-----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, Dk5OSKW5D5hWHj5Aqw69jnGJmsskIWPF1uexWW6rRp3RbrqaNJGHG3FiBrvZ2Cpp rY78l/RCgRymz2VsR/3JPw== 0000892569-98-003037.txt : 19981116 0000892569-98-003037.hdr.sgml : 19981116 ACCESSION NUMBER: 0000892569-98-003037 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MODTECH INC CENTRAL INDEX KEY: 0000864601 STANDARD INDUSTRIAL CLASSIFICATION: PREFABRICATED WOOD BLDGS & COMPONENTS [2452] IRS NUMBER: 330044888 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18680 FILM NUMBER: 98747431 BUSINESS ADDRESS: STREET 1: 2830 BARRETT AVE STREET 2: PO BOX 1240 CITY: PERRIS STATE: CA ZIP: 92370 BUSINESS PHONE: 9099434014 MAIL ADDRESS: STREET 1: 2830 BARRETT AVENUE STREET 2: P O BOX 1240 CITY: PERRIS STATE: CA ZIP: 92370 10-Q 1 QUARTERLY REPORT FOR THE PERIOD ENDED 09/30/1998 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarter ended September 30, 1998 Commission File Number 000 - 18680 MODTECH, INC. - -------------------------------------------------------------------------------- California 33-0044888 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 2830 Barrett Avenue, Perris, CA 92572 - -------------------------------------------------------------------------------- (Address of principal executive office) (Zip Code Registrant's telephone number: (909) 943-4014 - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 September 30, 1998, there were 9,871,409 of the Registrant's Common Stock outstanding. 2 MODTECH, INC. FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998 PART I. STATEMENT REGARDING FINANCIAL INFORMATION The financial statements included herein have been prepared by MODTECH, INC. (The "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information normally included in financial statements prepared in accordance with generally accepted accounting principles has been omitted pursuant to such rules and regulations. However, the Company believes that the financial statements, including the disclosures herein, are adequate to make the information presented not misleading. It is suggested that the financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual report on Form 10-K for the year ended December 31, 1997 as filed with the Securities and Exchange Commission. 2 3 MODTECH, INC. Condensed Consolidated Balance Sheets (Unaudited)
December 31, September 30, 1997 1998 - ------------------------------------------------------------------------------------------------- Audited Unaudited - ------------------------------------------------------------------------------------------------- Assets Current assets Cash $11,629,000 $30,450,000 Contracts receivable, net, including costs in excess of billings of $16,021,000 and $13,738,000 in 1997 and 37,531,000 33,565,000 1998, respectively Inventories 3,932,000 2,828,000 Due from affiliates 1,098,000 694,000 Deferred tax asset 2,094,000 2,094,000 Other current assets 310,000 402,000 ----------- ----------- Total current assets 56,594,000 70,033,000 ----------- ----------- Property and equipment, net 11,229,000 12,221,000 Other Assets Deferred tax asset 99,000 99,000 Other assets 298,000 134,000 ----------- ----------- $68,220,000 $82,487,000 =========== =========== Liabilities and Shareholders' Equity Current liabilities Accounts payable and accrued liabilities $11,763,000 $13,834,000 Billings in excess of costs 6,997,000 6,402,000 Current portion of long-term debt 1,417,000 -- ----------- ----------- Total current liabilities 20,177,000 20,236,000 Stockholders Equity Common stock, shares authorized, $.01 par. Authorized 20,000,000 shares; issued and outstanding 9,856,000 and 9,871,000 in 1997 and 1998, respectively 98,000 100,000 Additional paid-in capital 39,331,000 39,573,000 Retained earnings 8,614,000 22,578,000 ----------- ----------- Total shareholders' equity 48,043,000 62,251,000 ----------- ----------- $68,220,000 $82,487,000 =========== ===========
The accompanying notes are an integral part of these financial statements. 3 4 MODTECH, INC. Condensed Consolidated Statements of Income (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, - -------------------------------------------------------------------------------------------------------------- 1997 1998 1997 1998 - -------------------------------------------------------------------------------------------------------------- Net sales $ 39,805,000 $ 37,243,000 $ 98,711,000 $ 113,119,000 Cost of goods sold 31,235,000 28,408,000 78,923,000 87,083,000 ------------- ------------- ------------- ------------- Gross profit 8,570,000 8,835,000 19,788,000 26,036,000 Selling, general, and administrative expenses 1,362,000 1,102,000 3,544,000 3,843,000 ------------- ------------- ------------- ------------- Income from operations 7,208,000 7,733,000 16,244,000 22,193,000 ------------- ------------- ------------- ------------- Other income (expense): Interest income (expense), net (274,000) 305,000 (823,000) 694,000 Other - net 8,000 3,000 72,000 18,000 ------------- ------------- ------------- ------------- (266,000) 308,000 (751,000) 712,000 ------------- ------------- ------------- ------------- Income before income taxes 6,942,000 8,041,000 15,493,000 22,905,000 Income taxes (2,456,000) (2,862,000) (5,812,000) (8,511,000) ------------- ------------- ------------- ------------- Net income $ 4,486,000 $ 5,179,000 $ 9,681,000 $ 14,394,000 ============= ============= ============= ============= Basic earnings per share $ 0.47 $ 0.52 $ 1.01 $ 1.46 ============= ============= ============= ============= Weighted-average shares outstanding 9,611,000 9,871,000 9,611,000 9,871,000 ============= ============= ============= ============= Diluted earnings per share $ 0.47 $ 0.48 $ 1.00 $ 1.33 ============= ============= ============= ============= Weighted-average shares outstanding 9,647,000 10,800,000 9,647,000 11,000,000 ============= ============= ============= =============
The accompanying notes are an integral part of these financial statements 4 5 MODTECH, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, - ------------------------------------------------------------------------------------------- 1997 1998 - ------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 9,681,000 $ 14,394,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 866,000 890,000 (Increase) decrease in operating assets and liabilities: Contracts receivable (21,779,000) 3,966,000 Inventories (1,394,000) 1,104,000 Due from affiliates (490,000) 404,000 Other assets (35,000) 72,000 Deferred tax asset -- -- Accounts payable and accrued liabilities 3,255,000 2,071,000 Billings in excess of costs 4,827,000 (595,000) ------------ ------------ Net cash provided by (used in) operating activities (5,069,000) 22,306,000 ------------ ------------ Cash flows from investing activities: Proceeds from sale of equipment -- -- Purchase of property and equipment (981,000) (1,882,000) ------------ ------------ Net cash used in investing activities (981,000) (1,882,000) ------------ ------------ Cash flows from financing activities: Net principal borrowings (payments) under revolving credit lines 6,064,000 -- Principal payments on long-term debt -- (1,417,000) Investment in affiliate -- (250,000) Conversion of stock options 96,000 64,000 ------------ ------------ Net cash provided by (used in) financing activities 6,160,000 (1,603,000) ------------ ------------ Net increase in cash 110,000 18,821,000 Cash at beginning of period 405,000 11,629,000 ------------ ------------ Cash at end of period $ 515,000 $ 30,450,000 ============ ============
The accompanying notes are an integral part of these financial statements 5 6 MODTECH, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS September 30, 1998 (1) Management Opinion In the opinion of management, the condensed 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 nine months ended September 30, 1998 are not necessarily indicative of the results to be expected for the full fiscal year. Certain statements in this report constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward - looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements, expressed or implied by such forward - looking statements. (2) Taxes on Income Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (3) Earnings Per Share Effective December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128). This statement replaces the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike Primary earnings per share, basic earnings per share excludes any dilutive effects of options and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been restated to conform to the SFAS No. 128 requirement. 6 7 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 Statements of Income as a percent of net sales.
Percent of Net Sales Percent of Net Sales Three Months Ended Nine Months Ended September 30, September 30, -------------------- --------------------- 1997 1998 1997 1998 -------------------- --------------------- Net sales 100.0% 100.0% 100.0% 100.0% Gross profit 21.5 23.7 20.0 23.0 Selling, general and administrative 3.4 3.0 3.6 3.4 Income from operations 18.1 20.8 16.5 19.6 Interest income (expense), net (0.7) 0.8 (0.8) 0.6 Income before taxes on income 17.4 21.6 15.7 20.2
Net sales decreased by $2,562,000 or 6.4% for the three months and increased by $14,408,000 or 14.6% for the nine months ended September 30, 1998. The overall increase in revenue is attributable to the growth in the school population, the Class Size Reduction program and a diversification of our product line. The three month decrease was primarily due to the delay by the California Legistrature in the adoption of the California state fiscal budget for 1998/1999. Gross profit as a percentage of net sales for the three and nine months ended September 30, 1998 increased to 23.7% and 23.0% from 21.5% and 20.0% for the same period in 1997. The increase was due principally to the utilization of the manufacturing facilities and the realization of manufacturing efficiencies and product mix. Selling, general and administrative expenses decreased for the three months ended September 30, 1998 by $260,000 and increased for the nine months ended September 30, 1998 by $299,000, a change of 19.1% and 8.4% respectively. The increase is primarily due to the increase in sales expense as well as the increase in the number of employees. As a percentage of sales, selling, general, and administrative expenses for the three and nine months ended September 30, are 3.0% and 3.4% for 1998. The percentages were 3.4% and 3.6% for the same period in 1997. Due to a higher cash balance and reduced line of credit borrowing, the nine months ended September 30, 1998 reflects net interest income of $712,000 compared to net interest expense of $751,000 for the same period in 1997, a favorable increase of $1,463,000 or 194.8%. On March 20, 1998, the Company purchased an 80% interest in Trac Modular Manufacturing, Inc (Trac). The purchase price approximated the fair value of net assets on the purchase date. Trac is based in Glendale, Arizona. The financial activity for this subsidiary has been included in the Company's financial statements for the second and third quarter of 1998. 7 8 Modtech, Inc. has announced that it has entered into a definitive agreement to purchase 100% of the equity of SPI Manufacturing, Inc. ("SPI"), a provately held company. SPI is a leading designer, manufacturer and wholesaler of commercial and light industrial modular buildings. The transaction is scheduled to close in December 1998 and is subject to shareholder and regulatory approval. The acquisition will be structured as a merger transaction whereby each of Modtech, Inc. and SPI will become wholly owned subsidiaries of a newly formed public holding company, Modtech Holdings. Modtech holdings will acquire SPI for consideration consisting of approximately $8 million in cash and approximately 5 million shares of holding company common stock. Modtech Holdings will also refinance approximately $32 million of SPI debt. The merger agreement also provides that Modtech, Inc. shareholders will receive approximately $3.66 per share (in the aggregate, approximately $40 million) and that all of the outstanding Modtech, Inc. shares will be converted into Modtech Holdings common stock (approximately 10 million shares) at an effective ratio of approximately 1 Modtech, Inc. share to 0.85 shares of Modtech Holdings. Modtech Holdings shares will be traded on NASDAQ in replacement of the existing Modtech, Inc. shares. SPI had pro forma consolidated net sales of approximately $80 million for the fiscal year ended March 31, 1998, which include the results of its California operations, the Texas operation which was acquired in February 1998 and the Arizona operation which was acquired in April 1998. INFLATION In the past, the Company has not been adversely affected by inflation, because it has been generally able to pass along to its customers increases in the costs of labor and materials. LIQUIDITY AND CAPITAL RESOURCES To date, the Company has generated cash to meet its needs from operations, bank borrowings and public offerings. At September 30, 1998, the Company had $30,450,000 in cash. During the nine months ended September 30, 1998, the Company provided cash in it's operating activities. The Company has a revolving loan commitment that will expire in the year 2000. The Company is entitled to borrow, from time to time up to $20,000,000 with actual borrowings limited to specified percentages of eligible accounts receivables, equipment and inventories. On September 30, 1998, no amounts were outstanding under this loan. During the three and nine months ended September 30, 1998,certain directors, officers or employees exercised 14,575 and 49,575 common stock options for a total of $41,688 and $63,738, respectively. Management believes that the Company's existing product lines and manufacturing capacity will enable the Company to generate sufficient cash through operations, supplemented by periodic use of its existing bank line of credit, to finance the Company's business at current levels over the next 12 months. Additional cash resources may be required if the Company is able to expand its business beyond current levels. For example, it will be necessary for the Company to construct or acquire additional manufacturing facilities in order for the Company to compete effectively in new market areas or states which are beyond a 300 mile radius from one of its production facilities. The construction or acquisition of new facilities would require significant additional capital. For these reasons, among others, the Company may need additional debt or equity financing in the future. There can be, however, no assurance that the Company will be successful in obtaining such additional financing, or that any such financing will be available on terms acceptable to the Company. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for the reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. SFAS 130 requires all items that are required to be 8 9 recognized under accounting standards as components of comprehensive income to be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS 130 does not require a specific format for that financial statement but requires that an enterprise display an amount representing total comprehensive income for the period covered by that financial statement. SFAS 130 requires an enterprise to (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. SFAS 130 is effective for fiscal years beginning after December 15, 1997. Management has determined the adoption of SFAS 130 will not have a material impact on the Company's combined financial statement or results of operations. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for public business enterprises to report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. This statement supersedes FASB Statement No. 14, "Financial Reporting for Segments of a Business Enterprise", but retains the requirement to report information about major customers. It amends FASB Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries", to remove the special disclosure requirements for previously unconsolidated subsidiaries. SFAS 131 requires, among other items, that a public business enterprise report a measure of segment profit or loss, certain specific revenue and expense items, and segment assets, information about the revenues derived from the enterprise's products or services, and major customers. SFAS 131 also requires that the enterprise report descriptive information about the way that the operating segments were determined and the products and services provided by the operating segments. SFAS 131 is effective for financial statements for periods beginning after December 15, 1997. In the initial year of application, comparative information for earlier years is to be restated. SFAS 131 need not be applied to interim financial statements in the initial year of its application, but comparative information for interim periods in the initial year of application is to be reported in financial statements for interim periods in the second year of application. Management has not determined whether the adoption of SFAS 131 will have a material impact on the Company's segment reporting. In February 1998, the FASB issued Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132"). SFAS 132 revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. SFAS 132 is effective for fiscal years beginning after December 15, 1997. SFAS 132, requiring only additional information disclosures, is effective for the Company's fiscal year ending December 31, 1998. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. SFAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Application of SFAS 133 is not expected to have a material impact on the Company's financial position, results of operations or liquidity. YEAR 2000 The Company is currently working to resolve the potential impact of the Year 2000 on the processing of date-sensitive information by the Company's computerized information systems. The Year 2000 problem is the result of computer programs being written using two digits (rather than four) to define the applicable year. Any of the Company's programs that have time sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in miscalculations or system failures. The Company has investigated the impact of the Year 2000 problem on its business, including the Company's operational, information and financial systems. Based on this investigation, the Company does not expect the Year 2000 problem, including the cost of making the Company's computerized information systems Year 2000 compliant, to have a material adverse impact on the Company's financial position or results of operations in future periods. However, the inability of the Company to resolve all potential Year 2000 problems in a timely manner could have a material adverse impact on the Company. The Company has also initiated communications with significant suppliers and vendors on which the Company relies in an effort to determine the extent to which the Company's business is vulnerable to the failure by these third parties' to remediate their Year 2000 10 10 problems. While the Company had not been informed of any material risks associated with the Year 2000 problem on these entities, there can be no assurance that the computerized information systems of these third parties will be Year 2000 compliant on a timely basis. The inability of these third parties to remediate their Year 2000 problems could have a material adverse impact on the Company. To the extent possible, the Company will be developing and executing contingency plans designed to allow continued operation in the event of failure of the Company's or third parties' 11 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings. None Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 -- Financial Data Schedule (b) Reports on From 8-K None 11 12 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, Inc. Date: November 13, 1998 By: /s/ MICHAEL G. RHODES ----------------- -------------------------- Michael G. Rhodes Chief Financial Officer 12 13 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 30,450,000 0 33,565,000 0 2,828,000 70,033,000 12,221,000 0 82,487,000 20,236,000 0 0 0 62,251,000 0 82,487,000 113,119,000 113,119,000 87,083,000 87,083,000 3,843,000 0 0 22,905,000 8,511,000 14,394,000 0 0 0 14,394,000 1.46 1.31
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