<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 September 30, 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)
Registrant's telephone number: (909) 943-4014
--------------------------------------------------------------------------------
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 November 10, 2000, there were 13,348,015 of the Registrant's Common Stock
outstanding.
<PAGE> 2
MODTECH HOLDINGS, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
PART I. STATEMENT REGARDING 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 generally accepted accounting principles has been
omitted pursuant to such rules and regulations. However, the Company believes
that the condensed consolidated financial statements, including the disclosures
herein, are adequate to make the information presented not misleading. The
condensed consolidated 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, 1999 as
filed with the Securities and Exchange Commission.
<PAGE> 3
MODTECH HOLDINGS, INC.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
-----------------------------------------------------------------------------------------------
(Audited) (Unaudited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,198,000 $ 1,901,000
Contracts receivable, net, including costs in excess of
billings of $6,278,000 and $18,673,000 in 1999 and 25,170,000 70,618,000
2000, respectively
Inventories 6,639,000 13,217,000
Due from affiliates 1,008,000 994,000
Deferred tax assets 2,636,000 2,636,000
Other current assets 565,000 767,000
------------ ------------
Total current assets 37,216,000 90,133,000
Property and equipment, net 13,872,000 14,824,000
Other assets
Goodwill, net 114,073,000 111,886,000
Covenants not to compete, net 1,974,000 1,385,000
Debt issuance costs, net 1,430,000 1,281,000
Other assets 158,000 158,000
------------ ------------
$168,723,000 $219,667,000
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 13,836,000 $ 32,670,000
Billings in excess of costs 5,148,000 3,945,000
Revolving credit line -- 27,825,000
Current maturities of long-term debt 7,000,000 9,500,000
------------ ------------
Total current liabilities 25,984,000 73,940,000
Deferred tax liabilities 66,000 66,000
Long-term debt, excluding current portion 32,000,000 26,000,000
------------ ------------
Total liabilities 58,050,000 100,006,000
------------ ------------
Shareholders' Equity:
Series A preferred stock, $.01 par. Authorized
5,000,000 shares; issued and outstanding 388,939 in 4,000 4,000
1999 and 2000
Common stock, $.01 par. Authorized 25,000,000 shares;
issued and outstanding 13,134,360 and 13,324,515 in
1999 and 2000, respectively 131,000 133,000
Additional paid-in capital 77,007,000 77,324,000
Retained earnings 33,531,000 42,200,000
------------ ------------
Total shareholders' equity 110,673,000 119,661,000
------------ ------------
$168,723,000 $219,667,000
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 4
MODTECH HOLDINGS, INC.
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1999 2000 1999 2000
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 59,331,000 $ 76,450,000 $ 129,198,000 $ 185,354,000
Cost of goods sold 48,390,000 63,140,000 106,596,000 156,503,000
------------- ------------- ------------- -------------
Gross profit 10,941,000 13,310,000 22,602,000 28,851,000
Selling, general, and administrative 1,847,000 2,235,000 5,087,000 6,063,000
expenses
Goodwill and covenant amortization 894,000 925,000 2,193,000 2,776,000
------------- ------------- ------------- -------------
Income from operations 8,200,000 10,150,000 15,322,000 20,012,000
------------- ------------- ------------- -------------
Other income (expense):
Interest expense, net (1,084,000) (1,464,000) (2,142,000) (3,688,000)
Other, net 5,000 25,000 7,000 52,000
------------- ------------- ------------- -------------
(1,079,000) (1,439,000) (2,135,000) (3,636,000)
------------- ------------- ------------- -------------
Income before income taxes 7,121,000 8,711,000 13,187,000 16,376,000
Income taxes (3,129,000) (4,181,000) (5,871,000) (7,707,000)
------------- ------------- ------------- -------------
Net income $ 3,992,000 $ 4,530,000 $ 7,316,000 $ 8,669,000
Series A preferred stock dividend 39,000 39,000 97,000 117,000
------------- ------------- ------------- -------------
Net income available to common stock $ 3,953,000 $ 4,491,000 $ 7,219,000 $ 8,552,000
============= ============= ============= =============
Basic earnings per common share $ 0.31 $ 0.34 $ 0.57 $ 0.65
============= ============= ============= =============
Basic weighted-average shares outstanding 12,772,000 13,254,000 12,685,000 13,202,000
============= ============= ============= =============
Diluted earnings per common share $ 0.29 $ 0.31 $ 0.52 $ 0.60
============= ============= ============= =============
Diluted weighted-average shares outstanding 14,000,000 14,408,000 14,000,000 14,355,000
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
<PAGE> 5
MODTECH HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 2000
--------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,316,000 $ 8,669,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,530,000 4,435,000
Loss on sale of equipment 8,000 1,000
(Increase) decrease in assets, net of effects
from acquisitions:
Contracts receivable (18,037,000) (45,448,000)
Inventories (547,000) (6,578,000)
Due from affiliates (557,000) 14,000
Income tax receivable 2,760,000 --
Other current and noncurrent assets (1,728,000) (327,000)
Increase (decrease) in liabilities, net of
effects from acquisitions:
Accounts payable and accrued liabilities 10,129,000 18,834,000
Billings in excess of costs 1,355,000 (1,203,000)
----------- -----------
Net cash provided by (used in) operating
activities 4,229,000 (21,603,000)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (850,000) (2,338,000)
Acquisition of subsidiaries, net of cash (48,622,000) --
acquired ----------- -----------
Net cash used in investing activities (49,472,000) (2,338,000)
----------- -----------
Cash flows from financing activities:
Net principal borrowings under revolving credit line 4,500,000 27,825,000
Net principal borrowings (payments) on long-term debt 42,500,000 (3,500,000)
Modtech Merger distribution (39,928,000) --
Proceeds from exercise of stock options 500,000 319,000
----------- -----------
Net cash provided by financing activities 7,572,000 24,644,000
----------- -----------
Net increase (decrease) in cash and cash equivalents (37,671,000) 703,000
Cash and cash equivalents at beginning of period 40,142,000 1,198,000
----------- -----------
Cash and cash equivalents at end of period $ 2,471,000 $ 1,901,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
<PAGE> 6
MODTECH HOLDINGS, INC.
Notes To Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2000
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 quarter and nine months ended September
30, 2000 are not necessarily indicative of the results to be expected for
the full fiscal year.
Certain statements in this report constitute "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Such forward - looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance, or achievements of the
Company to be materially different from any future results, performance, or
achievements, expressed or implied by such forward - looking statements.
2) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
1999 2000
----------- -----------
<S> <C> <C>
Raw materials $ 5,404,000 $10,984,000
Work in process 1,075,000 2,181,000
Finished goods 160,000 52,000
----------- -----------
$ 6,639,000 $13,217,000
=========== ===========
</TABLE>
3) Earnings Per Share
The following table presents the calculation of basic and diluted earnings
per common share under the provisions of SFAS No. 128:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BASIC
Net income $ 3,392,000 $ 4,530,000 $ 7,316,000 $ 8,669,000
Dividends on preferred stock (39,000) (39,000) (97,000) (117,000)
------------ ------------ ------------ ------------
Net income available to common stock $ 3,953,000 $ 4,491,000 $ 7,219,000 $ 8,552,000
============ ============ ============ ============
Basic weighted-average shares outstanding 12,772,000 13,254,000 12,685,000 13,202,000
============ ============ ============ ============
Basic earnings per common share $ 0.31 $ 0.34 $ 0.57 $ 0.65
============ ============ ============ ============
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1999 2000 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
DILUTED
Net income $ 3,992,000 $ 4,530,000 $ 7,316,000 $ 8,669,000
=========== =========== =========== ===========
Basic weighted-average shares outstanding 12,772,000 13,254,000 12,685,000 13,202,000
Add:
Conversion of preferred stock 389,000 389,000 389,000 389,000
Exercise of stock options 839,000 765,000 926,000 764,000
----------- ----------- ----------- -----------
Diluted weighted-average shares outstanding 14,000,000 14,408,000 14,000,000 14,355,000
=========== =========== =========== ===========
Diluted earnings per common share $ 0.29 $ 0.31 $ 0.52 $ 0.60
=========== =========== =========== ===========
</TABLE>
Options to purchase 204,000 and 200,000 shares of common stock were
outstanding during the quarter and nine months ended September 30, 1999,
respectively, and options to purchase 221,000 and 223,000 shares of common
stock were outstanding during the quarter and nine months ended September
30, 2000, 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.
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 the 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
Quarter Ended Nine Months Ended
September 30, September 30,
1999 1999
-------------- -----------------
<S> <C> <C>
Net sales $59,330,000 $134,830,000
Income from operations 8,200,000 14,970,000
Interest expense, net (1,080,000) (2,570,000)
Income before income taxes 7,120,000 12,400,000
Net income 3,990,000 6,860,000
Diluted earnings per common share 0.29 0.49
Diluted weighted-average shares outstanding 14,000,000 14,000,000
</TABLE>
<PAGE> 8
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> 9
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 Percent of Net Sales
-------------------------- -------------------------
Quarter Ended Nine Months Ended
September 30, September 30,
1999 2000 1999 2000
------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 18.4 17.4 17.5 15.6
Selling, general and administrative
expenses 3.1 2.9 3.9 3.3
Goodwill and covenant amortization 1.5 1.2 1.7 1.5
Income from operations 13.8 13.3 11.9 10.8
Interest expense, net (1.8) (1.9) (1.7) (2.0)
Income before income taxes 12.0 11.4 10.2 8.8
</TABLE>
Net sales for the quarter and nine months ended September 30, 2000, increased by
$17,119,000 or 28.9% and $56,156,000 or 43.5%, respectively. The Company
experienced increased sales for the quarter and nine months ended September 30,
2000 from the public school system in California where funds from the 1998
California School Construction Bond have begun and continue to flow. Sales
outside of California increased, spurred by the growth of the national economy.
Additionally, net sales for the nine months ended September 30, 2000 increased
as the nine months ended September 30, 1999 only included net sales for SPI and
Coastal from their respective dates of acquisition.
Gross profit as a percentage of net sales for the quarter and nine months ended
September 30, 2000 decreased to 17.4% and 15.6%, respectively, from 18.4% and
17.5% for the same periods in 1999. The decrease was due principally to a shift
in product mix during the quarter and nine month periods ended September 30,
2000.
Selling, general and administrative expenses increased for the quarter ended
September 30, 2000 by $388,000 or 21.0% and $976,000 or 19.2% for the nine
months ended September 30, 2000. The increase is due to the increase in net
sales for the quarter and nine months ended September 30, 2000, as well as an
increase in the number of employees. Selling, general and administrative
expenses for the nine months ended September 30, 2000 also increased as the nine
months ended September 30, 1999 only included selling, general and
administrative expenses for SPI and Coastal from their respective dates of
acquisition. As a percentage of sales, selling, general, and administrative
expenses for the quarter and nine months ended September 30, 2000 are 2.9% and
3.3%, respectively. The percentages were 3.1% and 3.9% for the same periods in
1999.
Goodwill and covenant amortization for the quarter and nine months ended
September 30, 2000 was $925,000 and $2,776,000. As a percentage of net sales,
goodwill and covenant amortization for the quarter and nine months ended
September 30, 2000 was 1.2% and 1.5%, respectively. Goodwill and covenant
amortization for the quarter and nine months ended September 30, 1999 was
$894,000 and $2,193,000. As a percentage of net sales, goodwill and covenant
amortization for the quarter and nine months ended September 30, 1999 was 1.5%
and 1.7%, respectively. Goodwill was recorded for both the SPI Merger and the
Coastal Acquisition and is being amortized from the respective dates of
acquisition.
<PAGE> 10
Interest expense, net increased for the quarter and nine months ended September
30, 2000 by $380,000 or 35.1% and $1,546,000 or 72.2%, respectively. The
increase is attributable to debt incurred as a result of the SPI Merger; which
occurred in February 1999, increased line of credit borrowings and higher
interest rates. As a percentage of sales, interest expense, net for the quarter
and nine months ended September 30, 2000 is 1.9% and 2.0%, respectively. The
percentages were 1.8% and 1.7% for the same periods in 1999.
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 operating needs. At September 30, 2000, the Company
had $1,901,000 in cash and cash equivalents. During the nine months ended
September 30, 2000, the Company used cash from operating activities of
$21,603,000, primarily resulting from increased contract receivables,
inventories, accounts payable and accrued liabilities.
The Company has a $100,000,000 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 September 30, 2000, $27,825,000 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.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101 (SAB 101) "Revenue Recognition in Financial Statements" as amended
by Staff Accounting Bulletins No. 101 A and 101 B. These Bulletins summarize
certain of the staff's views about applying generally accepted accounting
principles to revenue recognition in financial statements. The provisions of
these bulletins are effective commencing with the quarter beginning October 1,
2000. The Company does not expect the adoption of SAB 101 to have a material
impact on the Company's consolidated results of operations.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation - an interpretation of APB Opinion No.
25 (FIN 44). This Interpretation clarifies the definition of employee for
purposes of applying Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employee (APB 25), the criteria for determining whether a plan
qualifies as a noncompensatory plan, the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and the
accounting for an exchange of stock compensation awards in a business
combination. This Interpretation is effective July 1, 2000, but certain
conclusions in this Interpretation cover specific events that occur after either
December 15, 1998 or January 12, 2000. The Company adopted FIN 44 during the
quarter ended September 30, 2000. This adoption did not have a material effect
on the Company's consolidated financial position or results of operations.
<PAGE> 11
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> 12
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: November 13, 2000 by: /s/ Shari L. Walgren
------------------------ --------------------
Shari L. Walgren
Chief Financial Officer
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ------------
<S> <C>
27 Financial Data Schedule
</TABLE>
