-----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, Qds1gySaJkUpRX0SmqrwsPfNHM412FBrYVlw7fWKRFNLuWl6nqJxDRKAHfssnWyc cbLDK41FNYH3KUSHfF8aNQ== 0000927356-99-001282.txt : 19990812 0000927356-99-001282.hdr.sgml : 19990812 ACCESSION NUMBER: 0000927356-99-001282 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEADOW VALLEY CORP CENTRAL INDEX KEY: 0000934749 STANDARD INDUSTRIAL CLASSIFICATION: WATER, SEWER, PIPELINE, COMM AND POWER LINE CONSTRUCTION [1623] IRS NUMBER: 880328443 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25428 FILM NUMBER: 99683549 BUSINESS ADDRESS: STREET 1: PO BOX 60726 CITY: PHOENIX STATE: AZ ZIP: 85082 BUSINESS PHONE: 6024375400 MAIL ADDRESS: STREET 1: P O BOX 60726 CITY: PHOENIX STATE: AZ ZIP: 85082 10-Q 1 FORM 10-Q 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 MEADOW VALLEY CORPORATION INDEX REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999
PART I. FINANCIAL INFORMATION Page Number ------ Item 1. Financial Statements 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
2 MEADOW VALLEY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 30, ---------------------------- 1999 1998 ------------- ------------ (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 ============= ============
3 MEADOW VALLEY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended June 30, ---------------------------- 1999 1998 ------------ ----------- (Unaudited) (Unaudited) 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 ============ ===========
4 MEADOW VALLEY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31, 1999 1998 * ----------- ----------- (Unaudited) 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 =========== ===========
*Derived from audited financial statements 5 MEADOW VALLEY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1999 1998 ------------- ------------ 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 ============= ============
6 MEADOW VALLEY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Six Months Ended June 30, ------------------------------ 1999 1998 ----------- ----------- (Unaudited) (Unaudited) 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 =========== ===========
7 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:
Summary of second quarter additions to Notes payable - other and their balances at June 30, 1999: 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 =========
8 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:
June 30, December 31, 1999 1998 ---------- ---------- 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 ========== ==========
9 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.
Six months Ended Three months Ended June 30, June 30, ---------------------- --------------------- 1999 1998 1999 1998 ---------- ---------- --------- ---------- 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)
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 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 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.
Six months ended June 30, ------------------------------ 1999 1998 ------------ ----------- 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)
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 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 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 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 EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 12,261,600 0 22,404,275 99,366 0 37,540,059 13,362,133 985,995 51,821,858 32,381,182 6,971,201 0 0 3,601 13,697,467 51,821,858 112,475,541 112,475,541 107,060,061 107,060,061 0 0 107,019 2,047,252 818,901 1,228,351 0 0 0 1,228,351 .35 .34
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