<PAGE>
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 June 30, 1996
--------------------------------
Commission File Number 0-25428
----------------------
MEADOW VALLEY CORPORATION
________________________________________________________________________________
(Exact Name of registrant as specified in its charter)
NEVADA 88-0328443
________________________________________________________________________________
(State or other Jurisdiction of (I.R.S.Employer Identification Number)
incorporation or organization)
4411 South 40th Street, Suite D-11, Phoenix, AZ 85040
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(602) 437-5400
- --------------------------------------------------------------------------------
(Registrant's telephone 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 July 30, 1996
----- ----------------------------
Common Stock, $.001 par value 3,601,250 shares
<PAGE>
MEADOW VALLEY CORPORATION
INDEX
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
PART I. FINANCIAL INFORMATION Page
Number
------
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Six Months Ended June 30, 1996 and
June 30, 1995 3
Condensed Consolidated Statements of Operations -
Three Months Ended June 30, 1996 and
June 30, 1995 4
Condensed Consolidated Balance Sheets -
As of June 30, 1996 and December 31, 1995 5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996 and
June 30, 1995 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
2
<PAGE>
MEADOW VALLEY CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------------
1996 1995
---------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Contract Revenues....................... $ 61,065,921 $ 39,054,567
Cost of Contract Revenues............... 59,605,131 37,570,355
---------------- ---------------
Gross Profit............................ 1,460,790 1,484,212
General and Administrative Expenses..... 1,277,323 747,266
---------------- ---------------
Income from Operations.................. 183,467 736,946
---------------- ---------------
Other Income (Expense):
Interest income......................... 311,247 231,552
Interest expense - related party........ (265,844) (603,214)
Other income (expense).................. 42,005 (8,279)
Offering costs.......................... - (173,000)
---------------- ---------------
87,408 (552,941)
---------------- ---------------
Income before income taxes.............. 270,875 184,005
Income taxes............................ 100,223 68,082
---------------- ---------------
Net Income.............................. $ 170,652 $ 115,923
================ ===============
Net Income per share.................... $ .05 $.10
================ ===============
Weighted Average Common Shares
Outstanding............................ 3,601,250 1,175,000
================ ===============
</TABLE>
3
<PAGE>
MEADOW VALLEY CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
---------------------------------
1996 1995
---------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Contract Revenues....................... $ 32,387,864 $ 22,875,503
Cost of Contract Revenues............... 32,266,191 21,934,565
---------------- -----------
Gross Profit............................ 121,673 940,938
General and Administrative Expenses..... 627,282 398,784
---------------- -----------
Income (loss) from Operations.......... (505,609) 542,154
---------------- -----------
Other Income (Expense):
Interest income......................... 98,271 77,152
Interest expense - related party........ (149,866) (310,081)
Other income (expense).................. 30,310 (6,454)
Offering costs.......................... - (173,000)
---------------- -----------
(21,285) (412,383)
---------------- -----------
Income (loss) before income taxes....... (526,894) 129,771
Income tax (expense) benefit............ 194,951 (40,175)
---------------- -----------
Net Income (Loss)....................... $ (331,943) $ 89,596
================ ===========
Net Income (Loss) per share............. $ (.09) $ .08
================ ===========
Weighted Average Common Shares
Outstanding........................... 3,601,250 1,175,000
================ ===========
</TABLE>
4
<PAGE>
MEADOW VALLEY CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, December 31,
1996 1995*
----------- ------------
Assets: (UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents.......... $ 4,155,995 $ 5,357,904
Restricted cash.................... 2,210,005 2,629,549
Accounts receivable................ 22,080,744 13,710,390
Prepaid expenses and other......... 431,334 67,000
Notes receivable - related parties. 257,575 257,575
Costs and estimated earnings in
excess of billings on
uncompleted contracts........... 2,730,454 2,721,178
----------- ------------
Total Current Assets..... 31,866,107 24,743,596
Property and equipment, net............. 3,989,996 1,997,438
Refundable deposits..................... 108,532 48,989
Goodwill, net........................... 1,860,865 1,900,880
Tradename, net.......................... 30,442 -
Real Estate............................. 218,883 218,883
----------- ------------
Total Assets................ $38,074,825 $28,909,786
=========== ============
Liabilities and Stockholders' Equity:
Current Liabilities:
Obligation under capital lease..... $ 100,869 $ 70,504
Notes payable...................... 207,936 -
Accounts payable................... 17,536,914 10,985,454
Accrued liabilities................ 1,982,900 1,040,422
Billings in excess of costs and
estimated earnings on
uncompleted contracts......... 1,841,083 718,794
Income tax payable................. - 609,315
----------- ------------
Total Current Liabilities... 21,669,702 13,424,489
Deferred income taxes................... 34,245 34,245
Obligation under capital lease.......... 240,188 189,055
Notes payable........................... 698,041 -
Note payable - related party............ 3,500,000 3,500,000
----------- ------------
Total Liabilities........... 26,142,176 17,147,789
----------- ------------
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,
3,601,250 issued and outstanding 3,601 3,601
Additional paid-in capital......... 10,943,569 10,943,569
Capital adjustment................. (799,147) (799,147)
Retained earnings.................. 1,784,626 1,613,974
----------- ------------
Total Stockholders' Equity.. 11,932,649 11,761,997
----------- ------------
Total Liabilities and
Stockholders' Equity....... $38,074,825 $28,909,786
=========== ============
</TABLE>
* Derived from audited financial statements
5
<PAGE>
MEADOW VALLEY CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1996 1995
------------- -------------
Increase (Decrease) in Cash and Cash (UNAUDITED) (UNAUDITED)
Equivalents:
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers....... 53,812,070 $ 35,352,125
Cash paid to suppliers and (53,482,083) (33,944,478)
employees......................... 330,785 225,024
Interest received.................. (83,085) (837,800)
Interest paid...................... (907,212) (340,298)
Income taxes paid.................. ------------- -------------
Net cash provided by (used in)
operating activities............. (329,525) 454,573
------------- -------------
Cash flows from investing activities:
Decrease (increase) in restricted
cash.............................. 419,544 (1,318,488)
Purchase of AKR Contracting
tradename......................... (36,531) -
Collection of notes receivable -
related party..................... - 600,000
Proceeds from sale of property and
equipment 83,365 61,677
Purchase of property and equipment. (1,274,944) (317,313)
------------- -------------
Net cash used in investing
activities................... (808,566) (974,124)
------------- -------------
Cash flows from financing activities:
Deferred offering costs............ - (263,308)
Repayment of capital lease
obligation........................ (46,338) (11,934)
Repayment of notes payable......... (17,480) -
------------- -------------
Net cash used in financing
activities................... (63,818) (275,242)
------------- -------------
Net decrease in cash and cash
equivalents............................ (1,201,909) (794,793)
Cash and cash equivalents at beginning
of period.............................. 5,357,904 4,739,424
------------- -------------
Cash and cash equivalents at end of
period................................. $ 4,155,995 $ 3,944,631
============= =============
</TABLE>
6
<PAGE>
MEADOW VALLEY CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Corporation
Meadow Valley Corporation (the "Company") operates primarily as the holding
company of Meadow Valley Contractors, Inc. (MVC), a general contractor,
primarily engaged in the construction of structural concrete highway bridges
and overpasses and the paving of highways and airport runways. The Company
acquired all of the outstanding common stock of MVC effective October 1,
1994.
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 six months ended June 30, 1996 are not necessarily
indicative of operating results for the entire year.
3. Notes Payable
Following is a summary of long-term debt at June 30, 1996:
10% note payable with monthly payments of $13,776.74 plus
interest.................................................... $647,507
9% note payable with monthly payments of $5,669.49.......... 258,470
---------
905,977
Less: current maturities included in current liabilities.... 207,936
---------
$698,041
==========
Following are maturities of long-term debt for each of the next 5 years:
1997................................................ $207,936
1998................................................ 215,984
1999................................................ 220,736
2000................................................ 212,158
2001................................................ 49,163
----------
$905,977
==========
4. Litigation
The Company is defending a claim by a subcontractor whom declared
bankruptcy and is seeking to recover costs that were paid by the Company in
the amount of $800,000. The Company is vigorously defending its position
that the costs were paid by the Company and as such the subcontractor is
not entitled to the compensation received by the Company. The Company has
accrued a liability in the amount of $180,000 as of June 30, 1996 related
to the claim.
5. Related Party Transaction
During the three months ended June 30, 1996, the Company acquired
approximately $300,000 of equipment from an officer of the Company.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a heavy construction contractor specializing since 1980 in
structural concrete construction of highway bridges and overpasses and the
paving of highways and airport runways. The Company generally serves as the
prime contractor for public sector customers (such as federal, state and local
governmental authorities) in the states of Nevada, Arizona and Utah. The
Company believes that specializing in structural concrete construction has
contributed significantly to its revenue growth and provides it with an
advantage in the competitive bidding process.
The Company has historically relied upon a small number of projects to
generate a significant portion of its revenue. For instance, revenue generated
from five projects represented 67% of the Company's revenue for the three months
ended June 30, 1996. Results for any one calendar quarter may fluctuate widely
depending upon the stage of completion of the Company's active projects and
backlog at the beginning of any one calendar quarter. At June 30, 1996 the
Company had backlog of approximately $115 million.
RESULTS OF OPERATIONS
The following table sets forth, for the six months and the three months
ended June 30, 1996 and 1995, certain items derived from the Company's Condensed
Consolidated Statements of Operations expressed as a percentage of contract
revenue.
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- -------------------
1996 1995 1996 1995
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Contract revenue 100.0% 100.0% 100.0% 100.0%
Gross profit 2.4 3.8 .4 4.1
General and
administrative expense 2.1 1.9 1.9 1.7
Interest income .5 .6 .3 .3
Interest expense .4 1.5 .5 1.4
Income (loss) before
income taxes .4 .5 (1.6) .6
Net income (loss) after
income taxes .3 .3 (1.0) .4
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Revenue and Backlog. Revenue increased 56% to $61.1 million for the six
months ended June 30, 1996 ("interim 1996") from $39.1 million for the six
months ended June 30, 1995 ("interim 1995"). The increase results from a $30.0
million increase in backlog at December 31, 1995 from the prior year and the
award of approximately $88 million of projects during interim 1996 compared to
approximately $20 million during interim 1995. Backlog increased 31% to
approximately $115 million at June 30, 1996, from approximately $88 million at
June 30, 1995. Revenue is impacted in any one period by the backlog at the
beginning of the period.
8
<PAGE>
Gross Profit. As a percentage of revenue, gross profit decreased from 3.8%
for interim 1995 to 2.4% for interim 1996. The decrease results primarily from
cost overruns attributable to (i) omission of costs from bid estimates (ii)
erratic weather conditions that delayed the completion of a project (iii)
difficulty in assembling an adequately skilled labor force due to the physical
location of a construction site (iv) erroneous assumptions at bid time regarding
the Company's construction productivity (v) cost related plan or specification
errors and (vii) inadequate field and corporate supervision, offset by a 2.2%
increase in gross profit margins due to the settlement of a claim which is
related to a project completed during 1995. The Company is requesting
additional compensation for costs incurred related to plan or specification
errors based upon the Company's contractual right. Gross profit margins are
affected by 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 $747,266 for interim 1995 to $1,277,323 for interim 1996. The increase
results primarily from the 56% growth in revenue and the Company's expansion in
the Utah market, the private construction market, the sand and gravel market and
the precast concrete market.
Interest Income and Expense. Interest income increased for interim 1996 to
$311,247 from $231,552 for interim 1995 due to invested proceeds from the
initial public offering, increased cash from operations and higher average
interest rates earned during interim 1996. Interest expense decreased for
interim 1996 to $265,844 due to the repayment of $6.5 million of loans issued in
connection with the MVC acquisition.
Net Income After Income Taxes. Net income after income taxes increased
from $115,923 for interim 1995 to $170,652 for interim 1996. The increase
primarily resulted from interest income and expense offset by a lower gross
profit margin discussed above.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
Revenue and Backlog. Revenue increased 42% to $32.4 million for the three
months ended June 30, 1996 ("interim 1996") from $22.9 million for the three
months ended June 30, 1995 ("interim 1995"). The increase results from a $30.0
million increase in backlog at December 31, 1995 from the prior year and
continued growth in backlog during interim 1996 . Backlog increased 31% to
approximately $115 million at June 30, 1996, from approximately $88 million at
June 30, 1995. Revenue is impacted in any one period by the backlog at the
beginning of the period.
Gross Profit. As a percentage of revenue, gross profit decreased from 4.1%
for interim 1995 to .4% for interim 1996. The decrease results primarily from
cost overruns attributable to (i) omission of costs from bid estimates (ii)
erratic weather conditions that delayed the completion of a project (iii)
difficulty in assembling an adequately skilled labor force due to the physical
location of a construction site (iv) erroneous assumptions at bid time regarding
the Company's construction productivity (v) cost related plan or specification
errors and (vii) inadequate field and corporate supervision. The Company is
requesting additional compensation for costs incurred related to plan or
specification errors based upon the Company's contractual right. Gross profit
margins are affected by 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 $398,784 for interim 1995 to $627,282 for interim 1996. The increase
results primarily from the 42% growth in revenue and the Company's expansion in
the Utah market, the private construction market, the sand and gravel market and
the precast concrete market.
Interest Income and Expense. Interest income increased for interim 1996 to
$98,271 from $77,152 for interim 1995 due to invested proceeds from the initial
public offering. Interest expense decreased for interim 1996 to $149,866 due
to the repayment of $6.5 million of loans issued in connection with the MVC
acquisition.
Net Income ( Loss) After Income Taxes. Net income (loss) after income
taxes decreased from $89,596 for interim 1995 to $(331,943) for interim 1996.
The decrease primarily resulted from a lower gross profit margin discussed above
together with interest income and interest expense.
9
<PAGE>
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, wherein costs and estimated
earnings on contracts in progress have exceeded billing.
The following table sets forth for the six months ended June 30, 1996 and
1995, certain items from the condensed consolidated statements of cash flows.
<TABLE>
<CAPTION>
Six months ended
June 30,
-----------------------------
1996 1995
----------------- ----------
<S> <C> <C>
Cash Flows Provided by (Used in) Operating Activities $(329,525) $ 454,573
Cash Flows Used in Investing Activities (808,566) (974,124)
Cash Flows Used in Financing Activities (63,818) (275,242)
</TABLE>
Although the Company expects increased profitability as operations improve,
cash may be reduced to finance receivables and for customer cash retention
required under contract subject to completion. In general, cash flows from
projects are negative until a project is approximately 15% complete, then become
positive during the middle approximately 70% of the project, and again become
negative during the final approximately 15% of the project. Management
continually monitors the Company's cash requirements to maintain adequate cash
reserves, and the Company believes that its cash balances were and are
sufficient.
Accounts receivable and net costs in excess of billings ("billings") at
June 30, 1996, were approximately $23.0 million versus $14.0 million at June 30,
1995 an increase of 64.3%. Revenues for the same period increased 56%. The
outstanding accounts receivable and billings have increased primarily due to the
growth in revenue. The Company contracts primarily with public sector
customers, which it believes significantly reduces exposure to conventional bad
debts. Accordingly, based on the Company's history of no material delays in the
collection of accounts receivable, no allowance was established for potentially
uncollectible accounts at June 30, 1996.
Cash used by investing activities during interim 1996 was approximately
$800,000, and included the release of retentions held in a restricted cash
account of approximately $400,000, offset by $1,300,000 in equipment
purchases. During interim 1995 cash used in investing activities included an
increase in restricted cash of approximately $1,300,000 and $300,000 in
equipment purchase offset by the collection of related party notes receivable of
approximately $600,000.
Cash used in financing activities during interim 1996 included
approximately $46,000 repayment of capital lease obligations. During interim
1995 cash used in financing activities include deferred offering costs of
approximately $263,000.
The Company currently has commitments in the amount of approximately
$560,000 for the purchase of a parcel of land related to the ready-mix
operations. The Company anticipates incurring total costs of approximately
$7,200,000, which include the above, for the acquisition of land, equipment
and batch plant. The batch plant and its related equipment in the amount of
approximately $6,000,000 will be financed primarily through operating leases.
The land totaling approximately $1,200,000 will be financed through bank notes
and/or other financial instruments.
The Company anticipates incurring total costs of approximately $600,000,
which includes $180,000 of capital expenditures incurred during interim 1996,
for the acquisition of equipment and construction of a precast manufacturing
facility. The facility and its related equipment will be financed with the
proceeds of the IPO.
Management believes that the Company's cash reserves are sufficient to fund
its cash requirements for the next 12 months and that the Company's current
working capital combined with the remaining net proceeds of the IPO and other
available financial sources will be adequate to fund its short term and long
term requirements.
10
<PAGE>
PART 11. 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 June 30, 1996.
11
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act as 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/ KENNETH D. NELSON
----------------------
Kenneth D. Nelson
Chief Financial Officer
By /s/ JULIE L. BERGO
----------------------
Julie L. Bergo
Principal Accounting Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> JUN-30-1996 JUN-30-1995
<CASH> 6,366,000<F1> 0
<SECURITIES> 0 0
<RECEIVABLES> 25,068,773 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 31,866,107 0
<PP&E> 4,572,927 0
<DEPRECIATION> 582,931 0
<TOTAL-ASSETS> 38,074,825 0
<CURRENT-LIABILITIES> 21,669,702 0
<BONDS> 4,438,229 0
0 0
0 0
<COMMON> 3,601 0
<OTHER-SE> 11,929,048 0
<TOTAL-LIABILITY-AND-EQUITY> 38,074,825 0
<SALES> 61,065,921 39,054,567
<TOTAL-REVENUES> 61,065,921 39,054,567
<CGS> 59,605,131 37,570,355
<TOTAL-COSTS> 59,605,131 37,570,355
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 265,884 603,214
<INCOME-PRETAX> 270,875 184,005
<INCOME-TAX> 100,223 68,082
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 170,652 115,923
<EPS-PRIMARY> .05 .10
<EPS-DILUTED> 0 0
<FN>
<F1>AT JUNE 30, 1996 THE COMPANY HAD RESTRICTED MONEY MARKET AND TRUST ACCOUNTS
IN THE AGGREGATE AMOUNT OF $2,210,005. THESE FUNDS ARE HELD IN LIEU OF RETENTION
ON SOME OF THE COMPANY'S CONSTRUCTION CONTRACTS AND WILL BE RELEASED TO THE
COMPANY WHEN THE CONTRACTS ARE COMPLETED.
</FN>
</TABLE>
