<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, 1998
-------------------------------
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, 1998
----- ----------------------------
Common Stock, $.001 par value 3,601,250 shares
<PAGE>
MEADOW VALLEY CORPORATION
INDEX
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
Number
------
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Six Months Ended June 30, 1998 and
June 30, 1997 3
Condensed Consolidated Statements of Operations -
Three Months Ended June 30, 1998 and
June 30, 1997 4
Condensed Consolidated Balance Sheets -
As of June 30, 1998 and December 31, 1997 5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1998 and
June 30, 1997 6-7
Notes to Condensed Consolidated Financial Statements 8-10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11-14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
2
<PAGE>
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION> SIX MONTHS ENDED
JUNE 30,
-----------------------------
1998 1997
------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues..................................................................$ 84,108,138 $ 60,691,855
Cost of revenues.......................................................... 79,667,633 57,368,520
-------------- -------------
Gross profit.............................................................. 4,440,505 3,323,335
General and administrative expenses....................................... 2,920,476 2,203,786
-------------- -------------
Income from operations.................................................... 1,520,029 1,119,549
-------------- -------------
Other income (expense):
Interest income........................................................... 385,949 257,560
Interest expense.......................................................... (245,113) (301,014)
Other income.............................................................. 41,231 15,676
-------------- -------------
182,067 (27,778)
-------------- -------------
Income from continuing operations before income taxes..................... 1,702,096 1,091,771
Income taxes.............................................................. 681,000 436,813
-------------- -------------
Net income from continuing operations..................................... 1,021,096 654,958
Discontinued operations:
Loss from operations of Prestressed Products subsidiary, net
of income tax benefit of $423,497 and $108,813...................... (635,246) (163,219)
Estimated loss on disposal of net assets of Prestressed
Products subsidiary (net of income tax benefit of
$1,300,000), including $1,350,000 for operating losses
during phase-out period............................................. (1,950,000) -
-------------- -------------
Net income (loss).........................................................$ (1,564,150) $ 491,739
============== =============
Basic net income (loss) per common share:
Income from continuing operations....................................$ .28 $ .18
Loss from operations of Prestressed Products subsidiary.............. (.18) (.04)
Estimated loss on disposal of net assets of Prestressed
Products subsidiary............................................... (.54) -
-------------- -------------
Basic net income (loss) per common share..................................$ (.44) $ .14
============== =============
Diluted net income (loss) per common share:
Income from continuing operations....................................$ .28 $ .18
Loss from operations of Prestressed Products subsidiary.............. (.17) (.04)
Estimated loss on disposal of net assets of Prestressed
Products subsidiary............................................... (.53) -
-------------- -------------
Diluted net income (loss) per common share................................$ (.42) $ .14
============== =============
Basic weighted average common shares outstanding.......................... 3,601,250 3,601,250
============== =============
Diluted weighted average common shares outstanding........................ 3,672,932 3,604,845
============== =============
</TABLE>
3
<PAGE>
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
------------------------------
1998 1997
------------- --------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenues..................................................................$ 46,250,624 $ 32,389,582
Cost of revenues.......................................................... 44,161,647 30,484,958
-------------- -------------
Gross profit.............................................................. 2,088,977 1,904,624
General and administrative expenses....................................... 1,371,128 1,099,127
-------------- -------------
Income from operations.................................................... 717,849 805,497
-------------- -------------
Other income (expense):
Interest income........................................................... 268,967 88,122
Interest expense.......................................................... (103,629) (148,822)
Other income.............................................................. 10,319 9,065
-------------- -------------
175,657 (51,635)
-------------- -------------
Income from continuing operations before income taxes..................... 893,506 753,862
Income taxes.............................................................. 357,564 298,270
-------------- -------------
Net income from continuing operations..................................... 535,942 455,592
Discontinued operations:
Loss from operations of Prestressed Products subsidiary, net
of income tax benefit of $276,601 and $64,387....................... (414,902) (96,581)
Estimated loss on disposal of net assets of Prestressed
Products subsidiary (net of income tax benefit of
$1,300,000), including $1,350,000 for operating losses
during phase-out period........................................... (1,950,000) -
-------------- -------------
Net income (loss).........................................................$ (1,828,960) $ 359,011
============== =============
Basic net income (loss) per common share:
Income from continuing operations....................................$ .15 $ .13
Loss from operations of Prestressed Products subsidiary.............. (.12) (.03)
Estimated loss on disposal of net assets of Prestressed
Products subsidiary............................................... (.54) -
-------------- -------------
Basic net income (loss) per common share..................................$ (.51) $ .10
============== =============
Diluted net income (loss) per common share:
Income from continuing operations.................................... .15 .13
Loss from operations of Prestressed Products subsidiary.............. (.11) (.03)
Estimated loss on disposal of net assets of Prestressed
Products subsidiary............................................... (.53) -
-------------- -------------
Diluted net income (loss) per common share................................ (.49) .10
============== =============
Basic weighted average common shares outstanding.......................... 3,601,250 3,601,250
============== =============
Diluted weighted average common shares outstanding........................ 3,685,214 3,610,263
============== =============
</TABLE>
4
<PAGE>
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997 *
-------------- --------------
<S> <C> <C>
Assets: (UNAUDITED)
Current Assets:
Cash and cash equivalents.................................................. $ 7,136,940 $ 2,815,164
Restricted cash............................................................ 2,325,080 1,719,768
Accounts receivable, net................................................... 24,807,040 24,142,358
Prepaid expenses and other................................................. 1,269,847 891,359
Note receivable - related party............................................ - 257,575
Note receivable - other.................................................... 1,933 2,009
Costs and estimated earnings in excess of billings on uncompleted
contracts............................................................... 1,497,932 3,913,475
------------- -------------
Total Current Assets............................................. 37,038,772 33,741,708
Property and equipment, net..................................................... 11,161,113 9,026,751
Refundable deposits............................................................. 191,983 127,736
Note receivable - other......................................................... 207,556 209,264
Goodwill, net................................................................... 1,700,806 1,740,821
Tradename, net.................................................................. 6,088 12,177
Investment in and advances to Prestressed Products Incorporated................. 4,595,514 3,037,954
------------- -------------
Total Assets.................................................... $ 54,901,832 $ 47,896,411
============= =============
Liabilities and Stockholders' Equity:
Current Liabilities:
Note payable - related party............................................... $ - $ 500,000
Notes payable - other...................................................... 936,787 818,846
Obligations under capital leases........................................... 471,425 405,204
Accounts payable........................................................... 17,656,690 18,371,357
Accrued liabilities........................................................ 1,715,685 1,842,860
Billings in excess of costs and estimated earnings on uncompleted
contracts................................................................ 12,781,225 6,650,891
Net liabilities and reserves of discontinued operations.................... 2,743,895 158,649
------------- -------------
Total Current Liabilities....................................... 36,305,707 28,747,807
Deferred income taxes........................................................... 412,561 412,561
Obligations under capital leases................................................ 923,760 973,847
Note payable - related party.................................................... 2,000,000 2,000,000
Notes payable - other........................................................... 3,935,570 2,873,812
------------- -------------
Total Liabilities................................................ 43,577,598 35,008,027
------------- -------------
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 adjustments........................................................ (799,147) (799,147)
Retained earnings.......................................................... 1,176,211 2,740,361
------------- -------------
Total Stockholders' Equity....................................... 11,324,234 12,888,384
------------- -------------
Total Liabilities and Stockholders' Equity....................... $ 54,901,832 $ 47,896,411
============= =============
</TABLE>
*Derived from audited financial statements
5
<PAGE>
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1998 1997
------------- --------------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents: (UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Cash received from customers........................$ 91,957,100 $ 67,221,995
Cash paid to suppliers and employees................ (83,097,347) (65,268,823)
Interest received................................... 438,662 330,231
Interest paid....................................... (83,656) (111,478)
Income taxes paid................................... (745,135) (108,813)
-------------- -------------
Net cash provided by operating activities...... 8,469,624 2,063,112
-------------- -------------
Cash flows from investing activities:
(Increase) decrease in restricted cash.............. (605,312) 404,130
Collection of note receivable - other............... 1,784 719
Proceeds from sale of property and equipment........ 102,631 86,755
Purchase of property and equipment.................. (1,066,438) (2,269,963)
Collection of note receivable-related party......... 257,575 -
Investment in and advances to Prestressed Products
Incorporated..................................... (1,557,560) (748,426)
-------------- -------------
Net cash used in investing activities.......... (2,867,320) (2,526,785)
-------------- -------------
Cash flows from financing activities:
Repayment of notes payable - other.................. (517,898) (176,860)
Repayment of capital lease obligations.............. (262,630) (139,840)
Repayment of note payable-related party............. (500,000) -
-------------- -------------
Net cash used in financing activities.......... (1,280,528) (316,700)
-------------- -------------
Net increase (decrease) in cash and cash equivalents..... 4,321,776 (780,373)
Cash and cash equivalents at beginning of period......... 2,815,164 1,440,519
-------------- -------------
Cash and cash equivalents at end of period...............$ 7,136,940 $ 660,146
============== =============
</TABLE>
6
<PAGE>
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1998 1997
------------- ------------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents (UNAUDITED) (UNAUDITED)
(Continued):
Reconciliation of Net Income to Net Cash Provided by
Operating Activities:
Net income (loss)............................................. $ (1,564,150) $ 491,739
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 872,867 560,304
Gain on sale of property and equipment.................... (20,751) (13,864)
Changes in Assets and Liabilities:
Accounts receivable....................................... (717,395) 4,234,180
Prepaid expenses and other................................ (314,353) (315,801)
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... 2,415,543 1,050,124
Refundable deposits....................................... (64,453) (14,848)
Interest payable.......................................... 161,457 189,536
Accounts payable.......................................... (714,667) (5,770,910)
Accrued liabilities....................................... (288,632) (155,261)
Billings in excess of costs and estimated earnings on
uncompleted contracts................................... 6,130,334 1,244,023
Interest receivable....................................... 52,713 72,671
Income tax receivable..................................... (64,135) 328,000
Net liabilities and reserves of discontinued operations... 2,585,246 163,219
------------ -----------
Net cash provided by operating activities............ $ 8,469,624 $ 2,063,112
============ ===========
</TABLE>
7
<PAGE>
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Corporation:
Meadow Valley Corporation (the "Company") was organized under the laws of
the State of Nevada on September 15, 1994. The principal business purpose
of the Company is to operate as the holding company of Meadow Valley
Contractors, Inc. (MVC) and Ready Mix, Inc. (RMI). MVC is a general
contractor, primarily engaged in the construction of structural concrete
highway bridges and overpasses, and the paving of highways and airport
runways in the states of Nevada, Arizona, Utah and New Mexico. MVC was
acquired by the Company as of October 1, 1994. RMI is a producer and
retailer of ready-mix concrete operating in the Las Vegas metropolitan
area. Formed by the Company, RMI commenced operations in 1997.
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 three months and the six months ended June
30, 1998 are not necessarily indicative of operating results for the entire
year.
3. Notes Payable-other:
Summary of second quarter additions to Notes payable-other and their
balances at June 30, 1998:
<TABLE>
<CAPTION>
<S> <C>
7.33% note payable, with monthly payments of $5,115, due 4/24/03,
collateralized by equipment......................................... $ 249,199
7.36% note payable, with monthly payments of $16,669, due 4/24/05,
collateralized by equipment......................................... 1,071,676
7.34% note payable, with monthly payments of $6,979, due 7/01/03,
collateralized by equipment......................................... 349,592
-----------
1,670,467
Less: current maturities included in current liabilities............ 161,436
-----------
$1,509,031
===========
</TABLE>
Following are maturities of the above long-term debt for each of the next 5
years:
<TABLE>
<S> <C>
1999................................................................ 161,436
2000................................................................ 240,513
2001................................................................ 258,795
2002................................................................ 278,468
Subsequent to 2002.................................................. 569,819
-----------
$ 1,509,031
===========
</TABLE>
8
<PAGE>
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Commitments:
During the quarter ended June 30, 1998 the Company purchased construction
vehicles and equipment under capital leases expiring in the year 2003. The
assets and liabilities under capital leases are recorded at the lower of
the present value of the minimum lease payments or the fair value of the
assets. The assets are depreciated over their related lease terms.
Minimum future lease payments under the above mentioned capital leases as
of June 30, 1998 for each of the next five years and in aggregate are:
<TABLE>
<CAPTION>
Year Ended June 30, 1998 Amount
--------------------------------------------- ---------
<S> <C>
1999......................................... $ 73,090
2000......................................... 74,647
2001......................................... 75,073
2002......................................... 75,536
2003......................................... 5,000
---------
Total minimum lease payments................. 303,346
Less: Executory costs........................ (9,441)
---------
Net minimum lease payments................... 293,905
Less: Amount representing interest........... (47,228)
---------
Present value of net minimum lease payments.. $246,677
=========
</TABLE>
5. New Accounting Standard:
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5") "Reporting on the Costs of
Start-Up Activities." SOP 98-5 requires that costs of start-up activities
should be expensed as incurred. SOP 98-5 is effective for years beginning
after December 15, 1998 and earlier application is permitted and
encouraged. The Company does not expect adoption of SOP 98-5 to have a
material effect, if any, on its financial position or results of
operations.
6. Discontinued Operations:
In June 1998, the Company initiated a plan to dispose of Prestressed
Products Incorporated. Accordingly, the Company has reclassified the
operations of Prestressed Products Incorporated as discontinued operations
in the accompanying statements of operations. The Company recorded an
estimated loss of $1,950,000 (net of income tax benefit of $1,300,000),
related to the disposal of assets for Prestressed Products Incorporated,
which included a provision of $1,350,000 for estimated operating losses
during the phase-out period.
9
<PAGE>
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Discontinued Operations (continued):
The accompanying condensed consolidated balance sheets as of June 30, 1998
and December 31, 1997 has been restated to reflect the net liabilities and
the estimated loss as a single amount as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
Current assets.............................. $ 3,322,038 $ 3,020,023
Non-current assets.......................... 1,218,748 1,184,717
Liabilities................................. (5,334,681) (4,363,389)
------------- ------------
Net liabilities.......................... (793,895) (158,649)
Estimated loss on disposition............... (1,950,000) -
------------- ------------
Net liabilities of discontinued operations.. $ (2,743,895) $ (158,649)
============= ============
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following is management's discussion and analysis of certain
significant factors affecting the Company's financial position and operating
results during the periods included in the accompanying condensed consolidated
financial statements.
Except for the historical information contained herein, the matters set
forth in this report are forward-looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are subject to risks and uncertainties
that may cause actual results to differ materially. The Company disclaims any
intent or obligation to update these forward-looking statements.
During June 1998, the Company initiated a plan to dispose of Prestressed
Products Incorporated. The Company accrued a $1,950,000 charge (net of income
tax benefit of $1,300,000) relating to the estimated disposal cost of the
Prestressed Products business, which is expected to be completed during the
first quarter of 1999.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5") "Reporting on the Costs of Start-
Up Activities." SOP 98-5 requires that costs of start-up activities should be
expense as incurred. SOP 98-5 is effective for years beginning after December
15, 1998 and earlier application is permitted and encouraged. The Company does
not expect adoption of SOP 98-5 to have a material effect, if any, on its
financial position or results of operations.
RESULTS OF OPERATIONS
The following table sets forth, for the six months and the three months
ended June, 1998 and 1997, certain items derived from the Company's Condensed
Consolidated Statements of Operations expressed as a percentage of revenue.
<TABLE>
<CAPTION>
Six months Ended Three months ended
June 30, June 30,
---------------- ------------------
1998 1997 1998 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenue.......................................... 100.0% 100.0% 100.0% 100.0%
Gross profit..................................... 5.3 5.5 4.5 5.9
General and administrative expense............... 3.5 3.6 3.0 3.4
Interest income.................................. .5 .4 .6 .3
Interest expense................................. .3 .5 .2 .5
Income from continuing operations before
income taxes.................................... 2.0 1.8 1.9 2.3
Income taxes..................................... .8 .7 .8 .9
Net income from continuing operations............ 1.2 1.1 1.1 1.4
Discontinued operations:
Loss from operations of Prestressed Products
subsidiary...................................... .8 .3 .9 .3
Estimated loss on disposal of net assets of
Prestressed Products subsidiary, including
operating losses during phase-out period..... 2.3 - 4.2 -
Net income (loss)................................ (1.9) .8 (4.0) 1.1
</TABLE>
11
<PAGE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Revenue and Backlog. Revenue for the six months ended June 30, 1998
("interim 1998") was $84.1 million compared to $60.7 million for the six months
ended June 30, 1997 ("interim 1997"). The increase in revenue was the result of
an increase in contract revenue of $19.6 million and a $3.8 million increase in
revenue generated from construction materials production and manufacturing sold
to non-affiliates. Backlog increased 23% to approximately $210 million at June
30, 1998, from approximately $171 million at June 30, 1997. Revenue is impacted
in any one period by the backlog at the beginning of the period.
Gross Profit. As a percentage of revenue, consolidated gross profit margin
decreased from 5.5% for interim 1997 to 5.3% for interim 1998. The decrease in
MVC's gross profit margin was the result of (i) cost overruns on certain
projects (ii) subcontractor difficulties and (iii) costs related to plan or
specification errors. Gross profit margins are affected by a variety of factors
including 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 $2,203,786 for interim 1997 to $2,920,476 for interim 1998. The increase
results, in part, from costs associated with expansion in the white paving
market, amounting to approximately $208,000, $400,000 in corporate labor,
$76,000 in legal cost and approximately $23,000 in costs related to the
administration of the Company's employee benefit plans.
Interest Income and Expense. Interest income for interim 1998 increased to
$385,949 from $257,560 for interim 1997 due to an increase in cash reserves
resulting primarily from billings in excess of costs and estimated earnings on
uncompleted contracts. Interest expense decreased for interim 1998 to $245,113
from $301,014 for interim 1997 due to a $1,500,000 reduction in related party
debt.
Net Income from Continuing Operations After Income Taxes. Net income from
continuing operations after income taxes was $1,021,096 for interim 1998 as
compared to $654,958 for interim 1997. The increase resulted from higher
revenues offset by increased general and administrative expenses and decreased
gross profit margins, as well as higher interest income and lower interest
expense.
Discontinued Operations. In June 1998, the Company decided to dispose of
its wholly-owned subsidiary, Prestressed Products Incorporated. Accordingly, the
Company has reclassified the operations of Prestressed Products Incorporated as
discontinued operations in the accompanying financial statements. In June 1998,
the Company accrued a $1,950,000 charge (net of income tax benefit of
$1,300,000), related to the disposal of assets for the Prestressed Products
business, which included a provision of $1,350,000 for estimated operating
losses during the phase-out period. The disposal of the Prestressed Products
business is expected to be completed during the first quarter 1999.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Revenue and Backlog. Revenue for the three months ended June 30, 1998
("interim 1998") was $46.2 million compared to $32.4 million for the three
months ended June 30, 1997 ("interim 1997"). The increase in revenue was the
result of a $13.1 million increase in contract revenue and a $.7 million
increase in revenue generated from construction materials production and
manufacturing sold to non-affiliates. Backlog increased 23% to approximately
$210 million at June 30, 1998 from approximately $171 million at June 30, 1997.
Revenue is impacted in any one period by the backlog at the beginning of the
period.
Gross Profit. As a percentage of revenue, consolidated gross profit margin
decreased from 5.9% for interim 1997 to 4.5% for interim 1998. The decrease in
MVC's gross profit margin was the result of (i) cost overruns on certain
projects (ii) subcontractor difficulties and (iii) costs related to plan or
specification errors. Gross profit margins are affected by a variety of factors
including 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.
12
<PAGE>
General and Administrative. General and administrative expenses increased
from $1,099,127 for interim 1997 to $1,371,128 for interim 1998. The increase
results, in part, from costs associated with expansion in the white paving
market, amounting to $98,000, $73,000 in corporate labor, $48,000 in legal costs
and a variety of costs including costs in excess of $26,000 related to the
Company's safety plan.
Interest Income and Expense. Interest income for interim 1998 increased to
$268,967 from $88,122 for interim 1997 due to an increase in cash reserves
resulting primarily from billings in excess of costs and estimated earnings on
uncompleted contracts. Interest expense decreased for interim 1998 to $103,629
from $148,822 for interim 1997 due to a $1,500,000 reduction in related party
debt.
Net Income from Continuing Operations After Income Taxes. Net income after
income taxes was $535,942 for interim 1998 as compared to $455,592 for interim
1997. The increase resulted from higher revenues offset by increased general and
administrative expenses and decreased gross profit margins, as well as higher
interest income and lower interest expense.
Discontinued Operations. In June 1998, the Company decided to dispose of
its wholly-owned subsidiary, Prestressed Products Incorporated. Accordingly, the
Company has reclassified the operations of Prestressed Products Incorporated as
discontinued operations in the accompanying financial statements. In June 1998,
the Company accrued a $1,950,000 charge (net of income tax benefit of
$1,300,000), related to the disposal of assets for the Prestressed Products
business, which included a provision of $1,350,000 for estimated operating
losses during the phase-out period. The disposal of the Prestressed Products
business is expected to be completed during the first quarter 1999.
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.
The following table sets forth for the six months ended June 30, 1998 and
1997, certain items from the condensed consolidated statements of cash flows.
<TABLE>
<CAPTION>
Six months ended
June 30,
---------------------------
1998 1997
------------- ------------
<S> <C> <C>
Cash Flows Provided by Operating Activities $ 8,469,624 $ 2,063,112
Cash Flows (Used in) Investing Activities (2,867,320) (2,526,785)
Cash Flows (Used in) Financing Activities (1,280,528) (316,700)
</TABLE>
Although the Company may experience increased profitability as operations
increase, cash may be reduced to finance receivables and for customer cash
retention required under contracts subject to completion. Management
continually monitors the Company's cash requirements to maintain adequate cash
reserves, and the Company believes that its cash balances were and, together
with the operating lines of credit described below, are sufficient.
Cash provided by operating activities during interim 1998 amounted to
$8,469,624, primarily the result of an increase in net billings in excess of
costs of $8,546,000, an increase in net liabilities and reserves of discontinued
operations of $2,585,000, an increase in interest payable of $161,000,
depreciation and amortization of $873,000 offset, in part, by an increase in
accounts receivable of $717,000, a decrease in accounts payable and accrued
liabilities of $1,003,000, an increase in prepaid expenses of $314,000, an
increase in income tax receivable of $64,000 and a net loss of $1,564,000.
Cash provided by operating activities during interim 1997 amounted to
$2,063,112, primarily the result of net income of $492,000, net billings in
excess of costs of $2,294,000, an increase in net liabilities and reserves of
discontinued operations of $163,000, a decrease in accounts receivable of
$4,234,000, a decrease in income tax
13
<PAGE>
receivable of $328,000 and depreciation and amortization of $560,000 offset, in
part, by a decrease in accounts payable and accrued liabilities of $5,926,000.
Cash used in investing activities during interim 1998 included the purchase
of property and equipment of $1,066,000, an increase in restricted cash of
$605,000 and an increase in investment in and advances to a related entity of
$1,558,000, offset by the collection of a related party note receivable of
$258,000 and $103,000 proceeds from the sale of property and equipment.
Cash used in investing activities during interim 1997 included the purchase
of property and equipment of $2,270,000 and an increase in investment in and
advances to a related entity of $748,000, offset by a decrease in restricted
cash of $404,000 and $87,000 in proceeds from the sale of property and
equipment.
Cash used in financing activities during interim 1998 included the
repayment of notes payable and capital lease obligations in the amount of
$781,000 and the repayment of a related party note payable of $500,000. Cash
used during interim 1997 included the repayment of notes payable and capital
lease obligations in the amount of $317,000.
The Company currently has available from a commercial bank a $2,000,000
operating line of credit at an interest rate of the commercial bank's prime plus
.50%, and a $2,000,000 operating line of credit at an interest rate of the
commercial bank's prime plus .25% ("lines of credit"). At June 30, 1998,
nothing had been drawn on either of the lines of credit. Under the lines of
credit, the Company is required to maintain certain levels of working capital,
to promptly pay all of its obligations and is precluded from conveying, selling
or leasing all or substantially all of its assets. At June 30, 1998, the Company
was in full compliance with all such covenants and there are no material
covenants or restriction in the lines of credit which the Company believes would
impair its operations. The lines of credit expire September 15, 1998.
The Company is currently leasing approximately 40 ready-mix trucks with
estimated annual lease payments of $800,000. The Company anticipates that a
substantial portion of the costs associated with a planned second ready mix
plant and related equipment will be financed through bank financing and
operating leases.
Management believes that the Company's cash reserves, together with its
lines of credit and its capacity to enter into other financing arrangements are
sufficient to fund its cash requirements for the next 12 months and that the
Company's working capital will be adequate to fund its short term and long term
requirements.
YEAR 2000
The Company's accounting software currently does not utilize a four digit
year field; however, the Company has been assured by the software manufacturer
that all necessary modifications for the year 2000 have been or will be made and
tested timely.
PART II. 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, 1998.
14
<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/ Gary W. Burnell
-----------------------------------
Gary W. Burnell
Chief Financial Officer
By /s/ Julie L. Bergo
-----------------------------------
Julie L. Bergo
Principal Accounting Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 9,462,020 0
<SECURITIES> 0 0
<RECEIVABLES> 26,341,066 0
<ALLOWANCES> 36,094 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 37,038,772 0
<PP&E> 11,987,670 0
<DEPRECIATION> 826,557 0
<TOTAL-ASSETS> 54,901,832 0
<CURRENT-LIABILITIES> 36,305,707 0
<BONDS> 8,267,542 0
0 0
0 0
<COMMON> 3,601 0
<OTHER-SE> 11,320,633 0
<TOTAL-LIABILITY-AND-EQUITY> 54,901,832 0
<SALES> 84,108,138 60,691,855
<TOTAL-REVENUES> 84,108,138 60,691,855
<CGS> 79,667,633 57,368,520
<TOTAL-COSTS> 79,667,633 57,368,520
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 245,113 301,014
<INCOME-PRETAX> 1,702,096 1,091,771
<INCOME-TAX> 681,000 436,813
<INCOME-CONTINUING> 1,021,096 654,958
<DISCONTINUED> (2,585,246) (163,219)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,564,150) 491,739
<EPS-PRIMARY> (.44) .14
<EPS-DILUTED> (.42) .14
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 4,534,932
<SECURITIES> 0
<RECEIVABLES> 28,348,849
<ALLOWANCES> 35,441
<INVENTORY> 0
<CURRENT-ASSETS> 33,741,708
<PP&E> 10,211,898
<DEPRECIATION> 1,185,147
<TOTAL-ASSETS> 47,896,411
<CURRENT-LIABILITIES> 28,747,807
<BONDS> 7,571,709
3,601
0
<COMMON> 0
<OTHER-SE> 12,884,783
<TOTAL-LIABILITY-AND-EQUITY> 47,896,411
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
