<PAGE> 1
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, 2000
Commission File Number 000 - 25161
MODTECH HOLDINGS, INC.
- --------------------------------------------------------------------------------
Delaware 33 - 0825386
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
2830 Barrett Avenue, Perris, CA 92571
- ------------------------------- ----------
(Address of principal executive (Zip Code)
office)
(909) 943-4014
-----------------------------
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 5, 2000, there were 13,177,092 of the Registrant's Common Stock
outstanding.
<PAGE> 2
MODTECH HOLDINGS, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
PART I. FINANCIAL INFORMATION
The 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 generally accepted accounting principles 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 financial statements should be read in
conjunction with the Company's financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31, 1999
as filed with the Securities and Exchange Commission.
<PAGE> 3
MODTECH HOLDINGS, INC.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
- -------------------------------------------------------------------------------------------------------------------
(Audited) (Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,198,000 $ 262,000
Contracts receivable, net, including costs in excess of billings of
$6,278,000 and $12,609,000 in 1999 and 2000, respectively 25,170,000 33,999,000
Inventories 6,639,000 10,141,000
Due from affiliates 1,008,000 1,451,000
Deferred tax assets 2,636,000 2,636,000
Other current assets 565,000 692,000
------------ ------------
Total current assets 37,216,000 49,181,000
------------ ------------
Property and equipment, net 13,872,000 14,200,000
Other assets
Goodwill, net 114,073,000 113,343,000
Covenants not to compete, net 1,974,000 1,778,000
Debt issuance costs, net 1,430,000 1,344,000
Other assets 158,000 168,000
------------ ------------
$168,723,000 $180,014,000
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 13,836,000 $ 16,983,000
Billings in excess of costs 5,148,000 3,039,000
Current revolving line -- 10,800,000
Current maturities of long-term debt 7,000,000 7,250,000
------------ ------------
Total current liabilities 25,984,000 38,072,000
Deferred tax liabilities 66,000 66,000
Long-term debt, excluding current portion 32,000,000 30,000,000
------------ ------------
Total liabilities 58,050,000 68,138,000
------------ ------------
Shareholders' Equity:
Series A preferred stock, $.01 par. Authorized 5,000,000 shares;
issued and outstanding 388,939 in 1999 and 2000 4,000 4,000
Common stock, $.01 par. Authorized 25,000,000 shares; issued and
outstanding 13,134,360 and 13,177,092 in 1999 and 2000, respectively 131,000 132,000
Additional paid-in capital 77,007,000 77,102,000
Retained earnings 33,531,000 34,638,000
------------ ------------
Total shareholders' equity 110,673,000 111,876,000
------------ ------------
$168,723,000 $180,014,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
MODTECH HOLDINGS, INC.
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 2000
- --------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 20,952,000 $ 43,722,000
Cost of goods sold 17,456,000 37,900,000
------------ ------------
Gross profit 3,496,000 5,822,000
Selling, general and administrative expenses 1,238,000 1,840,000
Goodwill and covenant amortization 407,000 926,000
------------ ------------
Income from operations 1,851,000 3,056,000
------------ ------------
Other income (expense):
Interest expense, net (89,000) (1,014,000)
Other, net 2,000 8,000
------------ ------------
(87,000) (1,006,000)
------------ ------------
Income before income taxes 1,764,000 2,050,000
Income taxes (741,000) (943,000)
------------ ------------
Net income $ 1,023,000 $ 1,107,000
============ ============
Series A preferred stock dividend 19,000 39,000
Net income available to common stock $ 1,004,000 $ 1,068,000
============ ============
Basic earnings per common share $ 0.08 $ 0.08
============ ============
Basic weighted-average shares outstanding 12,622,000 13,156,000
============ ============
Diluted earnings per common share $ 0.07 $ 0.08
============ ============
Diluted weighted-average shares outstanding 14,024,000 14,277,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
MODTECH HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 2000
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,023,000 $ 1,107,000
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 782,000 1,439,000
(Increase) decrease in assets, net of effects from
acquisitions:
Contracts receivable 237,000 (8,829,000)
Inventories (301,000) (3,502,000)
Due from affiliates 1,923,000 (443,000)
Income tax receivable 708,000 --
Other current and noncurrent assets (1,173,000) (137,000)
Increase (decrease) in liabilities, net of effects from acquisitions:
Accounts payable and accrued liabilities 1,859,000 3,147,000
Billings in excess of costs 401,000 (2,109,000)
------------ ------------
Net cash provided by (used in) operating activities 5,459,000 (9,327,000)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (515,000) (755,000)
Acquisition of subsidiaries (48,622,000) --
------------ ------------
Net cash used in investing activities (49,137,000) (755,000)
------------ ------------
Cash flows from financing activities:
Net principal borrowings under revolving credit lines -- 10,800,000
Net principal borrowings (payments) on long-term debt 45,500,000 (1,750,000)
Modtech Merger distribution (39,928,000) --
Proceeds from exercise of stock options -- 96,000
------------ ------------
Net cash provided by financing activities 5,572,000 9,146,000
------------ ------------
Net decrease in cash (38,106,000) (936,000)
Cash and cash equivalents at beginning of period 40,142,000 1,198,000
------------ ------------
Cash and cash equivalents at end of period $ 2,036,000 $ 262,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
MODTECH HOLDINGS, INC.
Notes To Condensed Consolidated Financial Statements
March 31, 2000
1) Management Opinion
In the opinion of management, the condensed 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, 2000 are
not necessarily indicative of the results to be expected for the full
fiscal year.
2) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
1999 2000
----------- -----------
<S> <C> <C>
Raw materials $ 5,404,000 $ 7,803,000
Work in process 1,075,000 2,291,000
Finished goods 160,000 47,000
----------- -----------
$ 6,639,000 $10,141,000
=========== ===========
</TABLE>
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:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 2000
------------ ------------
<S> <C> <C>
BASIC
Net income $ 1,023,000 $ 1,107,000
Dividends on preferred stock (19,000) (39,000)
------------ ------------
Net income available to common stock $ 1,004,000 $ 1,068,000
============ ============
Weighted-average common shares outstanding
12,622,000 13,156,000
============ ============
Basic earnings per common share $ 0.08 $ 0.08
============ ============
DILUTED
Net income $ 1,023,000 $ 1,107,000
============ ============
Weighted-average common shares outstanding 12,622,000 13,156,000
Add:
Conversion of preferred stock 389,000 389,000
Exercise of options 1,013,000 732,000
------------ ------------
Adjusted weighted-average common shares
outstanding 14,024,000 14,277,000
============ ============
Diluted earnings per common share $ 0.07 $ 0.08
============ ============
</TABLE>
Options to purchase 547,000 shares of common stock were outstanding during
the quarter ended March 31, 2000 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.
<PAGE> 7
4) Acquisitions
SPI Merger. On February 16, 1999, Modtech, Inc. ("Modtech") and SPI
Holdings, Inc., a Colorado corporation ("SPI") merged pursuant to the
Agreement and Plan of Reorganization and Merger, dated as of September
28, 1998 (the "Merger Agreement"), between Modtech and SPI. SPI is a
designer, manufacturer and wholesaler of commercial and light industrial
modular buildings. Pursuant to the Merger Agreement, SPI was merged with
a subsidiary of Modtech Holdings, Inc. ("Holdings"), a newly formed
Delaware corporation (the "SPI Merger"). Concurrently, Modtech was merged
with a separate subsidiary of Holdings (the "Modtech Merger"). Pursuant
to the mergers, both SPI and Modtech became wholly owned subsidiaries of
Holdings.
In connection with the SPI Merger, SPI stockholders received
approximately $8 million in cash and approximately 4.6 million shares of
the Company's Common Stock. The Company refinanced approximately $32
million of SPI debt. In connection with the Modtech Merger, Modtech
stockholders received approximately $40 million in cash, approximately
8.3 million shares of the Company's Common Stock and 388,939 shares of
the Company's Series A Preferred Stock.
Following are unaudited pro forma combined results, which are based upon
the historical consolidated financial statements of Modtech, Inc. and SPI
Manufacturing, Inc., combined, and are adjusted to give effect to the
mergers. In addition, pro forma adjustments have been made for the
acquisitions consummated by SPI prior to the merger.
<TABLE>
<CAPTION>
Modtech Holdings, Inc.
Unaudited Pro Forma Combined
Selected Financial Data
Three Months Ended
March 31, 1999
--------------
<S> <C>
Net sales $26,600,000
Income from operations 1,500,000
Interest expense, net (520,000)
Income before income taxes 980,000
Net income 570,000
Diluted earnings per common share 0.04
Diluted weighted-average shares outstanding 14,024,000
</TABLE>
Coastal Acquisition. On March 22, 1999, the Company purchased 100% of the
stock of Coastal Modular Buildings, Inc. ("Coastal"). Coastal designs and
manufactures modular relocatable classrooms and other modular buildings for
commercial use. Coastal is based in St. Petersburg, Florida. Pro forma
amounts for the Coastal Acquisition are not included, as the effect is not
material to the Company's consolidated financial statements.
<PAGE> 8
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.
<TABLE>
<CAPTION>
Percent of Net Sales
Three Months Ended
March 31,
1999 2000
----- -----
<S> <C> <C>
Net sales 100.0% 100.0%
Gross profit 16.7 13.3
Selling, general and administrative expenses 5.9 4.2
Goodwill and covenant amortization 2.0 2.1
Income from operations 8.8 7.0
Interest expense, net (0.4) (2.3)
Income before income taxes 8.4 4.7
</TABLE>
Net sales for the three months ended March 31, 2000, increased by $22,770,000 or
108.7%. The Company experienced increased sales from the 1998 California New
School Construction Bond. Additionally, net sales for the three months ended
March 31, 2000 increased as the three months ended March 31, 1999 included net
sales of SPI and Coastal from the date of acquisition.
Gross profit as a percentage of net sales for the three months ended March 31,
2000 decreased to 13.3% from 16.7% for the same period in 1999. The decrease was
due principally to a shift in product mix for the quarter.
Selling, general and administrative expenses increased for the three months
ended March 31, 2000 by $602,000, an increase of 48.6%. The increase is
primarily due to the increase in net sales for the quarter, as well as an
increase in the number of employees. As a percentage of net sales, selling,
general, and administrative expenses decreased from 5.9% in the first three
months of 1999 to 4.2% in 2000.
Goodwill and covenant amortization increased for the three months ended March
31, 2000 by $519,000, an increase of 127.5%. Goodwill was recorded for both the
SPI Merger and the Coastal Acquisition and was amortized from the date of
acquisition. As a percentage of net sales, goodwill and covenant amortization
increased from 2.0% in the first three months of 1999 to 2.1% in 2000.
Interest expense increased for the three months ended March 31, 2000 by
$925,000. The increase is attributable to a reduced cash balance, debt incurred
as a result of the SPI Merger, which occurred in February 1999, and increased
line of credit borrowings. As a percentage of net sales, interest expense
increased from 0.4% in the first three months of 1999 to 2.3% in 2000.
<PAGE> 9
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 to meet its needs from operations, bank
borrowings and public offerings. At March 31, 2000, the Company had $262,000 in
cash. During the three months ended March 31, 2000, the Company used cash from
operating activities of $9,327,000.
The Company has a $100,000,000 credit facility, of which $30,000,000 represents
a revolving loan commitment. The credit facility expires in February 2004. On
March 31, 2000, $10,800,000 was outstanding under the revolving loan commitment.
Management believes that the Company's existing product lines and manufacturing
capacity will enable the Company to generate sufficient cash through operations,
supplemented by periodic use of its existing bank line of credit, to finance the
Company's business at current levels over the next 12 months. Additional cash
resources may be required if the Company is able to expand its business beyond
current levels. For example, it will be necessary for the Company to construct
or acquire additional manufacturing facilities in order for the Company to
compete effectively in new market areas or states which are beyond a 300 mile
radius from one of its production facilities. The construction or acquisition of
new facilities would require significant additional capital. For these reasons,
among others, the Company may need additional debt or equity financing in the
future. There can be, however, no assurance that the Company will be successful
in obtaining such additional financing, or that any such financing will be
available on terms acceptable to the Company.
NEW ACCOUNTING PRONOUNCEMENTS
In 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 establishes accounting
and reporting standards for 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. Application of SFAS 133
is not expected to have a material impact on the Company's financial position,
results of operations or liquidity.
<PAGE> 10
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
27 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE> 11
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 12, 2000 by: /s/ Shari L. Walgren
------------------- -----------------------------------
Shari L. Walgren
Chief Financial Officer
<PAGE> 12
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001075066
<NAME> MODTECH HOLDINGS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 262,000
<SECURITIES> 0
<RECEIVABLES> 34,727,000
<ALLOWANCES> 728,000
<INVENTORY> 10,141,000
<CURRENT-ASSETS> 49,181,000
<PP&E> 21,342,000
<DEPRECIATION> 7,142,000
<TOTAL-ASSETS> 180,014,000
<CURRENT-LIABILITIES> 38,072,000
<BONDS> 0
0
4,000
<COMMON> 132,000
<OTHER-SE> 111,740,000
<TOTAL-LIABILITY-AND-EQUITY> 180,014,000
<SALES> 43,722,000
<TOTAL-REVENUES> 43,722,000
<CGS> 37,900,000
<TOTAL-COSTS> 37,900,000
<OTHER-EXPENSES> 2,766,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,014,000
<INCOME-PRETAX> 2,050,000
<INCOME-TAX> 943,000
<INCOME-CONTINUING> 1,107,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,107,000
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.08
</TABLE>
