<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, 1999
--------------------------------
Commission File Number 0-25428
----------------------
MEADOW VALLEY CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of registrant as specified in its charter)
NEVADA 88-0328443
- --------------------------------------------------------------------------------
(State or other Jurisdiction (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, 1999
----- ----------------------------
Common Stock, $.001 par value 3,501,250 shares
<PAGE>
MEADOW VALLEY CORPORATION
INDEX
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
Number
------
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Statements of Operations -
Six Months Ended June 30, 1999 and
June 30, 1998 3
Condensed Consolidated Statements of Operations -
Three Months Ended June 30, 1999 and
June 30, 1998 4
Condensed Consolidated Balance Sheets -
As of June 30, 1999 and December 31, 1998 5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1999 and
June 30, 1998 6-7
Notes to Condensed Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10-13
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,
----------------------------
1999 1998
------------- ------------
<S> <C> <C>
(Unaudited) (Unaudited)
Revenue................................................................. $112,475,541 $84,108,138
Cost of revenue......................................................... 107,060,061 79,667,633
------------- ------------
Gross profit............................................................ 5,415,480 4,440,505
General and administrative expenses..................................... 3,573,061 2,920,476
------------- ------------
Income from operations.................................................. 1,842,419 1,520,029
------------- ------------
Other income (expense):
Interest income......................................................... 275,194 385,949
Interest expense........................................................ (107,019) (245,113)
Other income............................................................ 36,658 41,231
------------- ------------
204,833 182,067
------------- ------------
Income from continuing operations before income taxes................... 2,047,252 1,702,096
Income taxes............................................................ 818,901 681,000
------------- ------------
Net income from continuing operations................................... 1,228,351 1,021,096
Discontinued operations:
Loss from operations of Prestressed Products subsidiary, net
of income tax benefit of $423,497.................................. - (635,246)
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)...................................................... $ 1,228,351 $(1,564,150)
============= ============
Basic net income (loss) per common share:
Income from continuing operations.................................... $ .35 $ .28
Loss from operations of Prestressed Products subsidiary.............. - (.18)
Estimated loss on disposal of net assets of Prestressed
Products subsidiary................................................ - (.54)
------------- ------------
Basic net income (loss) per common share................................ $ .35 $ (.44)
============= ============
Diluted net income (loss) per common share:
Income from continuing operations.................................... $ .34 $ .28
Loss from operations of Prestressed Products subsidiary.............. - (.17)
Estimated loss on disposal of net assets of Prestressed
Products subsidiary................................................ - (.53)
------------- ------------
Diluted net income (loss) per common share.............................. $ .34 $ (.42)
============= ============
Basic weighted average common shares outstanding........................ 3,536,057 3,601,250
============= ============
Diluted weighted average common shares outstanding...................... 3,569,301 3,672,932
============= ============
</TABLE>
3
<PAGE>
<TABLE>
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
June 30,
----------------------------
1999 1998
------------ -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenue................................................................... $ 54,201,337 $46,250,624
Cost of revenue........................................................... 51,529,044 44,161,647
------------ -----------
Gross profit.............................................................. 2,672,293 2,088,977
General and administrative expenses....................................... 1,617,492 1,371,128
------------ -----------
Income from operations.................................................... 1,054,801 717,849
Other income (expense):
Interest income........................................................... 136,448 268,967
Interest expense.......................................................... (54,660) (103,629)
Other income (expense).................................................... (9,026) 10,319
------------ -----------
72,762 175,657
------------ -----------
Income from continuing operations before income taxes..................... 1,127,563 893,506
Income taxes.............................................................. 451,024 357,564
------------ -----------
Net income from continuing operations..................................... 676,539 535,942
Discontinued operations:
Loss from operations of Prestressed Products subsidiary, net
of income tax benefit of $276,601.................................... - (414,902)
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)......................................................... $ 676,539 $(1,828,960)
============ ===========
Basic net income (loss) per common share:
Income from continuing operations.................................... $ .20 $ .15
Loss from operations of Prestressed Products subsidiary.............. - (.12)
Estimated loss on disposal of net assets of Prestressed
Products subsidiary................................................ - (.54)
------------ -----------
Basic net income (loss) per common share.................................. $ .20 $ (.51)
============ ===========
Diluted net income (loss) per common share:
Income from continuing operations.................................... $ .19 $ .15
Loss from operations of Prestressed Products subsidiary.............. - (.11)
Estimated loss on disposal of net assets of Prestressed
Products subsidiary................................................ - (.53)
------------ -----------
Diluted net income (loss) per common share................................ $ .19 $ (.49)
============ ===========
Basic weighted average common shares outstanding.......................... 3,501,250 3,601,250
============ ===========
Diluted weighted average common shares outstanding........................ 3,509,272 3,685,214
============ ===========
</TABLE>
4
<PAGE>
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998 *
----------- -----------
(Unaudited)
<S> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents..................................................... $ 7,594,462 $10,993,025
Restricted cash............................................................... 4,667,138 3,678,685
Accounts receivable, net...................................................... 18,830,050 15,434,491
Prepaid expenses and other.................................................... 2,519,410 1,858,184
Note receivable - other....................................................... 2,386 2,386
Costs and estimated earnings in excess of billings on uncompleted
contracts.................................................................. 3,474,859 3,850,619
Treasury stock held for funding employer retirement plan contributions 451,754 -
----------- -----------
Total Current Assets................................................ 37,540,059 35,817,390
Property and equipment, net........................................................ 12,376,138 10,995,846
Refundable deposits................................................................ 78,924 191,433
Note receivable - other............................................................ 205,960 206,421
Goodwill, net...................................................................... 1,620,777 1,660,792
Net assets of discontinued operations.............................................. - 425,181
----------- -----------
Total Assets....................................................... $51,821,858 $49,297,063
=========== ===========
Liabilities and Stockholders' Equity:
Current Liabilities:
Notes payable - other......................................................... $ 1,390,065 $ 1,145,621
Obligations under capital leases.............................................. 631,255 678,562
Accounts payable.............................................................. 16,410,572 13,797,436
Accrued liabilities........................................................... 2,518,298 3,091,362
Billings in excess of costs and estimated earnings on uncompleted
contracts................................................................... 11,190,042 11,343,995
Net liabilities and reserves of discontinued operations....................... 240,950 -
----------- -----------
Total Current Liabilities.......................................... 32,381,182 30,056,976
Deferred income taxes.............................................................. 789,727 789,727
Obligations under capital leases................................................... 1,657,557 2,031,316
Note payable - related party....................................................... - 1,000,000
Notes payable - other.............................................................. 3,292,324 2,946,327
----------- -----------
Total Liabilities................................................... 38,120,790 36,824,346
----------- -----------
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,
3,501,250 and 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............................................................. 3,553,045 2,324,694
----------- -----------
Total Stockholders' Equity.......................................... 13,701,068 12,472,717
----------- -----------
Total Liabilities and Stockholders' Equity.......................... $51,821,858 $49,297,063
=========== ===========
</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,
1999 1998
------------- ------------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents: (Unaudited) (Unaudited)
Cash flows from operating activities:
Cash received from customers.............................. $ 109,215,804 $ 91,957,100
Cash paid to suppliers and employees...................... (108,337,191) (85,682,593)
Interest received......................................... 359,098 438,662
Interest paid............................................. (133,046) (83,656)
Income taxes paid......................................... (558,011) (745,135)
------------- ------------
Net cash provided by operating activities............ 546,654 5,884,378
------------- ------------
Cash flows from investing activities:
Increase in restricted cash............................... (988,453) (605,312)
Collection of note receivable - other..................... 461 1,784
Proceeds from sale of property and equipment.............. 179,554 102,631
Purchase of property and equipment........................ (1,315,503) (1,066,438)
Collection of note receivable-related party............... - 257,575
Decrease in net assets of discontinued operations......... 425,181 1,027,686
Increase in net liabilities and reserves of discontinued
operations.............................................. 240,950 -
Purchase of treasury stock held for funding employer
retirement plan contributions........................... (451,754) -
------------- ------------
Net cash used in investing activities................ (1,909,564) (282,074)
------------- ------------
Cash flows from financing activities:
Repayment of notes payable - other........................ (614,588) (517,898)
Repayment of capital lease obligations.................... (421,065) (262,630)
Repayment of note payable-related party................... (1,000,000) (500,000)
------------- ------------
Net cash used in financing activities................ (2,035,653) (1,280,528)
------------- ------------
Net increase (decrease) in cash and cash equivalents........... (3,398,563) 4,321,776
Cash and cash equivalents at beginning of period............... 10,993,025 2,815,164
------------- ------------
Cash and cash equivalents at end of period..................... $ 7,594,462 $ 7,136,940
============= ============
</TABLE>
6
<PAGE>
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
1999 1998
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
(Continued):
Reconciliation of Net Income (Loss) to Net Cash Provided by
Operating Activities:
Net income (loss)............................................... $ 1,228,351 $(1,564,150)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 1,026,216 872,867
Gain on sale of property and equipment..................... (38,740) (20,751)
Changes in Assets and Liabilities:
Accounts receivable, net................................... (3,479,463) (717,395)
Prepaid expenses and other................................. (908,686) (314,353)
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................... 375,760 2,415,543
Refundable deposits........................................ 112,303 (64,453)
Interest payable........................................... (26,027) 161,457
Accounts payable........................................... 2,613,136 (714,667)
Accrued liabilities........................................ (547,037) (288,632)
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................... (153,953) 6,130,334
Interest receivable........................................ 83,904 52,713
Income tax receivable...................................... 260,890 (64,135)
----------- -----------
Net cash provided by operating activities............. $ 546,654 $ 5,884,378
=========== ===========
</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. 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, 1999 are not necessarily indicative of operating results
for the entire year.
3. Notes Payable- other:
<TABLE>
<CAPTION>
Summary of second quarter additions to Notes payable - other and their balances at June 30, 1999:
<S> <C>
7.81% note payable, with monthly payments of $6,840, due 06/04/04,
collateralized by equipment............................................................. $ 334,211
3.90% note payable, with monthly payments of $2,499, due 07/01/03,
collateralized by equipment............................................................. 110,900
7.75% note payable, with monthly payments of $1,367, due 07/01/03,
collateralized by equipment............................................................. 56,263
7.94% note payable, with monthly payments of $2,084, due 12/01/01,
collateralized by equipment............................................................. 54,828
---------
556,202
Less: current portion.................................................................... (118,004)
---------
$ 438,198
=========
Following are maturities of the above long-term debt for each of the next 5 years:
2000..................................................................................... $ 118,004
2001..................................................................................... 129,792
2002..................................................................................... 120,202
2003..................................................................................... 105,148
2004..................................................................................... 83,056
---------
$ 556,202
=========
</TABLE>
8
<PAGE>
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Subsequent Events:
During July 1999, the Company entered into a financing agreement for the
purchase of equipment totaling $2.5 million. The Company will make interest
only payments until all of the equipment financing is complete. As of July 31,
1999, the Company has financed $1,117,519, at an interest rate of 7.39%.
During July 1999, the Company financed the purchase of equipment in the
amount of $67,463. The note payable has an interest rate of 12.805%, with
monthly payments of $2,267, due 07/12/02.
5. Discontinued Operations:
In June 1998, the Company adopted a formal plan ( the "plan") to
discontinue the operations of Prestressed Products Incorporated ("PPI"). The
plan included the completion of approximately $2.8 million of uncompleted
contracts and the disposition of approximately $1.2 million of equipment.
Accordingly, the Company has reclassified the operations of PPI as discontinued
operations in the accompanying statements of operations. In June 1998, 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 PPI, which included a
provision of $1,350,000 for estimated operating losses during the phase-out
period. During the six months ended June 30, 1999, $456,821 of the expected
losses were incurred (net of income tax benefit of $304,548).
The revenue of PPI for the six months ended June 30, 1998 and 1999 were
$2,832,849 and $617,029. These amounts are not included in revenue in the
accompanying statements of operations.
The accompanying condensed consolidated balance sheets as of June, 1999 and
December 31, 1998, reflect the net liabilities and the estimated loss as a
single amount as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------- ----------
<S> <C> <C>
Current assets......................................... $1,096,181 $1,204,192
Non-current assets..................................... - 481,331
Liabilities............................................ (978,064) (444,454)
---------- ----------
Net assets........................................... 118,117 1,241,069
Estimated loss on disposition.......................... (359,067) (815,888)
---------- ----------
Net assets (liabilities and reserves)of discontinued
operations........................................... $ (240,950) $ 425,181
========== ==========
</TABLE>
9
<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. During the six months ended June 30, 1999,
$456,821 of the expected losses were incurred (net of income tax benefit of
$304,548).
Results of Operations
The following table sets forth, for the six months and the three months
ended June 30, 1999 and 1998, 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,
---------------------- ---------------------
1999 1998 1999 1998
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Revenue.................................. 100.0% 100.0% 100.0% 100.0%
Gross profit............................. 4.8 5.3 4.9 4.5
General and administrative expense....... 3.1 3.5 3.0 3.0
Interest income.......................... .2 .5 .2 .6
Interest expense......................... .1 .3 .1 .2
Income from continuing operations before
income taxes............................ 1.8 2.0 2.0 1.9
Income taxes............................. .7 .8 .8 .8
Net income from continuing operations.... 1.1 1.2 1.2 1.1
Discontinued operations:
Loss from operations of Prestressed
Products subsidiary..................... - .8 - .9
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)........................ 1.1 (1.9) 1.2 (4.0)
</TABLE>
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Revenue and Backlog. Revenue for the six months ended June 30, 1999
("interim 1999") was $112.5 million compared to $84.1 million for the six months
ended June 30, 1998 ("interim 1998"). The increase in revenue was the result of
an increase in contract revenue of $27.5 million and a $.9 million increase in
revenue generated from construction materials production and manufacturing sold
to non-affiliates. Backlog decreased 36% to approximately $134 million at June
30, 1999, from approximately $210 million at June 30, 1998. Revenue is impacted
in any one period by the backlog at the beginning of the period.
10
<PAGE>
Gross Profit. As a percentage of revenue, consolidated gross profit margin
decreased from 5.3% for interim 1998 to 4.8% for interim 1999. The decrease in
MVC's gross profit margin was the result of (i) cost overruns on certain
projects (ii) weather and execution difficulties related to a bridge
substructure and (iii) increased profit recognition related to several projects
nearing completion at June 30, 1998 and (iv) costs to remove and repair a
portion of a partially constructed bridge that was damaged by the collapse of a
temporary support system. 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 $2,920,476 for interim 1998 to $3,573,061 for interim 1999. The increase
resulted, in part, from costs related to various employee incentive plans
amounting to $492,000, $44,000 in costs related to the education and training of
corporate and area personnel, $27,000 in costs related to corporate and area
travel and a variety of other costs related to the administration of the
corporate and area offices.
Interest Income and Expense. Interest income for interim 1999 decreased to
$275,194 from $385,949 for interim 1998 resulting primarily from a decrease in
interest bearing retention receivables. Interest expense decreased for interim
1999 to $107,019 from $245,113 for interim 1998 due primarily to a $1,500,000
reduction in related party debt during 1998 and a $1,000,000 reduction at the
beginning of interim 1999.
Net Income from Continuing Operations After Income Taxes. Net income from
continuing operations after income taxes was $1,228,351 for interim 1999 as
compared to $1,021,096 for interim 1998. The increase resulted from higher
revenues and lower interest expense, offset by increased general and
administrative expenses and decreased gross profit margins, as well as lower
interest income.
Discontinued Operations. In June 1998, due to continuing operating
losses, 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. During the six months ended June 30, 1999, $456,821 of the expected
losses were incurred (net of income tax benefit of $304,548).
Net Income. Net income, after discontinued operations, for interim 1999
was $1,228,351 as compared to $(1,564,150) for interim 1998.
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Revenue and Backlog. Revenue for the three months ended June 30, 1999
("interim 1999") was $54.2 million compared to $46.2 million for the three
months ended June 30, 1998 ("interim 1998"). The increase in revenue was the
result of a $8.0 million increase in contract revenue. Backlog decreased 36% to
approximately $134 million at June 30, 1999 from approximately $210 million at
June 30, 1998. 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
increased from 4.5% for interim 1998 to 4.9% for interim 1999. The increase in
MVC's gross profit margin was the result of cost overruns on certain projects,
subcontractor difficulties and costs related to plan or specification errors
incurred during interim 1998 offset, in part, by costs incurred to remove and
repair a portion of a partially constructed bridge that was damaged by the
collapse of a temporary support system during interim 1999. 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 $1,371,128 for interim 1998 to $1,617,492 for interim 1999. The increase
results, in part, from costs related to various employee incentive plans
amounting to $213,000, $9,000 in costs related to education and training of
corporate and area personnel and a variety of other costs related to the
administration of the corporate and area offices.
11
<PAGE>
Interest Income and Expense. Interest income for interim 1999 decreased to
$136,448 from $268,967 for interim 1998 resulting primarily from a decrease in
interest bearing retention receivables. Interest expense decreased for interim
1999 to $54,660 from $103,629 for interim 1998 due primarily to a $1,000,000
reduction at the beginning of interim 1999.
Net Income from Continuing Operations After Income Taxes. Net income after
income taxes was $676,539 for interim 1999 as compared to $535,942 for interim
1998. The increase resulted from higher revenue and gross profit and lower
interest expense offset by increased general and administrative expenses and
lower interest income.
Discontinued Operations. In June 1998, due to continuing operating losses,
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. During the three months ended June 30, 1999, $277,446 of the expected
losses were incurred (net of income tax benefit of $184,965).
Net Income. Net income, after discontinued operations, for interim 1999
was $676,539 as compared to $(1,828,960) for interim 1998.
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, 1999 and
1998, certain items from the condensed consolidated statements of cash flows.
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------------------
1999 1998
------------ -----------
<S> <C> <C>
Cash Flows Provided by Operating Activities $ 546,654 $ 5,884,378
Cash Flows (Used in) Investing Activities (1,909,564) (282,074)
Cash Flows (Used in) Financing Activities (2,035,653) (1,280,528)
</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 1999 amounted to
$.5million, primarily the result of an increase in accounts payable of $2.6
million, net income of $1.2 million, depreciation and amortization of $1.0
million and a decrease in income tax receivable of $.3 million offset, in part,
by an increase in accounts receivable of $3.5 million, and increase in prepaid
expenses and other of $.9 million and a decrease in accrued liabilities of $.5
million.
Cash provided by operating activities during interim 1998 amounted to $5.9
million, primarily the result of an increase in net billings in excess of costs
of $8.5 million, an increase in interest payable of $.2 million, depreciation
and amortization of $.9 million offset, in part, by an increase in accounts
receivable of $.7 million, a decrease in accounts payable and accrued
liabilities of 1.0 million, an increase in prepaid expenses of $.3 million, an
increase in income tax receivable of $.1 million and a net loss of $1.6 million.
Cash used in investing activities during interim 1999 amounted to $2.0
million related primarily to the purchase of property and equipment of $1.3
million, an increase in restricted cash of $1.0 million and the purchase of
treasury stock held for funding the Company's retirement plan contributions of
$.5 million offset, in part, by an increase in net
12
<PAGE>
liabilities and reserves of discontinued operations of $.2 million, a decrease
in net assets of discontinued operations of $.4 million and $.2 million proceeds
from the sale of property and equipment.
Cash used in investing activities during interim 1998 amounted to $.3
million related primarily to the purchase of property and equipment of $1.0
million, an increase in restricted cash of $.6 million and an increase in
investment in and advances to a related entity of $1.6 million, offset by the
collection of a related party note receivable of $.3 million and $.1 million
proceeds from the sale of property and equipment.
Cash used in financing activities during interim 1999 amounted to $2.0
million including 1.0 million repayment of a loan from a related party and
repayments of notes payable and capital lease obligations in the amount of 1.0
million. The aforementioned note payable-related party was due to a principal
shareholder of the Company, the Richard C. Lewis Family Revocable Trust I.
Cash used in financing activities during interim 1998 included the
repayment of notes payable and capital lease obligations in the amount of $.8
million and the repayment of a related party note payable of $.5million.
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, 1999, and as
of the filing date of this report, 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 its obligations and is
precluded from conveying, selling or leasing all or substantially all of its
assets. At June 30, 1999, the Company was in compliance with all such covenants
and there are no material covenants or restrictions in the lines of credit which
the Company believes would impair its operations. The lines of credit expire
September 15, 1999.
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. In addition, the Company is
currently leasing approximately 40 ready-mix trucks with estimated annual lease
payments of $800,000.
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 has completed a comprehensive assessment of the internal
information systems and applications that will be impacted by the year 2000. The
Company expects to make the necessary revisions or upgrades to its systems to
render it year 2000 compliant. The Company's accounting software currently
utilizes a four digit year field. Attention is also being focused on compliance
efforts of key suppliers and customers. The Company has received assurances from
certain customers and vendors related to their state of readiness; however, the
Company could potentially experience disruptions to some aspects of its various
activities and operations as a result of non-compliant systems utilized by the
Company or unrelated third parties. Contingency plans are therefore under
development to mitigate the extent of any such potential disruption to business
operations. Based on preliminary information, the costs to the Company of
addressing potential year 2000 issues are not expected to have a material
adverse impact on the Company's consolidated results of operations or financial
position. There can be no assurance that the efforts or the contingency plans
related to the Company's systems, or those of the other entities relied upon,
will be successful or that any failure to convert, upgrade or appropriately plan
for contingencies would not have a material adverse effect on the Company.
13
<PAGE>
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, 1999.
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/ Bradley E. Larson
-----------------------------
Bradley E. Larson
President and Chief Executive
Officer
By /s/ Julie L. Bergo
-----------------------------
Julie L. Bergo
Principal Accounting Officer
15
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