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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 June 30, 2000
Commission File Number 000 - 25161
MODTECH HOLDINGS, INC.
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Delaware 33 - 0825386
--------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of Incorporation or organization) Identification No.)
2830 Barrett Avenue, Perris, CA 92571
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(Address of principal executive office) (Zip Code)
Registrant's telephone number: (909) 943-4014
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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 August 9, 2000, there were 13,205,086 of the Registrant's Common Stock
outstanding.
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MODTECH HOLDINGS, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 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 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.
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MODTECH HOLDINGS, INC.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------- ------------
(Audited) (Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,198,000 $ 1,627,000
Contracts receivable, net, including costs in
excess of billings of $6,278,000 and $16,137,000
in 1999 and 2000, respectively 25,170,000 53,480,000
Inventories 6,639,000 11,627,000
Due from affiliates 1,008,000 752,000
Deferred tax assets 2,636,000 2,636,000
Other current assets 565,000 486,000
------------ ------------
Total current assets 37,216,000 70,608,000
------------ ------------
Property and equipment, net 13,872,000 14,961,000
Other assets
Goodwill, net 114,073,000 112,615,000
Covenants not to compete, net 1,974,000 1,581,000
Debt issuance costs, net 1,430,000 1,257,000
Other assets 158,000 181,000
------------ ------------
$168,723,000 $201,203,000
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 13,836,000 $ 27,793,000
Billings in excess of costs 5,148,000 3,577,000
Revolving credit line -- 19,325,000
Current maturities of long-term debt 7,000,000 7,500,000
------------ ------------
Total current liabilities 25,984,000 58,195,000
Deferred tax liabilities 66,000 66,000
Long-term debt, excluding current portion 32,000,000 28,000,000
------------ ------------
Total liabilities 58,050,000 86,261,000
------------ ------------
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 13,205,086 in
1999 and 2000, respectively
131,000 132,000
Additional paid-in capital 77,007,000 77,136,000
Retained earnings 33,531,000 37,670,000
------------ ------------
Total shareholders' equity 110,673,000 114,942,000
------------ ------------
$168,723,000 $201,203,000
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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MODTECH HOLDINGS, INC.
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- --------------------------------
1999 2000 1999 2000
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 48,915,000 $ 65,182,000 $ 69,867,000 $ 108,904,000
Cost of goods sold 40,750,000 55,463,000 58,206,000 93,363,000
------------ ------------ ------------ -------------
Gross profit 8,165,000 9,719,000 11,661,000 15,541,000
Selling, general, and administrative expenses 2,002,000 1,988,000 3,240,000 3,828,000
Goodwill and covenant amortization 892,000 925,000 1,299,000 1,851,000
------------ ------------ ------------ -------------
Income from operations 5,271,000 6,806,000 7,122,000 9,862,000
------------ ------------ ------------ -------------
Other income (expense):
Interest expense, net (969,000) (1,210,000) (1,058,000) (2,224,000)
Other, net -- 19,000 2,000 27,000
------------ ------------- ------------ -------------
(969,000) (1,191,000) (1,056,000) (2,197,000)
------------ ------------ ------------ -------------
Income before income taxes 4,302,000 5,615,000 6,066,000 7,665,000
Income taxes (2,001,000) (2,583,000) (2,742,000) (3,526,000)
------------ ------------ ------------ -------------
Net income $ 2,301,000 $ 3,032,000 $ 3,324,000 $ 4,139,000
------------ ============ ============ =============
Series A Preferred stock dividend 39,000 39,000 58,000 78,000
Net income available to common stock $ 2,262,000 $ 2,993,000 $ 3,266,000 $ 4,061,000
============ ============ ============ =============
Basic earnings per common share $ 0.18 $ 0.23 $ 0.26 $ 0.31
============ ============ ============ =============
Basic weighted-average shares outstanding 12,628,000 13,196,000 12,626,000 13,176,000
============ ============ ============ =============
Diluted earnings per common share $ 0.16 $ 0.21 $ 0.23 $ 0.29
============ ============ ============ =============
Diluted weighted-average shares outstanding 14,000,000 14,399,000 14,000,000 14,332,000
============ ============ ============ =============
</TABLE>
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)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------
1999 2000
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,324,000 $ 4,139,000
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,101,000 2,918,000
Loss on sale of equipment 8,000 --
(Increase) decrease in assets, net of effects from
acquisitions:
Contracts receivable (12,885,000) (28,310,000)
Inventories (1,342,000) (4,988,000)
Due from affiliates 1,492,000 256,000
Income tax receivable 2,760,000 --
Other current and noncurrent assets (1,352,000) 56,000
Increase (decrease) in liabilities, net of effects from
acquisitions:
Accounts payable and accrued liabilities 4,438,000 13,957,000
Billings in excess of costs 2,142,000 (1,571,000)
------------ ------------
Net cash provided by (used in) operating activities 686,000 (13,543,000)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (725,000) (1,983,000)
Acquisition of subsidiaries (48,622,000) --
------------ ------------
Net cash used in investing activities (49,347,000) (1,983,000)
------------ ------------
Cash flows from financing activities:
Net principal borrowings under revolving credit lines 5,000,000 19,325,000
Net principal borrowings (payments) on long-term debt 44,000,000 (3,500,000)
Modtech Merger distribution (39,928,000) --
Proceeds from exercise of stock options 145,000 130,000
------------ ------------
Net cash provided by financing activities 9,217,000 15,955,000
------------ ------------
Net increase (decrease) in cash and cash equivalents (39,444,000) 429,000
Cash and cash equivalents at beginning of period 40,142,000 1,198,000
------------ ------------
Cash and cash equivalents at end of period $ 698,000 $ 1,627,000
============ ============
</TABLE>
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
June 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 three and six months ended June 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:
1999 2000
---------- -----------
Raw materials $5,404,000 $ 9,799,000
Work in process 1,075,000 1,782,000
Finished goods 160,000 46,000
---------- -----------
$6,639,000 $11,627,000
========== ===========
(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>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BASIC
Net income $ 2,301,000 $ 3,032,000 $ 3,324,000 $ 4,139,000
Dividends on preferred stock (39,000) (39,000) (58,000) (78,000)
------------ ------------ ------------ ------------
Net income available to common
stock $ 2,262,000 $ 2,993,000 $ 3,266,000 $ 4,061,000
============ ============ ============ ============
Basic weighted-average shares
outstanding 12,628,000 13,196,000 12,626,000 13,176,000
============ ============ ============ ============
Basic earnings per common share $ 0.18 $ 0.23 $ 0.26 $ 0.31
============ ============ ============ ============
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
DILUTED
Net income $ 2,301,000 $ 3,032,000 $ 3,324,000 $ 4,139,000
=========== =========== =========== ===========
Basic weighted-average shares
outstanding 12,628,000 13,196,000 12,626,000 13,176,000
Add:
Conversion of preferred stock 389,000 389,000 389,000 389,000
Exercise of stock options 983,000 814,000 985,000 767,000
----------- ----------- ----------- -----------
Diluted weighted-average shares
outstanding 14,000,000 14,399,000 14,000,000 14,332,000
=========== =========== =========== ===========
Diluted earnings per common share $ 0.16 $ 0.21 $ 0.23 $ 0.29
=========== =========== =========== ===========
</TABLE>
Options to purchase 204,000 and 547,000 shares of common stock were
outstanding during the three and six months ended June 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.
Modtech Holdings, Inc.
Unaudited Pro Forma Combined Selected Financial Data
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1999 June 30, 1999
------------------ ----------------
<S> <C> <C>
Net sales $ 48,900,000 $ 75,500,000
Income from operations 5,270,000 6,770,000
Interest expense, net (970,000) (1,490,000)
Income before income taxes 4,300,000 5,280,000
Net income 2,300,000 2,870,000
Diluted earnings per common share 0.16 0.20
Diluted weighted-average shares outstanding 14,000,000 14,000,000
</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.
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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.
<TABLE>
<CAPTION>
Percent of Net Sales Percent of Net Sales
-------------------- --------------------
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1999 2000 1999 2000
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 16.7 14.9 16.7 14.3
Selling, general and administrative
expenses 4.1 3.0 4.6 3.5
Goodwill and covenant amortization 1.8 1.4 1.9 1.7
Income from operations 10.8 10.4 10.2 9.1
Interest expense, net (2.0) (1.9) (1.5) (2.0)
Income before income taxes 8.8 8.6 8.7 7.0
</TABLE>
Net sales for the three and six months ended June 30, 2000, increased by
$16,267,000 or 33.3% and $39,037,000 or 55.9%, respectively. The Company
experienced increased sales for the three and six months ended June 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 six months ended June 30, 2000 increased as the
six months ended June 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 three and six months ended
June 30, 2000 decreased to 14.9% and 14.3%, respectively, from 16.7% and 16.7%
for the same periods in 1999. The decrease was due principally to a shift in
product mix during the three and six month periods ended June 30, 2000.
Selling, general and administrative expenses decreased for the three months
ended June 30, 2000 by $14,000 or 0.7% and increased by $588,000 or 18.1% for
the six months ended June 30, 2000. Selling, general and administrative expenses
for the six months ended June 30, 2000 increased as the six months ended June
30, 1999 only included selling, general and administrative expenses for SPI and
Coastal from their respective dates of acquisition. The increase is also due to
the increase in net sales for the six months ended June 30, 2000, as well as an
increase in the number of employees. As a percentage of sales, selling, general,
and administrative expenses for the three and six months ended June 30, 2000 are
3.0% and 3.5%, respectively. The percentages were 4.1% and 4.6% for the same
periods in 1999.
Goodwill and covenant amortization for the three and six months ended June 30,
2000 was $925,000 and $1,851,000. As a percentage of net sales, goodwill and
covenant amortization for the three and six months ended June 30, 2000 was 1.4%
and 1.7%,
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respectively. Goodwill was recorded for both the SPI Merger and the Coastal
Acquisition and is being amortized from the respective dates of acquisition.
Interest expense increased for the three and six months ended June 30, 2000 by
$241,000 or 24.9% and $1,166,000 or 110.2%, respectively. 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 decreased from 2.0%
in the three months ended June 30, 1999 to 1.9% in 2000. As a percentage of net
sales, interest expense increased from 1.5% in the six months ended June 30,
2000 to 2.0% in 2000.
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 June 30, 2000, the Company had $1,627,000 in
cash. During the six months ended June 30, 2000, the Company used cash from
operating activities of $13,543,000, primarily resulting from increased contract
receivables and inventories.
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 June 30, 2000, $19,325,000 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". This Staff
Accounting Bulletin summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Company does not expect the adoption of SAB 101 to have a
material impact on the Company's consolidated results of operations.
9
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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
27 -- Financial Data Schedule
(b) Reports on Form 8-K
None
10
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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: August 11, 2000 By: /s/ Shari L. Walgren
---------------------------
Shari L. Walgren
Chief Financial Officer
11
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule
