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, 1999
------------------------
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 (IRS 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 phone 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 29, 1999
----- -------------------------------
Common Stock, $.001 par value 3,501,250 shares
MEADOW VALLEY CORPORATION
INDEX
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
PART I. FINANCIAL INFORMATION Page
Number
------
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Nine Months Ended September 30, 1999 and
September 30, 1998 3
Condensed Consolidated Statements of Operations -
Three Months Ended September 30, 1999 and
September 30, 1998 4
Condensed Consolidated Balance Sheets -
As of September 30, 1999 and December 31, 1998 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1999 and
September 30, 1998 6-7
Notes to Condensed Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10-13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
2
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended
September 30,
------------------------------------------
1999 1998
(Unaudited) (Unaudited)
------------------ -------------------
Revenues............................................................... $ 163,915,632 $ 137,039,161
Cost of revenues....................................................... 156,028,623 130,218,718
------------------ -------------------
Gross profit........................................................... 7,887,009 6,820,443
General and administrative............................................. 5,187,125 4,444,804
------------------ -------------------
Income from operations................................................. 2,699,884 2,375,639
Other income (expense):
Interest income........................................................ 435,625 624,399
Interest expense....................................................... (158,211) (341,008)
Other income........................................................... 290,407 71,376
------------------ -------------------
567,821 354,767
------------------ -------------------
Income from continuing operations...................................... 3,267,705 2,730,406
Income taxes........................................................... 1,306,582 1,083,338
------------------ -------------------
Net income from continuing operations.................................. 1,961,123 1,647,068
Discontinued operations:
Loss from operations of Prestressed Products subsidiary, net
of income tax benefit of $0 and $423,497............................. - (635,246)
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)...................................................... $ 1,961,123 $ (938,178)
================== ===================
Basic net income per common share:
Income from continuing operations..................................... $ .56 $ .46
Loss from operations of Prestressed Products subsidiary............... - (.18)
Estimated loss on disposal of net assets of Prestressed
Products subsidiary.................................................. - (.54)
------------------ -------------------
Basic net income (loss) per common share............................... $ .56 $ (.26)
================== ===================
Diluted net income (loss) per common share:
Income from continuing operations..................................... $ .55 $ .45
Loss from operations of Prestressed Products subsidiary............... - (.17)
Estimated loss on disposal of net assets of Prestressed
Products subsidiary.................................................. - (.53)
------------------ -------------------
Diluted net income (loss) per common share............................. $ .55 $ (.25)
================== ===================
Basic weighted average common shares outstanding....................... 3,524,327 3,601,250
================== ===================
Diluted weighted average common shares outstanding..................... 3,555,240 3,668,679
================== ===================
3
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
September 30,
----------------------------------------------------
1999 1998
(Unaudited) (Unaudited)
-------------------- ---------------------
Revenues........................................................... $ 51,440,091 $ 52,931,023
Cost of revenues................................................... 48,968,562 50,551,085
-------------------- ---------------------
Gross profit....................................................... 2,471,529 2,379,938
General and administrative......................................... 1,614,064 1,524,328
-------------------- ---------------------
Income from operations............................................. 857,465 855,610
-------------------- ---------------------
Other income (expense):
Interest income.................................................... 160,431 238,450
Interest expense................................................... (51,192) (95,895)
Other income....................................................... 253,749 30,145
-------------------- ---------------------
362,988 172,700
-------------------- ---------------------
Income from continuing operations.................................. 1,220,453 1,028,310
Income taxes....................................................... 487,681 402,338
-------------------- ---------------------
Net income from continuing operations.............................. 732,772 625,972
Discontinued operations:
Loss from operations of Prestressed Products subsidiary........... - -
------------------- ---------------------
Net income......................................................... $ 732,772 $ 625,972
=================== =====================
Basic net income per common share:
Income from continuing operations................................. $ .21 $ .18
Loss from operations of Prestressed Products subsidiary........... - -
------------------- ---------------------
Basic net income per common share.................................. $ .21 $ .18
=================== =====================
Diluted net income per common share:
Income from continuing operations................................. $ .21 $ .17
Loss from operations of Prestressed Products subsidiary........... - -
------------------- ---------------------
Diluted net income per common share................................ $ .21 $ .17
=================== =====================
Basic weighted average common shares outstanding................... 3,501,250 3,601,250
=================== =====================
Diluted weighted average common shares outstanding................. 3,501,250 3,660,263
=================== =====================
4
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1999 December 31,
(Unaudited) 1998 *
-------------------- --------------------
Assets:
Current Assets:
Cash and cash equivalents................................................... $ 5,901,230 $ 10,993,025
Restricted cash............................................................. 3,437,114 3,678,685
Accounts receivable, net.................................................... 22,832,514 15,434,491
Prepaid expenses and other.................................................. 3,301,633 1,858,184
Note receivable - other..................................................... 2,386 2,386
Costs and estimated earnings in excess of billings on uncompleted
contracts.................................................................. 5,141,828 3,850,619
Treasury stock held for funding employer retirement plan contributions...... 451,754 -
-------------------- --------------------
Total Current Assets.................................................... 41,068,459 35,817,390
Property and equipment, net................................................. 14,245,918 10,995,846
Refundable deposits......................................................... 87,430 191,433
Note receivable - other..................................................... 204,700 206,421
Goodwill, net............................................................... 1,600,770 1,660,792
Investment in and advances to Prestressed Products Incorporated............. 91,798 425,181
-------------------- --------------------
Total Assets............................................................ $ 57,299,075 $ 49,297,063
==================== ====================
Liabilities and Stockholders' Equity:
Current Liabilities:
Notes payable - other....................................................... $ 1,305,432 $ 1,145,621
Obligations under capital leases............................................ 993,646 678,562
Accounts payable............................................................ 21,983,080 13,797,436
Accrued liabilities......................................................... 2,784,788 3,091,362
Billings in excess of costs and estimated earnings on uncompleted
contracts.................................................................. 8,028,486 11,343,995
-------------------- --------------------
Total Current Liabilities............................................... 35,095,432 30,056,976
Deferred income taxes.......................................................... 789,727 789,727
Obligations under capital leases............................................... 4,075,381 2,031,316
Note payable - related party................................................... - 1,000,000
Notes payable - other.......................................................... 2,904,695 2,946,327
-------------------- --------------------
Total Liabilities....................................................... 42,865,235 36,824,346
-------------------- --------------------
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,
3,501,250 and 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........................................................... 4,285,817 2,324,694
-------------------- --------------------
Total Stockholders' Equity.............................................. 14,433,840 12,472,717
-------------------- --------------------
Total Liabilities and Stockholders' Equity.............................. $ 57,299,075 $ 49,297,063
==================== ====================
*Derived from audited financial statements
5
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
----------------------------------------
1999 1998
(Unaudited) (Unaudited)
-------------- --------------
Increase (Decrease) in Cash and Cash Equivalents:
Cash flows from operating activities:
Cash received from customers............................................... $ 152,076,874 $ 145,010,619
Cash paid to suppliers and employees....................................... (153,519,929) (134,205,662)
Interest received.......................................................... 514,580 667,152
Interest paid.............................................................. (184,238) (146,692)
Income taxes paid.......................................................... (922,226) (808,007)
-------------- --------------
Net cash provided by (used in) operating activities...................... (2,034,939) 10,517,410
-------------- --------------
Cash flows from investing activities:
(Increase) decrease in restricted cash..................................... 241,571 (1,319,713)
Collection of note receivable - other ..................................... 1,721 2,122
Proceeds from sale of property and equipment............................... 382,220 163,682
Purchase of property and equipment ........................................ (915,040) (1,214,013)
Collection of note receivable - related party.............................. - 257,575
Decrease in net assets of discontinued operations ......................... 333,383 -
Increase in net liabilities and reserves of discontinued operations........ - (1,507,743)
Purchase of treasury stock held for funding employer retirement plan
contributions............................................................. (451,754) -
-------------- --------------
Net cash used in investing activities.................................... (407,899) (3,618,090)
-------------- --------------
Cash flows from financing activities:
Repayment of notes payable - other......................................... (1,032,020) (770,094)
Repayment of capital lease obligations..................................... (616,937) (392,383)
Repayment of note payable - related party.................................. (1,000,000) (500,000)
-------------- --------------
Net cash used in financing activities.................................... (2,648,957) (1,662,477)
-------------- --------------
Net increase (decrease) in cash and cash equivalents.......................... (5,091,795) 5,236,843
Cash and cash equivalents at beginning of period.............................. 10,993,025 2,815,164
-------------- --------------
Cash and cash equivalents at end of period.................................... $ 5,901,230 $ 8,052,007
============== ==============
6
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Nine Months Ended
September 30,
----------------------------------------------------------
1999 1998
(Unaudited) (Unaudited)
------------------------- ---------------------------
Increase (Decrease) in Cash and Cash Equivalents (Continued):
Reconciliations of Net Income (Loss) to Net Cash Provided By
(Used In) Operating Activities:
Net income (loss).................................................... $ 1,961,123 $ (938,179)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization..................................... 1,515,226 1,348,798
Gain on sale of property and equipment............................ (45,469) (26,124)
Changes in Assets and Liabilities:
Accounts receivable, net.......................................... (7,476,978) 1,161,760
Prepaid expenses and other........................................ (1,827,805) (224,490)
Costs and estimated earnings in excess of billings on uncompleted
contracts....................................................... (1,291,209) 1,831,927
Refundable deposits............................................... 103,301 (119,556)
Interest payable.................................................. - 194,316
Accounts payable.................................................. 8,185,644 (797,569)
Accrued liabilities............................................... (280,547) 250,677
Billings in excess of costs and estimated earnings on uncompleted
contracts....................................................... (3,315,509) 4,932,520
Interest receivable............................................... 384,356 42,753
Income tax receivable............................................. 78,955 230,864
Income tax payable................................................ (26,027) 44,467
Net liabilities and reserves of discontinued operations........... - 2,585,246
-------------------- --------------------
Net cash provided by (used in) operating activities............. $ (2,034,939) $10,517,410
==================== ====================
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 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, 1999 are not necessarily indicative of operating
results for the entire year
3. Commitments:
During the quarter ended September 30, 1999, the Company purchased and
constructed machinery and equipment under capital leases expiring in the year
2006. The assets and liabilities under capital leases are recorded at the lower
of the present value of the minimum lease payments or the fair value of the
assets. The assets are depreciated over their related lease terms.
Minimum future lease payments under the above mentioned capital leases as
of September 30, 1999 for each of the next five years and in aggregate are:
Year Ended December 31, Amount
- ------------------------------------------------------ -------------
2000.................................................. $ 149,441
2001.................................................. 149,441
2002.................................................. 145,176
2003.................................................. 119,354
2004.................................................. 69,896
Subsequent to 2004 ................................... 3,127,210
-------------
Total minimum lease payments.......................... 3,760,518
Less: amount representing interest.................... (847,240)
-------------
Present value of net minimum lease payment............ $ 2,913,278
=============
8
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. 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.
Accordingly, the Company has reclassified the operations of PPI as discontinued
operations in the accompanying statements of operations. In June 1998, 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 PPI, which included a
provision of $1,350,000 for estimated operating losses during the phase-out
period. During the nine months ended September 30, 1999, $578,268 of the
expected losses was incurred (net of income tax benefit of $385,513).
The revenue of PPI for the nine months ended September 30, 1998 and 1999
were $5,222,797 and $1,286,198. These amounts are not included in revenue in
the accompanying statements of operations.
The accompanying condensed consolidated balance sheets as of September 30,
1999 and December 31, 1998, reflect the net liabilities and the estimated loss
as a single amount as follows:
September 30, December 31,
1999 1998
------------- ------------
Current assets......................... $ 669,040 $ 1,204,192
Non-current assets..................... - 481,331
Liabilities............................ (339,622) (444,454)
--------- -----------
Net assets............................. 329,418 1,241,069
Estimated loss on disposition.......... (237,620) (815,888)
--------- -----------
Net assets of discontinued operations.. $ 91,798 $ 425,181
========= ===========
5. Lines of Credit:
At September 30, 1999, 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, 1999, 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, 1999, the Company was in full
compliance will all such covenants. The lines of credit expire
September 15, 2000.
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. During the nine months ended September 30, 1999,
$578,268 of the expected losses was incurred (net of income tax benefit of
$385,513). As of September 30, 1999, the reserve for discontinued operations is
$237,620 (net of income tax benefit of $158,413).
Results of Operations
The following table sets forth, for the nine months and the three months
ended September 30, 1999 and 1998, 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,
----------------------------------------- ------------------------------------
1999 1998 1999 1998
------------------- ------------------- ------------------- --------------
Revenue.......................................... 100.0% 100.0% 100.0% 100.0%
Gross profit..................................... 4.8 5.0 4.8 4.5
General and administrative expense............... 3.2 3.2 3.1 2.9
Interest income.................................. .3 .5 .3 .5
Interest expense................................. - .3 - .2
Income from continuing operations
before income taxes .......................... 2.0 2.0 2.4 1.9
Income taxes..................................... .8 .8 1.0 .7
Net income from continuing operations............ 1.2 1.2 1.4 1.2
Discontinued operations:
Loss from operations of Prestressed
Products subsidiary........................... - .5 - -
Estimated loss on disposal of net assets
of Prestressed Products subsidiary,
including operating losses during
phase-out period.............................. - 1.4 - -
Net income (loss)................................ 1.2 (.7) 1.4 1.2
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
Revenue and Backlog. Revenue for the nine months ended September 30, 1999
("interim 1999") was $163.9 million compared to $137.0 million for the nine
months ended September 30, 1998 ("interim 1998"). The increase in
10
revenue was primarily the result of an increase in contract revenue of $27.0
million. Backlog decreased 51% to approximately $126.2 million at September 30,
1999, from approximately $260.1 million at September 30, 1998. 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 5.0% for interim 1998 to 4.8% for interim 1999. The decrease in
MVC's gross profit margin was the result of (i) cost overruns on certain
projects (ii) weather and execution difficulties related to a bridge
substructure and (iii) costs to remove and repair a portion of a partially
constructed bridge that was damaged by the collapse of a temporary support
system, offset, in part, by increased profit recognition related to several
projects nearing completion at September 30, 1999. 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 $4,444,804 for interim 1998 to $5,187,125 for interim 1999. The increase
resulted, in part, from costs related to various employee incentive plans
amounting to $390,000, $51,000 in costs related to the education and training of
corporate and area personnel, $160,000 in corporate labor, $48,000 in costs
related to corporate legal and accounting costs and a variety of other costs
related to the administration of the corporate and area offices.
Interest Income and Expense. Interest income for interim 1999 decreased to
$435,625 from $624,399 for interim 1998 resulting primarily from a decrease in
interest bearing retention receivables and cash reserves. Interest expense
decreased for interim 1999 to $158,211 from $341,008 for interim 1998 due
primarily to a $1,500,000 reduction in related party debt during 1998 and a
$1,000,000 reduction in related party debt at the beginning of interim 1999.
Net Income from Continuing Operations After Income Taxes. Net income from
continuing operations after income taxes was $1,961,123 for interim 1999 as
compared to $1,647,068 for interim 1998. 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, due to continuing operating losses,
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. During the nine months ended September 30, 1999, $578,268 of the
expected losses were incurred (net of income tax benefit of $385,513).
Net Income (loss). Net income (loss), after discontinued operations, for
interim 1999 was $1,961,123 as compared to $(938,178) for interim 1998.
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
Revenue and Backlog. Revenue for the three months ended September 30,
1999 ("interim 1999") was $51.4 million compared to $52.9 million for the three
months ended September 30, 1998 ("interim 1998"). The decrease in revenue was
the result of a $.5 million decrease in contract revenue and a $1.0 million
decrease in revenue generated from construction materials production and
manufacturing sold to non-affiliates. Backlog decreased 51% to approximately
$126.2 million at September 30, 1999 from approximately $260.1 million at
September 30, 1998. 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
increased from 4.5% for interim 1998 to 4.8% for interim 1999. The increase in
MVC's gross profit margin was the result of increased profit recognition
related to several projects nearing completion at September 30, 1999, offset, in
part, by (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 $1,524,328 for interim 1998
11
to $1,614,064 for interim 1999. The increase results, in part, from $68,000 in
corporate labor and $20,000 related to corporate legal costs.
Interest Income and Expense. Interest income for interim 1999 decreased
to $160,431 from $238,450 for interim 1998 resulting primarily from a decrease
in interest bearing retention receivables and cash reserves. Interest expense
decreased for interim 1999 to $51,192 from $95,895 for interim 1998 due
primarily to a $1,000,000 reduction in related party debt at the beginning of
interim 1999.
Net Income from Continuing Operations After Income Taxes. Net income from
continuing operations after income taxes was $732,772 for interim 1999 as
compared to $625,972 for interim 1998. The increase resulted from increased
gross profit margins, offset by lower revenues, increased general and
administrative expenses, as well as higher interest income and lower interest
expense.
Discontinued Operations. In June 1998, due to continuing operating
losses, 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. During the three months ended September 30, 1999, $121,447 of the
expected losses were incurred (net of income tax benefit of $80,965).
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, 1999
and 1998, certain items from the condensed consolidated statements of cash
flows.
Nine Months Ended
September 30,
---------------------------------------------------------
1999 1998
------------------------ ---------------------------
Cash Flows Provided By (Used In) Operating Activities .............. $(2,034,939) $10,517,410
Cash Flows Used In Investing Activities ............................ (407,899) (3,618,090)
Cash Flows Used In Financing Activities ............................ (2,648,957) (1,662,477)
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.
Cash used in operating activities during interim 1999 amounted to
$2,034,939, primarily the result of an increase in net accounts receivable of
$7,476,978, an increase in prepaid expenses and other of $1,827,805, an increase
in net costs in excess of billings of $4,606,718 offset in part, by a decrease
in accounts payable and accrued liabilities of $7,905,097, a decrease in
refundable deposits of $103,301, a decrease in interest receivable of $384,356,
depreciation and amortization of $1,515,226 and net income of $1,961,123.
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 $2,585,246, an increase in interest payable of $194,000,
depreciation and amortization of $1,348,798 a decrease in net 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 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
12
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 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 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.
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.
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, 1999,
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, 1999, 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, 2000.
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. The Company is currently leasing
approximately 40 ready-mix trucks with estimated annual lease payments of
$800,000.
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.
Year 2000
The Company 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 has received assurances from
certain customers and vendors related to their state of readiness; however, 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, 1999.
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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/ Bradley E. Larson
--------------------------------
Bradley E. Larson
Chief Executive Officer
By /s/ Julie L. Bergo
--------------------------------
Julie L. Bergo
Principal Accounting Officer
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