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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended March 31, 2001
Commission File Number 000 - 25161
MODTECH HOLDINGS, INC.
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Delaware 33 -- 0825386
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
2830 Barrett Avenue, Perris, CA 92571
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(Address of principal executive (Zip Code
office)
(909) 943-4014
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Registrant's telephone number
Indicate by check mark, whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of May 11, 2001, there were 13,397,099 of the Registrant's Common Stock
outstanding.
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MODTECH HOLDINGS, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2001
PART I. FINANCIAL INFORMATION
The condensed consolidated financial statements included herein have been
prepared by Modtech Holdings, Inc. and subsidiaries (the "Company"), without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America has been omitted pursuant to such rules and
regulations. However, the Company believes that the financial statements,
including the disclosures herein, are adequate to make the information presented
not misleading. The results of operations for the three months ended March 31,
2001 and 2000 are not necessarily indicative of the results to be expected for
the full fiscal years. The financial statements should be read in conjunction
with the Company's consolidated financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31, 2000
as filed with the Securities and Exchange Commission.
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MODTECH HOLDINGS, INC.
Condensed Consolidated Balance Sheets
December 31, March 31,
2000 2001
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(Audited) (Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 416,000 $ 2,212,000
Contracts receivable, net, including costs in excess of
billings of $9,724,000 and $12,659,000 in 2000 and
2001, respectively 43,813,000 43,190,000
Inventories 9,815,000 10,446,000
Due from affiliates 702,000 113,000
Deferred tax assets 3,407,000 3,407,000
Other current assets 1,010,000 1,441,000
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Total current assets 59,163,000 60,809,000
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Property and equipment, net 14,538,000 16,041,000
Other assets
Goodwill, net 111,157,000 111,828,000
Covenants not to compete, net 1,188,000 1,016,000
Debt issuance costs, net 1,205,000 1,091,000
Deferred tax assets 56,000 56,000
Other assets 395,000 453,000
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$187,702,000 $191,294,000
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 23,107,000 $ 22,181,000
Billings in excess of costs 4,003,000 3,395,000
Current revolving credit line 6,500,000 12,350,000
Current maturities of long-term debt 8,400,000 8,700,000
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Total current liabilities 42,010,000 46,626,000
Long-term debt, excluding current portion 23,600,000 21,200,000
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Total liabilities 65,610,000 67,826,000
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Shareholders' Equity:
Series A preferred stock, $.01 par. Authorized
5,000,000 shares; issued and outstanding 388,939 in
2000 and 2001 4,000 4,000
Common stock, $.01 par. Authorized 25,000,000 shares;
issued and outstanding 13,348,015 and 13,363,780 in
2000 and 2001, respectively 133,000 134,000
Additional paid-in capital 78,008,000 78,027,000
Retained earnings 43,947,000 45,303,000
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Total shareholders' equity 122,092,000 123,468,000
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$187,702,000 $191,294,000
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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MODTECH HOLDINGS, INC.
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31,
2000 2001
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Net sales $ 43,722,000 $ 42,680,000
Cost of goods sold 37,900,000 36,608,000
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Gross profit 5,822,000 6,072,000
Selling, general and administrative expenses 1,840,000 1,695,000
Goodwill and covenant amortization 926,000 926,000
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Income from operations 3,056,000 3,451,000
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Other income (expense):
Interest expense, net (1,014,000) (905,000)
Other, net 8,000 13,000
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(1,006,000) (892,000)
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Income before income taxes 2,050,000 2,559,000
Income taxes (943,000) (1,203,000)
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Net income $ 1,107,000 $ 1,356,000
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Series A preferred stock dividend 39,000 39,000
Net income available to common stock $ 1,068,000 $ 1,317,000
============ ============
Basic earnings per common share $ 0.08 $ 0.10
============ ============
Basic weighted-average shares outstanding 13,156,000 13,350,000
============ ============
Diluted earnings per common share $ 0.08 $ 0.10
============ ============
Diluted weighted-average shares outstanding 14,277,000 14,255,000
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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MODTECH HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
2000 2001
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Cash flows from operating activities:
Net income $ 1,107,000 $ 1,356,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,439,000 1,574,000
Gain on sale of equipment -- (4,000)
(Increase) decrease in assets, net of effects
from acquisitions:
Contracts receivable (8,829,000) 1,149,000
Inventories (3,502,000) 213,000
Due from affiliates (443,000) 589,000
Other current and noncurrent assets (137,000) (436,000)
Increase (decrease) in liabilities, net of
effects from acquisitions:
Accounts payable and accrued liabilities 3,147,000 (2,310,000)
Billings in excess of costs (2,109,000) (608,000)
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Net cash provided by (used in) operating activities (9,327,000) 1,523,000
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Cash flows from investing activities:
Proceeds from sale of equipment -- 6,000
Purchase of property and equipment (755,000) (213,000)
Purchase of covenants not to compete -- (25,000)
Acquisition of subsidiaries, net of cash acquired -- (3,407,000)
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Net cash used in investing activities (755,000) (3,639,000)
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Cash flows from financing activities:
Net principal borrowings under revolving credit line 10,800,000 5,993,000
Net principal payments on long-term debt (1,750,000) (2,100,000)
Proceeds from exercise of stock options 96,000 19,000
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Net cash provided by financing activities 9,146,000 3,912,000
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Net (decrease) increase in cash and cash equivalents (936,000) 1,796,000
Cash and cash equivalents at beginning of period 1,198,000 416,000
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Cash and cash equivalents at end of period $ 262,000 $ 2,212,000
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements
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MODTECH HOLDINGS, INC.
Notes To Condensed Consolidated Financial Statements
March 31, 2001
1) Management Opinion
In the opinion of management, the condensed consolidated financial
statements reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position and results
of operations as of and for the periods presented.
The results of operations for the three months ended March 31, 2001 and
2000 are not necessarily indicative of the results to be expected for the
full fiscal years.
2) Inventories
Inventories consist of the following:
2000 2001
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Raw materials $ 8,394,000 $ 8,112,000
Work in process 1,413,000 2,326,000
Finished goods 8,000 8,000
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$ 9,815,000 $10,446,000
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3) Earnings Per Share
The following table illustrates the calculation of basic and diluted
earnings per common share under the provisions of SFAS No. 128:
Three Months Ended
March 31,
2000 2001
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BASIC
Net income $ 1,107,000 $ 1,356,000
Dividends on preferred stock (39,000) (39,000)
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Net income available to common stock $ 1,068,000 $ 1,317,000
============ ============
Weighted-average common shares
outstanding 13,156,000 13,350,000
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Basic earnings per common share $ 0.08 $ 0.10
============ ============
DILUTED
Net income $ 1,107,000 $ 1,356,000
============ ============
Weighted-average common shares 13,156,000 13,350,000
outstanding
Add:
Conversion of preferred stock 389,000 389,000
Exercise of options 732,000 516,000
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Adjusted weighted-average common
shares outstanding 14,277,000 14,255,000
============ ============
Diluted earnings per common share $ 0.08 $ 0.10
============ ============
Options to purchase 547,000 and 851,000 shares of common stock were
outstanding during the quarters ended March 31, 2000 and 2001,
respectively, but were not included in the computation of diluted earnings
per share because the option exercise price was greater than the average
market price of the common shares and therefore, the effect would be
anti-dilutive.
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4) Debt
The credit facility contains various covenants. The Company was in
compliance with such covenants or has received a waiver as of March 31,
2001.
5) Acquisition
IMS Acquisition. On March 8, 2001, the Company purchased 100% of the stock
of Innovative Modular Structures, Inc. (IMS). IMS designs and manufactures
modular relocatable classrooms and other modular buildings for commercial
use. IMS is based in St. Petersburg, Florida. Pro forma amounts for the
IMS acquisition are not included, as the effect is not material to the
Company's consolidated financial statements. This acquisition has been
accounted for as a purchase.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
The following table sets forth certain items in the Condensed Consolidated
Statements of Income as a percent of net sales.
Percent of Net Sales
Three Months Ended
March 31,
2000 2001
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Net sales 100.0% 100.0%
Gross profit 13.3 14.2
Selling, general and administrative expenses 4.2 4.0
Goodwill and covenant amortization 2.1 2.2
Income from operations 7.0 8.1
Interest expense, net (2.3) (2.1)
Income before income taxes 4.7 6.0
Net sales for the three months ended March 31, 2001 remained level at
approximately $42.7 million compared to $43.7 million for the three months ended
March 31, 2000. The small decline in net sales was attributable to weather
conditions in California. The heavier than normal rains affected completion of
certain projects, including delivery and installation delays due to wet ground
conditions.
Gross profit as a percentage of net sales for the three months ended March 31,
2001 increased to 14.2% from 13.3% for the same period in 2000. The increase was
due to product mix as well as certain operational efficiencies.
Selling, general and administrative expenses decreased for the three months
ended March 31, 2001 by $145,000, a decrease of 7.9%. As a percentage of net
sales, selling, general, and administrative expenses decreased from 4.2% in the
first three months of 2000 to 4.0% in 2001.
Goodwill was recorded for both the SPI Merger and the Coastal Acquisition in
1999 and has been amortized from the respective dates of acquisition.
Interest expense, net decreased for the three months ended March 31, 2001 by
$109,000, or 10.7%. The decrease is attributable to decreased line of credit
borrowings, decreased long term debt due to repayment and decreased interest
rates for the three months ended March 31, 2001. As a percentage of net sales,
interest expense decreased from 2.3% in the first three months of 2000 to 2.1%
in 2001.
INFLATION
In the past, the Company has not been adversely affected by inflation, because
it has been generally able to pass along to its customers increases in the costs
of labor and materials.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has generated cash from operations, bank borrowings and
public offerings to meet its needs. At March 31, 2001, the Company had
$2,212,000 in cash and cash equivalents. During the three months ended March 31,
2001, the Company generated cash from operating activities of $1,523,000.
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The Company has a $75,000,000 credit facility, of which $30,000,000 represents a
revolving loan commitment. The credit facility is secured by all the Company's
assets, as well as the Company's stock ownership in its subsidiaries. The credit
facility expires in February 2004. On March 31, 2001, $12,350,000 was
outstanding under the revolving loan commitment. The credit facility contains
various covenants. The Company was in compliance with such covenants or has
received a waiver as of March 31, 2001.
Management believes that the Company's existing product lines and manufacturing
capacity will enable the Company to generate sufficient cash through operations,
supplemented by periodic use of its existing bank line of credit, to finance the
Company's business at current levels over the next 12 months. Additional cash
resources may be required if the Company expands its business beyond current
levels. For example, it will be necessary for the Company to construct or
acquire additional manufacturing facilities in order for the Company to compete
effectively in new market areas or states which are beyond a 300 mile radius
from one of its production facilities. The construction or acquisition of new
facilities would require significant additional capital. For these reasons,
among others, the Company may need additional debt or equity financing in the
future. There can be, however, no assurance that the Company will be successful
in obtaining such additional financing, or that any such financing will be
available on terms acceptable to the Company.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133, as amended,
establishes accounting and reporting standards for derivative instruments,
derivative instruments embedded in other contracts, and hedging activities. SFAS
133, as amended, is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. The adoption of SFAS 133 did not have a material impact on
our consolidated financial position or results of operations.
Item 3. Quantitative And Qualitative Disclosures About Market Risk
We are exposed to market risks related to fluctuation in interest rates on our
$75 million credit facility. During the quarter ended March 31, 2001, we did not
use interest rate swaps or other types of derivative financial instruments. The
carrying value of the credit facility approximates fair value as the interest
rate is variable and resets frequently. Indebtedness under the credit facility
bears interest at the lower of (1) LIBOR plus additional interest of between
1.5% and 2.25%, or (2) a rate equal to the greater of (i) the Federal funds rate
plus 0.5% or (ii) the bank's prime rate, plus in either case an additional
interest of between 0.25% to 1.0%. We estimate that the average amount of debt
outstanding under the credit facility for 2001 will be $50 million. Therefore, a
one percentage point increase in interest rates would result in an increase in
interest expense of $500,000 for the year.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Modtech Holdings, Inc.
Date: May 15, 2001 by: /s/ Shari L. Walgren
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Shari L. Walgren
Chief Financial Officer