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, 1998
------------------------
Commission File Number 0-25428
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MEADOW VALLEY CORPORATION
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(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 31, 1998
----- -------------------------------
Common Stock, $.001 par value 3,601,250 shares
MEADOW VALLEY CORPORATION
INDEX
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
PART I. FINANCIAL INFORMATION Page
Number
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Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Nine Months Ended September 30, 1998 and
September 30, 1997 3
Condensed Consolidated Statements of Operations -
Three Months Ended September 30, 1998 and
September 30, 1997 4
Condensed Consolidated Balance Sheets -
As of September 30, 1998 and December 31, 1997 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998 and
September 30, 1997 6-7
Notes to Condensed Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10-14
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,
--------------------------
1998 1997
------------- -----------
(UNAUDITED) (UNAUDITED)
Revenues.................................................................. $137,039,161 $102,156,131
Cost of revenues.......................................................... 130,218,718 96,535,502
------------ ------------
Gross profit.............................................................. 6,820,443 5,620,629
General and administrative expenses....................................... 4,444,804 3,373,839
------------ ------------
Income from operations.................................................... 2,375,639 2,246,790
------------ ------------
Other income (expense):
Interest income........................................................... 624,399 449,336
Interest expense.......................................................... (341,008) (476,286)
Other income.............................................................. 71,376 10,418
------------ ------------
354,767 (16,532)
------------- ------------
Income from continuing operations before income taxes..................... 2,730,406 2,230,258
Income taxes.............................................................. 1,083,338 860,814
------------ ------------
Net income from continuing operations..................................... 1,647,068 1,369,444
Discontinued operations:
Loss from operations of Prestressed Products subsidiary, net
of income tax benefit of $423,497 and $210,814...................... (635,246) (335,377)
Estimated loss on disposal of net assets of Prestressed
Products subsidiary (net of income tax benefit of
$1,300,000), including $1,350,000 for operating losses
during phase-out period........................................... (1,950,000) -
------------ ------------
Net income (loss)......................................................... $ (938,178) $ 1,034,067
============ ============
Basic net income (loss) per common share:
Income from continuing operations.................................... $ .46 $ .38
Loss from operations of Prestressed Products subsidiary.............. (.18) (.09)
Estimated loss on disposal of net assets of Prestressed
Products subsidiary............................................... (.54) -
------------ ------------
Basic net income (loss) per common share.................................. $ (.26) $ .29
============ ============
Diluted net income (loss) per common share:
Income from continuing operations.................................... $ .45 $ .38
Loss from operations of Prestressed Products subsidiary.............. (.17) (.09)
Estimated loss on disposal of net assets of Prestressed
Products subsidiary............................................... (.53) -
------------ ------------
Diluted net income (loss) per common share................................ $ (.25) $ .29
============ ============
Basic weighted average common shares outstanding.......................... 3,601,250 3,601,250
============ ============
Diluted weighted average common shares outstanding........................ 3,668,679 3,626,102
============ ============
3
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1998 1997
----------- ------------
(UNAUDITED) (UNAUDITED)
Revenues.............................................................. $52,931,023 $41,464,276
Cost of revenues...................................................... 50,551,085 39,166,982
------------ -----------
Gross profit.......................................................... 2,379,938 2,297,294
General and administrative expenses................................... 1,524,328 1,170,053
------------ -----------
Income from operations................................................ 855,610 1,127,241
------------ -----------
Other income (expense):
Interest income....................................................... 238,450 191,776
Interest expense...................................................... (95,895) (175,272)
Other income.......................................................... 30,145 (5,258)
------------ -----------
172,700 11,246
------------ -----------
Income from continuing operations before income taxes................. 1,028,310 1,138,487
Income taxes.......................................................... 402,338 424,001
------------ -----------
Net income from continuing operations................................. 625,972 714,486
Discontinued operations:
Loss from operations of Prestressed Products subsidiary, net
of income tax benefit of $102,001............................... - (172,158)
------------ -----------
Net income............................................................ $ 625,972 $ 542,328
============ ===========
Basic net income (loss) per common share:
Income from continuing operations................................ $ .18 $ .20
Loss from operations of Prestressed Products subsidiary.......... - (.05)
------------ -----------
Basic net income per common share..................................... $ .18 $ .15
============ ===========
Diluted net income (loss) per common share:
Income from continuing operations................................ $ .17 $ .20
Loss from operations of Prestressed Products subsidiary.......... - (.05)
------------ -----------
Diluted net income per common share................................... $ .17 $ .15
============ ===========
Basic weighted average common shares outstanding...................... 3,601,250 3,601,250
============ ===========
Diluted weighted average common shares outstanding.................... 3,660,263 3,666,818
============ ===========
4
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1998 1997 *
------------- -------------
(UNAUDITED)
Assets:
Current Assets:
Cash and cash equivalents.................................................. $ 8,052,007 $ 2,815,164
Restricted cash............................................................ 3,039,481 1,719,768
Accounts receivable, net................................................... 22,937,845 24,142,358
Prepaid expenses and other................................................. 884,985 891,359
Note receivable - related party............................................ - 257,575
Note receivable - other.................................................... 1,933 2,009
Costs and estimated earnings in excess of billings on uncompleted
contracts................................................................ 2,081,548 3,913,475
------------- -------------
Total Current Assets.................................................... 36,997,799 33,741,708
Property and equipment, net................................................. 10,800,235 9,026,751
Refundable deposits......................................................... 246,983 127,736
Note receivable - other..................................................... 207,217 209,264
Goodwill, net............................................................... 1,680,799 1,740,821
Tradename, net.............................................................. 3,044 12,177
Investment in and advances to Prestressed Products Incorporated............. 4,545,698 3,037,954
------------- -------------
Total Assets............................................................ $ 54,481,775 $47,896,411
============= =============
Liabilities and Stockholders' Equity:
Current Liabilities:
Note payable - related party............................................... $ - $ 500,000
Notes payable - other...................................................... 1,044,630 818,846
Obligations under capital leases........................................... 509,471 405,204
Accounts payable........................................................... 17,573,788 18,371,357
Accrued liabilities........................................................ 2,287,853 1,842,860
Billings in excess of costs and estimated earnings on uncompleted
contracts................................................................. 11,583,411 6,650,891
Net liabilities and reserves of discontinued operations.................... 2,743,895 158,649
Income tax payable......................................................... 44,468 -
------------- -------------
Total Current Liabilities............................................... 35,787,516 28,747,807
Deferred income taxes....................................................... 412,561 412,561
Obligations under capital leases............................................ 755,961 973,847
Note payable - related party................................................ 2,000,000 2,000,000
Notes payable - other....................................................... 3,575,531 2,873,812
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Total Liabilities....................................................... 42,531,569 35,008,027
------------- -------------
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,
3,601,250 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.......................................................... 1,802,183 2,740,361
------------- -------------
Total Stockholders' Equity.............................................. 11,950,206 12,888,384
------------- -------------
Total Liabilities and Stockholders' Equity.............................. $ 54,481,775 $47,896,411
============= =============
*Derived from audited financial statements
5
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1998 1997
------------ -------------
Increase (Decrease) in Cash and Cash Equivalents: (UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Cash received from customers........................ $ 145,010,619 $ 108,860,736
Cash paid to suppliers and employees................ (134,205,662) (101,919,325)
Interest received................................... 667,152 481,873
Interest paid....................................... (146,692) (176,476)
Income taxes paid................................... (808,007) (211,114)
-------------- --------------
Net cash provided by operating activities...... 10,517,410 7,035,694
-------------- --------------
Cash flows from investing activities:
(Increase) decrease in restricted cash.............. (1,319,713) 104,462
Collection of note receivable - other............... 2,122 1,027
Proceeds from sale of property and equipment........ 163,682 181,574
Purchase of property and equipment.................. (1,214,013) (2,243,480)
Collection of note receivable-related party......... 257,575 -
Investment in and advances to Prestressed Products
Incorporated..................................... (1,507,743) (2,132,401)
-------------- --------------
Net cash used in investing activities.......... (3,618,090) (4,088,818)
-------------- --------------
Cash flows from financing activities:
Repayment of notes payable - other.................. (770,094) (293,448)
Repayment of capital lease obligations.............. (392,383) (213,328)
Repayment of note payable-related party............. (500,000) -
-------------- --------------
Net cash used in financing activities.......... (1,662,477) (506,776)
-------------- --------------
Net increase in cash and cash equivalents................ 5,236,843 2,440,100
Cash and cash equivalents at beginning of period......... 2,815,164 1,440,519
-------------- --------------
Cash and cash equivalents at end of period............... $ 8,052,007 $ 3,880,619
============== ==============
6
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1998 1997
------------ ------------
Increase (Decrease) in Cash and Cash Equivalents (UNAUDITED) (UNAUDITED)
(Continued):
Reconciliation of Net Income to Net Cash Provided by
Operating Activities:
Net income (loss).............................................. (938,179) 1,034,067
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 1,348,798 902,802
Gain on sale of property and equipment.................... (26,124) (8,327)
Changes in Assets and Liabilities:
Accounts receivable....................................... 1,161,760 4,358,468
Prepaid expenses and other................................ (224,490) (343,898)
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... 1,831,927 (1,895,094)
Refundable deposits....................................... (119,556) 89,964
Interest payable.......................................... 194,316 299,810
Accounts payable.......................................... (797,569) (2,723,185)
Accrued liabilities....................................... 250,677 64,333
Billings in excess of costs and estimated earnings on
uncompleted contracts................................... 4,932,520 4,239,140
Interest receivable....................................... 42,753 32,537
Income tax receivable..................................... 230,864 447,734
Income tax payable........................................ 44,467 201,966
Net liabilities and reserves of discontinued operations... 2,585,246 335,377
------------ -----------
Net cash provided by operating activities............ $10,517,410 $ 7,035,694
============ ===========
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. MVC was
acquired by the Company as of October 1, 1994. RMI is a producer and
retailer of ready-mix concrete operating in the Las Vegas metropolitan area.
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. 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 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 the nine months ended September 30, 1998
are not necessarily indicative of operating results for the entire year.
3. Discontinued Operations:
In June 1998, the Company initiated a plan to dispose of Prestressed
Products Incorporated. Accordingly, the Company has reclassified the
operations of Prestressed Products Incorporated as discontinued operations
in the accompanying statements of operations. The Company recorded an
estimated loss of $1,950,000 (net of income tax benefit of $1,300,000),
related to the disposal of assets for Prestressed Products Incorporated,
which included a provision of $1,350,000 for estimated operating losses
during the phase-out period. Actual operating losses incurred during the
three months ended September 30, 1998, were $468,602 (net of income tax
benefit of $312,400). The accompanying condensed consolidated balance
sheets as of September 30, 1998 and December 31, 1997 have been restated to
reflect the net liabilities and the estimated loss as a single amount as
follows:
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
Current assets.............................. $ 2,890,531 $ 3,020,023
Non-current assets.......................... 1,156,986 1,184,717
Liabilities................................. (5,310,014) (4,363,389)
------------- ------------
Net liabilities....................... (1,262,497) (158,649)
Estimated loss on disposition............... (1,481,398) -
------------- ------------
Net liabilities of discontinued operations.. $(2,743,895) $ (158,649)
============= ============
8
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Subsequent Events:
During October 1998, the Company made principal payments on the $10 million
promissory note (original 1994 promissory note balance) totaling $1 million
to the Kim A. Lewis Survivors Trust and the Richard C. Lewis Marital Trust,
each of which was created pursuant to the Richard C. Lewis Family Revocable
Trust I. The principal balance of this promissory note at October 31, 1998
was $1 million.
During October 1998, the Company made interest payments totaling $278,938
related to the $10 million promissory note (original 1994 promissory note
balance), to the Kim A. Lewis Survivors Trust and the Richard C. Lewis
Marital Trust, each of which was created pursuant to the Richard C. Lewis
Family Revocable Trust I.
5. Lines of Credit:
At September 30, 1998, the Company had available from a commercial bank a
$2,000,000 operating line of credit ("line of credit") at an interest rate
of the commercial bank's prime plus .50%, and a $2,000,000 operating line of
credit at an interest rate of the commercial bank's prime plus .25%. At
September 30, 1998, nothing had been drawn on either of the lines of credit.
Under the lines of credit, the Company is required to maintain certain
levels of working capital and comply with various other covenants, to
promptly pay all its obligations and is precluded from conveying, selling or
leasing all or substantially all of its assets. At September 30, 1998, the
Company was in full compliance will all such covenants. The lines of credit
expire September 15, 1999.
9
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.
During June 1998, the Company initiated a plan to dispose of Prestressed
Products Incorporated. The Company accrued a $1,950,000 charge (net of income
tax benefit of $1,300,000) relating to the estimated disposal cost of the
Prestressed Products business, which is expected to be completed during the
first quarter of 1999. Actual operating losses incurred during the three months
ended September 30, 1998, were $468,602 (net of income tax benefit of $312,400).
RESULTS OF OPERATIONS
The following table sets forth, for the nine months and the three months
ended September 30, 1998 and 1997, 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,
------------------ --------------------
1998 1997 1998 1997
-------- -------- ------- -----------
Revenue.......................................... 100.0% 100.0% 100.0% 100.0%
Gross profit..................................... 5.0 5.5 4.5 5.5
General and administrative expense............... 3.2 3.3 2.9 2.8
Interest income.................................. .5 .4 .5 .4
Interest expense................................. .3 .5 .2 .4
Income from continuing operations before
income taxes.................................... 2.0 2.1 1.9 2.7
Income taxes..................................... .8 .8 .7 1.0
Net income from continuing operations............ 1.2 1.3 1.2 1.7
Discontinued operations:
Loss from operations of Prestressed Products
subsidiary...................................... .5 .3 - .4
Estimated loss on disposal of net assets of
Prestressed Products subsidiary, including
operating losses during phase-out period..... 1.4 - - -
Net income (loss)................................ (.7) 1.0 1.2 1.3
10
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Revenue and Backlog. Revenue for the nine months ended September 30, 1998
("interim 1998") was $137.0 million compared to $102.1 million for the nine
months ended September 30, 1997 ("interim 1997"). The increase in revenue was
the result of an increase in contract revenue of $30.4 million and a $4.5
million increase in revenue generated from construction materials production and
manufacturing sold to non-affiliates. Backlog increased 85% to approximately
$260.1 million at September 30, 1998, from approximately $140.7 million at
September 30, 1997. Revenue is 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 5.5% for interim 1997 to 5.0% for interim 1998. The decrease in
MVC's gross profit margin was the result of (i) cost overruns on certain
projects (ii) subcontractor difficulties and (iii) costs related to plan or
specification errors. 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. General and administrative expenses increased
from $3,373,839 for interim 1997 to $4,444,804 for interim 1998. The increase
results, in part, from costs associated with expansion into the white paving
market amounting to approximately $238,000, $226,000 in corporate labor,
$311,000 in costs related to various employee incentive plans, $89,000 in legal
cost, $57,000 in costs related to the Company's safety plan, $27,000 in costs
related to the administration of the Company's employee benefit plans and a
variety of other costs related to the administration of the corporate and area
offices.
Interest Income and Expense. Interest income for interim 1998 increased to
$624,399 from $449,336 for interim 1997 due to an increase in cash reserves
resulting primarily from billings in excess of costs and estimated earnings on
uncompleted contracts. Interest expense decreased for interim 1998 to $341,008
from $476,286 for interim 1997 due to a $1,500,000 reduction in related party
debt. Interest expense resulting from the related party promissory note will
continue to decline during the fourth quarter 1998 due to an October 1998
principal payment of $1.0 million. Following the October 1998 payment, the
remaining balance on the related party promissory note is $1.0 million, compared
to the 1994 original promissory note balance of $10 million.
Net Income from Continuing Operations After Income Taxes. Net income from
continuing operations after income taxes was $1,647,068 for interim 1998 as
compared to $1,369,444 for interim 1997. The increase resulted from higher
revenues offset by increased general and administrative expenses and decreased
gross profit margins, as well as higher interest income and lower interest
expense.
Discontinued Operations. In June 1998, the Company decided to dispose of
its wholly-owned subsidiary, Prestressed Products Incorporated. Accordingly,
the Company has reclassified the operations of Prestressed Products Incorporated
as discontinued operations in the accompanying financial statements. In June
1998, the Company accrued a $1,950,000 charge (net of income tax benefit of
$1,300,000), related to the disposal of assets for the Prestressed Products
business, which included a provision of $1,350,000 for estimated operating
losses during the phase-out period. The disposal of the Prestressed Products
business is expected to be completed during the first quarter 1999.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
Revenue and Backlog. Revenue for the three months ended September 30, 1998
("interim 1998") was $52.9 million compared to $41.5 million for the three
months ended September 30, 1997 ("interim 1997"). The increase in revenue was
the result of a $10.8 million increase in contract revenue and a $.6 million
increase in revenue generated from construction materials production and
manufacturing sold to non-affiliates. Backlog increased 85% to approximately
$260.1 million at September 30, 1998 from approximately $140.7 million at
September 30, 1997. Revenue is 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 5.5% for interim 1997 to 4.5% for interim 1998. The decrease in
MVC's gross profit margin was the result of (i) cost overruns on certain
projects (ii) subcontractor difficulties and (iii) costs related to plan or
specification errors. Gross profit margins are
11
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. General and administrative expenses increased
from $1,170,053 for interim 1997 to $1,524,328 for interim 1998. The increase
results, in part, from costs associated with expansion into the white paving
market amounting to $65,000, $176,000 in corporate labor, $22,000 in costs
related to the Company's safety plan, $13,000 in legal costs and a variety of
costs including costs in excess of $21,000 related to regulatory and promotional
expenses incurred as a public company.
Interest Income and Expense. Interest income for interim 1998 increased to
$238,450 from $191,776 for interim 1997 due to an increase in cash reserves
resulting primarily from billings in excess of costs and estimated earnings on
uncompleted contracts. Interest expense decreased for interim 1998 to $95,895
from $175,272 for interim 1997 due to a $1,500,000 reduction in related party
debt. Interest expense resulting from the related party promissory note will
continue to decline during the fourth quarter 1998 due to an October 1998
principal payment of $1.0 million. Following the October 1998 payment, the
remaining balance on the related party promissory note is $1.0 million, compared
to the 1994 original promissory note balance of $10 million.
Net Income from Continuing Operations After Income Taxes. Net income after
income taxes was $625,972 for interim 1998 as compared to $714,486 for interim
1997. The decrease resulted by higher general and administrative expenses and
decreased gross profit margins offset by increased revenues, as well as higher
interest income and lower interest expense.
Discontinued Operations. In June 1998, the Company decided to dispose of
its wholly-owned subsidiary, Prestressed Products Incorporated. Accordingly,
the Company has reclassified the operations of Prestressed Products Incorporated
as discontinued operations in the accompanying financial statements. In June
1998, the Company accrued a $1,950,000 charge (net of income tax benefit of
$1,300,000), related to the disposal of assets for the Prestressed Products
business, which included a provision of $1,350,000 for estimated operating
losses during the phase-out period. The disposal of the Prestressed Products
business is expected to be completed during the first quarter 1999. Actual
operating losses incurred during the three months ended September 30, 1998, was
$468,602 (net of income tax benefit of $312,400).
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. Revenue growth has required additional capital to finance
expanded receivables, retentions and capital expenditures and address
fluctuations in the work-in-process billing cycle.
The following table sets forth for the nine months ended September 30, 1998
and 1997, certain items from the condensed consolidated statements of cash
flows.
Nine months ended
September 30,
----------------------------
1998 1997
----------------------------
Cash Flows Provided by Operating Activities $10,517,410 $ 7,035,694
Cash Flows (Used in) Investing Activities (3,618,090) (4,088,818)
Cash Flows (Used in) Financing Activities (1,662,477) (506,776)
Although the Company may experience increased profitability as operations
increase, cash may be reduced to finance receivables and for customer cash
retention required under contracts subject to completion. Management
continually monitors the Company's cash requirements to maintain adequate cash
reserves, and the Company believes that its cash balances were and, together
with the operating lines of credit described below, are sufficient.
12
Cash provided by operating activities during interim 1998 amounted to
$10,517,410, primarily the result of an increase in net billings in excess of
costs of $6,764,000, an increase in net liabilities and reserves of discontinued
operations of $2,585,000, an increase in interest payable of $194,000,
depreciation and amortization of $1,348,798 a decrease in accounts receivable of
$1,162,000, a decrease in income tax receivable of $230,864 offset in part, by a
decrease in accounts payable and accrued liabilities of $547,000, an increase in
prepaid expenses of $224,000, and a net loss of $938,000.
Cash provided by operating activities during interim 1997 amounted to
$7,035,694, primarily the result of net income of $1,034,000, net billings in
excess of costs of $2,344,000, an increase in net liabilities and reserves of
discontinued operations of $335,000, a decrease in accounts receivable of
$4,359,000, a decrease in income tax receivable of $448,000 and depreciation and
amortization of $903,000 offset, in part, by a decrease in accounts payable and
accrued liabilities of $2,659,000.
Cash used in investing activities during interim 1998 included the purchase
of property and equipment of $1,214,000, an increase in restricted cash of
$1,320,000 and an increase in investment in and advances to a related entity of
$1,508,000, offset by the collection of a related party note receivable of
$258,000 and $164,000 proceeds from the sale of property and equipment.
Cash used in investing activities during interim 1997 included the purchase
of property and equipment of $2,243,000 and an increase in investment in and
advances to a related entity of $2,132,000, offset by a decrease in restricted
cash of $104,000 and $182,000 in proceeds from the sale of property and
equipment.
Cash used in financing activities during interim 1998 included the
repayment of notes payable and capital lease obligations in the amount of
$1,162,000 and the repayment of a related party note payable of $500,000. Cash
used during interim 1997 included the repayment of notes payable and capital
lease obligations in the amount of $507,000.
In June 1998, the Company decided to dispose of its wholly-owned
subsidiary, Prestressed Products Incorporated. Accordingly, the Company has
reclassified the operations of Prestressed Products Incorporated as discontinued
operations in the accompanying financial statements. In June 1998, the Company
accrued a $1,950,000 charge (net of income tax benefit of $1,300,000), related
to the disposal of assets for the Prestressed Products business, which included
a provision of $1,350,000 for estimated operating losses during the phase-out
period. The disposal of the Prestressed Products business is expected to be
completed during the first quarter 1999. Actual operating losses incurred
during the three months ended September 30, 1998, was $468,602 (net of income
tax benefit of $312,400). The future cash flows from operations are expected to
be sufficient to fund the remaining accrued costs of $1,481,398 (net of income
tax benefit of $978,600).
The Company currently has available from a commercial bank a $2,000,000
operating line of credit at an interest rate of the commercial bank's prime plus
.50%, and a $2,000,000 operating line of credit at an interest rate of the
commercial bank's prime plus .25% ("lines of credit"). At September 30, 1998,
nothing had been drawn on either of the lines of credit. Under the lines of
credit, the Company is required to maintain certain levels of working capital
and comply with various other covenants, to promptly pay all of its obligations
and is precluded from conveying, selling or leasing all or substantially all of
its assets. At September 30, 1998, the Company was in full compliance with all
such covenants and there are no material covenants or restriction in the lines
of credit which the Company believes would impair its operations. The lines of
credit expire September 15, 1999.
The Company is currently leasing approximately 40 ready-mix trucks with
estimated annual lease payments of $800,000. The Company anticipates that a
substantial portion of the costs associated with a planned second ready mix
plant and related equipment will be financed through bank financing and
operating leases.
Management believes that the Company's cash reserves, together with its
lines of credit and its capacity to enter into other financing arrangements are
sufficient to fund its cash requirements for the next 12 months and that the
Company's working capital will be adequate to fund its short term and long term
requirements.
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YEAR 2000
The Company's has completed a comprehensive assessment of the internal
information systems and applications that will be impacted by the year 2000.
The Company expects to make the necessary revisions or upgrades to its systems
to render it year 2000 compliant. The Company's accounting software currently
utilizes a four digit year field. Attention is also being focused on compliance
efforts of key suppliers and customers. The Company could potentially
experience disruptions to some aspects of its various activities and operations
as a result of non-compliant systems utilized by the Company or unrelated third
parties. Contingency plans are therefore under development to mitigate the
extent of any such potential disruption to business operations. Based on
preliminary information, the costs to the Company of addressing potential year
2000 issues are not expected to have a material adverse impact on the Company's
consolidated results of operations or financial position. There can be no
assurance that the efforts or the contingency plans related to the Company's
systems, or those of the other entities relied upon will be successful or that
any failure to convert, upgrade or appropriately plan for contingencies would
not have a material adverse effect on the Company.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three months
ended September 30, 1998.
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SIGNATURE
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.
MEADOW VALLEY CORPORATION
(Registrant)
By /s/ Gary W. Burnell
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Gary W. Burnell
Chief Financial Officer
By /s/ Julie L. Bergo
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Julie L. Bergo
Principal Accounting Officer
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