of $1.8
million, and an increase in net billings in excess of costs of $3 million.
Cash used in operating activities during interim 1999 amounted to $2.0
million, primarily the result of an increase in net accounts receivable of $7.5
million, an increase in prepaid expenses and other of $1.8 million, an increase
in net costs in excess of billings of $4.6 million offset, in part, by a
decrease in accounts payable and accrued liabilities of $7.9 million, a decrease
in refundable deposits of $.1 million, a decrease in interest receivable of $.4
million, depreciation and amortization of $1.5 million and net income of $1.9
million.
Cash used in investing activities during interim 2000 amounted to $1.3
million related primarily to the purchase of property and equipment of $1.5
million and an increase in restricted cash of $.1 million, offset by proceeds
from the sale of property and equipment in the amount of $.3 million.
Cash used in investing activities during interim 1999 amounted to $.4
million related primarily to the purchase of property and equipment of $.9
million and the purchase of treasury stock held for funding the Company's
retirement plan contributions of $.5 million offset, in part, by a decrease in
net assets of discontinued operations of $.3 million, a decrease in restricted
cash of $.2 million and $.4 million proceeds from the sale of property and
equipment.
Cash used in financing activities during interim 2000 amounted to $.5
million related primarily to the repayment of notes payable and capital lease
obligations of $5.0 million, offset by the proceeds received from a note
payable of $4.5 million.
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Cash used in financing activities during interim 1999 amounted to $2.6
million including $1.0 million repayment of a loan from a related party and
repayments of notes payable and capital lease obligations in the amount of $1.6
million. The aforementioned note payable-related party was due to a principal
shareholder of the Company, the Richard C. Lewis Family Revocable Trust I.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
27 Financial Data Schedule
b) Reports on Form 8-K:
The Company filed a Form 8-K during the nine months ended
September 30, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act as of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEADOW VALLEY CORPORATION
(Registrant)
By /s/ Bradley E. Larson
---------------------------------------
Bradley E. Larson
President and Chief Executive Officer
November 14, 2000 By /s/ Nicole R. Smith
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Nicole R. Smith
Principal Accounting Officer
15