-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HzCE7NcpNZJ44QL/tZWmh1urPzRkrGXpA/dstSMUeuclF+566yxL9/w1YzFTvWUJ GbKLUlcqwyHV5uwYKMm3OA== 0000892569-01-500910.txt : 20020410 0000892569-01-500910.hdr.sgml : 20020410 ACCESSION NUMBER: 0000892569-01-500910 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MODTECH HOLDINGS INC CENTRAL INDEX KEY: 0001075066 STANDARD INDUSTRIAL CLASSIFICATION: PREFABRICATED WOOD BLDGS & COMPONENTS [2452] IRS NUMBER: 330825386 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25161 FILM NUMBER: 1779402 BUSINESS ADDRESS: STREET 1: 2830 BARRETT AVE STREET 2: PO BOX 1240 CITY: PERRIS STATE: CA ZIP: 92571 BUSINESS PHONE: 9099434014 MAIL ADDRESS: STREET 1: 4675 MACARTHUR CT., STREET 2: SUITE 710 CITY: NEWPORT STATE: CA ZIP: 92660 10-Q 1 a76940e10-q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarter ended September 30, 2001 Commission File Number 000 - 25161 MODTECH HOLDINGS, INC. - -------------------------------------------------------------------------------- Delaware 33 -- 0825386 - ------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 2830 Barrett Avenue, Perris, CA 92571 - ------------------------------- -------------------- (Address of principal executive (Zip Code) office) Registrant's telephone number: (909) 943-4014 - -------------------------------------------------------------------------------- Indicate by check mark, whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of November 7, 2001, there were 13,452,099 of the Registrant's Common Stock outstanding. MODTECH HOLDINGS, INC. FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2001 PART I. STATEMENT REGARDING FINANCIAL INFORMATION The condensed consolidated financial statements included herein have been prepared by Modtech Holdings, Inc. and subsidiaries (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America has been omitted pursuant to such rules and regulations. However, the Company believes that the condensed consolidated financial statements, including the disclosures herein, are adequate to make the information presented not misleading. The results of operations for the quarter and nine months ended September 30, 2000 and 2001 are not necessarily indicative of the results to be expected for the full fiscal years. The condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K as of and for the year ended December 31, 2000 as filed with the Securities and Exchange Commission. MODTECH HOLDINGS, INC. Condensed Consolidated Balance Sheets
December 31, September 30, 2000 2001 ------------ ------------- (Audited) (Unaudited) Assets Current assets: Cash and cash equivalents $ 416,000 $ 2,100,000 Contracts receivable, net, including costs in excess of billings of $9,724,000 and $8,632,000 in 2000 and 2001, respectively 43,813,000 56,939,000 Inventories 9,815,000 10,099,000 Due from affiliates 702,000 1,212,000 Deferred tax assets 3,407,000 3,407,000 Other current assets 1,010,000 1,488,000 ------------ ------------ Total current assets 59,163,000 75,245,000 ------------ ------------ Property and equipment, net 14,538,000 15,357,000 Other assets Goodwill, net 111,157,000 110,370,000 Covenants not to compete, net 1,188,000 623,000 Debt issuance costs, net 1,205,000 1,153,000 Deferred tax assets 56,000 56,000 Other assets 395,000 614,000 ------------ ------------ $187,702,000 $203,418,000 ============ ============ Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 23,107,000 $ 27,582,000 Billings in excess of costs 4,003,000 4,918,000 Current revolving credit line 6,500,000 13,000,000 Current maturities of long-term debt 8,400,000 9,300,000 ------------ ------------ Total current liabilities 42,010,000 54,800,000 Long-term debt, excluding current portion 23,600,000 16,400,000 ------------ ------------ Total liabilities 65,610,000 71,200,000 ------------ ------------ Shareholders' Equity: Series A preferred stock, $.01 par. Authorized 5,000,000 shares; issued and outstanding 388,939 in 2000 and 2001 4,000 4,000 Common stock, $.01 par. Authorized 25,000,000 shares; issued and outstanding 13,348,015 and 13,452,099 in 2000 and 2001, respectively 133,000 135,000 Additional paid-in capital 78,008,000 78,331,000 Retained earnings 43,947,000 53,748,000 ------------ ------------ Total shareholders' equity 122,092,000 132,218,000 ------------ ------------ $187,702,000 $203,418,000 ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. MODTECH HOLDINGS, INC. Condensed Consolidated Statements of Income (Unaudited)
Quarter Ended Nine Months Ended September 30, September 30, 2000 2001 2000 2001 - ----------------------------------------------------------------------------------------------------------------------------- Net sales $ 76,450,000 $ 63,559,000 $ 185,354,000 $ 167,323,000 Cost of goods sold 63,140,000 51,106,000 156,503,000 137,773,000 ------------- ------------- ------------- ------------- Gross profit 13,310,000 12,453,000 28,851,000 29,550,000 Selling, general, and administrative expenses 2,235,000 1,987,000 6,063,000 5,960,000 Goodwill and covenant amortization 925,000 925,000 2,776,000 2,776,000 ------------- ------------- ------------- ------------- Income from operations 10,150,000 9,541,000 20,012,000 20,814,000 ------------- ------------- ------------- ------------- Other income (expense): Interest expense, net (1,464,000) (671,000) (3,688,000) (2,414,000) Other, net 25,000 45,000 52,000 92,000 ------------- ------------- ------------- ------------- (1,439,000) (626,000) (3,636,000) (2,322,000) ------------- ------------- ------------- ------------- Income before income taxes 8,711,000 8,915,000 16,376,000 18,492,000 Income taxes (4,181,000) (4,190,000) (7,707,000) (8,691,000) ------------- ------------- ------------- ------------- Net income $ 4,530,000 $ 4,725,000 $ 8,669,000 $ 9,801,000 ============= ============= ============= ============= Series A Preferred stock dividend 39,000 39,000 117,000 117,000 Net income available to common stock $ 4,491,000 $ 4,686,000 $ 8,552,000 $ 9,684,000 ============= ============= ============= ============= Basic earnings per common share $ 0.34 $ 0.35 $ 0.65 $ 0.72 ============= ============= ============= ============= Basic weighted-average shares outstanding 13,254,000 13,452,000 13,202,000 13,397,000 ============= ============= ============= ============= Diluted earnings per common share $ 0.31 $ 0.33 $ 0.60 $ 0.69 ============= ============= ============= ============= Diluted weighted-average shares outstanding 14,408,000 14,465,000 14,355,000 14,405,000 ============= ============= ============= =============
The accompanying notes are an integral part of these condensed consolidated financial statements. MODTECH HOLDINGS, INC. Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2000 2001 ------------ ------------ Cash flows from operating activities: Net income $ 8,669,000 $ 9,801,000 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 4,435,000 4,679,000 Loss (gain) on sale of equipment 1,000 (48,000) (Increase) decrease in assets, net of effects from acquisitions: Contracts receivable (45,448,000) (12,600,000) Inventories (6,578,000) 561,000 Due from affiliates 14,000 (510,000) Other current and noncurrent assets (327,000) (645,000) Increase (decrease) in liabilities, net of effects from acquisitions: Accounts payable and accrued liabilities 18,834,000 3,233,000 Billings in excess of costs (1,203,000) 915,000 ------------ ------------ Net cash (used in) provided by operating activities (21,603,000) 5,386,000 ------------ ------------ Cash flows from investing activities: Proceeds from sale of equipment -- 97,000 Purchase of property and equipment (2,338,000) (711,000) Purchase of covenants not to compete -- (25,000) Acquisition of subsidiaries, net of cash acquired -- (3,406,000) ------------ ------------ Net cash used in investing activities (2,338,000) (4,045,000) ------------ ------------ Cash flows from financing activities: Net principal borrowings under revolving credit line 27,825,000 6,500,000 Net principal payments on long-term debt (3,500,000) (6,300,000) Payment of debt issuance costs -- (182,000) Proceeds from exercise of stock options 319,000 325,000 ------------ ------------ Net cash provided by financing activities 24,644,000 343,000 ------------ ------------ Net increase in cash and cash equivalents 703,000 1,684,000 Cash and cash equivalents at beginning of period 1,198,000 416,000 ------------ ------------ Cash and cash equivalents at end of period $ 1,901,000 $ 2,100,000 ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. MODTECH HOLDINGS, INC. Notes To Condensed Consolidated Financial Statements (Unaudited) September 30, 2001 1) Management Opinion In the opinion of management, the condensed consolidated financial statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods presented. The results of operations for the quarter and nine months ended September 30, 2000 and 2001 are not necessarily indicative of the results to be expected for the full fiscal years. Certain statements in this report constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements, expressed or implied by such forward looking statements. 2) Inventories Inventories consist of the following:
2000 2001 ----------- ----------- Raw materials $ 8,394,000 $ 7,617,000 Work in process 1,413,000 2,474,000 Finished goods 8,000 8,000 ----------- ----------- $ 9,815,000 $10,099,000 =========== ===========
3) Earnings Per Share The following table presents the calculation of basic and diluted earnings per common share under the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share":
Quarter Ended Nine Months Ended September 30, September 30, 2000 2001 2000 2001 ------------ ------------ ------------ ------------ BASIC Net income $ 4,530,000 $ 4,725,000 $ 8,669,000 $ 9,801,000 Dividends on preferred stock (39,000) (39,000) (117,000) (117,000) ------------ ------------ ------------ ------------ Net income available to common stock $ 4,491,000 $ 4,686,000 $ 8,552,000 $ 9,684,000 ============ ============ ============ ============ Basic weighted-average shares outstanding 13,254,000 13,452,000 13,202,000 13,397,000 ============ ============ ============ ============ Basic earnings per common share $ 0.34 $ 0.35 $ 0.65 $ 0.72 ============ ============ ============ ============
Quarter Ended Nine Months Ended September 30, September 30, 2000 2001 2000 2001 ----------- ----------- ----------- ----------- DILUTED Net income $ 4,530,000 $ 4,725,000 $ 8,669,000 $ 9,801,000 =========== =========== =========== =========== Basic weighted-average shares outstanding 13,254,000 13,452,000 13,202,000 13,397,000 Add: Conversion of preferred stock 389,000 389,000 389,000 389,000 Exercise of stock options 765,000 624,000 764,000 619,000 ----------- ----------- ----------- ----------- Diluted weighted-average shares outstanding 14,408,000 14,465,000 14,355,000 14,405,000 =========== =========== =========== =========== Diluted earnings per common share $ 0.31 $ 0.33 $ 0.60 $ 0.69 =========== =========== =========== ===========
Options to purchase 221,000 and 223,000 shares of common stock were outstanding during the quarter and nine months ended September 30, 2000, respectively, and options to purchase 602,000 and 608,000 shares of common stock were outstanding during the quarter and nine months ended September 30, 2001, respectively, but were not included in the computation of diluted earnings per share because the option exercise price was greater than the average market price of the common shares and therefore, the effect would be anti-dilutive. 4) Acquisition IMS Acquisition. On March 8, 2001, the Company purchased 100% of the stock of Innovative Modular Structures, Inc. (IMS). IMS designs and manufactures modular relocatable classrooms and other modular buildings for commercial use. IMS is based in St. Petersburg, Florida. Pro forma amounts for the IMS acquisition are not included, as the effect is not material to the Company's condensed consolidated financial statements. This acquisition has been accounted for as a purchase. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations The following table sets forth certain items in the Condensed Consolidated Statements of Income as a percent of net sales.
Percent of Net Sales Percent of Net Sales Quarter Ended Nine Months Ended September 30, September 30, 2000 2001 2000 2001 ------------------------------------------------ Net sales 100.0% 100.0% 100.0% 100.0% Gross profit 17.4 19.6 15.6 17.7 Selling, general and administrative expenses 2.9 3.1 3.3 3.6 Goodwill and covenant amortization 1.2 1.5 1.5 1.7 Income from operations 13.3 15.0 10.8 12.4 Interest expense, net (1.9) (1.1) (2.0) (1.4) Income before income taxes 11.4 14.0 8.8 11.1
Net sales for the quarter and nine months ended September 30, 2001, decreased by $12,891,000 or 16.9% and $18,031,000 or 9.7%, respectively. Net sales declined on a comparative basis due to the continuing shift in product mix toward lower volume, higher gross margin customized buildings, as well as the general business and economic decline and the resulting slowdown in September of new orders and customers delaying deliveries. Gross profit as a percentage of net sales for the quarter and nine months ended September 30, 2001 increased to 19.6% and 17.7%, respectively, from 17.4% and 15.6% for the same periods in 2000. The increase was due to product mix as well as certain operational efficiencies. Selling, general and administrative expenses decreased for the quarter and nine months ended September 30, 2001 by $248,000 or 11.1% and $103,000 or 1.7%, respectively. As a percentage of net sales, selling, general, and administrative expenses for the quarter and nine months ended September 30, 2001 are 3.1% and 3.6%, respectively. The percentages were 2.9% and 3.3% for the same periods in 2000. Goodwill was recorded for both the SPI Merger and the Coastal Acquisition in 1999 and for the IMS acquisition in 2001 and has been amortized from the respective dates of acquisition. Interest expense, net decreased for the quarter and nine months ended September 30, 2001 by $793,000 or 54.2% and $1,274,000 or 34.5%, respectively. The decrease is attributable to decreased line of credit borrowings, decreased long-term debt due to repayments and decreased interest rates for the quarter and nine months ended September 30, 2001. As a percentage of net sales, interest expense decreased from 1.9% and 2.0% in the quarter and nine months ended September 30, 2000, respectively, to 1.1% and 1.4% in the quarter and nine months ended September 30, 2001, respectively. INFLATION In the past, the Company has not been adversely affected by inflation, because it has been generally able to pass along to its customers increases in the costs of labor and materials. LIQUIDITY AND CAPITAL RESOURCES To date, the Company has generated cash from operations, bank borrowings and public offerings to meet its needs. At September 30, 2001, the Company had $2,100,000 in cash and cash equivalents. During the nine months ended September 30, 2001, the Company generated cash from operating activities of $5,386,000. The Company has a $75,000,000 credit facility, of which $30,000,000 represents a revolving loan commitment. For the period September 1 through December 31 of each year, the revolving loan commitment increases to $41,000,000. The credit facility is secured by all the Company's assets, as well as the Company's stock ownership in its subsidiaries. The credit facility expires in February 2004. On September 30, 2001, $13,000,000 was outstanding under the revolving loan commitment, compared to $27,825,000 outstanding at September 30, 2000. The credit facility contains various covenants. The Company was in compliance with such covenants as of September 30, 2001. Management believes that the Company's existing product lines and manufacturing capacity will enable the Company to generate sufficient cash through operations, supplemented by periodic use of its existing bank line of credit, to finance the Company's business at current levels over the next 12 months. Additional cash resources may be required if the Company is able to expand its business beyond current levels. For example, it will be necessary for the Company to construct or acquire additional manufacturing facilities in order for the Company to compete effectively in new market areas or states which are beyond a 300 mile radius from one of its production facilities. The construction or acquisition of new facilities would require significant additional capital. For these reasons, among others, the Company may need additional debt or equity financing in the future. There can be, however, no assurance that the Company will be successful in obtaining such additional financing, or that any such financing will be available on terms acceptable to the Company. NEW ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141), and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS 141 requires that all business combinations be accounted for under a single method -- the purchase method. Use of the pooling-of-interests method is no longer permitted. SFAS 141 requires that the purchase method be used for business combinations initiated after June 30, 2001. SFAS 142 requires that goodwill no longer be amortized to earnings, but instead reviewed for impairment. Under SFAS 142, the amortization of goodwill ceases upon adoption of the Statement and is effective for fiscal years beginning after December 15, 2001, which for calendar year-end companies, will be January 1, 2002. The Company has historically amortized its goodwill over its estimated useful lives. Beginning with the adoption of SFAS 142, the Company will cease amortizing its goodwill. The Company recorded amortization expense in the amount of $2,916,000 for the year ended December 31, 2000, $729,000 for the quarter ended September 30, 2001 and $2,187,000 for the nine months ended September 30, 2001. To the extent that no impairment charges are recorded upon adoption or application of SFAS 142, similar amounts of amortization will not be recorded in future periods. In September 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143 is effective for fiscal years beginning after June 15, 2002, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Management has not assessed whether the application of this standard will have a material effect on the Company's financial position, results of operations or liquidity. In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 is effective for fiscal years beginning after December 15, 2001. SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. Management has not assessed whether the application of this standard will have a material effect on the Company's financial position, results of operations or liquidity. Item 3. Quantitative And Qualitative Disclosures About Market Risk We are exposed to market risks related to fluctuations in interest rates on our $75 million credit facility. During the quarter and nine months ended September 30, 2001, we did not use interest rate swaps or other types of derivative financial instruments. The carrying value of the credit facility approximates fair value as the interest rate is variable and resets frequently. Indebtedness under the credit facility bears interest at the lower of (1) LIBOR plus additional interest of between 1.5% and 2.25%, or (2) a rate equal to the greater of (i) the Federal funds rate plus 0.5% or (ii) the bank's prime rate, plus in either case an additional interest of between 0.25% to 1.0%. We estimate that the average amount of debt outstanding under the credit facility for 2001 will be $40 million. Therefore, a one percentage point increase in interest rates would result in an increase in interest expense of $400,000 for the year. PART II. OTHER INFORMATION Item 1. Legal Proceedings. None Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Modtech Holdings, Inc. Date: November 9, 2001 by: /s/ Shari L. Walgren ----------------- ------------------------------- Shari L. Walgren Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----