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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-25428
MEADOW VALLEY CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 88-0328443
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
4411 South 40th Street, Suite D-11, Phoenix, AZ 85040
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 437-5400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class: Name of exchange on which registered:
------------------- ------------------------------------
Common stock, $.001 par value Nasdaq National Market
Common stock purchase warrants Nasdaq National Market
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 ___
---
Indicated by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
On February 16, 2000, the aggregate market value of the registrant's voting
stock held by non-affiliates was $11,237,196.
On February 16, 2000, there were 3,501,250 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant incorporates by reference into Part III of this Report,
information contained in its definitive proxy statement disseminated in
connection with its Annual Meeting of Shareholders for the year ended December
31, 1999.
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MEADOW VALLEY CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
PART I PAGE
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholders Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 18
Item 8. Financial Statements and Supplementary Data 18
Item 9. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure 18
PART III
Item 10. Directors and Executive Officers of the Registrant 18
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain Beneficial Owners and Management 19
Item 13. Certain Relationships and Related Transactions 19
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K 19
2
PART I
Item 1. Business
General
The following is a summary of certain information contained in this Report
and is qualified in its entirety by the detailed information and financial
statements that appear elsewhere herein. Except for the historical information
contained herein, the matters set forth in this Report include 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. These risks and uncertainties are detailed throughout this Report
and will be further discussed from time to time in the Company's periodic
reports filed with the Commission. The forward-looking statements included in
this Report speak only as of the date hereof.
Meadow Valley Corporation (the "Company") was incorporated in Nevada on
September 15, 1994. On October 1, 1994, the Company purchased all of the
outstanding Common Stock of Meadow Valley Contractors, Inc. ("MVC") for $11.5
million comprised of a $10 million promissory note and $1.5 million paid by the
issuance of 500,000 restricted shares of the Company's Common Stock valued at
$3.00 per share. On January 4, 1999, the $10 million promissory note was paid in
full. MVC was founded in 1980 as a heavy construction contractor and has been
engaged in that activity since inception. References to the Company's history
include the history of MVC.
On October 16, 1995, the Company sold 1,675,000 Units of its securities to
the public at $6.00 per Unit (the "Public Offering"). Each Unit consisted of one
share of $.001 par value common stock and one common stock purchase warrant. In
November 1995, the Company sold an additional 251,250 Units pursuant to its
underwriters' overallotment option.
The Company, through its subsidiaries, primarily operates as a heavy
construction contractor specializing in infrastructure projects including the
construction of bridges and overpasses, channels, roadways, highways and airport
runways. The Company generally serves as the prime contractor for public sector
customers (such as federal, state and local governmental authorities) in the
states of Nevada, Arizona, Utah and New Mexico. The Company primarily seeks
public sector customers because public sector projects are less cyclical than
private sector projects, payment is more reliable, work required by the project
is generally standardized and little marketing expense is incurred in obtaining
projects.
The Company owns and leases portable hot mix asphalt plants and related
paving equipment and a rubberized asphalt plant. The asphalt paving capabilities
provide the Company the opportunity to expand its existing geographic market,
enhance its construction operations in its existing market, improve its
competitiveness and may generate increased revenues on projects that call for
large quantities of asphaltic concrete, recycled asphalt or rubberized asphalt.
The Company had a project backlog of approximately $104 million at December
31, 1999, which included the remainder of a $94.6 million portion of the
reconstruction of the core of the interchange at I-15 and US 95 in Las Vegas,
NV, the remainder of $87.8 million of projects which are portions of the Beltway
Continuation projects in Las Vegas, Nevada, the remainder of a $29.3 million
portion of the State Route 87 Continuation, in Sunflower, AZ, the remainder of a
$17.5 million portion of the Reconstruction of US 89, in Cherry Hills, UT and
the $13.0 million Storm Drain Channel Construction, in Chandler, AZ. The
Company's backlog includes approximately $100 million of work that is scheduled
for completion during 2000. The Company has acted as the prime contractor on
projects funded by a number of governmental authorities, including the Federal
Highway Administration, the Arizona Department of Transportation, the Nevada
Department of Transportation, the Utah Department of Transportation, the Clark
County (Nevada) Department of Public Works, the Salt Lake City (Utah) Airport
Authority, the New Mexico State Highway and Transportation Department and the
City of Phoenix.
In 1996, the Company expanded its Nevada construction industry activities
with the formation of Ready Mix, Inc. ("RMI") as a wholly-owned subsidiary. RMI
manufactures and distributes ready mix concrete and owns and operates a
construction materials processing plant in the Las Vegas, Nevada area. RMI
primarily targets prospective customers such as concrete subcontractors, prime
contractors, home builders, commercial and industrial property developers, pool
builders and homeowners. RMI began its ready mix concrete operation from its
first location in March 1997 and began processing construction materials in
November 1999. Financed with internal funds, a $2 million line of credit, notes
payable and operating leases, RMI intends
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to operate from two or more sites using at least 104 mixer trucks. During
January 2000, the Company ordered 64 mixer trucks at an estimated cost of
$8,400,000.
In 1996, the Company formed Prestressed Products Incorporated ("PPI") as a
wholly-owned subsidiary to design, manufacture and erect precast prestressed
concrete building components for use on commercial, institutional and public
construction projects throughout the Southwest. Product lines included
architectural and structural building components and prestressed bridge girders
for highway construction. During 1997, PPI began operations with a precast yard
and concrete batch plant located on leased property adjacent to the Company's
office in Moapa, Nevada. As a result of continuing operating losses, in June
1998, the Company adopted a formal plan (the "plan") to discontinue the
operations of PPI. The plan included the completion of approximately $2.8
million of uncompleted contracts and the disposition of approximately $1.2
million of equipment. 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 of PPI,
which included a provision of $1,350,000 for estimated losses during the
phase-out period of July 1, 1998 through June 30, 1999. During the twelve months
ended December 31, 1998 and 1999, $1,134,112 and $598,172 of the expected losses
were incurred (net of income tax benefit of $756,073 and $398,743).
In 1999, the Company expanded its construction materials processing
operations within its geographic area. During January 2000, the Company
purchased equipment in the amount of $159,000 and has requested finance
proposals for equipment totaling approximately $7,433,840, related to its
construction materials processing operations.
Business Strategy
The Company seeks to grow revenue and improve profitability by pursuing the
following business strategy:
(i) Expand construction-related niche markets. The Company will continue
to explore niche markets which may increase the Company's competitiveness,
diversify its revenue base, increase project revenue and improve profitability.
This may include acquiring equipment and personnel to increase the amount of
work to be performed by the Company.
(ii) Increase the Company's ownership and/or control of strategic
aggregate resources and develop commercial construction materials production and
sale operations to focus on increasing sales of construction materials to third
parties. In recent years, the Company has successfully obtained mineral leases
on a number of aggregate resources in Nevada, Arizona, Utah and New Mexico and
will consider expansion into other western states. The Company intends to
further develop its position as a commercial supplier and producer of aggregates
and related materials such as ready mix concrete and asphalt. As a commercial
supplier of construction materials, the Company will focus on sales to unrelated
third parties engaged in residential and commercial construction, as well as
public infrastructure. Control of aggregate resources may enhance the Company's
competitiveness on new contract work that it performs and may generate
additional revenue with improved profit margins on materials sold to third
parties.
(iii) Seek to acquire other businesses. The Company may seek to acquire
other businesses that provide subcontracting services used by the Company in its
projects, complement the Company's existing construction expertise or offer
construction services similar to the Company in geographic locations not
currently served by the Company. For certain projects, the Company may join with
one or more companies to combine expertise, financial strength, and/or bonding
capacity. Through joint ventures, the Company may elect to pursue projects which
might otherwise exceed its staffing or bonding resources, including design-build
type projects within the Company's existing market.
(iv) Increase bonding capacity. The Company will continue to seek to
increase its bonding capacity in order to allow it to increase its volume of
bids and work. See "Insurance and Bonding."
Market Overview
The passage of the Transportation Equity Act for the 21st Century ("TEA
21") not only assured continued federal funding through 2003 for transportation
infrastructure, but also substantially increased the levels of funding over the
previous authorizing legislation. The increase in federal funds from TEA-21
combined with the existing high volume of infrastructure work in the healthy
construction economies of the Company's markets leads the Company to believe
that infrastructure construction (primarily highways, bridges, overpasses,
tunnels and other transportation projects) in the western United States is
substantial.
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The increased federal funding from the TEA-21 legislation has yet to reach the
construction industry with the impact originally expected. Federally-funded
highway projects are administered through each respective state department of
transportation and therefore, the rate at which federal funds are expended is
contingent upon the execution of each individual state's capital improvement
program. Since the passage of TEA-21, the pace at which federal funds have been
invested in the infrastructure has been significantly less than originally
projected. Construction industry belief is that the system has likely been
constrained by some combination of funding, planning or availability of
contractors, equipment or labor. It is expected that the effects of TEA-21 will
become more visible in the year 2000. Some industry projections expect an
overall increase in highway construction in the year 2000 to reach $6.1 billion
or 12% more than 1999.
Growth in the Company's current four-state market continues to outperform
many areas of the country. The states of Arizona, Nevada and Utah remain among
the leaders in key growth statistics such as population growth and employment
gains. Between 1990 and 1998, Nevada and Utah were number one and two in overall
housing growth. Arizona was fourth behind Idaho. The consensus of economic
predictions indicates a slowing over the high growth rates experienced in recent
years, but most indicators point toward a continuing healthy construction
economy. While expected to diminish slightly from 1999, continuing positive
growth in population and employment and the overall good health of the economy
in the year 2000 in the Company's market should continue to provide funding for
construction of key transportation facilities. Multi-billion dollar freeway
construction programs in metropolitan Phoenix, Arizona and Las Vegas, Nevada are
continuing to be funded by sales tax measures that are in addition to monies
obtained from TEA-21 and other local user fees.
The Company's commercial construction materials operations are impacted to
a greater degree by the conditions of the residential and commercial sectors of
the construction economy. Local economic forecasts for 2000 predict that
residential and commercial construction in both Las Vegas, Nevada and Phoenix,
Arizona areas will be less than 1999 levels but should still show positive
growth. The primary customers of RMI, the Company's wholly-owned ready mix
concrete subsidiary, are residential and commercial builders and subcontractors.
As a result, the Company may be faced with increased competition from other
local suppliers of ready mix concrete. RMI plans to increase its activity in the
infrastructure portion of the market and may more frequently provide concrete to
MVC.
The Company believes the overall economic health in its existing market
will present opportunities for improved performance.
Operations
In addition to the construction of highways, bridges, overpasses and
airport runways, the Company constructs other heavy civil projects. From its
Phoenix, Arizona corporate office and area offices in Phoenix, Arizona, Moapa,
Nevada, Farmington, Utah and Ruidoso, New Mexico, the Company markets (primarily
by responding to solicitations for competitive bids) and manages all of its
projects. Project management is also located on-site to provide direct
supervision to the operations.
In addition to profitability, the Company considers a number of factors
when determining whether to bid on a project, including the location of the
project, likely competitors and the Company's current and projected workloads.
The Company uses a computer-based project estimating system which reflects its
bidding and construction experience and performs detailed quantity take-offs
from bidding documents, which the Company believes helps identify a project's
risks and opportunities. The Company develops comprehensive estimates with each
project divided into phases and line items for which separate labor, equipment,
material, subcontractor and overhead cost estimates are compiled. Once a project
begins, the estimate provides the Company with a budget against which ongoing
project costs are measured. There can be no assurance that every project will
attain its budgeted costs. A number of factors can affect a project's
profitability including weather, availability of a quality workforce and actual
productivity rates. Each month the project manager updates the project's
projected performance at completion by using actual costs-to-date and
re-forecasted costs-to-complete for the balance of the work remaining. Regular
review of these estimated costs-to-complete allow project, area and corporate
management to be as responsive as possible to cost overruns or other problems
that may affect profitability.
The Company owns some of the equipment used in its business lines,
including cranes, backhoes, scrapers, graders, loaders, trucks, trailers,
pavers, rollers, construction material processing plants, batch plants and
related equipment. The net book value of the Company's equipment at December 31,
1999 was approximately $15.1 million. During 1999, the Company acquired $6.5
million of equipment, related primarily to the construction material processing
plants and additional equipment needed for the
5
added construction workload. The Company leases a significant portion of its
equipment and attempts to keep the equipment as fully utilized as possible.
Equipment may be rented on a short-term basis to subcontractors.
The Company's corporate management oversees operational and strategic
issues and, through the corporate accounting staff, provides administrative
support services to subsidiary managers, area managers and individual project
management at the project site. The latter are responsible for planning,
scheduling and budgeting operations, equipment maintenance and utilization and
customer satisfaction. Subsidiary managers, area managers and project managers
monitor project costs on a daily and weekly basis while corporate management
monitors such costs monthly.
Raw materials (primarily concrete, aggregate and steel) used in the
Company's operations are available from a number of sources. There are a
sufficient number of materials suppliers within the Company's market area to
assure the Company of adequate competitive bids for supplying such raw
materials. Generally, the Company will obtain several bids from competing
concrete, asphalt or aggregate suppliers whose reserves of such materials will
normally extend beyond the expected completion date of the project. Costs for
raw materials vary depending upon project duration, construction season, or
other factors; but, generally, prices quoted to the Company for raw materials
are fixed for the project's duration.
The Company initiated its commercial construction materials operations in
the first quarter 1997 with the start-up of RMI. RMI currently operates one
concrete batch plant in North Las Vegas with 40 ready mix trucks. All of RMI's
internal sand and gravel needs are manufactured from its own rock quarry in
Moapa, Nevada. Production capacity at the Moapa quarry was increased
substantially during 1999. Additional sales staff was added to promote sales of
rock and sand products and landscape rock resulting from the Company's increased
production capacity. Currently, the Company sells rock and sand products from
its other commercial materials production sites in Ruidoso, New Mexico,
Alamagordo, New Mexico and Prescott Valley, Arizona. The Company intends to
expand its production capabilities at its Prescott Valley quarry. Recently, the
Company obtained the rights to mine sand and gravel from sites in Nephi and
Payson, Utah and expects to begin producing and selling sand and gravel, ready
mix concrete and asphalt from these sites during the year 2000. The Company is
negotiating the acquisition of mineral rights on properties in Phoenix, Arizona
and Henderson, Nevada. If these mineral rights can be successfully acquired, the
Company intends to accelerate the development of these properties into producing
commercial sites as soon as possible. Ultimately, it is the Company's intent to
generate approximately one-third of its revenue from commercial material sales.
Projects and Customers
The Company specializes in public sector construction projects and its
principal customers are the state departments of transportation in Nevada,
Arizona, Utah and New Mexico and bureaus and departments of municipal and county
governments in those states. For the year ended December 31, 1999, revenue
generated from six projects in Nevada, Arizona and Utah represented 67% of the
Company's revenue. The discontinuance of any projects, a general economic
downturn or a reduction in the number of projects let out for bid in any of the
states in which the Company operates, could have an adverse effect on the
Company's results of operations. For the years ended December 31, 1997, 1998 and
1999, the Company recognized a significant portion of its consolidated revenue
from three customers (shown as an approximate percentage of consolidated
revenue):
For the Years Ended December 31,
------------------------------------
1997 1998 1999
------------------------------------
Arizona Department of Transportation... 27.8% 29.9% 26.2%
Clark County General Services.......... 33.0% 12.5% 28.7%
Nevada Department of Transportation.... 7.6% 24.3% 17.2%
Backlog
The Company's backlog (anticipated revenue from the uncompleted portions of
awarded projects) was approximately $104 million at December 31, 1999, compared
to approximately $220 million at December 31, 1998. At December 31, 1999, the
Company's backlog included approximately $100 million of work that is scheduled
for completion during 2000. Accordingly, revenue in 2000 and 2001 will be
significantly reduced if the Company is unable to obtain substantial new
projects in 2000. The Company includes a construction project in its backlog at
such time as a contract is awarded or a firm letter of commitment is obtained.
The Company believes that its backlog figures are firm, subject to provisions
contained in its contracts which allow
6
customers to modify or cancel the contracts at any time upon payment of a
relatively small cancellation fee. The Company has not been materially adversely
affected by contract cancellations or modifications in the past. Revenue is
impacted in any one period by the backlog at the beginning of the period. The
Company's backlog depends upon the Company's success in the competitive bid
process. Bidding strategies and priorities may be influenced and changed from
time to time by the level of the Company's backlog and other internal and
external factors. A portion of the Company's anticipated revenue in any year is
not reflected in its backlog at the start of the year because some projects are
initiated and completed in the same year.
Competition
The Company believes that the primary competitive factors as a prime
contractor in the construction industry are price, reputation for quality work,
financial strength, and knowledge of local market conditions and estimating
abilities. The Company believes that it competes favorably with respect to each
of the foregoing factors. Most of the Company's projects involve public sector
work for which contractors are first pre-qualified to bid and then are chosen by
a competitive bidding process, primarily on the basis of price. Because the
Company's bids are often determined by the cost to it of subcontractor services
and materials, the Company believes it is often able to lower its overall
construction bids due to its prompt payments to, consistent workloads for, and
good relationships with its subcontractors and suppliers. The Company competes
with a large number of small owner/operator contractors that tend to dominate
smaller (under $4 million) projects. When bidding on larger infrastructure
projects, the Company also competes with larger, well capitalized regional and
national contractors (including Granite Construction Incorporated, Peter Kiewit
Sons', Inc., Sundt Corp. and Morrison Knudsen), many of whom have larger net
worths, higher bonding capacities and more construction personnel than the
Company. Due to currently favorable market conditions in Nevada, Arizona, Utah
and New Mexico, which have resulted in an increase in heavy construction
projects in these states, additional competition may be expected. Such
additional competition could reduce the Company's profit margins on certain
projects.
The Company has received single project bond approval up to $110 million
and has an aggregate program bond capacity of over $300 million. The Company
believes its bonding capacity is sufficient to sustain anticipated growth.
Larger competitors typically have unlimited bonding capacity and, therefore, may
be able to bid on more work than the Company. Except for bonding capacity, the
Company does not believe it is at a competitive disadvantage in relation to its
larger competitors. With respect to its smaller competitors, the Company
believes that its larger bonding capacity, long relationships with
subcontractors and suppliers and the perceived stability of having been in
business since 1980 may be competitive advantages.
The Company does not believe that the competitive environment is materially
different in other western states in which the Company may expand. Initially,
the Company will be at a competitive disadvantage in new geographic locations
until it obtains information on those locations and develops relationships with
local subcontractors and suppliers.
To some extent, the Company faces the same competitors for sales of
construction materials as it does for its contracting work. It is common for
prime contractors in the heavy highway construction industry to develop some
degree of vertical integration into construction materials. Companies such as
Granite Construction, Kiewitt, Oldcastle and LaFarge, among others, provide
contracting services and produce construction materials. The quality of the
product and the customer service are often just as important, if not more so,
than price in successfully marketing construction materials. Vertical
integration into construction materials may occasionally allow the Company to be
more competitive in its bidding for construction contracts. However, the
Company's marketing strategy is to make third party sales its top priority. To
accomplish this, the Company recognizes that its construction materials
customers must receive a consistently high quality product and first-priority
service.
The Contract Process
The Company's projects are obtained primarily through competitive bidding
and negotiations in response to advertisements by federal, state and local
government agencies and solicitations by private parties. The Company submits
bids after a detailed review of the project specifications, an internal review
of the Company's capabilities and equipment availability and an assessment of
whether the project is likely to attain targeted profit margins. The Company
owns, leases, or is readily able to rent, any equipment necessary to complete
the projects upon which it bids. After computing estimated costs of the project
to be bid, the Company adds its desired profit margin before submitting its bid.
The Company believes that success in the competitive bidding process involves
(i) being selective on projects bid upon in order to conserve resources, (ii)
identifying projects which require the Company's specific expertise, (iii)
becoming familiar with all aspects of the project to avoid costly bidding errors
and
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(iv) analyzing the local market to determine the availability and cost of labor
and the degree of competition. Since 1987, the Company has been awarded
contracts for approximately 21% of the projects upon which it has bid. A
substantial portion of the Company's revenue is derived from projects that
involve "fixed unit price" contracts under which the Company is committed to
provide materials or services at fixed unit prices (such as dollars per cubic
yard of earth or concrete, or linear feet of pipe). The unit price is determined
by a number of factors including haul distance between the construction site and
the warehouses or supply facilities of local material suppliers and to or from
disposal sites, site characteristics and the type of equipment to be used. While
the fixed unit price contract generally shifts the risk of estimating the
quantity of units for a particular project to the customer, any increase in the
Company's unit cost over its unit bid price, whether due to inefficiency, faulty
estimates, weather, inflation or other factors, must be borne by the Company.
Most public sector contracts provide for termination of the contract at the
election of the customer. In such event the Company is generally entitled to
receive a small cancellation fee in addition to reimbursement for all costs it
incurred on the project. Many of the Company's contracts are subject to
completion requirements with liquidated damages assessed against the Company if
schedules are not met. The Company has not been materially adversely affected by
these provisions in the past.
Contracts often involve work periods in excess of one year. Revenue on
uncompleted fixed price contracts is recorded under the percentage of completion
method of accounting. The Company begins to recognize revenue on its contracts
when it first accrues direct costs. Pursuant to construction industry practice,
a portion of billings, generally not exceeding 10%, may be retained by the
customer until the project is completed and all obligations of the contractor
are paid. The Company has not been subject to a loss in connection with any such
retention.
The Company acts as prime contractor on most of its construction projects
and subcontracts certain jobs such as electrical, mechanical, guardrail and
fencing, signing and signals, foundation drilling, steel erection and other
specialty work to others. As prime contractor, the Company bills the customer
for work performed and pays the subcontractors from funds received from the
customer. Occasionally the Company provides its services as a subcontractor to
another prime contractor. As a subcontractor, the Company will generally receive
the same or similar profit margin as it would as a prime contractor, although
revenue to the Company will be smaller because the Company only contracts a part
of the project. As prime contractor, the Company is responsible for the
performance of the entire contract, including work assigned to subcontractors.
Accordingly, the Company is subject to liability associated with the failure of
subcontractors to perform as required under the contract. The Company
occasionally requires its subcontractors to furnish bonds guaranteeing their
performance, although affirmative action regulations require the Company to use
its best efforts to hire minority subcontractors for a portion of the project
and some of these subcontractors may not be able to obtain surety bonds. On
average, the Company has required performance bonds for less than 10% of the
dollar amount of its subcontracted work. However, the Company is generally aware
of the skill levels and financial condition of its subcontractors through its
direct inquiry of the subcontractors and contract partners of the
subcontractors, as well as its review of financial information provided by the
subcontractors and third party reporting services including credit reporting
agencies and bonding companies. The Company has not been materially adversely
affected by subcontractor related losses over the past five years. As the
Company expands into new geographic areas, it expects to obtain references and
examine the financial condition of prospective subcontractors before entering
into contracts with them, requiring bonding as deemed appropriate.
In connection with public sector contracts, the Company is required to
provide various types of surety bonds guaranteeing its own performance. The
Company's ability to obtain surety bonds depends upon its net worth, working
capital, past performance, management expertise and other factors. Surety
companies consider such factors in light of the amount of the Company's surety
bonds then outstanding and the surety companies' current underwriting standards,
which may change from time to time. See "Insurance and Bonding".
Insurance and Bonding
The Company maintains general liability and excess liability insurance
covering its owned and leased construction equipment and workers' compensation
insurance in amounts it believes are consistent with its risks of loss and in
compliance with specific insurance coverage required by its customers as a part
of the bidding process. The Company carries liability insurance of $27 million
per occurrence, which management believes is adequate for its current operations
and consistent with the requirements of projects currently under construction by
the Company. The Company carries builders risk insurance on a limited number of
projects and is dependent upon management's assessment of the project risk
versus the cost of insurance.
8
The Company is required to provide a surety bond on most of its projects.
The Company's ability to obtain bonding, and the amount of bonding required, is
primarily determined by the Company's management experience, net worth, liquid
working capital (consisting of cash and accounts receivable in excess of
accounts payable and accrued liabilities), the Company's performance history,
the number and size of projects under construction and other factors. Surety
companies consider such factors in light of the amount of the Company's surety
bonds then outstanding and the surety companies' current underwriting standards,
which may change from time to time. The larger the project and/or the more
projects in which the Company is engaged, the greater the Company's bonding, net
worth and liquid working capital requirements. Bonding requirements vary
depending upon the nature of the project to be performed. The Company generally
pays a fee to bonding companies of 1/2% to 1% of the amount of the contract to
be performed. Because these fees are generally payable at the beginning of a
project, the Company must maintain sufficient working capital to satisfy the fee
prior to receiving revenue from the project. The Company has received single
project bonding approval up to $110 million and has an aggregate program bond
capacity of over $300 million.
Marketing
The Company obtains its projects primarily through the process of
competitive bidding. Accordingly, the Company's marketing efforts are limited to
subscribing to bid reporting services and monitoring trade journals and other
industry sources for bid solicitations by various government authorities. In
response to a bid request, the Company submits a proposal detailing its
qualifications, the services to be provided and the cost of the services to the
soliciting entity which then, based on its evaluation of the proposals
submitted, awards the contract to the successful bidder. Generally, the contract
for a project is awarded to the lowest bidder, although other factors may be
taken into consideration such as the bidder's track record for compliance with
bid specifications and procedures and its construction experience.
A more focused marketing effort and greater emphasis on customer care and
service are important tools in promoting sales of construction materials.
Certification of plants and facilities must be obtained and maintained in order
to comply with certain project and specification requirements. Membership and
participation in selected industry associations help increase the Company's
exposure to potential clients and are two means by which the Company stays
informed on industry developments and future prospects within the marketplace.
Building and maintaining customer relations and reputation for quality work are
essential elements to the marketing efforts of RMI.
Government Regulation
The Company's operations are subject to compliance with regulatory
requirements of federal, state and municipal authorities, including regulations
covering labor relations, safety standards, affirmative action and the
protection of the environment including requirements in connection with water
discharge, air emissions and hazardous and toxic substance discharge. Under the
Federal Clean Air Act and Clean Water Act, the Company must apply water or
chemicals to reduce dust on road construction projects and to contain water
contaminants in run-off water at construction sites. The Company may also be
required to hire subcontractors to dispose of hazardous wastes encountered on a
project. The Company believes that it is in substantial compliance with all
applicable laws and regulations. However, amendments to current laws or
regulations imposing more stringent requirements could have a material adverse
effect on the Company.
Employees
On December 31, 1999, the Company employed approximately 68 salaried
employees (including its management personnel and executive officers) and
approximately 417 hourly employees. The number of hourly employees varies
depending upon the amount of construction in progress. For the year ended
December 31, 1999, the number of hourly employees ranged from approximately 417
to approximately 640 and averaged approximately 563. At December 31, 1999, the
Company is party to four project agreements in Arizona with the Arizona State
District Council of Carpenters, AFL-CIO which covers approximately 7% of the
Company's hourly workforce. At December 31, 1999, the Company believes its
relations with its employees are satisfactory.
9
Item 2. Properties
The following properties were leased by the Company at December 31, 1999:
(1) 8,300 square feet of executive office space at 4411 South 40th
Street, Suites D-10 and D-11, Phoenix, Arizona, 85040, pursuant
to a lease which expires in December 2000, at a monthly rental
rate of $8,026 per month.
(2) 2,000 square feet of office space for the Company's ready mix
operations, at 3430 E. Flamingo, Suite 100, Las Vegas, Nevada,
pursuant to a lease that expires in October 2000, at a monthly
rental rate of $2,692.
(3) 2,000 square feet of office space at 1501 Highway 168, Moapa,
Nevada 89025, on a month-to-month basis, at a rental rate of $840
per month, from a Company controlled by Kim A. Marshall, a
principal stockholder. The Company believes that its Moapa rental
rate is fair, reasonable and consistent with rates charged by
unaffiliated third parties in the same market area.
The Company owns approximately five acres of land at 109 W. Delhi, North
Las Vegas, Nevada 89030, which is used for the manufacturing of ready mix
concrete.
The Company owns approximately 24.5 acres of land in Moapa, Nevada, which
is currently being held for sale.
The Company has determined that the above properties are sufficient to meet
the Company's current needs.
Item 3. Legal Proceedings
The Company is a party to legal proceedings in the ordinary course of its
business. The Company believes that the nature of these proceedings (which
generally relate to disputes between the Company and its subcontractors,
material suppliers or customers regarding payment for work performed or
materials supplied) are typical for a construction firm of its size and scope,
and no pending proceedings are material to its financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the year
ended December 31, 1999.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock has been listed on the Nasdaq National Market
since October 1995 and is traded under the symbol "MVCO". The following table
represents the high and low closing prices for the Company's Common Stock on the
Nasdaq National Market.
1998 1999
---------------------------------------
High Low High Low
---------------------------------------
First Quarter.......... 6 5/8 5 1/8 5 7/16 4
Second Quarter ...... 7 5 1/2 4 3/4 4
Third Quarter ........ 7 1/4 5 4 9/16 3 15/16
Fourth Quarter ....... 6 1/4 4 5/8 4 3/8 3 3/8
Holders of Record
As of February 16, 2000, there were 675 record and beneficial owners of the
Company's Common Stock.
10
Item 6. Selected Financial Data
Years Ended December 31,
- ------------------------
Income Statement Data:
1995 1996 1997 1998 1999
----------- ------------ ------------ ------------ ------------
Revenue............................................. $90,048,523 $133,723,645 $146,273,286 $187,036,077 $210,002,272
Gross Profit........................................ 4,354,455 2,810,585 7,861,972 9,444,231 9,931,446
Income (loss) from Operations....................... 2,364,676 (255,072) 3,172,430 3,084,983 3,260,411
Interest Expense.................................... 1,116,464 611,828 624,048 435,358 209,872
Income (loss) from continuing operations
before income taxes............................... 1,608,997 (30,410) 3,235,458 3,592,019 3,930,586
Net income (loss) from continuing operations........ 1,059,347 (37,531) 2,072,567 2,169,579 2,340,106
Discontinued Operations:
Loss from discontinued operations (1)............. - (47,697) (860,952) (635,246) -
Estimated loss on disposal of net assets of
discontinued operations (2)..................... - - - (1,950,000) -
Net income (loss)................................... 1,059,347 (85,228) 1,211,615 (415,667) -
Basic net income (loss) per common share:
Income (loss) from continuing operations.......... $.65 $(.01) $.58 $.60 $.67
Loss from discontinued operations................. - (.01) (.24) (.18) -
Estimated loss on disposal of net assets of
discontinued operations......................... - - - (.54) -
Basic net income (loss) per common share............ $.65 $(.02) $.34 $(.12) $.67
Diluted net income (loss) per common share:
Income (loss) from continuing operations.......... $.65 $(.01) $.57 $.60 $.66
Loss from discontinued operations................. - (.01) (.24) (.17) -
Estimated loss on disposal of net assets of
discounted operations........................... - - - (.54) -
Diluted net income (loss) per common share.......... $.65 $(.02) $.33 $(.11) $.66
Basic weighted average common shares
outstanding....................................... 1,641,663 3,601,250 3,601,250 3,601,250 3,518,510
Diluted weighted average common shares
outstanding....................................... 1,641,663 3,601,250 3,651,360 3,644,651 3,529,705
Financial Position Data:
Working capital..................................... $11,319,107 $ 8,689,123 $ 5,152,550 $ 5,760,414 $ 6,167,161
Total assets........................................ 28,909,786 42,171,030 47,737,762 49,297,063 58,425,361
Long-term debt...................................... 3,689,055 4,631,377 5,847,659 5,977,643 7,121,634
Stockholders' equity................................ 11,761,997 11,676,769 12,888,384 12,472,717 14,812,823
(1) Includes the net income tax benefit of $28,756, $443,520 and $423,497 for
the years ended December 31, 1996, 1997 and 1998 for the discontinued
operations of Prestressed Products Incorporated.
(2) Estimated loss on disposal of net assets of Prestressed Products
Incorporated (net of income tax benefit of $1,300,000), including
$1,350,000 for operating losses during the phase-out period.
11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The following is a summary of certain information contained in this Report
and is qualified in its entirety by the detailed information and financial
statements that appear elsewhere herein. Except for the historical information
contained herein, the matters set forth in this Report include 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. These risks and uncertainties are detailed throughout the Report and
will be further discussed from time to time in the Company's periodic reports
filed with the Commission. The forward-looking statements included in the Report
speak only as of the date hereof.
The Company was incorporated in Nevada on September 15, 1994. On October 1,
1994, the Company purchased all of the outstanding Common Stock of Meadow Valley
Contractors, Inc. ("MVC"), for $11.5 million comprised of a $10 million
promissory note and $1.5 million paid by the issuance of 500,000 restricted
shares of the Company's Common Stock valued at $3.00 per share. On January 4,
1999, the $10 million promissory note was paid in full. MVC was founded in 1980
as a heavy construction contractor and has been engaged in that activity since
inception. References to the Company's history include the history of MVC.
The Company, through its subsidiaries, primarily operates as a heavy
construction contractor specializing in infrastructure projects including the
construction of bridges and overpasses, channels, roadways, highways and airport
runways. The Company generally serves as the prime contractor for public sector
customers (such as federal, state and local governmental authorities) in the
states of Nevada, Arizona, Utah and New Mexico. The Company primarily seeks
public sector customers because public sector projects are less cyclical than
private sector projects, payment is more reliable, work required by the project
is generally standardized and little marketing expense is incurred in obtaining
projects.
The Company owns and leases portable hot mix asphalt plants and related
paving equipment and a rubberized asphalt plant. The asphalt paving capabilities
provide the Company the opportunity to expand its existing geographic market,
enhance its construction operations in its existing market, improve its
competitiveness and may generate increased revenues on projects that call for
large quantities of asphaltic concrete, recycled asphalt or rubberized asphalt.
In 1996, the Company expanded its Nevada construction industry activities
with the formation of Ready Mix, Inc. ("RMI") as a wholly-owned subsidiary. RMI
manufactures and distributes ready mix concrete and owns and operates a
construction materials processing plant in the Las Vegas, NV area. RMI primarily
targets prospective customers such as concrete subcontractors, prime
contractors, home builders, commercial and industrial property developers, pool
builders and homeowners. RMI began its ready mix concrete operation from its
first location in March 1997 and began processing construction materials in
November 1999. Financed with internal funds, a $2 million line of credit, notes
payable and operating leases, RMI intends to operate from two or more sites
using at least 104 mixer trucks. During January 2000, the Company ordered 64
mixer trucks at an estimated cost of $8,400,000.
In 1996, the Company formed Prestressed Products Incorporated ("PPI") as a
wholly-owned subsidiary to design, manufacture and erect precast prestressed
concrete building components for use on commercial, institutional and public
construction projects throughout the Southwest. Product lines included
architectural and structural building components and prestressed bridge girders
for highway construction. During 1997, PPI began operations with a precast yard
and concrete batch plant located on leased property adjacent to the Company's
office in Moapa, Nevada. As a result of continuing operating losses, in June
1998, the Company adopted a formal plan (the "plan") to discontinue the
operations of PPI. The plan included the completion of approximately $2.8
million of uncompleted contracts and the disposition of approximately $1.2
million of equipment. 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 of PPI,
which included a provision of $1,350,000 for estimated losses during the
phase-out period of July 1, 1998 through June 30, 1999. During the twelve months
ended December 31, 1998 and 1999, $1,134,112 and $598,172 of the expected losses
were incurred (net of income tax benefit of $756,073 and $398,743).
In 1999, the Company expanded its construction materials processing
operations within its geographic area. During January 2000, the Company
purchased equipment in the amount of $159,000 and has requested finance
proposals for equipment totaling
12
approximately $7,433,840, related to its construction materials processing
operations.
The Company's backlog (anticipated revenue from the uncompleted portions of
awarded projects) was approximately $104 million at December 31, 1999, compared
to approximately $220 million at December 31, 1998. At December 31, 1999, the
Company's backlog included approximately $100 million of work that is scheduled
for completion during 2000. Accordingly, revenue in 2000 and 2001 will be
significantly reduced if the Company is unable to obtain substantial new
projects in 2000. The Company includes a construction project in its backlog at
such time as a contract is awarded or a firm letter of commitment is obtained.
The Company believes that its backlog figures are firm, subject to provisions
contained in its contracts which allow customers to modify or cancel the
contracts at any time upon payment of a relatively small cancellation fee. The
Company has not been materially adversely affected by contract cancellations or
modifications in the past. Revenue is impacted in any one period by the backlog
at the beginning of the period. The Company's backlog depends upon the Company's
success in the competitive bid process.
The Company's projects are obtained primarily through competitive bidding
and negotiations in response to advertisements by federal, state and local
government agencies and solicitations by private parties. The Company submits
bids after a detailed review of the project specifications, an internal review
of the Company's capabilities and equipment availability and an assessment of
whether the project is likely to attain targeted profit margins. The Company
owns, leases, or is readily able to rent, any equipment necessary to complete
the projects upon which it bids. After computing estimated costs of the project
to be bid, the Company adds its desired profit margin before submitting its bid.
The Company believes that success in the competitive bidding process involves
(i) being selective on projects bid upon in order to conserve resources, (ii)
identifying projects which require the Company's specific expertise, (iii)
becoming familiar with all aspects of the project to avoid costly bidding errors
and (iv) analyzing the local market to determine the availability and cost of
labor and the degree of competition.
Revenue on uncompleted fixed price contracts is recorded under the
percentage of completion method of accounting. The Company begins to recognize
revenue on its contracts when it first accrues direct costs. Contracts often
involve work periods in excess of one year and revisions in cost and profit
estimates during construction are reflected in the accounting period in which
the facts that require the revision become known. Losses on contracts, if any,
are provided in total when determined, regardless of the percent complete.
Claims for additional contract revenue are recognized only to the extent that
contract costs relating to the claim have been incurred and evidence provides a
legal basis for the claim. Pursuant to construction industry practice, a portion
of billings, generally not exceeding 10%, may be retained by the customer until
the project is completed and all obligations of the contractor are paid. The
Company has not been subject to a loss in connection with any such retention.
The Company has historically relied upon a small number of projects to
generate a significant portion of its revenue. For instance, revenue generated
from six projects represented 67% of the Company's revenue for the year ended
December 31, 1999. Results for any one calendar quarter may fluctuate widely
depending upon the stage of completion of the Company's active projects.
13
Results of Operations
The following table sets forth statement of operations data expressed as a
percentage of revenues for the periods indicated:
Years Ended December 31,
---------------------------------
1997 1998 1999
------ ------ ------
Revenue.................................................... 100.00% 100.00% 100.00%
Cost of revenue............................................ 94.63 94.95 95.27
Gross profit............................................... 5.37 5.05 4.73
General and administrative expenses........................ 3.21 3.40 3.18
Income from operations..................................... 2.16 1.65 1.55
Interest income............................................ .46 .46 .32
Interest expense........................................... (.43) (.23) (.10)
Other income............................................... .01 .05 .10
Net income from continuing operations...................... 1.42 1.16 1.11
Loss from discontinued operations.......................... (.59) (.34) -
Estimated loss on disposal of net assets of
discontinued operations............................... - (1.04) -
Net income (loss).......................................... .83 (.22) 1.11
Year Ended December 31, 1999 compared to Year Ended December 31, 1998
Revenue and Backlog. Revenue increased 12.3% to $210.0 million for the year
ended December 31, 1999 from $187.0 million for the year ended December 31,
1998. The increase was the result of an increase in contract revenue of $22.7
million and a $.3 million increase in revenue generated from construction
materials production and manufacturing sold to non-affiliates. Backlog decreased
to $104.0 million at December 31, 1999 compared to $220.0 million at December
31, 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
decreased from 5.05% for 1998 to 4.73% for 1999. The decrease in 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) costs to
remove and repair a portion of a partially constructed bridge that was damaged
by the collapse of a temporary support system, offset, in part, by increased
profit recognition related to several projects nearing completion at December
31, 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 Expenses. General and administrative expenses
increased from $6,359,248 for 1998 to $6,671,035 for 1999. The increase
resulted, in part, from costs related to various employee incentive plans
amounting to $206,000, $44,000 in costs related to the education and training of
corporate and area personnel, $69,000 in costs related to legal and accounting
and a variety of other costs related to the administration of the corporate and
area offices.
Interest Income and Expense. Interest income for 1999 decreased to $668,928
from $856,191 for 1998 resulting primarily from a decrease in invested cash
reserves. Interest expense decreased for 1999 to $209,872 from $435,358 for 1998
due primarily to a $1,000,000 reduction in related party debt during January
1999.
Net Income from Continuing Operations After Income Taxes. Net income from
continuing operations after income taxes was $2,340,106 for 1999 as compared to
$2,169,579 for 1998. The increase resulted from higher revenues offset by
increased general and administrative expenses and decreased gross profit
margins, as well as lower interest income and lower interest expense.
14
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 years ended December 31, 1998 and 1999, $1,134,112 and
$598,172 of the expected losses were incurred (net of income tax benefit of
$756,073 and $398,743).
Net Income (loss). Net income (loss), after discontinued operations, for
1999 was $2,340,106 as compared to $(415,667) for 1998.
Year Ended December 31, 1998 compared to Year Ended December 31, 1997
Revenue and Backlog. Revenue increased 27.9% to $187.0 million for the year
ended December 31, 1998 from $146.3 million for the year ended December 31,
1997. The increase was the result of an increase in contract revenue of $36.6
million and a $4.1 million increase in revenue generated from construction
materials production and manufacturing sold to non-affiliates. Backlog increased
to $220 million at December 31, 1998 compared to $214 million at December 31,
1997. Revenue is impacted in any one period by the backlog at the beginning of
the period.
Gross Profit. As a percentage of revenue, consolidated gross profit
decreased from 5.37% in 1997 to 5.05% in 1998. The decrease in MVC's gross
profit margin was the result of (i) cost overruns on certain projects (ii)
subcontractor difficulties and (iii) costs related to plan or specification
errors. Gross profit margins are affected by a variety of factors including
construction delays and difficulties due to weather conditions, availability of
materials, the timing of work performed by other subcontractors and the physical
and geological condition of the construction site.
General and Administrative Expenses. General and administrative expenses
increased to $6,359,248 for 1998 from $4,689,542 for 1997. The increase
resulted, in part, from costs associated with expansion into the white paving
market amounting to approximately $323,000, $267,000 in corporate labor,
$871,000 in costs related to various employee incentive plans, $120,000 in legal
costs, $35,000 in costs related to the Company's safety plan, $32,000 in costs
related to the administration of various employee incentive and benefit plans
and a variety of other costs related to the administration of the corporate and
area offices.
Interest Income and Expense. Interest income for 1998 increased to $856,191
from $666,397 in 1997 due to an increase in cash reserves resulting primarily
from billings in excess of costs and estimated earnings on uncompleted projects.
Interest expense decreased in 1998 to $435,358 from $624,048, due to a
$1,000,000 reduction in related party debt during the fourth quarter 1997 and a
$1,500,000 reduction in 1998. At December 31, 1998 the remaining balance on the
related party promissory note was $1,000,000. During January 1999, the Company
made the final principal payment of $1,000,000.
Net Income from Continuing Operations After Income Taxes. Net income from
continuing operations after income taxes was $2,169,579 in 1998 as compared to
$2,072,567 for 1997. The slight increase resulted from higher revenues offset by
increased general and administrative expenses and decreased gross profit
margins, as well as higher interest income and lower interest expense.
Discontinued Operations. In June 1998, 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 year ended December 31, 1998, $1,134,112 of the expected
losses were incurred (net of income tax benefit of $756,073).
Net Loss. Net loss, after discontinued operations, for 1998 was $415,667.
15
Liquidity and Capital Resources
The Company's primary need for capital has been to finance growth in its
core business as a heavy construction contractor and its expansion into the
other construction and construction related businesses heretofore discussed.
Annual revenue has grown from approximately $146.3 million in 1997 to $210.0
million in 1999. Growth has resulted in the need for additional capital to
finance increased receivables, inventory, retentions and capital expenditures,
and to address fluctuations in the work-in-process billing cycle.
The following table sets forth, for the periods presented, certain items
from the Statements of Cash Flows of the Company.
For The Years Ended December 31,
----------------------------------------------
1997 1998 1999
------------ ----------- ------------
Cash Provided By (Used in) Operating Activities........... $ 7,545,827 $ 10,889,235 $ (2,248,335)
Cash Provided By (Used in) Investing Activities........... (4,432,322) 331,646 681,483
Cash Used in Financing Activities......................... (1,738,860) (3,043,020) (3,248,684)
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 1997 amounted to $7.5 million,
primarily the result of net income of $1.2 million, depreciation and
amortization of $1.3 million, a decrease in accounts receivable of $2.8 million,
an increase in net billings in excess of costs of $3.1 million, $.4 million
increase in deferred income tax payable, offset by a decrease in accounts
payable of $1.3 million.
Cash provided by operating activities during 1998 amounted to $10.9
million, primarily the result of a decrease in accounts receivable of $8.7
million, depreciation and amortization of $1.8 million, an increase in net
billings in excess of costs of $4.8 million, an increase in accrued liabilities
of $1.3 million, offset by a decrease in accounts payable of $4.6 million and an
increase in prepaid expenses and other of $.8 million and a net loss of $.4
million.
Cash used in operating activities during 1999 amounted to $2.2 million,
primarily the result of an increase in net costs in excess of billings of $7.9
million, an increase in inventory of $3.6 million, an increase in accounts
receivable of $3.8 million, offset in part by an increase in accounts payable of
$7.0 million, an increase in accrued liabilities of $.3 million, a decrease in
prepaid expense and other of $.6 million, an increase in deferred income taxes
payable of $.6 million, net income of $2.3 million and depreciation and
amortization of $2.0 million.
Cash used in investing activities during 1997 amounted to $4.4 million
related primarily to an increase in net assets of discontinued operations of
$2.6 million and the purchase of property and equipment of $1.8 million.
Cash provided by investing activities during 1998 amounted to $.3 million
related primarily to the decrease in related party note receivable of $.3
million, a decrease in net assets of discontinued operations of $2.5 million and
proceeds from the sale of property and equipment in the amount of $.2 million,
offset by the increase in restricted cash of $2.0 million and the purchase of
property and equipment of $.6 million. The aforementioned note receivable
related party was due from Paul R. Lewis, an officer and director of the
Company.
Cash provided by investing activities during 1999 amounted to $.7 million
related primarily to a decrease in restricted cash of $1.5 million, the
collection of a note receivable of $.2 million, proceeds from the sale of
property and equipment of $.4 million and a decrease in net assets of
discontinued operations of $.2 million, offset by the purchase of property and
equipment of $1.4 million and the purchase of mineral rights of $.2 million.
16
Cash used in financing activities during 1997 amounted to $1.7 million
including $.5 million repayment of a loan from a related party plus $.5 million
prepayment of a loan from a related party and repayments of notes payable and
capital lease obligations in the amount of $.7 million. Cash used in financing
activities during 1998 amounted to $3.0 million including a total of $1.5
million of prepayments of a loan from a related party and repayments of notes
payable and capital lease obligations in the amount of $1.5 million. Cash used
in financing activities during 1999 amounted to $3.2 million including the $1.0
million prepayment of a loan from a related party and the repayments of notes
payable and capital lease obligations in the amount of $2.2 million. The
aforementioned note payable related party was due to a principal shareholder of
the Company, the Richard C. Lewis Family Revocable Trust I.
The Company currently has available from a commercial bank a $2 million
operating line of credit at an interest rate of the commercial bank's prime plus
.50% ("line of credit"). At December 31, 1999, and as of the filing date of this
report, nothing had been drawn on the line of credit. Under the line 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 December 31, 1999, the
Company was in full compliance with all such covenants and there are no material
covenants or restrictions in the line of credit which the Company believes would
impair its operations. The line of credit expires September 15, 2000.
During January 2000, the Company solicited finance proposals for equipment
totaling $7,433,840, related to its construction materials processing
operations. In addition, the Company ordered 64 mixer trucks at an estimated
cost of $8,400,000. The Company anticipates the equipment and mixer trucks will
be financed using notes payable and/or operating leases. In February 2000, the
Company ordered an asphalt hot mix plant, which is included in the solicited
finance proposals, with an estimated cost of $1,900,000.
The Company anticipates that a substantial portion of the costs associated
with a planned second ready-mix plant and related equipment will be financed
through bank financing and operating leases. In addition, the Company is
currently leasing approximately 40 ready-mix trucks with annual lease payments
of approximately $882,000.
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.
Impact of Inflation
The Company believes that inflation has not had a material impact on its
operations. However, substantial increases in labor costs, worker compensation
rates and employee benefits, equipment costs, material or subcontractor costs
could adversely affect the operations of the Company for future periods.
Year 2000
At this time, the Company has not been adversely affected by the Year
2000. The Company does not anticipate any future disruptions to business, but
cannot be assured that any disruptions to business arising from customers or
vendors may not affect its operations.
Known and Anticipated Future Trends and Contingencies
During 1998 and early 1999, the Company was the focal point of a union
organizing effort spearheaded by the Building and Trades Organizing Project
("BTOP"). In mid-1999 the BTOP reduced its presence in the Las Vegas area and,
as a result, the Company has currently ceased being the target of their
organizing activities.
Subject to the Company's profitability and increases in retained earnings,
it is anticipated that its bonding limits will increase proportionately, thereby
allowing the Company to bid on and perform more and larger projects.
The Company believes that government at all levels will continue to be the
primary source of funding for infrastructure work. TEA-21 establishes a total
budget authority of $215 billion over the six-year period 1998-2003. TEA-21
ensures that tax
17
revenue deposited into the Highway Trust Fund will be spent on transportation
improvements by guaranteeing $165 billion for highways and $35 billion for
transit and by further stipulating that appropriators can spend trust fund
dollars only on transportation. See "Market Overview".
The competitive bidding process will continue to be the dominant method for
determining contract award. However, other innovative bidding methods will be
tried and may gain favor, namely "A Plus B" contracts, where the bidders'
proposals are selected on both price and scheduling criteria. Design-build
projects are becoming more common and are likely to increase in frequency.
Design-build projects also tend to be of more worth to the owner when the
contract size is substantial, usually $50 million or more.
In light of the rising needs for infrastructure work throughout the nation
and the tendency of the current needs to out-pace the supply of funds, it is
anticipated that alternative funding sources will continue to be sought. Funding
for infrastructure development in the United States is coming from a growing
variety of innovative sources. An increase of funding measures is being
undertaken by various levels of government to help solve traffic congestion and
related air quality problems. Sales taxes, fuel taxes, user fees in a variety of
forms, vehicle license taxes, private toll roads and quasi-public toll roads are
examples of how transportation funding is evolving. Transportation norms are
being challenged by federally mandated air quality standards. Improving traffic
movement, eliminating congestion, increasing public transit, adding or
designating high occupancy vehicle (HOV) lanes to encourage car pooling and
other solutions are being considered in order to help meet EPA-imposed air
quality standards.
Seasonality
The construction industry is seasonal, generally due to inclement weather
occurring in the winter months. Accordingly, the Company may experience a
seasonal pattern in its operating results with lower revenue in the first and
fourth quarters of each calendar year than other quarters. Quarterly results may
also be affected by the timing of bid solicitations by governmental authorities,
the stage of completion of major projects and revenue recognition policies.
Results for any one quarter, therefore, may not be indicative of results for
other quarters or for the year.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
Item 8. Financial Statements and Supplementary Data
The Company's Consolidated Financial Statements are indexed on page F-2.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable
PART III
Item 10. Directors and Executive Officers of the Registrant
Information on directors and executive officers of the Company will be
included under the caption "Directors and Executive Officers" of the Company's
definitive Proxy Statement relating to the Annual Meeting of Shareholders for
the year ended December 31, 1999, which is hereby incorporated by reference.
Item 11. Executive Compensation
Information on executive compensation will be included under the caption
"Compensation of Executive Officers" of the Company's definitive Proxy Statement
relating to the Annual Meeting of Shareholders for the year ended December 31,
1999, which is hereby incorporated by reference.
18
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information on beneficial ownership of the Company's voting securities by
each director and all officers and directors as a group, and by any person known
to beneficially own more than 5% of any class of voting security of the Company
will be included under the caption "Beneficial Ownership of the Company's
Securities" of the Company's definitive Proxy Statement relating to the Annual
Meeting of the Shareholders for the year ended December 31, 1999, which is
hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions
Information on certain relationships and related transactions including
information with respect to management indebtedness will be included under the
caption "Certain Relationships and Related Transactions" and "Information
Regarding Indebtedness of Management to the Company" of the Company's definitive
Proxy Statement relating to the Annual Meeting of Shareholders for the year
ended December 31, 1999, which is hereby incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
See Item 8 of Part II hereof.
(a)(2) Financial Statement Schedules
The schedules specified under Regulation S-X are either not
applicable or immaterial to the Company's consolidated
financial statements for the years ended December 31, 1997,
1998 and 1999.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth
quarter ended December 31, 1999.
(c) Exhibits
Exhibit
No. Title
------- ---------------------------------------------------
1.01 Form of Underwriting Agreement with Spelman & Co.,
Inc. (1)
1.02 Form of Selected Dealer Agreement (1)
1.03 Form of Representatives' Warrant (1)
1.04 Consulting Agreement with the Representative (1)
1.05 Form of Amended Underwriting Agreement (Spelman &
Co., Inc.) (1)
1.06 Form of Amended Representatives' Warrant (Spelman &
Co., Inc.)(1)
1.07 Form of Underwriting Agreement (H D Brous & Co.,
Inc.)(1)
1.08 Form of Selected Dealer Agreement (H D Brous & Co.,
Inc.)(1)
1.09 Form of Representatives' Unit Warrant (H D Brous &
Co., Inc.)(1)
1.10 Warrant Agreement (1)
1.11 Agreement Among Underwriters (1)
1.12 Form of Underwriting Agreement (H D Brous & Co.,
Inc. and Neidiger/Tucker/Bruner, Inc.)(1)
1.13 Form of Agreement Among Underwriters (H D Brous &
Co., Inc. and Neidiger/Tucker/Bruner, Inc.)(1)
19
Exhibit
No. Title
------- -------------------------------------------------
1.14 Form of Selected Dealer Agreement (H D Brous & Co.,
Inc. and Neidiger/Tucker/Bruner, Inc.)(1)
1.15 Form of Representatives' Warrant Agreement,
including Form of Representatives' Warrant (H D
Brous & Co., Inc. and Neidiger/Tucker/ Bruner, Inc.
)(1)
3.01 Articles of Incorporation and Amendments thereto of
the Registrant (1)
3.02 Bylaws of the Registrant (1)
3.03 Bylaws of the Registrant Effective October 20, 1995
(1)
5.01 Opinion of Gary A. Agron, regarding legality of the
Common Stock (includes Consent)(1)
5.02 Opinion of Gary A. Agron, regarding legality of the
Units, Common Stock and Warrants (1)
10.01 Incentive Stock Option Plan (1)
10.02 Office lease of the Registrant (1)
10.03 Office lease of the Registrant (1)
10.04 Contract between the State of Arizona and the
Registrant dated October 22, 1993 (1)
10.05 Surety Bond between the Registrant and St. Paul
Fire & Marine Insurance Company (1)
10.06 Surety Bond between the Registrant and United States
Fidelity and Guaranty Company (1)
10.07 Contract between Clark County, Nevada and the
Registrant dated October 6, 1992 (1)
10.08 Surety Bond between the Registrant and St. Paul
Fire and Marine Insurance Company (1)
10.09 Agreement between Salt Lake City Corporation and
the Registrant dated May 5, 1993 (1)
10.10 Contract between Clark County, Nevada and the
Registrant dated July 21, 1993 (1)
10.11 Contract between Clark County, Nevada and the
Registrant dated August 17, 1993 (1)
10.12 Promissory Note executed by Robert C. Lewis and
Richard C. Lewis (1)
10.13 Promissory Note executed by Moapa Developers, Inc.
(1)
10.14 Promissory Note executed by Paul R. Lewis (1)
10.15 Contract between Clark County, Nevada and the
Registrant dated September 7, 1993 (1)
10.16 Agreement between Salt Lake City Corporation and
the Registrant dated February 11, 1994 (1)
10.17 Contract between Northwest/Cheyenne Joint Venture
and the Registrant dated March 16, 1994 (1)
10.18 Contact between Clark County, Nevada and the
Registrant dated April 5, 1994 (1)
10.19 Statutory Payment Bond dated September 8, 1994 (1)
10.20 Employment Agreement with Mr. Lewis (1)
10.21 Employment Agreement with Mr. Black (1)
10.22 Employment Agreement with Mr. Terril (1)
10.23 Employment Agreement with Mr. Nelson (1)
10.24 Employment Agreement with Ms. Danley (1)
10.25 Employment Agreement with Mr. Jessop (1)
10.26 Employment Agreement with Mr. Larson (1)
10.27 Stock Purchase Agreement (1)
10.28 Form of Lockup Letter (1)
10.29 Revolving Credit Loan Agreement (1)
20
Exhibit
No. Title
------- ----------------------------------------------------------------
10.30 Contract Award Notification - Arizona Department of
Transportation (1)
10.31 Contract Award Notification - McCarran International Airport (1)
10.32 Contract Award Notification - City of Henderson (1)
10.33 Contract between Registrant and Arizona Department of
Transportation (1)
10.34 Contract between Registrant and Arizona Department of
Transportation (1)
10.35 Office Lease of the Registrant (1)
10.36 Contract between Registrant and Arizona Department of
Transportation (2)
10.37 Contract Award Notification - Clark County (2)
10.38 Joint Venture Agreement (2)
10.39 Employment Agreement with Mr. Grasmick (2)
10.40 Contract between Registrant and Clark County, Nevada (2)
10.41 Contract between Registrant and Clark County, Nevada (2)
10.42 Contract between Registrant and Utah Department of
Transportation (2)
10.43 Contract between Registrant and Arizona Department of
Transportation (2)
10.44 Promissory Note executed by Nevada State Bank (2)
10.45 Escrow Settlement Documents and related Promissory Note (2)
10.46 Conveyor Sales Contract and Security Agreement (2)
10.47 CAT Financial Installment Sale Contract (2)
10.48 Second and Third Amendments to Office Lease of the Registrant (2)
10.49 Lease Agreement with US Bancorp (2)
10.50 Lease Agreement with CIT Group (2)
10.51 CAT Financial Installment Sale Contract (3)
10.52 CAT Financial Installment Sale Contract (3)
10.53 CAT Financial Installment Sale Contract (3)
10.54 CAT Financial Installment Sale Contract (3)
10.55 CAT Financial Installment Sale Contract (3)
10.56 Escrow Settlement Documents (3)
10.57 Promissory Note executed by General Electric Capital
Corporation (3)
10.58 Promissory Note executed by General Electric Capital
Corporation (3)
10.59 Promissory Note executed by General Electric Capital
Corporation (3)
10.60 Promissory Note executed by General Electric Capital
Corporation (3)
10.61 Promissory Note executed by Nevada State Bank (3)
10.62 KDC Sales Contract (3)
10.63 Lease Agreement with CIT (3)
10.64 Lease Agreement with CIT (3)
10.65 Contract between Registrant and Utah Department of
Transportation (3)
10.66 Contract between Registrant and Clark County, Nevada (3)
10.67 Contract between Registrant and New Mexico State Highway and
Transportation Department (3)
10.68 Contract between Registrant and Salt Lake City Corporation (3)
10.69 Contract between Registrant and Utah Department of
Transportation (3)
10.70 Contract between Registrant and Arizona Department of
Transportation (3)
10.71 Contract between Registrant and Nevada Department of
Transportation (3)
21
Exhibit
No. Title
------- -----------------------------------------------------------------
10.72 Employment and Indemnification Agreements with Mr. Nelson (3)
10.73 Employment and Indemnification Agreements with Mr. Terril (3)
10.74 Employment and Indemnification Agreements with Mr. Lewis (3)
10.75 Employment and Indemnification Agreements with Mr. Larson (3)
10.76 Employment and Indemnification Agreements with Mr. Burnell (3)
10.77 Lease Agreement with Banc One Leasing Corp. (4)
10.78 Lease Agreement with Banc One Leasing Corp. (4)
10.79 Lease Agreement with Banc One Leasing Corp. (4)
10.80 Lease Agreement with US Bancorp. (4)
10.81 Security Agreement with Associates Commercial Corporation (4)
10.82 Lease Agreement with Caterpillar Financial Services (4)
10.83 Contract between Registrant and Clark County, Nevada (4)
10.84 Contract between Registrant and Arizona Department of
Transportation (4)
10.85 Contract between Registrant and New Mexico State Highway and
Transportation Department (4)
10.87 Contract between Registrant and New Mexico State Highway and
Transportation Department (4)
10.88 Joint Venture Agreement between Registrant and R.E. Monks
Construction Co. (4)
10.89 Contract between Meadow Valley Contractors, Inc./R.E. Monks
Construction Co. (JV) and Arizona Department of Transportation
(4)
10.90 Contract between the Registrant and Utah Department of
Transportation (4)
10.91 Contract between the Registrant and Clark County, Nevada (4)
10.92 General Agreement of Indemnity between the Registrant and Liberty
Mutual Insurance Company (4)
10.93 Employment Agreement with Mr. Larson (4)
10.94 Lease Agreement between the Registrant and Ken Nosker (4)
10.95 Promissory Note executed by General Electric Capital Corporation
10.96 Promissory Note executed by General Electric Capital Corporation
10.97 Promissory Note executed by John Deere Construction Equipment
Company
10.98 Promissory Note executed by John Deere Construction Equipment
Company
10.99 Transfer and Assumption Agreement executed by Associates
Leasing, Inc
10.100 Lease Agreement with Banc One Leasing Corp.
10.101 Lease Agreement with Caterpillar Financial Services
10.102 Lease Agreement with Trinity Capital Corporation
10.103 Lease Agreement with Banc One Leasing Corp.
10.104 Wheeler Machinery Co. Installment Sale Contract
10.105 Wheeler Machinery Co. Installment Sale Contract
10.106 Bank One, Arizona Restated Revolving Line of Credit Note
10.107 Promissory Note executed by General Electric Capital Corporation
10.108 Employment Agreement with Mr. Larson
10.109 Lease Agreement with Banc One Leasing Corp.
10.110 Master Lease Agreement with Banc One Leasing Corp.
10.111 Contract between Registrant and Arizona Department of
Transportation
10.112 Contract between Registrant and Arizona Department of
Transportation
22
Exhibit
No. Title
------- ---------------------------------------------------------------
10.113 Contract between Registrant and Utah Department of Transportation
10.114 Contract between Registrant and Flood Control District of
Maricopa County
10.115 Contract between Registrant and Johnson and Danley Construction
16.01 Letter re: Change in Certifying Accountant (1)
21.01 Subsidiaries of the Registrant (1)
23.01 Consent of Semple & Cooper (Meadow Valley Contractors, Inc.)(1)
23.02 Consent of Semple & Cooper (Meadow Valley Corporation)(1)
23.03 Consent of Gary A. Agron, Esq. (See 5.01, above.)(1)
23.04 Consent of Semple & Cooper (Meadow Valley Contractors, Inc.)(1)
23.05 Consent of BDO Seidman, LLP (Meadow Valley Corporation)(1)
23.06 Consent of Semple & Cooper (Meadow Valley Contractors, Inc.)(1)
23.07 Consent of BDO Seidman, LLP (Meadow Valley Corporation) (1)
23.08 Consent of Semple & Cooper (Meadow Valley Contractors, Inc.)(1)
23.09 Consent of BDO Seidman, LLP (Meadow Valley Corporation and Meadow
Valley Contractors, Inc.)(1)
23.10 Consent of Semple & Cooper (Meadow Valley Contractors, Inc.)(1)
23.11 Consent of BDO Seidman, LLP (Meadow Valley Corporation and Meadow
Valley Contractors, Inc.)(1)
23.12 Consent of Semple & Cooper (Meadow Valley Contractors, Inc.) (1)
23.13 Consent of BDO Seidman, LLP (Meadow Valley Corporation and Meadow
Valley Contractors, Inc.)(1)
23.14 Consent of Semple & Cooper (Meadow Valley Contractors, Inc.)(1)
23.15 Consent of BDO Seidman, LLP (Meadow Valley Corporation and Meadow
Valley Contractors, Inc.)(1)
27.1 Financial Data Schedule
_________
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1, File Number 33-87750 declared effective on October 16, 1995.
(2) Incorporated by reference to the Company's December 31, 1996 Annual Report
on Form 10-K.
(3) Incorporated by reference to the Company's December 31, 1997 Annual Report
on Form 10-K
(4) Incorporated by reference to the Company's December 31, 1998 Annual Report
on Form 10-K
23
Pursuant to the requirements of Section 13 or 15(d) 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.
MEADOW VALLEY CORPORATION
/s/ Bradley E. Larson
-------------------------------
Bradley E. Larson
President and Chief Executive Officer
Date: March 15, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Bradley E. Larson /s/ Earle C. May
- ------------------------------------- ------------------------------------
Bradley E. Larson, Earle C. May
Director, President and Chief Executive Director
Officer Date: March 15, 2000
Date: March 15, 2000
/s/ Kenneth D. Nelson /s/ Paul R. Lewis
- ------------------------------------- ------------------------------------
Kenneth D. Nelson, Paul R. Lewis,
Director, Chief Administrative Officer Director and Chief Operating Officer
and Vice President Date: March 15, 2000
Date: March 15, 2000
/s/ Alan A. Terril /s/ Gary A. Agron
- ------------------------------------- ------------------------------------
Alan A. Terril, Gary A. Agron,
Director and Vice President Nevada Director
Operations Date: March 15, 2000
Date: March 15, 2000
/s/ Charles E. Cowan /s/ Charles R. Norton
- ------------------------------------- ------------------------------------
Charles E. Cowan, Charles R. Norton
Director Director
Date: March 15, 2000 Date: March 15, 2000
/s/ Julie L.Bergo
- -------------------------------------
Julie L. Bergo
Secretary and Principal Accounting Officer
Date: March 15, 2000
24
INDEX TO FINANCIAL STATEMENTS
Meadow Valley Corporation and Subsidiaries
Independent Auditors' Report.......................................................................... F-3
Consolidated Balance Sheets at December 31, 1998 and 1999............................................. F-4
Consolidated Statements of Operations for the years ended December 31, 1997, 1998, and 1999........... F-5
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31,
1997, 1998 and 1999................................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1998 and 1999............ F-7
Notes to Consolidated Financial Statements............................................................ F-9
F-2
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
To the Stockholders and Board of Directors of
Meadow Valley Corporation
We have audited the accompanying consolidated balance sheets of Meadow Valley
Corporation and Subsidiaries (the "Company") as of December 31, 1998 and 1999,
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted audit standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Meadow
Valley Corporation and Subsidiaries as of December 31, 1998 and 1999, and the
consolidated results of their operations, and cash flows for each of the three
years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
February 25, 2000
F-3
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
Assets: 1998 1999
--------------- ---------------
Current Assets:
Cash and cash equivalents (Notes 1 and 2)................................... $ 10,993,025 $ 6,177,489
Restricted cash (Notes 1, 2 and 17)......................................... 3,678,685 2,143,507
Accounts receivable, net (Notes 1, 3 and 17)................................ 15,434,491 19,256,882
Prepaid expenses and other.................................................. 1,858,184 1,193,912
Inventory (Note 1).......................................................... - 3,603,517
Note receivable - other (Note 10)........................................... 2,386 -
Costs and estimated earnings in excess of billings on uncompleted
contracts (Note 4)....................................................... 3,850,619 8,858,933
--------------- ---------------
Total Current Assets............................................... 35,817,390 41,234,240
Property and equipment, net (Notes 1, 5, 8, 11, 12 and 22)....................... 10,995,846 15,077,673
Refundable deposits (Note 21).................................................... 191,433 83,680
Note receivable - other (Note 10)................................................ 206,421 -
Goodwill, net (Note 1)........................................................... 1,660,792 1,580,762
Mineral rights................................................................... - 255,168
Net assets of discontinued operations (Note 20).................................. 425,181 193,838
--------------- ---------------
Total Assets..................................................... $ 49,297,063 $ 58,425,361
=============== ===============
Liabilities and Stockholders' Equity:
Current Liabilities:
Notes payable - other (Note 8).............................................. $ 1,145,621 $ 1,304,092
Obligations under capital leases (Note 13).................................. 678,562 1,114,722
Accounts payable (Notes 6 and 11)........................................... 13,797,436 20,807,792
Accrued liabilities (Notes 7 and 11)........................................ 3,091,362 3,387,320
Billings in excess of costs and estimated earnings on uncompleted
contracts (Note 4)........................................................ 11,343,995 8,453,153
--------------- ---------------
Total Current Liabilities........................................ 30,056,976 35,067,079
Deferred income taxes (Notes 1 and 12)........................................... 789,727 1,423,825
Obligations under capital leases (Note 13)....................................... 2,031,316 4,410,854
Note payable - related party (Note 11)........................................... 1,000,000 -
Notes payable - other (Note 8)................................................... 2,946,327 2,710,780
--------------- ---------------
Total Liabilities................................................. 36,824,346 43,612,538
--------------- ---------------
Commitments and contingencies (Notes 9, 11, 13 and 15)
Stockholders' Equity:
Preferred stock - $.001 par value; 1,000,000 shares authorized, none issued
and outstanding (Note 14)................................................. - -
Common stock - $.001 par value; 15,000,000 shares authorized, 3,601,250
issued and 3,501,250 outstanding (Notes 14 and 18)....................... 3,601 3,601
Additional paid-in capital.................................................. 10,943,569 10,943,569
Capital adjustments......................................................... (799,147) (799,147)
Retained earnings........................................................... 2,324,694 4,664,800
--------------- ---------------
Total Stockholders' Equity........................................ 12,472,717 14,812,823
--------------- ---------------
Total Liabilities and Stockholders' Equity........................ $ 49,297,063 $ 58,425,361
=============== ===============
The Accompanying Notes are an Integral Part of the Consolidated Financial
Statement
F-4
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31,
--------------------------------------------------------
1997 1998 1999
---------------- --------------- --------------
Revenue (Note 17)........................................... $ 146,273,286 $ 187,036,077 $ 210,002,272
Cost of revenue (Note 11)................................... 138,411,314 177,591,846 200,070,826
---------------- --------------- --------------
Gross profit................................................ 7,861,972 9,444,231 9,931,446
General and administrative expenses (Note 11)............... 4,689,542 6,359,248 6,671,035
---------------- --------------- --------------
Income from operations...................................... 3,172,430 3,084,983 3,260,411
---------------- --------------- --------------
Other Income (Expense):
Interest income............................................. 666,397 856,191 668,928
Interest expense (Note 11).................................. (624,048) (435,358) (209,872)
Other income................................................ 20,679 86,203 211,119
---------------- --------------- --------------
63,028 507,036 670,175
---------------- --------------- --------------
Income from continuing operations before income taxes....... 3,235,458 3,592,019 3,930,586
Income tax expense (Note 12)................................ (1,162,891) (1,422,440) (1,590,480)
---------------- --------------- --------------
Net income from continuing operations....................... 2,072,567 2,169,579 2,340,106
Discontinued operations (Note 20):
Loss from operations of Prestressed Products subsidiary,
net of income tax benefit of $443,520 and $423,497...... (860,952) (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) (Note 18)................................. $ 1,211,615 $ (415,667) $ 2,340,106
================ =============== ==============
Basic net income (loss) per common share (Note 19):
Income (loss) from continuing operations.................. $ .58 $ .60 $ .67
Loss from operations of Prestressed Products subsidiary... (.24) (.18) -
Estimated loss on disposal of net assets of Prestressed
Products subsidiary..................................... - (.54) -
---------------- --------------- --------------
Basic net income (loss) per common share.................... $ .34 $ (.12) $ .67
================ =============== ==============
Diluted net income (loss) per common share (Note 19):
Income (loss) from continuing operations.................. $ .57 $ .60 $ .66
Loss from operations of Prestressed Products subsidiary... (.24) (.17) -
Estimated loss on disposal of net assets of Prestressed
Products subsidiary..................................... - (.54) -
---------------- --------------- --------------
Diluted net income (loss) per common share.................. $ .33 $ (.11) $ .66
================ =============== ==============
Basic weighted average common shares outstanding
(Note 19)................................................. 3,601,250 3,601,250 3,518,510
================ =============== ==============
Diluted weighted average common shares outstanding
(Note 19)................................................. 3,651,360 3,644,651 3,529,705
================ =============== ==============
The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements
F-5
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1998 and 1999
Common Stock
-----------------------------
Number of
Shares Paid-in Capital Retained
Outstanding Amount Capital Adjustment Earnings
--------------- ----------- ------------ ------------- ------------
Balance at January 1, 1997........................... 3,601,250 $ 3,601 $ 10,943,569 $ (799,147) $ 1,528,746
Net income for the year.............................. 1,211,615
------------- ---------- ------------ ------------ -----------
Balance at December 31, 1997......................... 3,601,250 3,601 10,943,569 (799,147) 2,740,361
Net loss for the year................................ (415,667)
------------- ---------- ------------ ------------ -----------
Balance at December 31, 1998......................... 3,601,250 3,601 10,943,569 (799,147) 2,324,694
Treasury stock held for funding employer
retirement plan contributions.................... (100,000)
Net income for the year.............................. 2,340,106
------------- ---------- ------------ ------------ -----------
Balance at December 31, 1999......................... 3,501,250 $ 3,601 $ 10,943,569 $ (799,147) $ 4,664,800
============= ========== ============ ============ ===========
The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements
F-6
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
---------------------------------------------------
1997 1998 1999
-------------- ----------------- --------------
Increase (Decrease) in Cash and Cash Equivalents:
Cash flows from operating activities:
Cash received from customers................................. $ 152,130,455 $ 200,534,004 $ 198,476,899
Cash paid to suppliers and employees......................... (143,994,944) (188,760,555) (200,249,598)
Interest received............................................ 615,008 878,517 695,759
Interest paid................................................ (658,622) (488,474) (235,899)
Income taxes paid............................................ (546,070) (1,274,257) (935,496)
-------------- --------------- ---------------
Net cash provided by (used in) operating activities..... 7,545,827 10,889,235 (2,248,335)
-------------- --------------- ---------------
Cash flows from investing activities:
Decrease (increase) in restricted cash....................... (304,191) (1,958,917) 1,535,178
Collection of notes receivable - related party............... - 257,575 -
Collection of note receivable - other........................ 1,184 2,466 208,807
Proceeds from sale of property and equipment................. 322,960 165,182 361,138
Purchase of property and equipment........................... (1,819,960) (588,784) (1,399,815)
Purchase of mineral rights.................................... - - (255,168)
Decrease (increase) in net assets of discontinued
operations................................................ (2,632,315) 2,454,124 231,343
-------------- --------------- ---------------
Net cash provided by (used in) investing activities..... (4,432,322) 331,646 681,483
-------------- --------------- ---------------
Cash flows from financing activities:
Repayment of capital lease obligations....................... (319,428) (645,534) (882,677)
Repayment of notes payable - other........................... (419,432) (897,486) (1,366,007)
Repayment of note payable - related party.................... (1,000,000) (1,500,000) (1,000,000)
-------------- --------------- ---------------
Net cash used in financing activities................... (1,738,860) (3,043,020) (3,248,684)
-------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents.............. 1,374,645 8,177,861 (4,815,536)
Cash and cash equivalents at beginning of year.................... 1,440,519 2,815,164 10,993,025
-------------- --------------- ---------------
Cash and cash equivalents at end of year.......................... $ 2,815,164 $ 10,993,025 $ 6,177,489
============== =============== ===============
The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements
F-7
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Years Ended December 31,
----------------------------------------------------------
1997 1998 1999
------------------- ----------------- -----------------
Increase (Decrease) in Cash and Cash Equivalents (Continued):
Reconciliation of Net Income (Loss) to Net Cash Provided by
(Used in) Operating Activities:
Net Income (loss)..................................................... $ 1,211,615 $ (415,667) $ 2,340,106
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization.................................... 1,277,764 1,849,628 2,012,592
(Gain) Loss on sale of property and equipment.................... (24,890) (29,777) 11,886
Deferred income taxes payable.................................... 399,951 377,166 634,098
Changes in Assets and Liabilities:
Accounts receivable, net......................................... 2,770,489 8,685,541 (3,849,222)
Prepaid expenses and other....................................... (152,550) (801,540) 643,386
Costs and estimated earnings in excess of billings on
uncompleted contracts.......................................... (187,147) 62,856 (5,008,314)
Inventory........................................................ - - (3,603,517)
Refundable deposits.............................................. - - (26,027)
Interest payable................................................. (34,574) (53,116) 107,461
Accounts payable................................................. (1,258,450) (4,573,921) 7,010,356
Accrued liabilities.............................................. 100,100 1,301,618 321,985
Billings in excess of costs and estimated earnings on
uncompleted contracts.......................................... 3,278,038 4,693,104 (2,890,842)
Interest receivable.............................................. (51,389) 22,326 26,831
Income tax receivable............................................ 216,870 (228,983) 20,886
-------------- ------------- --------------
Net cash provided by (used in) operating activities................... $ 7,545,827 $ 10,889,235 $ (2,248,335)
============== ============= ==============
The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements
F-8
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Nature of the 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.
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries MVC and RMI. Intercompany
transactions and balances have been eliminated in consolidation.
Accounting Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Significant estimates are used when accounting for the percentage of
completion and the estimated gross profit on projects in progress, allowance for
doubtful accounts, depreciation and amortization, accruals, taxes, contingencies
and goodwill, which are discussed in the respective notes to the consolidated
financial statements.
Revenue and Cost Recognition:
Revenues and costs from fixed-price and modified fixed-price construction
contracts are recognized for each contract on the percentage-of-completion
method, measured by the percentage of costs incurred to date to the estimated
total of direct costs. Direct costs include, among other things, direct labor,
field labor, equipment rent, subcontracting, direct materials, and direct
overhead. General and administrative expenses are accounted for as period costs
and are, therefore, not included in the calculation of the estimates to complete
construction contracts in progress. Project losses are provided in the period in
which such losses are determined, without reference to the
percentage-of-completion. As contracts can extend over one or more accounting
periods, revisions in costs and earnings estimated during the course of the work
are reflected during the accounting period in which the facts that required such
revisions become known.
Claims for additional contract revenue are recognized only to the extent
that contract costs relating to the claim have been incurred and evidence
provides a legal basis for the claim. During the year ended December 31, 1999,
revenue and costs in the amount of $3,500,000 were recorded related to claims.
The estimated total claims that have been filed or will be filed total
$10,205,211 at December 31, 1999.
The asset "costs and estimated earnings in excess of billings on
uncompleted contracts" represents revenue recognized in excess of amounts
billed. The liability "billings in excess of costs and estimated earnings on
uncompleted contracts" represents billings in excess of revenues recognized.
Restricted Cash:
At December 31, 1998 and 1999 funds in the amount of $3,678,685 and
$2,143,507 were held in trust, in lieu of retention, on certain of the Company's
construction contracts and will be released to the Company after the contracts
are completed.
Inventory:
Inventories, which consist primarily of raw materials, are stated at the
lower of cost, determined by the first-in, first-out method, or market.
Inventory quantities are determined by physical measurements.
Accounts Receivable:
Included in accounts receivable are trade receivables that represent
amounts billed but uncollected on completed construction contracts and
construction contracts in progress.
F-9
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies (Continued):
Accounts Receivable (Continued):
The Company follows the allowance method of recognizing uncollectible
accounts receivable. The allowance method recognizes bad debt expense based on a
review of the individual accounts outstanding, and the Company's prior history
of uncollectible accounts receivable. At December 31, 1998 and December 31, 1999
the Company had established an allowance for potentially uncollectible accounts
receivable in the amounts of $59,178 and $97,324. During the years ended
December 31, 1997, 1998 and 1999 the Company incurred bad debt expense in the
amounts of $35,441, $59,273 and $79,681.
Property and Equipment:
Property and equipment are recorded at cost. Depreciation charged to
operations during the years ended December 31, 1997, 1998 and 1999 was
$1,185,147, $1,757,422 and $1,932,272. Depreciation is provided for on the
straight-line method, over the following estimated useful lives.
Plant 15 years
Computer equipment 5-7 years
Equipment 5-10 years
Vehicles 5 years
Office furniture and equipment 7 years
Leasehold Improvements 2-5 years
At December 31, 1998 and 1999, property and equipment with a net book value
of $7,219,459 and $10,872,442 were pledged as collateral for notes payable and
capital lease obligations.
Goodwill:
Goodwill represents the excess of the costs of acquiring Meadow Valley
Contractors, Inc. over the fair value of its net assets and is being amortized
on the straight-line method over twenty-five (25) years. Amortization expense
charged to operations for each of the years ended December 31, 1997, 1998 and
1999 was $80,029. The carrying value of goodwill will be periodically reviewed
by the Company and impairments, if any, will be recognized when expected future
operating cash flows derived from goodwill is less than its carrying value.
Tradename:
On January 2, 1996, the Company acquired the tradename of AKR Contracting
in the amount of $36,531. The tradename amortization is provided for on a
straight line basis over three years. Amortization expense charged to operations
in each of the years ended December 31, 1997 and 1998 was $12,177.
Income Taxes:
The Company accounts for income taxes in accordance with the Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109
requires the Company to recognize deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in a
Company's financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the difference between the
financial statement carrying amounts and tax basis of assets and liabilities
using enacted tax rates in effect in the years in which the differences are
expected to reverse. The Company files consolidated tax returns with MVC, RMI
and PPI for federal and state tax reporting purposes.
Cash Flow Recognition:
For purposes of the statement of cash flows, the Company considers all
highly liquid instruments purchased with an initial maturity of three (3) months
or less to be cash equivalents.
Fair Value of Financial Instruments:
The carrying amounts of financial instruments including cash, restricted
cash, accounts receivable, costs and estimated earnings in excess of billings on
uncompleted contracts, current maturities of long-term debt, accounts payable,
billings in excess of costs and estimated earnings on uncompleted contracts,
accrued liabilities and long-term debt approximate fair value because of their
short maturity.
F-10
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies (Continued):
Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
Be Disposed of:
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of" (SFAS
121) establishes new guidelines regarding when impairment losses on long-lived
assets, which include plant and equipment, and certain identifiable intangible
assets, should be recognized and how impairment losses should be measured.
Stock-Based Compensation:
Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which an
entity acquires goods or services from nonemployees in exchange for equity
instruments. SFAS 123 also encourages, but does not require companies to record
compensation cost for stock-based employee compensation. The Company has chosen
to continue to account for stock-based compensation utilizing the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, compensation cost for
stock options is measured as the excess, if any, of the fair market price of the
Company's stock at the date of grant over the amount an employee must pay to
acquire the stock.
Earnings per Share:
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
("SFAS 128") provides for the calculation of Basic and Diluted earnings per
share. Basic earnings per share includes no dilution and is computed by dividing
income available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution of securities that could share in the earnings of an entity,
similar to fully diluted earnings per share. The Company adopted this accounting
standard on December 15, 1997. The effect of adopting this standard was that
diluted earnings per share for the year ended December 31, 1997, decreased by
$.01 over the calculations under APB Opinion No. 15. There was no effect on
prior years.
Reporting Comprehensive Income:
Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income," ("SFAS 130") establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. The Company adopted this accounting
standard on December 15, 1997. There was no effect on the financial position or
results of operations for all years presented.
Disclosures about Segments of an Enterprise and Related Information:
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," ("SFAS 131") requires that
public companies report certain information about operating segments, products,
services and geographical areas in which they operate and their major customers.
The Company adopted this accounting standard on December 15, 1997. There was no
material effect on the financial position or results of operations as the
Company operates in one segment.
Reporting on the Costs of Start-Up Activities:
Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities," ("SOP 98-5"), issued by the American Institute of Certified Public
Accountants is effective for years beginning after December 15, 1998. Early
adoption is permitted. SOP 98-5 requires that costs of start-up activities
should be expensed as incurred. The Company adopted this accounting standard
this year and there was no material effect on the financial position or results
of operations.
2. Concentration of Credit Risk:
The Company maintains cash balances at various financial institutions.
Deposits not to exceed $100,000 for each institution are insured by the Federal
Deposit Insurance Corporation. At December 31, 1998 and December 31, 1999, the
Company has uninsured cash, cash equivalents, and restricted cash in the amount
of $16,909,324and $9,682,808.
F-11
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Accounts Receivable:
Following is a summary of receivables at December 31, 1998 and 1999:
December 31, December 31,
1999 1999
------------ ------------
Contracts in progress........................ $ 9,249,373 $ 8,046,857
Contracts in progress - retention............ 2,627,812 7,543,315
Completed contracts.......................... 10,063 3,000
Completed contracts - retention.............. 412,310 598,408
Other trade receivables...................... 2,624,593 3,068,583
Other receivables............................ 569,518 94,043
------------ ------------
15,493,669 19,354,206
Less: Allowance for doubtful accounts (59,178) (97,324)
------------ ------------
$ 15,434,491 $ 19,256,882
============ ============
4. Contracts in Progress:
Costs and estimated earnings in excess of billings and billings in
excess of costs and estimated earnings on uncompleted contracts consist of the
following:
December 31, December 31,
1998 1999
-------------- -------------
Costs incurred on uncompleted contracts........ $ 314,134,398 $ 395,414,292
Estimated earnings to date..................... 17,538,432 19,077,844
-------------- -------------
331,672,830 414,492,136
Less: billings to date......................... (339,166,206) (414,086,356)
-------------- -------------
$ (7,493,376) $ 405,780
============== =============
Included in the accompanying balance sheet under the following
captions:
December 31, December 31,
1998 1999
---------------- ----------------
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... $ 3,850,619 $ 8,858,933
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... (11,343,995) (8,453,153)
--------------- ---------------
$ (7,493,376) $ 405,780
=============== ===============
F-12
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Property and Equipment:
Property and equipment consists of the following:
December 31, December 31,
1998 1999
----------------- ----------------
Land.................................................... $ 827,206 $ 852,243
Plant................................................... 2,804,757 6,013,967
Computer equipment...................................... 306,902 324,710
Equipment............................................... 7,746,895 10,389,473
Vehicles (Note 13)...................................... 2,808,540 2,449,844
Office furniture and equipment.......................... 50,311 50,311
Leasehold improvements.................................. 6,863 8,926
---------------- ----------------
14,551,474 20,089,474
Accumulated depreciation................................ (3,555,628) (5,011,801)
---------------- ----------------
$ 10,995,846 $ 15,077,673
================ ================
6. Accounts Payable:
Accounts payable consist of the following:
December 31, December 31,
1998 1999
----------------- -----------------
Trade.................................................... $ 10,027,339 $ 13,934,908
Retentions............................................... 3,770,097 6,872,884
---------------- ----------------
$ 13,797,436 $ 20,807,792
================ ================
7. Accrued Liabilities:
Accrued liabilities consist of the following:
December 31, December 31,
1998 1999
----------------- -----------------
Compensation.............................................. $ 1,275,775 $ 1,516,610
Outside service........................................... - 524,780
Interest.................................................. 26,027 -
Taxes..................................................... 610,254 534,388
Insurance................................................. 534,699 224,456
Other..................................................... 644,607 587,086
--------------- ----------------
$ 3,091,362 $ 3,387,320
=============== ================
F-13
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Notes payable - other:
Notes payable - other consist of the following:
December 31, December 31,
1998 1999
---------------- -----------------
Notes payable, interest rates ranging from 6.382% to 10% with monthly payments
of $106,129, due dates ranging from 12/18/99 to 1/1/03,
collateralized by equipment......................................................... $ 3,615,618 $ 2,479,456
Notes payable, interest rates ranging from 9.0% to 9.33% with monthly payments
of $9,958, due dates ranging from 8/15/03 to 12/31/04,
collateralized by land.............................................................. 476,330 398,825
Note payable, interest rate of 6.28% with monthly payments of $1,316,
due 12/25/03, collateralized by equipment........................................... - 55,282
Note payable, interest rate of 7.15% with monthly payments of $5,529,
due 2/19/04, collateralized by equipment............................................ - 238,480
Note payable, interest rate of 7.81% with monthly payments of $6,840,
due 6/4/04, collateralized by equipment............................................. - 305,763
Note payable, interest rate of 3.9% with monthly payments of $2,499, due
7/1/03, collateralized by equipment................................................. - 97,987
Note payable, interest rate of 7.75% with monthly payments of $1,367,
due 7/1/03, collateralized by equipment............................................. - 50,169
Note payable, interest rate of 6.28% with monthly payments of $1,946,
due 12/1/03, collateralized by equipment............................................ - 80,915
Note payable, interest rate of 6.96% with monthly payments of $7,239,
due 1/15/04, collateralized by equipment............................................ - 307,995
--------------- ---------------
4,091,948 4,014,872
Less: current portion............................................................... (1,145,621) (1,304,092)
--------------- ---------------
$ 2,946,327 $ 2,710,780
=============== ===============
Following are maturities of long-term debt for each of the next 5 years:
2000..................... $ 1,304,092
2001..................... 1,055,516
2002..................... 980,109
2003..................... 592,248
2004..................... 82,907
--------------
$ 4,014,872
==============
9. Line of Credit:
At December 31, 1999, the Company had available from a commercial bank
a $2,000,000 operating line of credit ("line of credit") at an interest rate of
8.5%, the commercial bank's prime, plus .50%. At December 31, 1999, nothing had
been drawn on the line of credit. Under the line 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 December 31, 1999, the Company was in
compliance with all such covenants. The line of credit expires September 15,
2000.
F-14
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Note receivable - other:
Note receivable - other consist of the following:
December 31, December 31,
1998 1999
----------------- -------------------
8% note receivable, 84 monthly payments in the amount of $1,565 commencing July
19, 1996, balloon payment in the amount of $197,282
due June 19, 2003, collateralized by deed of trust.................................. $ 208,807 $ -
Less: current portion................................................................ (2,386) -
-------------- ------------
$ 206,421 $ -
============== ============
11. Related Party Transactions:
Note receivable - related party:
Note receivable - related party consists of a 6% note receivable from a
corporate officer, dated December 15, 1994, due June 15, 1997, collateralized by
100,000 share of the Company's common stock. During June 1997, the Company
extended the due date to June 15, 1998. Note receivable - related party was
$257,575 at December 31, 1997. During January 1998, the note receivable -
related party was paid in full.
Equipment:
During the year ended December 31, 1998, the Company purchased
equipment used in the construction business from a related party in the amount
of $295,000.
Professional Services:
During the years ended December 31, 1997, 1998 and 1999, a related
party rendered professional services to the Company in the amounts of $16,060,
$10,904 and $7,944. During each of the years ended December 31, 1997, 1998 and
1999, the Company paid outside board of directors a total of $5,000.
Subcontractor/Supplier:
Various related parties provided materials and equipment used in the
Company's construction business during the years ended December 31, 1997, 1998
and 1999, in the amounts of $153,189, $191,694 and $65,441. Included in accounts
payable at December 31, 1998 and 1999 are amounts due to related parties, in the
amount of $1,114 and $821, related to supplies.
Royalties:
During the years ended December 31, 1997, 1998 and 1999, the Company
paid various related parties mining royalties in the amounts of $76,392,
$186,949 and $182,061. Included in accounts payable at December 31, 1998 and
1999 are amounts due to related parties, in the amount of $10,424 and $1,158,
related to royalties.
Accrued Interest:
During the years ended December 31, 1997 and 1998, the Company incurred
interest expense in the amounts of $412,842 and $243,322 related to notes
payable to a principal stockholder. Included in accrued liabilities at December
31, 1998 are amounts due to related parties, in the amounts of $26,027. During
January 1998, the accrued interest receivable in the amount of $15,793 was paid
in full.
Note payable - related party:
December 31, December 31,
1998 1999
------------------ ----------------
12.5% note payable from a related party, due October 16, 2000, due in
equal annual installments of $1,000,000 plus accrued interest............ $ 1,000,000 $ -
Less: current portion.................................................... - -
-------------- -----------
$ 1,000,000 $ -
============== ===========
F-15
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Related Party Transactions (Continued):
Commitments:
The Company leases office space in Moapa, Nevada on a month-to-month
basis from a Company controlled by a principal stockholder with monthly payments
of $840. The lease terms also require the Company to pay common area
maintenance, taxes, insurance and other costs. Rent expense under the lease for
the year ended December 31, 1997, 1998 and 1999 amounted to $9,600, $10,040 and
$10,080, respectively.
The Company leased additional space for its prestressed concrete
operations on a month-to-month basis from a Company controlled by a principal
stockholder with monthly payments of $2,500. The lease terminated January 31,
1999 under the plan to discontinue operations of PPI. Rent expense under the
lease for the years ended December 31, 1997 and 1998 amounted to $30,000 and
$42,369.
12. Income Taxes:
The provisions for income taxes from continuing operations consist of
the following:
For the Years Ended December 31,
----------------------------------------------------------------------
1997 1998 1999
----------------------- ------------------------ --------------------
Current:
Federal................................... $ 669,566 $ 932,032 $ 851,180
State..................................... 93,374 113,242 105,202
--------------- ----------------- ---------------
762,940 1,045,274 956,382
Deferred....................................... 399,951 377,166 634,098
--------------- ----------------- ---------------
$ 1,162,891 $ 1,422,440 $ 1,590,480
=============== ================= ===============
The Company's deferred tax liability consists of the following, all of
which is long-term in nature:
December 31, December 31,
1998 1999
---------------------- ------------------------
Deferred tax asset:
Other...................................... $ 34,107 $ 129,461
Deferred tax liability:
Depreciation.............................. (823,834) (1,553,286)
-------------- ----------------
Net deferred tax liability.................... $ (789,727) $ (1,423,825)
============== ================
For the years ended December 31, 1997, 1998 and 1999, the effective tax
rate differs from the federal statutory rate primarily due to state income
taxes.
13. Commitments:
The Company is currently leasing office space in Phoenix, Arizona under
a non-cancelable operating lease agreement expiring in December 2000. During
December 1998, the Company amended the original lease. The amended lease
agreement provides for monthly payments of $6,998 through December 31, 1999 and
$7,431 from January 1, 2000 through December 31, 2000. The lease also requires
the Company to pay common area maintenance, taxes, insurance and other costs.
Rent under the aforementioned operating lease was $56,576, $66,117 and $89,152
for the years ended December 31, 1997, 1998 and 1999.
F-16
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Commitments (Continued):
The Company leases equipment under operating leases expiring on various
years through 2006. Rent under the aforementioned operating lease was
$1,351,805, $1,839,891 and $2,374,109 for the years ended December 31, 1997,
1998 and 1999. Minimum future rental payments under non-cancelable operating
leases having remaining terms in excess of one year as of December 31, 1999 for
each of the next five years in aggregate are:
Year Ended December 31, Amount
--------------------------------------------------------
2000................................... $ 2,511,950
2001................................... 2,289,385
2002................................... 1,203,657
2003................................... 934,882
Subsequent to 2003..................... 1,098,224
---------------
Total minimum payments................. $ 8,038,098
===============
The Company has entered into employment contracts with each of its
executive officers that provide for an annual salary, issuance of the Company's
common stock and various other benefits and incentives. At December 31, 1998 and
1999, the total commitments, excluding benefits and incentives amount to
$1,011,250 and $1,530,438.
The Company is the lessee of vehicles and equipment under capital
leases expiring in various years through 2006. The assets and liabilities under
a capital lease are initially recorded at the lower of the present value of the
minimum lease payments or the fair value of the asset. Each asset is depreciated
over its expected useful life. Depreciation on the assets under capital leases
charged to expense in 1997, 1998 and 1999 was $298,283, $533,008 and $1,152,306.
At December 31, 1998 and 1999, property and equipment included $2,785,777 and
$5,893,238, net of accumulated depreciation, of vehicles and equipment under
capital leases.
Minimum future lease payments under capital leases as of December 31,
1999 for each of the next five years and in aggregate are:
Year Ended December 31, Amount
-------------------------------------------------------------
2000............................................$ 1,519,499
2001............................................ 1,359,971
2002............................................ 1,139,056
2003............................................ 979,301
2004............................................ 1,802,621
Subsequent to 2004.............................. -
------------
Total minimum payments.......................... 6,800,448
Less: executory costs........................... (20,145)
------------
Net minimum lease payments...................... 6,780,303
Less: amount representing interest.............. (1,254,727)
------------
Present value of net minimum lease payment .....$ 5,525,576
============
14. Stockholders' Equity:
Preferred Stock:
The Company has authorized 1,000,000 shares of $.001 par value
preferred stock to be issued, with such rights, preferences, privileges, and
restrictions as determined by the Board of Directors.
F-17
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Stockholders' Equity (Continued):
Initial Public Offering:
During October 1995, the Company completed an initial public offering
("Offering") of Units of the Company's securities. Each unit consisted of one
share of $.001 par value common stock and one redeemable common stock purchase
warrant ("Warrant"). Each Warrant is exercisable to purchase one share of common
stock at $7.20 per share for a period of 5 years from the date of the Offering.
The Offering included the sale of 1,926,250 Units at $6.00 per Unit. Net
proceeds of the Offering, after deducting underwriting commissions and offering
expenses of $2,122,080, amounted to $9,435,420. In connection with the Offering,
the Company granted the underwriters warrants to purchase 167,500 shares of
common stock at $7.20 per share for a period of twelve months from the date of
the offering and for a period of four years thereafter.
15. Litigation Matters:
The Company is defending a claimed preference in connection with a
payment made to it by an insurance Company in the approximate amount of
$100,000. The Company believes that the payment is not a preference, and is
vigorously defending the action.
16. Statement of Cash Flows:
Non-Cash Investing and Financing Activities:
The Company recognized investing and financing activities that affected
assets, liabilities, and equity, but did not result in cash receipts or
payments. These non-cash activities are as follows:
During the years ended December 31, 1997, 1998 and 1999, the Company
financed the purchase of property, plant and equipment in the amount of
$3,658,608, $3,273,137 and $4,987,308.
During the year ended December 31, 1999, the Company received $135,000
trade in value on equipment.
17. Significant Customers:
For the years ended December 31, 1997, 1998 and 1999, the Company
recognized a significant portion of its revenue from four Customers (shown as an
approximate percentage of total revenue):
For the Years Ended December 31,
----------------------------------------------------------------------
1997 1998 1999
----------------------- ------------------------ --------------------
A............................. 27.8% 29.9% 26.2%
B............................. 33.0% 12.5% 28.7%
C............................. 7.6% 24.3% 17.2%
At December 31, 1998 and 1999, amounts due from the customers that are
greater than 10% included in restricted cash and accounts receivables, are as
follows:
December 31,
--------------------------------------
1998 1999
------------- ----------------
A..................................... $ 8,369,999 $ 4,947,425
B..................................... 1,805,712 8,866,348
C..................................... 1,709,294 1,082,888
F-18
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. Stock Option Plan:
In November, 1994, the Company adopted a Stock Option Plan providing
for the granting of both qualified incentive stock options and non-qualified
stock options. The Company has reserved 1,200,000 shares of its common stock for
issuance under the Plan. Granting of the options is at the discretion of the
Board of Directors and may be awarded to employees and consultants. Consultants
may receive only non-qualified stock options. The maximum term of the stock
options are 10 years and may be exercised as follows: 33.3% after one year of
continuous service, 66.6% after two years of continuous service and 100.0% after
three years of continuous service. The exercise price of each option is equal to
the market price of the Company's common stock on the date of grant.
The following summarizes the stock option transactions:
Weighted Average Price
Shares Per Share
--------------- --------------------------
Outstanding January 1, 1998.............................................. 524,025 $ 5.87
Granted............................................................. 144,350 5.28
Forfeited........................................................... (46,300) 5.28
-----------
Outstanding December 31, 1998............................................ 622,075 5.43
Granted............................................................. (165,500) 5.43
Forfeited........................................................... (14,700) 5.43
-----------
Outstanding December 31, 1999............................................ 772,875 5.12
===========
Information relating to stock options at December 31, 1999 summarized
by exercise price are as follows:
Outstanding Exercisable
-------------------------------------------------- ------------------------------------
Weighted Average Weighted Average
----------------------------------- -----------------------
Exercise Price Per Share Shares Life (Year) Exercise Price Shares Exercise Price
- ------------------------------ -------- ------------- ---------------- -------- -----------------------
$6.25 196,250 10 $ 6.25 196,250 $ 6.25
$4.375 to $5.41 198,225 10 5.36 198,225 5.36
$5.31 80,000 10 5.31 53,333 5.31
$5.875 132,900 10 5.875 44,300 5.875
$4.563 20,000 10 4.563 - -
$4.00 20,000 10 4.00 - -
$3.875 125,500 10 3.875 - -
- ------------------------------ -------- ------- ---------- -------- --------
$3.875 to $6.25 772,875 10 $ 5.12 492,108 $ 5.12
============================== ======== ======= ========== ======== ========
F-19
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. Stock Option Plan (Continued):
All stock options issued to employees have an exercise price not less
than the fair market value of the Company's Common Stock on the date of grant.
In accordance with accounting for such options utilizing the intrinsic value
method, there is no related compensation expense recorded in the Company's
financial statements for the years ended December 31, 1997, 1998 and 1999. Had
compensation cost for stock-based compensation been determined based on the fair
value of the options at the grant dates consistent with the method of SFAS 123,
the Company's net income and earnings per share for the years ended December 31,
1997, 1998 and 1999 would have been reduced to the proforma amounts presented
below:
1997 1998 1999
------------- ------------ -------------
Net income (loss)
As reported......................................... $ 1,211,615 $ (415,667) $ 2,340,106
Proforma............................................ 989,003 (933,371) 1,784,024
Basic net income (loss) per common share
As reported......................................... $ .34 $ (.12) $ .67
Proforma............................................ .26 (.24) .44
Diluted net income (loss) per common share
As reported......................................... $ .33 $ (.11) $ .66
Proforma............................................ .26 (.23) .44
The fair value of option grants is estimated as of the date of grant
utilizing the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 1997 and 1998: expected life of options of 5
years, expected volatility of 48.65%, risk-free interest rates of 8.0%, and a 0%
dividend yield and 1999: expected life of options of 5 years, expected
volatility of 54.87%, risk-free interest rates of 8.0%, and a 0% dividend yield.
The weighted average fair value at date of grant for options granted during
1997, 1998 and 1999 approximated $1.01, $1.44 and $1.13.
19. Basic Earnings (Loss) Per Share:
The Company's basic net income (loss) per share at December 31, 1997
and 1998 was computed by dividing net income for the period by 3,601,250, the
basic weighted average number of common shares outstanding during the period.
The Company's basic net income per share at December 31, 1999 was
computed by dividing net income for the period by 3,518,510, the basic weighted
average number of common shares outstanding during the period.
The Company's diluted net income per common share at December 31, 1997
includes 50,110 common shares that would be issued upon exercise of outstanding
stock options. Options to purchase 217,200 at $6.25 per share were outstanding
during 1997, but were not included in the computation of diluted net income per
common share because the options' exercise price was greater than the average
market price of the common share.
The Company's diluted net income per common share at December 31, 1998
includes 43,401 common shares that would be issued upon exercise of outstanding
stock options. Options to purchase 199,500 at $6.25 per share and options to
purchase 142,550 at $5.875 per share were outstanding during 1998, but were not
included in the computation of diluted net income per common share because the
options' exercise price was greater than the average market price of the common
share.
The Company's diluted net income per common share at December 31, 1999
includes 11,195 common shares that would be issued upon exercise of outstanding
stock options. Options to purchase 429,705 at a range of $5.31 to $6.25 per
share were outstanding during 1999, but were not included in the computation of
diluted net income per common share because the options' exercise price was
greater than the average market price of the common share.
F-20
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. 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. 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 year ended
December 31, 1998 and 1999, $1,134,112 and $598,172 of the expected losses were
incurred (net of income tax benefit of $756,073 and $398,743).
Operating results of PPI for the six months ended June 30, 1998 are
shown separately in the accompanying statement of operations. The statements of
operations for the year ended December 31, 1997 have been restated and operating
results of PPI are also shown separately.
The revenue of PPI for the years ended December 31, 1997, 1998 and 1999
were $3,706,109, $5,419,036 and $1,460,381. These amounts are not included in
revenue in the accompanying statements of operations.
The accompanying consolidated balance sheets as of December 31, 1998 and
December 31, 1999, have been restated to reflect the net liabilities and the
estimated loss as a single amount as follows:
December 31,
--------------------------------
1998 1999
------------- ------------
Current assets.......................................... $ 1,204,192 $ 653,668
Non-current assets...................................... 481,331 -
Liabilities............................................. (444,454) (242,113)
------------- ------------
Net assets........................................... 1,241,069 411,555
Estimated loss on disposition........................... (815,888) (217,717)
------------- ------------
Net assets of discontinued operations................... $ 425,181 $ 193,838
============= ============
21. Subsequent Events:
During January 2000, the Company purchased equipment totaling $143,167.
In addition, the Company made a deposit of $128,000 related to the ordering of
64 ready mix trucks, with an estimated cost of $8,400,000.
During January 2000, the Company solicited finance proposals for
equipment totaling $7,433,840, related to its construction materials processing
operations. The Company anticipates the equipment and mixer trucks will be
financed using notes payable and/or operating leases.
During February 2000, the Company made a deposit of $20,000 related to
the ordering of an asphalt plant, with an estimated cost of $1,900,000.
F-21
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
22. Year 2000 (Unaudited):
At this time, the Company has not been adversely affected by the Year
2000. The Company does not anticipate any future disruptions to business, but
cannot be assured that any disruptions to business arising from customers or
vendors may not affect its operations.
F-22