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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, 2000
[ ] 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
---
Indicate 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 22, 2001, the aggregate market value of the registrant's voting
stock held by non-affiliates was $9,864,628
On February 22, 2001, there were 3,559,938 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 to be disseminated in
connection with its Annual Meeting of Shareholders for the year ended December
31, 2000.
MEADOW VALLEY CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
PART I PAGE
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholders Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 19
Item 8. Financial Statements and Supplementary Data 20
Item 9. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure 20
PART III
Item 10. Directors and Executive Officers of the Registrant 20
Item 11. Executive Compensation 20
Item 12. Security Ownership of Certain Beneficial Owners and Management 20
Item 13. Certain Relationships and Related Transactions 20
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K 21
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. ("MVCI") 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. MVCI 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 MVCI.
In October and November 1995, the Company sold 1,926,250 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 exercisable to purchase one additional share of common stock at
$7.20 per share until October 16, 2000. In September 2000, the exercise price of
the warrants was reduced to $5.00 per share and the exercise period was extended
until June 30, 2002.
The Company currently has two subsidiaries. Through Meadow Valley
Contractors, Inc., the Company primarily operates as a heavy construction
contractor. Through Ready Mix, Inc., the Company is a producer and supplier of
construction materials. On the construction side, the Company specializes in
public 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. On
the construction materials side, the Company operates several sand and gravel
pits and quarries from which it manufactures rock and sand products. These
products are sold to third parties or are incorporated into ready mix concrete
or asphalt, which the Company may use on its own projects. Consistent with the
Company's dual interests in construction and construction materials, the Company
owns and leases portable hot mix asphalt plants, related asphalt paving
equipment, a rubberized asphalt plant, portable wet batch concrete plant and
related concrete paving equipment. The portability of these asphalt and concrete
paving capabilities provides the Company with an opportunity to expand its
existing geographic market, enhance its construction operations in its existing
market, improve its competitiveness and generate increased revenues on projects
that call for large quantities of asphaltic concrete or Portland cement
concrete, recycled asphalt, rubberized asphalt or Portland cement concrete
paving. These capabilities also afford the Company the opportunity to provide
construction materials or to subcontract its services to other construction
companies.
The Company's backlog (anticipated revenue from the uncompleted portions
of awarded projects) was approximately $75 million at December 31, 2000, which
included the remainder of a $96 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, the remainder of
the $13.0 million Storm Drain Channel construction, in Chandler, AZ, the
remainder of $10.9 million of highway construction and street renovation in
Prescott, AZ, the remainder of the $13.9 million renovation and widening of US95
in North Las Vegas, NV, the remainder of the approximately $14.3 million in
various highway projects throughout rural Arizona, the remainder of
approximately $10.7 million in various highway projects throughout rural Utah,
and
3
approximately $5.1 million of work remaining in New Mexico. Approximately $70
million of the Company's backlog is scheduled for completion during 2001. 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 into the construction materials industry
with the formation of Ready Mix, Inc. ("RMI") as a wholly owned subsidiary. RMI
manufactures and distributes ready mix concrete and owns and operates four ready
mix concrete batch plants - two in the Las Vegas, NV area and two in the
Phoenix, AZ area and 93 ready mix trucks. RMI also produces the majority of its
own rock and sand for its Nevada plants from a crushing and screening plant in
Moapa, NV. RMI primarily targets prospective customers such as concrete
subcontractors, prime contractors, homebuilders, commercial and industrial
property developers, pool builders and homeowners. RMI began its ready mix
concrete operation from its first location in North Las Vegas in March 1997,
began processing rock and sand from its Moapa pit in November 1999 and expanded
into the Phoenix market with two plants in 2000.
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).
Business Strategy
The Company seeks to grow revenue and improve profitability by continuing
to pursue the following business strategy:
(i) Expand construction-related niche markets. The Company continues to
explore niche markets, which may increase the Company's competitiveness,
diversify its revenue base, increase project revenue and improve profitability.
(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. The Company owns 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 and strengthen its market
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. By controlling aggregate resources, the Company seeks to enhance
its 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 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. The Company may
expand or strengthen its construction materials operations by acquiring
additional mineral leases on strategic aggregate reserves or acquire other
similar businesses.
4
Market Overview
According to recent economic forecasts, the total construction market for
2001 is expected to decline only slightly from the robust levels experienced
over most of the past decade. While this decline in the total construction
market will likely have some affect on the Company, it is believed that it will
be minimal due to the fact that public works represent the primary source of the
Company's revenue. The Transportation Equity Act for the 21st Century ("TEA
21"), enacted in 1998, and the annual appropriation levels authorized under this
legislation give some assurance of continued federal funding through 2003 for
transportation infrastructure. Funding from TEA 21, approximately 40% more than
previous funding levels from 1993 to 1997, has been slow to materialize in the
form of increased construction contracts but it is almost universally believed
that the delays in actual construction funding have been primarily due to
environmental, planning and design bottlenecks. The anticipated flow in 2001 of
federal funds from TEA-21 combined with the existing high volume of
infrastructure work in the healthy construction economy of the Company's
four-state market leads the Company to concur with most construction forecasts
that infrastructure construction (primarily highways, bridges, overpasses,
tunnels, airport runways and taxiways and other transportation and heavy civil
projects) in the western United States will increase slightly, by from 2% to 6%,
over 2000 levels.
For the fifth consecutive year, growth in the Company's four-state market
has outperformed other 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. According to the 2000 Census published by the U.S.
Department of Commerce and the U.S. Census Bureau, the top five states in terms
of percentage growth from 1990 to 2000 were: Nevada (+66.3%), Arizona (+40.0%),
Colorado (+30.6%), Utah (+29.6%) and Idaho (+28.5%). Fails Management Institute
("FMI"), a leading construction consulting firm, released a ranking of U.S.
metropolitan areas in terms of construction growth. For actual dollar growth,
Phoenix-Mesa, AZ was ranked first with an expected increase of 26.2% from 2000
to 2001. Tucson, AZ was ranked eighth with an expected increase of 32.3%.
Freeway construction programs, funded by sales tax measures, continue to create
opportunities for the Company in Phoenix and Las Vegas.
The Company's construction materials operations are impacted to a greater
degree by the conditions of the residential and commercial sectors of the
construction economy. Residential and commercial construction activity in 2001
in Las Vegas, Nevada and Phoenix, Arizona is expected to be less than 2000
levels. Since the primary customers of RMI, the Company's wholly-owned ready mix
concrete subsidiary, are residential and commercial builders and subcontractors,
the Company may be faced with increased competition from other local suppliers
of ready mix concrete, which could, in turn, force materials prices down.
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, Springville, Utah and Alamogordo, 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 for 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-at-completion reports allow project, area and
corporate management to be as responsive as possible to cost overruns or other
problems that may affect profitability.
5
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,
2000 was approximately $17.2 million. During 2000, the Company acquired
approximately $5.7 million of equipment, related primarily to the construction
material processing plants and additional equipment needed for its 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, and
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 four
ready mix concrete batch plants - two in the Las Vegas, NV area and two in the
Phoenix, AZ area and a total of 93 ready mix trucks. Most of RMI's internal sand
and gravel requirements in the Las Vegas market are manufactured from its rock
quarry in Moapa, Nevada. Production capacity at the Moapa quarry was increased
substantially during 1999 with further refinements added in 2000. A fulltime
sales staff promotes sales of ready mix concrete, rock and sand products and
landscape rock.
Through mineral leases, the Company also controls pits or quarries in
Nephi, UT, Ruidoso, NM, Alamogordo, NM, Chino Valley, AZ and Prescott Valley,
AZ. These locations operate under Meadow Valley Contractors, Inc. subsidiary
since most of the products are used on MVCI projects. From these locations, MVCI
manufactures and sells rock and sand products, and from time to time asphalt or
concrete from portable plants, to its own projects or to third parties. During
2000, the Company initiated and/or expanded its production capabilities at its
Prescott Valley, AZ quarry, the Chino Valley, AZ pit and the Nephi, UT pit. The
Company applied for and was granted a mining exemption from Yavapai County
applicable to all 320 acres of the Prescott Valley mineral lease, which is
currently being appealed by local residents. The mining exemption allows the
Company to operate, at that location, both a ready mix concrete batch plant and
a hot mix asphalt plant in conjunction with the mining and processing of the
sand and rock. Ultimately, it remains the Company's intent to generate
approximately one-third of its revenue from commercial material sales through
RMI and MVCI.
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, 2000, revenue
generated from six projects in Nevada, Arizona and Utah represented 47% 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 its future
results of operations. For the years ended December 31, 1998, 1999 and 2000, 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,
----------------------------------
1998 1999 2000
------ ------ ------
Arizona Department of Transportation 29.9% 26.2% 17.5%
Clark County General Services 12.5% 28.7% 16.3%
Nevada Department of Transportation 24.3% 17.2% 23.0%
6
Backlog
The Company's backlog (anticipated revenue from the uncompleted portions
of awarded projects) was approximately $75 million at December 31, 2000,
compared to approximately $104 million at December 31, 1999. At December 31,
2000, the Company's backlog included approximately $70 million of work that is
scheduled for completion during 2001. Accordingly, revenue in the future will be
significantly reduced if the Company is unable to obtain substantial new
projects in 2001. 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. 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 heavy construction industry are price, reputation for quality
work, financial strength, 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 Washington Construction Group among others), many
of whom have larger net worth, higher bonding capacity 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. In the event of a decrease of work available in the private
construction market, it is foreseeable that contractors may exit the private
market and enter the public market segment resulting in increased competition.
The Company has received single project bond approval up to $110 million
and has had an aggregate program bond capacity of over $300 million. The Company
believes its bonding capacity remains sufficient to sustain anticipated growth.
Larger competitors typically have practically unlimited bonding capacity and,
therefore, are 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.
Often, 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, Kiewit, 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 a top priority. To accomplish this, the
Company recognizes it must provide quality products and service to its
construction materials customers.
7
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 (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 20% 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. These provisions in the past have not materially
adversely affected the Company.
The contractor is also obligated to perform work as directed to do so by
the owner. If the contractor believes the directives to be outside the scope of
the original bid documents, or if the physical conditions as found on the
project are different than provided in the bid documents, or for any variety of
reasons the contractor believes the directive to perform the work creates costs
that could not reasonably be ascertained from the bid documents, the contract
permits the contractor to make a claim for equitable adjustment to the contract
price. Such equitable adjustment requests are often called contract claims. The
process for resolving claims may vary from one contract to another, but in
general there is a process to attempt resolution at the project supervisory
level or with higher levels of management within the organizations of the
contractor and the owner. Depending upon the terms of the contract, claim
resolution may employ a variety of resolution methods including mediation,
arbitration, binding arbitration, litigation or other methods. Regardless of the
process, it is typical that when a potential claim arises on a project, the
contractor fulfills the obligation to perform the work and must incur the costs
in doing so. The contractor does not recoup the costs until the claim is
resolved. It is not uncommon for the claim resolution process to take months,
or, if it entails litigation, years to resolve.
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,
the customer may retain a portion of billings, generally not exceeding 10%,
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
8
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 $26 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 dependents upon management's assessment of individual project risk
versus the cost of insurance.
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 based upon 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 bond approval of up to $110 million and has had an aggregate program
bond capacity of over $300 million. The Company believes its bonding capacity is
sufficient to sustain anticipated growth.
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.
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.
9
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, 2000, the Company employed approximately 112 salaried
employees (including its management personnel and executive officers) and
approximately 439 hourly employees. The number of hourly employees varies
depending upon the amount of construction in progress. For the year ended
December 31, 2000, the number of hourly employees ranged from approximately 439
to approximately 630 and averaged approximately 585. At December 31, 2000, the
Company was party to six project agreements in Arizona with the Arizona State
District Council of Carpenters, AFL-CIO that covers approximately 10% of the
Company's hourly workforce. At December 31, 2000, the Company believed its
relations with its employees are satisfactory.
Item 2. Properties
The Company leased the following properties at December 31, 2000:
(1) 8,300 square feet of executive office space at 4411 South 40th
Street, Suites D-8, D-10 and D-11, Phoenix, Arizona, 85040,
pursuant to a lease that expires in December 2003, at a monthly
rental rate of $8,280 through December 2001, $8,694 from January
2002 through December 2002 and $9,108 from January 2002 through
December 2002.
(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 April 2001, at a monthly
rental rate of $3,105.
(3) 2,260 square feet of office space for the Company's ready mix
operations, at 2601 E. Thomas Road, Suite 235, Phoenix, Arizona,
89121, pursuant to a lease that expires August 2003, at a average
monthly rental rate of $3,074.
(4) 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 related party of the Company. The Company
believes that its Moapa rental rate is fair, reasonable and
consistent with rates charges 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 under contract to be sold.
The Company has determined that the above properties are sufficient to
meet the Company's current needs.
10
Item 3. Legal Proceedings
The Company is a party to legal proceedings in the ordinary course of its
business. With the exception of those matters detailed below, 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 other pending
proceedings are material to its financial condition.
The following proceedings represent matters that may become material and
have already been or may soon be referred to legal counsel for further action:
Requests for Equitable Adjustment to Construction Contracts. The Company has or
- -----------------------------------------------------------
will make claims as described below on the following contracts:
(1) Five contracts with the New Mexico State Highway and
Transportation Department - The approximate total value of claims
on these projects is $19,050,000 of which approximately
$12,550,000 is on behalf of MVCI and the balance of $6,500,000 is
on behalf of the prime contractor or subcontractors. The primary
issues are changed conditions, plan errors and omissions,
contract modifications and associated delay costs. In addition,
the projects were not completed within the adjusted contract time
because of events giving rise to the claims. The prosecution of
the claims will include the appropriate extensions of contract
time to offset any potential liquidated damages.
(2) Village of Ruidoso Downs - The approximate total value of claims
for additional compensation on this project is $477,000 of which
approximately $277,000 is on behalf of subcontractors. This claim
amount could increase by approximately $400,000 if the Company is
directed to place an additional lift of asphalt on the existing
runway. The primary issues concern quality control and acceptance
of materials furnished by MVCI and related penalties, errors in
sampling and testing, wrongful withholding of payment and
associated delay costs and finance charges.
(3) Clark County, Nevada - The approximate total value of claims on
this project is $18,382,196 of which approximately $10,595,559 is
on behalf of subcontractors. The primary issues are changed
conditions, plan errors and omissions, contract modifications and
associated delay costs.
The above claims combined total approximately $37,909,196. Of that sum,
MVCI's portion of the claims total approximately $20,536,637 and the balance of
approximately $17,372,559 pertains to prime contractor or subcontractors'
claims. Relative to the aforementioned claims, the Company has recorded
approximately $5,850,000 in claim revenue to offset costs incurred to-date on
the claims. Although the Company believes this represents a reasonably
conservative posture, any claims proceeds ultimately awarded to the Company less
than $5,850,000 will result in a reduction in income. Conversely, any amount of
claims proceeds in excess of $5,850,000 will be an increase in income.
Lawsuits Filed Against Meadow Valley Contractors, Inc.
- -----------------------------------------------------
(1) Innovative Construction Systems, Inc. ("ICS"), District Court,
Clark County, NV - ICS was a subcontractor to MVCI on several
projects. ICS failed to make payments of payroll, pension fund
contributions and other taxes for which the Internal Revenue
Service garnished any future payments due ICS on MVCI projects.
As a result, ICS failed to supply labor to perform its work and
defaulted on its subcontracts. MVCI terminated the ICS
subcontracts and performed the work with MVCI personnel. ICS
alleges it was wrongfully terminated and is asserting numerous
claims for damages. ICS claims against MVCI total approximately
$15,000,000. The Company does not believe ICS' claims have merit
and intends to vigorously defend against these claims and will
eventually seek to recover the damages ICS has caused the Company
through its failure to perform.
(2) AnA Enterprises, LLC ("AnA"), District Court, Clark County, NV-
AnA supplied equipment to MVCI on a project under terms of a
variety of agreements. AnA is suing MVCI for non-payment. MVCI
has counter-sued for cost overruns deemed to be the
responsibility of AnA. AnA's suit against MVCI is for
approximately $3,000,000. MVCI's countersuit against AnA is for
approximately $2,000,000. The Company does not believe AnA's
claims have merit and intends to vigorously defend against these
claims.
11
(3) 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.
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, 2000.
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.
1999 2000
------------------ -----------------
High Low High Low
First Quarter 5 7/16 4 4 3 1/2
Second Quarter 4 3/4 4 4 1/62 3 1/8
Third Quarter 4 9/16 3 15/16 3 7/16 2 1/8
Fourth Quarter 4 3/8 3 3/8 3 1/8 2 9/23
Holder of Record
As of February 22, 2001, there were 501 record and beneficial owners of the
Company's Common Stock.
12
Item 6. Selected Financial Data
Years Ended December 31,
-------------------------------------------------------------------------------
1996 1997 1998 1999 2000
--------------- --------------- --------------- --------------- ---------------
Statement of Operations Data:
Revenue $ 133,723,645 $ 146,273,286 $ 187,036,077 $ 210,002,272 $ 163,573,258
Gross Profit 2,810,585 7,861,972 9,444,231 9,931,446 4,638,155
Income (loss) from operations (255,072) 3,172,430 3,084,983 3,260,411 (2,139,685)
Interest Expense 611,828 624,048 435,358 209,872 250,996
Income (loss) from continuing operations
before income taxes (30,410) 3,235,458 3,592,019 3,930,586 (1,859,447)
Net income (loss) from continuing operations (37,531) 2,072,567 2,169,579 2,340,106 (1,574,586)
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) (85,228) 1,211,615 (415,667) 2,340,106 (1,574,586)
Basic net income (loss) per common share:
Income (loss) from continuing operations $ (0.01) $ 0.58 $ 0.60 $ 0.67 $ (0.44)
Loss from discontinued operations (0.01) (0.24) (0.18) - -
Estimated loss on disposal of net assets
of discontinued operations - - (0.54) - -
Basic net income (loss) per common share $ (0.02) $ .34 $ (0.12) $ 0.67 $ (0.44)
Diluted net income (loss) per common share:
Income (loss) from continuing operations $ (0.01) $ .57 $ 0.60 $ 0.66 $ (0.44)
Loss from discontinued operations (0.01) (0.24) (0.17) - -
Estimated loss on disposal of net assets
of discontinued operations - - (0.54) - -
Diluted net income (loss) per common share $ (0.02) $ 0.33 $ (0.11) $ 0.66 $ (0.44)
Basic weighted average common shares
outstanding 3,601,250 3,601,250 3,601,250 3,518,510 3,549,458
Diluted weighted average common shares
outstanding 3,601,250 3,651,360 3,644,651 3,529,705 3,549,458
Financial Position Data:
Working capital $ 8,689,123 $ 5,152,550 $ 5,760,414 $ 6,167,161 $ 5,900,087
Total assets 42,171,030 47,737,762 49,297,063 58,425,361 55,386,030
Long-term debt 4,631,377 5,847,659 5,977,643 7,121,634 11,278,148
Stockholders' equity 11,676,769 12,888,384 12,472,717 14,812,823 13,238,237
(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.
13
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.
At the beginning of last year, we embarked upon an expansion plan that was
designed to significantly increase the revenue from our construction materials
operations compared to 1999. While revenue from this business increased 33% for
2000, and represented 12% of our total revenue for the year, this was below our
expectations. This was primarily because of start-up issues in several of our
new locations in Arizona and Nevada, including permitting delays and adverse
weather conditions. We still were able to accomplish a great deal that we expect
to contribute to improved results in the future. During 2000, we brought into
operation our ready mix concrete batch plant in Henderson, Nevada, which gives
the Company two operating plants and a fleet of 57 ready mix trucks in the Las
Vegas area. We also finalized our property lease and aggregate supply agreements
and erected two ready mix concrete plants in the Phoenix, Arizona area and we
are currently running 36 ready mix trucks out of the two Phoenix locations. We
also successfully completed the installation of our crushing and screening
operations in a quarry at Prescott Valley, Arizona and an aggregate pit in Chino
Valley, Arizona. In addition, we completed the pit improvements and installation
of our crushing, screening and wash plant in our aggregate pit in Nephi, Utah.
As a result of these major accomplishments in 2000, we expect revenue from our
construction materials operations to approximately double in 2001. Longer term,
it remains our objective to generate approximately one third of our total
revenue from sales of construction materials and two-thirds from heavy
construction contracts.
We expected our heavy construction operations to earn substantial profits
for 2000 during the start-up phase of the construction materials expansion
program. Our construction operations in Nevada, Arizona and Utah met our profit
plan for the year. Results in our Nevada area operations were particularly
outstanding. However, our New Mexico operations reported a net loss of $4.2
million, offsetting the profits earned elsewhere.
In 1997, Meadow Valley was the low bidder and was awarded contracts by the
New Mexico State Highway and Transportation Department ("NMSHTD") on several
projects in the Ruidoso and Alamogordo areas that totaled in excess of $50
million. The technical difficulties and issues we encountered on these projects
were similar to those routinely encountered on other highway construction
projects in other states. But the difference in New Mexico was the magnitude of
the deficiencies and the ambivalence of the NMSHTD in solving the problems
actually caused by factors completely within their control (accuracy of plan
documents and design, advance location and relocation of utilities, site
conditions and related geotechnical information, right-of-way issues, resultant
delays, numerous changes and weather impacts resulting from the delays, etc.).
The problems stem from NMSHTD's inability or unwillingness to accept
responsibility for the cost and time impacts that resulted from NMSHTD's acts
and omissions, defective design documents and numerous modifications to our
contracts.
We are proud of the Company's long history of working with project owners
to resolve construction related problems or contract disputes and have earned
numerous awards for our cooperative and problem-solving nature. Our success in
every other state speaks volumes. What has occurred in New Mexico is not
characteristic of our Company but more reflective of the competence and
atmosphere in New Mexico. Under the terms of our contracts with the NMSHTD, when
we incur costs that we believe are compensable, our only recourse is to notify
the NMSHTD of our intent to submit a claim to recover such costs. As a prime
contractor or a subcontractor, we have submitted a number of claims for
compensable costs to the NMSHTD that to-date approximate $19 million. Of that
amount, approximately $12.5 million pertains solely to Meadow Valley. To-date we
have booked slightly more than $4.6 million of anticipated claim revenue (out of
the $12.5 million) to offset a portion of those costs. The $4.6 million
represents a conservative approach to the accounting of these claims at this
time and is not reflective of the merits of the individual claims. We are
aggressively pursuing our claims against the NMSHTD, although we cannot estimate
when or how claims may be resolved. If the claims are rejected, the Company
could experience an adverse financial impact.
14
The Company's backlog at December 31, 2000 was approximately $75 million
compared to a backlog of approximately $104 million at December 31, 1999.
Reported backlog consists of anticipated revenue from the uncompleted portions
of awarded projects. As of December 31, 2000, the Company was the apparent low
bidder on approximately $11 million of additional work that was pending award in
January 2001.
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,
-----------------------------------------
1998 1999 2000
---------- --------- --------
Revenue 100.00% 100.00% 100.00%
Cost of revenue 94.95 95.27 97.16
Gross profit 5.05 4.73 2.84
General and administrative expenses 3.40 3.18 4.14
Income (loss) from operations 1.65 1.55 (1.30)
Interest income 0.46 0.32 .40
Interest expense (.23) (.10) (.15)
Other income (expense) 0.05 0.10 (.07)
Net income (loss) from continuing operations 1.16 1.11 (.96)
Loss from discontinued operations (.34) 0 0
Estimated loss on disposal of net assets
of discontinued operations (1.04) 0 0
Net income (loss) (.22) 1.11 (.96)
Year Ended December 31, 2000 compared to Year Ended December 31, 1999
Revenue and Backlog. Revenue decreased 22.1% to $163.5 million for the
year ended December 31, 2000 from $210.0 million for the year ended December 31,
1999. The decrease was the result of a $51.0 million decrease in contract
revenue offset by a $4.6 million increase in revenue generated from construction
materials production and manufacturing sold to non-affiliates. Backlog decreased
to $75.0 million at December 31, 2000 compared to $104.0 million at December 31,
1999. Revenue is impacted in any one period by the backlog at the beginning of
the period. Year end backlog does not include $11 million in apparent low bids
pending award in January 2001.
Gross Profit. As a percentage of revenue, consolidated gross profit margin
decreased from 4.73% for 1999 to 2.84% for 2000. The decrease in gross profit
margin was the result of costs related to claims and cost overruns on certain
projects, offset, in part, by increased profit recognition related to several
projects nearing completion at December 31, 2000 and by recording, in advance of
receipt, conservative estimates of revenue from claims. 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 $6.78 million for 2000 from $6.67 million for 1999. The increase
resulted primarily from a $1 million increase in general and administrative
expenses attributable to expanding construction material operations offset, in
part, by a $.9 million reduction of general and administrative expenses related
to heavy construction and home office of which various employee incentive plans
amounted to approximately $.8 million.
Interest Income and Expense. Interest income for 2000 decreased to $.6
million from $.7 million for 1999 resulting primarily from a decrease in
invested cash reserves. Interest expense increased for 2000 to $.3 million from
$.2 million for 1999, due primarily to the Company borrowing on the line of
credit.
15
Net Income (loss) from Continuing Operations After Income Taxes. Net
income (loss) from continuing operations after income taxes was $(1.6) million
for 2000 as compared to $2.3 million for 1999. The decrease resulted from lower
revenues along with decreased gross profit margins.
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 $1.95
million charge (net of income tax benefit of $1.3 million), related to the
disposal of assets for the Prestressed Products business, which included a
provision of $1.35 million for estimated operating losses during the phase-out
period. During the year ended December 31, 1999, $.6 million of the expected
losses was incurred (net of income tax benefit of $.4 million).
Net Income (loss). Net income (loss), after discontinued operations, for
1999 was $2.3 million as compared to $(1.6) million for 2000.
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 $6.4 million for 1998 to $6.7 million for 1999. The increase
resulted, in part, from costs related to various employee incentive plans
amounting to $.2 million, $.04 million in costs related to the education and
training of corporate and area personnel, $.07 million 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 $.7
million from $.9 million for 1998 resulting primarily from a decrease in
invested cash reserves. Interest expense decreased for 1999 to $.2 million from
$.4 million for 1998 due primarily to a $1.0 million 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 $2.3 million for 1999 as compared
to $2.2 million 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.
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 $1.95
million charge (net of income tax benefit of $1.3 million), related to the
disposal of assets for the Prestressed Products business, which included a
provision of $1.35 million for estimated operating losses during the phase-out
period. During the years ended December 31, 1998 and 1999, $1.1 million and $.6
million of the expected losses were incurred (net of income tax benefit of $.8
million and $.4 million).
Net Income (loss). Net income (loss), after discontinued operations, for
1999 was $2.3 million as compared to $(.4) million for 1998.
16
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 previously discussed.
Historically, the Company's primary source of cash has been from operations. The
Company's expansion into construction materials has required capital to finance
expanded receivables, increased inventories and capital expenditures as well as
to address fluctuations in the work-in-progress 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,
----------------------------------------------
1998 1999 2000
------------ ------------ ------------
Cash Provided By (Used in) Operating Activities $10,889,235 $(2,248,335) $(3,749,390)
Cash Provided By (Used in) Investing Activities 331,646 681,483 (945,193)
Cash Provided By (Used in) Financing activities (3,043,020) (3,248,684) 339,692
Although the Company may experience increased profitability as the Company
expands its operations, particularly its aggregate, ready mix concrete and
asphalt production, cash may be used to finance receivables, build inventories
and for customer cash retention required under contracts subject to completion.
It is not unusual for cash flows from construction projects nearing the final
stages of completion to have negative cash flows. The recent completion of
several large projects combined with claim-related costs expended on projects
and the start-up costs of the business expansion have resulted in a significant
decline in the Company's cash reserves. Accordingly, during the year ended
December 31, 2000, the Company entered into a revolving loan agreement ("line of
credit"). Under the terms of the agreement, the Company may borrow $7,000,000 at
Chase Manhattan Bank's prime, plus 0.25% through December 31, 2001. The line of
credit is secured by all of the Company's assets. Under the line of credit, the
Company is required to maintain a certain level of tangible net worth. At
December 31, 2000, the Company is in compliance with all covenants under the
line of credit. The line of credit expires December 31, 2001 at which time the
line of credit converts to a term agreement requiring monthly principal and
interest payments through December 31, 2005. The Company believes the line
of credit, together with the Company's historical ability to acquire new work
may be sufficient to meet the Company's cash requirements for the next twelve
months. As of December 31, 2000, the Company had withdrawn $3,037,848 from the
line of credit. As of March 26, 2001, the Company had withdrawn an additional
$2,004,126 from the line of credit.
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 operating activities during 2000 amounted to $3.7 million,
primarily the result of an decrease in net billings in excess of costs of $3.4
million, an decrease in accounts payable of $3.2 million, an increase in
inventory of $1.6 million, an decrease in accrued liabilities of $1.1 million,
net loss of $1.6 million, an increase in income tax receivable of $.8 million,
offset in part by an decrease in accounts receivable of $5.0 million, an
decrease in prepaid expenses and other of $.6 million and depreciation and
amortization of $2.5 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.
17
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.
Cash used by investing activities during 2000 amounted to $.9 million
related primarily to the purchase of property and equipment of $1.6 million,
offset by proceeds from the sale of property and equipment in the amount of $.3
million and an decrease in restricted cash of $.3 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.
Cash provided by financing activities during 2000 amount to $.3 million
related primarily to the proceeds received from a note payable of $6.0 million,
offset by the repayment of notes payable and lease obligations in the amount of
$5.7 million.
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.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"), as amended by FAS No. 137 and FAS No. 138.
FAS 133 requires the Company to record all derivatives on the balance sheet at
fair value commencing with the first quarter of 2001. Changes in derivative fair
values will either be recognized in earnings as offsets to the changes in fair
value of related hedged assets, liabilities and firm commitments or, for
forecasted transactions, deferred and recorded as a component of stockholders'
equity until the hedged transactions occur and are recognized in earnings. The
ineffective portion of a hedging derivative's change in fair value will be
immediately recognized in earnings. Based on our current analysis, FAS 133 will
not have a material impact on the consolidated financial statements of the
Company.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition" which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB No. 101 is applicable beginning with our
fourth quarter fiscal 2001 consolidated financial statements. Based on our
current analysis of SAB No. 101, management does not believe it will have a
material impact on the financial results of the Company.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation, the Interpretation of APB
Opinion No. 25" ("FIN 44"). The Interpretation is intended to clarify certain
problems that have arisen in practice since the issuance of APB No. 25,
"Accounting for Stock Issued to Employees." The effective date of the
Interpretation was July 1, 2000. The provisions of the Interpretation apply
prospectively, but they will also cover certain events occurring after December
15, 1998 and after January 12, 2000. The Company believes the adoption of FIN 44
has not had a material adverse affect on the current and historical consolidated
financial statements.
Known and Anticipated Future Trends and Contingencies
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.
18
The Company believes that government at all levels will continue to be the
primary source of funding for infrastructure work. The national transportation
legislation, TEA-21, establishes a total budget authority of $215 billion over
the six-year period 1998-2003. TEA-21 ensures that tax 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. Annual spending authorizations under TEA-21 have been consistent
anticipated levels, however, since the beginning of TEA-21, the amount of funds
actually reaching the construction phase has been slowed by bureaucratic, design
and environmental bottlenecks. It is expected that the flow of TEA-21 funds will
be seen more noticeably beginning in 2001. 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. There is also trend toward local and state legislation
regulating growth and urban sprawl. The passage of such legislation and the
degree of growth limits imposed by it could dramatically affect the nature of
the Company's markets.
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
Market risk generally represents the risk that losses may occur in the
values of financial instruments as a result of movements in interest rates,
foreign currency exchange rates and commodity prices. The Company does not have
foreign currency exchange rate and commodity price market risk.
Interest Rate Risk - From time to time the Company temporarily invests its
excess cash and restricted cash in interest-bearing securities issued by
high-quality issuers. The Company's management monitors risk exposure to monies
invested in securities of any one financial institution. Due to the short time
the investments are outstanding and their general liquidity, these instruments
are classified as cash equivalents in the consolidated balance sheet and do not
represent a material interest rate risk to the Company. The Company's primary
market risk exposure for changes in interest rates relates to the Company's
long-term debt obligations. The Company manages its exposure to changing
interest rates principally through the use of a combination of fixed and
floating rate debt.
The Company evaluated the potential effect that near term changes in
interest rates would have had on the fair value of its interest rate risk
sensitive financial instruments at December 31, 2000. Assuming a 100 basis point
increase in the prime interest rate at December 31, 2000 the potential increase
in the fair value of the Company's debt obligations would have been
approximately $60,835 at December 31, 2000. See note 8 and 9 in the accompanying
consolidated financial statement.
19
Item 8. Financial Statements and Supplementary Data
The Company's Consolidated Financial Statements are indexed on page F-1.
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, 2000, which is hereby incorporated by reference. The
untimely passing of the Company's Chief Operating Officer and Director, Paul R.
Lewis saddened the Company and many of our clients and associates. Mr. Lewis
passed away on February 19, 2001. Accordingly, the Company will be reorganizing
its management structure.
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,
2000, which is hereby incorporated by reference.
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, 2000, 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, 2000, which is hereby incorporated by reference.
20
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, 1998, 1999 and 2000.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter
ended December 31, 2000.
(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)
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 Registant 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)
21
Exhibit
No. Title
------- -----------------------------------------------------------------
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 Contract 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)
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
Transportion (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 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)
22
Exhibit
No. Title
------- ---------------------------------------------------------------
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)
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)
10.86 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 the 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 (5)
10.96 Promissory Note executed by General Electric Capital
Corporation (5)
10.97 Promissory Note executed by John Deere Construction Equipment
Company (5)
10.98 Promissory Note executed by John Deere Construction Equipment
Company (5)
10.99 Transfer and Assumption Agreement executed by Associates
Leasing, Inc. (5)
10.100 Lease Agreement with Banc One Leasing Corp. (5)
10.101 Lease Agreement with Caterpillar Financial Services (5)
23
Exhibit
No. Title
------- -----------------------------------------------------------------
10.102 Lease Agreement with Trinity Capital Corporation (5)
10.103 Lease Agreement with Banc One Leasing Corp. (5)
10.104 Wheeler Machinery Co. Installment Sale Contract (5)
10.105 Wheeler Machinery Co. Installment Sale Contract (5)
10.106 Bank One, Arizona Restated Revolving Line of Credit Note (5)
10.107 Promissory Note executed by General Electric Capital Corportion
(5)
10.108 Employment Agreement with Mr. Larson (5)
10.109 Lease Agreement with Banc One Leasing Corp. (5)
10.110 Master Lease Agreement with Banc One Leasing Corp. (5)
10.111 Contract between Registrant and Arizona Department of
Transportation (5)
10.112 Contract between Registrant and Arizona Department of
Transportation (5)
10.113 Contract between Registrant and Utah Department of Transportation
(5)
10.114 Contract between Registrant and Flood Control District of
Maricopa County (5)
10.115 Contract between Registrant and Johnson and Danley Construction
Co., Inc. (5)
10.116 Master Lease Agreement with The CIT Group/Equipment Financing,
Inc.
10.117 Lease Agreement with The CIT Group/Equipment Financing, Inc.
10.118 Lease Agreement with The CIT Group/Equipment Financing, Inc.
10.119 Lease Agreement with The CIT Group/Equipment Financing, Inc.
10.120 Master Lease Agreement with The CIT Group/Equipment Financing,
Inc.
10.121 Lease Agreement with The CIT Group/Equipment Financing, Inc.
10.122 Master Security Agreement with The CIT Group/Equipment Financing,
Inc.
10.123 Security Agreement with The CIT Group/Equipment Financing, Inc.
10.124 Security Agreement with The CIT Group/Equipment Financing, Inc.
10.125 Security Agreement with The CIT Group/Equipment Financing, Inc.
10.126 Security Agreement with The CIT Group/Equipment Financing, Inc.
10.127 Security Agreement with The CIT Group/Equipment Financing, Inc.
10.128 Master Security Agreement with The CIT Group/Equipment Financing,
Inc.
10.129 Security Agreement with The CIT Group/Equipment Financing, Inc.
10.130 Office lease of the Registrant
10.131 Transfer and Assumption Agreement with Caterpillar Financial
Services Corporation
10.132 Installment Sale Contract with Caterpillar Financial Services
Corporation
10.133 Property Lease and Aggregate Supply Agreement with Sun State Rock
& Materials Corp.
10.134 Property Lease and Aggregate Supply Agreement with Clay R. Oliver
d.b.a. Oliver Mining Company
10.135 Security Agreement with John Deere Construction Equipment Company
10.136 Master Lease Agreement with The CIT Group/Equipment Financing,
Inc.
10.137 Lease Agreement with The CIT Group/Equipment Financing, Inc.
10.138 Lease Agreement with The CIT Group/Equipment Financing, Inc.
10.139 Security Agreement with Associates Leasing, Inc.
10.140 Revolving Loan Agreement with The CIT Group/Equipment Financing,
Inc.
10.141 Lease Agreement with Banc One Leasing Corporation
10.142 Office lease of the Registrant
10.143 Security Agreement with John Deere Construction Equipment Company
10.144 Contract between Registrant and Nevada Department of
Transportation
10.145 Contract between Registrant and Arizona Department of
Transportation
10.146 Joint Venture Agreement between Registrant and R.E. Monks
Construction Co., LLC
10.147 Contract between Registrant and Nevada Department of
Transportation
24
Exhibit
No. Title
------- -----------------------------------------------------------------
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)
(1) Incorporation 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
(5) Incorporated by reference to the Company's December 31, 1999 Annual
Report on Form 10-K
25
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 29, 2001
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 Officer Director
Date: March 29, 2001 Date: March 29, 2001
/s/ Kenneth D. Nelson /s/ Alan A. Terril
- ---------------------------------------------------- ------------------------------------------------------
Kenneth D. Nelson Alan A. Terril
Director, Chief Administrative Officer and Director and Vice President - Nevada Operations
Vice President Date: March 29, 2001
Date: March 29, 2001
/s/ Charles E. Cowan /s/ Gary A. Agron
- ---------------------------------------------------- ------------------------------------------------------
Charles E. Cowan Gary A. Agron
Director Director
Date: March 29, 2001 Date: March 29, 2001
/s/ Charles R. Norton /s/ Nicole R. Smith
- ---------------------------------------------------- ------------------------------------------------------
Charles R. Norton Nicole R. Smith
Director Treasurer, Secretary and Principal Accounting Officer
Date: March 29, 2001 Date: March 29, 2001
26
INDEX TO FINANCIAL STATEMENTS
Meadow Valley Corporation and Subsidiaries
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets at December 31, 1999 and 2000 F-3
Consolidated Statements of Operations for the years ended December 31, 1998, 1999 and 2000 F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1998, 1999 and 2000 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1999 and 2000 F-6
Notes to Consolidated Financial Statements F-8
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Meadow Valley Corporation
Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of Meadow Valley
Corporation as of December 31, 1999 and 2000, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
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 financial position of Meadow Valley
Corporation at December 31, 1999 and 2000, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
2000, in conformity with accounting principles generally accepted in the Unites
States of America.
/s/ BDO Seidman, LLP
March 15, 2001
F-2
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1999 2000
------------ ------------
Assets:
Current Assets:
Cash and cash equivalents (Notes 1 and 2) $6,177,489 $1,822,598
Restricted cash (Notes 1, 2 and 16) 2,143,507 1,783,005
Accounts receivable, net (Notes 1, 3, 10 and 16) 19,256,882 14,297,564
Prepaid expenses and other 1,193,912 749,708
Inventory (Note 1) 3,603,517 5,242,148
Income tax receivable (Notes 1 and 11) - 774,000
Costs and estimated earnings in excess of billings on uncompleted
contracts (Note 4) 8,858,933 9,828,009
----------- -----------
Total Current Assets 41,234,240 34,497,032
Property and equipment, net (Notes 1, 5, 8, 10 and 12) 15,077,673 18,111,506
Deferred tax asset (Notes 1 and 11) 129,461 873,441
Refundable deposits 83,680 176,565
Goodwill, net (Note 1) 1,580,762 1,500,733
Mineral rights 255,168 226,753
Net assets of discontinued operations (Note 19) 193,838 -
----------- -----------
Total Assets $58,554,822 $55,386,030
=========== ===========
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable (Notes 6 and 10) $20,807,792 $17,606,113
Accrued liabilities (Note 7) 3,387,320 2,289,698
Notes payable (Note 8) 1,304,092 1,604,399
Obligations under capital leases (Note 12) 1,114,722 1,041,921
Billings in excess of costs and estimated earnings on uncompleted
contracts (Note 4) 8,453,153 6,054,814
----------- -----------
Total Current Liabilities 35,067,079 28,596,945
Deferred tax liability (Notes 1 and 11) 1,553,286 2,272,700
Notes payable, less current portion (Notes 8 and 9) 2,710,780 7,674,608
Obligations under capital leases, less current portion (Note 12) 4,410,854 3,603,540
----------- -----------
Total Liabilities 43,741,999 42,147,793
----------- -----------
Commitments and contingencies (Notes 9, 10, 12 and 14)
Stockholders' Equity:
Preferred stock - $.001 par value; 1,000,000 shares authorized, none
issued and outstanding (Note 13) - -
Common stock - $.001 par value; 15,000,000 shares authorized, 3,601,250
issued and 3,559,938 outstanding (Notes 13 and 17) 3,601 3,601
Additional paid-in capital 10,943,569 10,943,569
Capital adjustments (799,147) (799,147)
Retained earnings 4,664,800 3,090,214
----------- -----------
Total Stockholders' Equity 14,812,823 13,238,237
----------- -----------
Total Liabilities and Stockholders' Equity $58,554,822 $55,386,030
=========== ===========
The Accompanying Notes are an Integral Part of the Financial Statements
F-3
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31,
-------------------------------------------------------
1998 1999 2000
------------- ------------- -------------
Revenue (Notes 10 and 16) $ 187,036,077 $ 210,002,272 $ 163,573,258
Cost of revenue (Note 10) 177,591,846 200,070,826 158,935,103
------------- ------------- -------------
Gross Profit 9,444,231 9,931,446 4,638,155
General and administrative expenses (Note 10) 6,359,248 6,671,035 6,777,840
------------- ------------- -------------
Income (loss) from Operations 3,084,983 3,260,411 (2,139,685)
------------- ------------- -------------
Other Income (Expense):
Interest income 856,191 668,928 646,480
Interest expense (Note 10) (435,358) (209,872) (250,996)
Other income (expense) 86,203 211,119 (115,246)
------------- ------------- -------------
507,036 670,175 280,238
------------- ------------- -------------
Income (loss) from continuing operations before
Income taxes 3,592,019 3,930,586 (1,859,447)
Income tax benefit (expense) (1,422,440) (1,590,480) 284,861
------------- ------------- -------------
Net income (loss) from continuing operations 2,169,579 2,340,106 (1,574,586)
Discontinued operations (Note 19):
Loss from operations of Prestressed Products
subsidiary, net of income tax benefit of $423,497 (635,246) - -
Estimated loss on disposal of net assets of
Prestressed Products subsidiary (net of income
tax benefit of $1,300,000), including $1,350,000
for operating losses during phase-out period (1,950,000) - -
------------- ------------- -------------
Net income (loss) (Note 17) $ (415,667) $ 2,340,106 $ (1,574,586)
============= ============= =============
Basic net income (loss) per common share (Note 18):
Income (loss) from continuing operations $ 0.60 $ 0.67 $ (0.44)
Loss from operations of Prestressed Products
subsidiary (0.18) - -
Estimated loss on disposal of net assets of
Prestressed Products subsidiary (0.54) - -
------------- ------------- -------------
Basic net income (loss) per common share $ (0.12) $ 0.67 $ (0.44)
============= ============= =============
Diluted net income (loss) per common share (Note 18):
Income (loss) from continuing operations $ 0.60 $ 0.66 $ (0.44)
Loss from operations of Prestressed Products
subsidiary (0.17) - -
Estimated loss on disposal of net assets of
Prestressed Products subsidiary (0.54) - -
------------- ------------- -------------
Diluted net income (loss) per common share $ (0.11) $ 0.66 $ (0.44)
============= ============= =============
Basic weighted average common shares
outstanding (Note 18) 3,601,250 3,518,510 3,549,458
============= ============= =============
Diluted weighted average common shares
outstanding (Note 18) 3,644,651 3,529,705 3,549,458
============= ============= =============
The Accompanying Notes are an Integral Part of the Financial Statements
F-4
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998, 1999 and 2000
Common Stock
---------------------------------
Number of
Shares Paid-in Capital Retained
Outstanding Amount Capital Adjustment Earnings
--------------- ---------------- ---------------- ---------------- -----------------
Balance at January 1, 1998 3,601,250 $ 3,601 $ 10,943,569 $ (799,147) $2,740,361
Net loss (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 2,340,106
--------------- --------------- --------------- --------------- ----------------
Balance at December 31, 1999 3,501,250 3,601 10,943,569 (799,147) 4,664,800
Net loss (1,574,586)
--------------- --------------- --------------- --------------- ----------------
Balance at December 31, 2000 3,501,250 $ 3,601 $ 10,943,569 $ (799,147) $3,090,214
=============== =============== =============== =============== ================
The Accompanying Notes are an Integral Part of the Financial Statements
F-5
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
-------------------------------------------------------
1998 1999 2000
------------- ------------- -------------
Increase (Decrease) in Cash and Cash Equivalents:
Cash flows from operating activities:
Cash received from customers $ 200,534,004 $ 198,476,899 $ 164,946,410
Cash paid to suppliers and employees (188,760,555) (200,249,598) (169,013,765)
Interest received 878,517 695,759 643,705
Interest paid (488,474) (235,899) (250,996)
Income taxes paid (1,274,257) (935,496) (74,744)
------------- ------------- -------------
Net cash provided by (used in) operating activities 10,889,235 (2,248,335) (3,749,390)
------------- ------------- -------------
Cash flows from investing activities:
Decrease (increase) in restricted cash (1,958,917) 1,535,178 360,502
Collection of note receivable - related party 257,575 - -
Collection of note receivable - other 2,466 208,807 -
Proceeds from sale of property and equipment 165,182 361,138 320,039
Purchase of property and equipment (588,784) (1,399,815) (1,625,734)
Purchase of mineral rights - (255,168) -
Decrease (increase) in net assets of discontinued
operations 2,454,124 231,343 -
------------- ------------- -------------
Net cash provided by (used in) investing activities 331,646 681,483 (945,193)
------------- ------------- -------------
Cash flows from financing activities:
Repayment of capital lease obligations (645,534) (882,677) (1,183,847)
Proceeds received from notes payable - other - - 6,055,556
Repayment of notes payable - other (897,486) (1,366,007) (4,532,017)
Repayment of notes payable - related party (1,500,000) (1,000,000) -
------------- ------------- -------------
Net cash provided by (used in) financing activities (3,043,020) (3,248,684) 339,692
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 8,177,861 (4,815,536) (4,354,891)
Cash and cash equivalents at beginning of year 2,815,164 10,993,025 6,177,489
------------- ------------- -------------
Cash and cash equivalents at end of year $ 10,993,025 $ 6,177,489 $ 1,822,598
============= ============= =============
The Accompanying Notes are an Integral Part of the Financial Statements
F-6
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Years Ended December 31,
-----------------------------------------------------
1998 1999 2000
---------- ----------- -------------
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) $ (415,667) $ 2,340,106 $ (1,574,586)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,849,628 2,012,592 2,530,914
(Gain) loss on sale of property and equipment (29,777) 11,886 (106,280)
Deferred taxes, net 377,166 634,098 (24,566)
Changes in Operating Assets and Liabilities:
Accounts receivable, net 8,707,867 (3,822,391) 4,959,318
Prepaid expenses and other (801,540) 643,386 638,042
Inventory - (3,603,517) (1,638,631)
Income tax receivable (228,983) 20,886 (774,000)
Costs and estimated earnings in excess of billings on
uncompleted contracts 62,856 (5,008,314) (969,076)
Refundable deposits - (26,027) (92,885)
Accounts payable (4,573,921) 7,010,356 (3,201,679)
Accrued liabilities 1,301,618 321,985 (1,097,622)
Interest payable (53,116) 107,461 -
Billings in excess of costs and estimated earnings on
uncompleted contracts 4,693,104 (2,890,842) (2,398,339)
------------ ------------ -------------
Net cash provided by (used in) operating activities $ 10,889,235 $ (2,248,335) $ (3,749,390)
============ ============ ============
The Accompanying Notes are an Integral Part of the Financial Statements
F-7
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Use of Estimates:
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.
("MVCI") and Ready Mix, Inc. ("RMI"). MVCI 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 manufactures and distributes ready mix
concrete in the Las Vegas and Phoenix metropolitan areas. 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 MVCI and RMI. Intercompany
transactions and balances have been eliminated in consolidation.
Reclassifications:
Certain balances as of December 31, 1999 and the year then ended have been
reclassified in the accompanying consolidated financial statements to conform
with the current year presentation. These classifications had no effect on
previously reported net income or stockholders' equity.
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, 2000,
revenue from anticipated claim proceeds increased by $2,320,904 to $5,820,904
from $3,500,000 for the year ended December 31, 1999. The estimated total claims
that have been filed or will be filed increased by $27,703,985 from $10,205,211
at December 31, 1999 to approximately $37,909,196 at December 31, 2000. The
Company's portion of the total claims amount, excluding claims filed by other
prime contractors or on behalf of the Company's subcontractors, total
approximately $20,536,637.
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, 1999 and 2000 funds in the amount of $2,143,507 and
$1,783,005 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.
F-8
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies and Use of Estimates
(Continued):
Accounts Receivable:
Included in accounts receivable are trade receivables that represent
amounts billed but uncollected on completed construction contracts and
construction contracts in progress.
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, 1999 and 2000 the Company
had established an allowance for potentially uncollectible accounts receivable
in the amounts of $97,324 and $399,219. During the years ended December 31,
1998, 1999 and 2000 the Company incurred bad debt expense in the amounts of
$59,273, $79,681 and $489,379.
Property and Equipment:
Property and equipment are recorded at cost. Depreciation charged to
operations during the years ended December 31, 1998, 1999 and 2000 was
$1,757,422, $1,932,272 and $2,422,470. Depreciation is provided for on the
straight-line method, over the following estimated useful lives. Leasehold
improvements are recorded at cost and are amortized over their estimated useful
lives or the lease term, whichever is shorter.
Plants 6-15 years
Computer Equipment 5-7 years
Equipment 5-10 years
Vehicles 5 years
Office furniture and equipment 7 years
Improvements 2-10 years
At December 31, 1999 and 2000, property and equipment with a net book value
of $10,872,442 and $18,111,506 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, 1998, 1999 and
2000 was $80,029. The carrying value of goodwill is periodically reviewed by the
Company and impairments, if any, are recognized when expected future operating
cash flows derived from goodwill is less than its carrying value.
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 MVCI and
RMI 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, costs and estimated earnings in excess of billings on uncompleted
contracts, certain current maturities of long-term debt, 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-9
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies and Use of Estimates
(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 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. The
Company periodically reviews the carrying value of its long-lived assets and
impairments, if any, are recognized when expected future operating cash flows
from long-lived assets is less than its carrying value.
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 reflect the
potential dilution of securities that could share in the earnings of an entity,
similar to fully diluted earnings per share.
Accounting for Derivative Instruments and Hedging Activities:
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133"), as amended by FAS
No. 137 and FAS No. 138. FAS 133 requires companies to record all derivatives
on the balance sheet at fair value commencing with the first quarter of 2001.
Changes in derivative fair values will either be recognized in earnings as
offsets to the changes in fair value of related hedged assets, liabilities and
firm commitments or, for forecasted transactions, deferred and recorded as a
component of stockholders' equity until the hedged transactions occur and are
recognized in earnings. The ineffective portion of a hedging derivative's
change in fair value will be immediately recognized in earnings. Based on our
current analysis, FAS 133 will not have a material impact on the consolidated
financial statements of the Company.
Revenue Recognition:
The Securities and Exchange Commission ("SEC") issued Staff Accounting
Bulletin ("SAB") No. 101 "Revenue Recognition" which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. SAB No. 101 is applicable beginning with our fourth quarter
fiscal 2001 consolidated financial statements. Based on our current analysis of
SAB No. 101, management does not believe it will have a material impact on the
financial results of the Company.
Accounting for Certain Transactions Involving Stock Compensation:
The FASB issued Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation, the Interpretation of APB Opinion No. 25" ("FIN
44"). The Interpretation is intended to clarify certain problems that have
arisen in practice since the issuance of APB No. 25, "Accounting for Stock
Issued to Employees." The effective date of the Interpretation was July 1,
2000. The provisions of the Interpretation apply prospectively, but they will
also cover certain events occurring after December 15, 1998 and after January
12, 2000. The Company believes the adoption of FIN 44 has not had a material
adverse affect on the current and historical consolidated financial statements.
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, 1999 and 2000, the Company has
uninsured cash, cash equivalents, and restricted cash in the amounts of
$9,682,808 and $5,322,475.
3. Accounts Receivable:
Accounts receivable consists of the following:
December 31, December 31,
1999 2000
------------ ------------
Contracts in progress $ 8,046,857 $ 6,382,925
Contracts in progress - retention 7,543,315 4,041,781
Completed contracts 3,000 -
Completed contracts - retention 598,408 121,376
Other trade receivables 3,068,583 4,000,003
Other receivables 94,043 150,698
----------- -----------
19,354,206 14,696,783
Less: Allowance for doubtful accounts (97,324) (399,219)
----------- -----------
$19,256,882 $14,297,564
=========== ===========
F-10
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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,
1999 2000
------------- -------------
Costs incurred on uncompleted contracts $ 395,414,292 $ 425,863,961
Estimated earnings to date 19,077,844 18,838,396
------------- -------------
414,492,136 444,702,357
Less: billings to date (414,086,356) (440,929,162)
------------- -------------
$ 405,780 $ 3,773,195
============= =============
Included in the accompanying balance sheets under the following captions:
December 31, December 31,
1999 2000
------------- -------------
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 8,858,933 $ 9,828,009
Billings in excess of costs and estimated
earnings on uncompleted contracts (8,453,153) (6,054,814)
------------- -------------
$ 405,780 $ 3,773,195
============= =============
5. Property and Equipment:
Property and equipment consists of the following:
December 31, December 31,
1999 2000
------------- -------------
Land $ 852,243 $ 827,639
Plants 6,013,967 9,395,274
Computer equipment 324,710 341,783
Equipment 10,389,473 12,089,702
Vehicles (Note 12) 2,449,844 2,068,654
Office furniture and fixtures 50,311 62,420
Improvements 8,926 364,766
------------- -------------
20,089,474 25,150,238
Accumulated depreciation (5,011,801) (7,038,732)
------------- -------------
$ 15,077,673 $ 18,111,506
============= =============
6. Accounts Payable:
Accounts payable consists of the following:
December 31, December 31,
1999 2000
------------- -------------
Trade $ 13,934,908 $ 14,069,299
Retentions 6,872,884 3,536,814
------------- -------------
$ 20,807,792 $ 17,606,113
============= =============
F-11
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Accrued Liabilities:
Accrued liabilities consists of the following:
December 31, December 31,
1999 2000
------------ ------------
Compensation $ 1,516,610 $ 765,497
Outside services 524,780 -
Taxes 534,388 641,464
Insurance 224,456 77,208
Other 587,086 805,529
------------ ------------
$ 3,387,320 $ 2,289,698
============ ============
8. Notes Payable:
Notes payable consists of the following:
December 31, December 31,
1999 2000
------------ ------------
Notes payable, interest rates ranging from 3.9% to 9% with
monthly payments of $97,671, due dates ranging from
January 1, 2003 to June 4, 2004, collateralized by equipment $ 3,616,047 $ 2,397,756
Notes payable, interest rates ranging from 9.0% to 9.33% with
monthly payments of $9,958, due dates ranging from August
15, 2003 to December 31, 2004, collateralized by land 398,825 313,067
Notes payable, interest rates ranging from 0% to 8.11% with
monthly payments of $18,680, due dates ranging from July
5, 2002 to November 1, 2004, collateralized by equipment - 484,677
Notes payable, variable interest rate currently at 9.5%,
interest rate based on Chase Manhattan Bank's prime, with
monthly principal payments of $35,953, due dates ranging from
July 14, 2005 to October 3, 2009, collateralized by equipment - 3,045,659
Note payable, variable interest rate currently at 9.75%,
interest rate based on Chase Manhattan Bank's prime plus
.25%, with interest only payments until January 31, 2002,
due December 31, 2005, collaterzlized by all assets of the Company
(See Note 9) - 3,037,848
------------ ------------
4,014,872 9,279,007
Less: current portion (1,304,092) (1,604,399)
------------ ------------
$ 2,710,780 $ 7,674,608
============ ============
F-12
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Notes Payable (Continued):
Following are maturities of long-term debt for each of the next 5 years:
2001 $ 1,604,399
2002 2,213,118
2003 1,825,533
2004 1,360,978
2005 1,298,071
Subsequent to 2005 976,908
-----------
$ 9,279,007
===========
9. Line of Credit:
In July 2000, the Company entered into a revolving loan agreement ("line of
credit"). Under the terms of the agreement, the Company may borrow up to
$7,000,000 at Chase Manhattan Bank's prime, plus .25% through December 31, 2001
at which time the line of credit converts to a term agreement requiring monthly
principal and interest payments through December 31, 2005. The line of credit is
collateralized by all of the Company's assets. Under the terms of the line of
credit, the Company is required to maintain certain levels of tangible net
worth. As of December 31, 2000, the Company was in compliance with all such
covenants and had withdrawn $3,037,848 from the line of credit. As of March 26,
2001, the Company had withdrawn an additional $2,004,126 from the line of
credit.
10. Related Party Transactions:
Management believes that the fair value of the following transactions
reflect current amounts that the Company could have consummated transactions
with other third parties.
Revenue:
During the year ended December 31, 2000 the Company provided construction
materials to various related parties in the amount of $26,556. Included in
accounts receivable at December 31, 2000 are amounts due from related parties,
in the amount of $15,132.
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, 1998, 1999 and 2000, a related party
rendered professional services to the Company in the amounts of $10,904, $7,944
and $23,342. During the years ended December 31, 1998, 1999 and 2000, the
Company paid $5,000, $5,000 and $30,000 to outside members of the board of
directors.
Subcontractor/Supplier:
Various related parties provided materials and equipment used in the
Company's construction business during the years ended December 31, 1998, 1999
and 2000, in the amounts of $191,694, $65,441 and $535,694. Included in accounts
payable at December 31, 1999 and 2000 are amounts due to related parties, in the
amounts of $821 and $154,861, related to supplies.
Royalties:
During the years ended December 31, 1998, 1999 and 2000, the Company paid
various related parties mining royalties in the amounts of $186,949, $182,061
and $328,310. Included in accounts payable at December 31, 1999 and 2000 are
amounts due to related parties, in the amounts of $1,158 and $0, related to
royalties.
F-13
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Related Party Transactions (Continued):
Accrued Interest:
During the year ended December 31, 1998, the Company incurred interest
expense in the amount of $243,322 related to a note payable to a principal
stockholder.
Commitments:
The Company leases office space in Moapa, Nevada on a month-to-month
basis, at a rental rate of $840 per month, from a related party of the Company.
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, 1998, 1999 and 2000 amount to $10,040, $10,080 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 discontinued operations of PPI. Rent expense under the
lease for the year ended December 31, 1998 amounted to $42,369.
11. Income Taxes:
The provisions for income taxes benefit (expense) from continuing
operations consist of the following:
For the Years Ended December 31,
--------------------------------------------------------
1998 1999 2000
---------------- ---------------- ----------------
Current:
Federal $ (932,032) $ (851,180) $ 231,663
State (113,242) (105,202) 28,632
---------------- ---------------- ----------------
(1,045,274) (956,382) 260,295
Deferred (377,166) (634,098) 24,566
---------------- ---------------- ----------------
$ (1,422,440) $ (1,590,480) $ 284,861
================ ================ ================
The Company's deferred tax asset (liability) consists of the following:
December 31, December 31,
1999 2000
----------------- -----------------
Deferred tax asset:
Other $ 129,461 $ 269,137
NOL carryforward - 604,304
----------------- -----------------
129,461 873,441
Deferred tax liability:
Depreciation (1,553,286) (2,272,700)
----------------- -----------------
Net deferred tax liability $ (1,423,825) $ (1,399,259)
================= =================
For the years ended December 31, 1998, 1999 and 2000, the effective tax
rate differs from the federal statutory rate primarily due to state income taxes
and permanent differences.
F-14
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Commitments:
The Company is currently leasing office space in Phoenix, Arizona under
a non-cancelable operating lease agreement expiring in December 2003. During
December 1998, the Company amended the original lease. The amended lease
agreement provides for monthly payments of $8,280 through December 31, 2001,
$8,694 from January 1, 2002 through December 31, 2002 and $9,108 from January 1,
2003 through December 31, 2003. The lease also requires the Company to pay
common area maintenance, taxes, insurance and other costs. Rent under the
aforementioned operating lease was $66,117, $89,152 and $96,765 for the years
ended December 31, 1998, 1999 and 2000.
The Company leases batch plants, equipment, mixer trucks, property and
aggregate supply under operating leases expiring in various years through 2010.
Rent under the aforementioned operating leases were $1,839,891, $2,374,109 and
$4,369,138 for the years ended December 31, 1998, 1999 and 2000. Minimum future
rental payments under non-cancelable operating leases having remaining terms in
excess of one year as of December 31, 2000 for each of the next five years and
in aggregate are:
2001 $ 6,903,599
2002 5,810,327
2003 5,484,142
2004 5,115,259
2005 3,063,638
Subsequent to 2005 5,291,637
------------------
$31,668,602
==================
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. As of the end of
December 31, 1998, 1999 and 2000, the total commitments, excluding benefits and
incentives amount to $1,011,250, $1,530,438 and $870,188.
The Company is the lessee of batch plants, equipment and vehicles 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 1998, 1999 and 2000 was $533,008,
$559,348 and $762,548. At December 31, 1999 and 2000, property and equipment
included $7,121,713 and $6,895,120 of vehicles and equipment under capital
leases.
Minimum future lease payments under capital leases as of December 31,
2000 for each of the next five years and in aggregate are:
2001 $ 1,380,605
2002 1,198,031
2003 1,045,432
2004 932,377
2005 631,541
Subsequent to 2005 414,717
-----------------
Total minimum payments 5,602,703
Less: executory costs (5,781)
-----------------
Net minimum lease payments 5,596,922
Less: amount representing interest (951,461)
-----------------
Present value of net minimum lease payment 4,645,461
Less: current portion (1,041,921)
-----------------
$ 3,603,540
=================
F-15
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. 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.
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. In September 2000, the
exercise price of the warrants was reduced to $5.00 per share and the exercise
period was extended until June 30, 2002.
14. Litigation and Claim Matters:
The Company is a party to legal proceedings in the ordinary course of its
business. With the exception of those matters detailed below, 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 other pending
proceedings are material to its financial condition.
The following proceedings represent matters that may become material and
have already been or may soon be referred to legal counsel for further action:
Requests for Equitable Adjustment to Construction Contracts. The Company has or
- -----------------------------------------------------------
will make claims as described below on the following contracts:
(1) Five contracts with the New Mexico State Highway and
Transportation Department - The approximate total value of claims
on these projects is $19,050,000 of which approximately
$12,550,000 is on behalf of MVCI and the balance of $6,500,000 is
on behalf of the prime contractor or subcontractors. The primary
issues are changed conditions, plan errors and omissions, contract
modifications and associated delay costs. In addition, the
projects were not completed within the adjusted contract time
because of events giving rise to the claims. The prosecution of
the claims will include the appropriate extensions of contract
time to offset any potential liquidated damages.
(2) Village of Ruidoso Downs - The approximate total value of claims
for additional compensation on this project is $477,000 of which
approximately $277,000 is on behalf of subcontractors. This claim
amount could increase by approximately $400,000 if the Company is
directed to place an additional lift of asphalt on the existing
runway. The primary issues concern quality control and acceptance
of materials furnished by MVCI and related penalties, errors in
sampling and testing, wrongful withholding of payment and
associated delay costs and finance charges.
(3) Clark County, Nevada - The approximate total value of claims on
this project is $18,382,196 of which approximately $10,595,559 is
on behalf of subcontractors. The primary issues are changed
conditions, plan errors and omissions, contract modifications and
associated delay costs.
The above claims combined total approximately $37,909,196. Of that sum,
MVCI's portion of the claims total approximately $20,536,637 and the balance of
approximately $17,372,559 pertains to prime contractor or subcontractors'
claims. Relative to the aforementioned claims, the Company has recorded
approximately $5,850,000 in claim revenue to offset costs incurred to-date on
the claims. Although the Company believes this represents a reasonably
conservative posture, any claims proceeds ultimately awarded to the Company less
than $5,850,000 will result in a reduction in income. Conversely, any amount of
claims proceeds in excess of $5,850,000 will be an increase in income.
F-16
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Litigation and Claim Matters (Continued):
Lawsuits Filed Against Meadow Valley Contractors, Inc.
- -----------------------------------------------------
(1) Innovative Construction Systems, Inc. ("ICS"), District Court,
Clark County, NV - ICS was a subcontractor to MVCI on several
projects. ICS failed to make payments of payroll, pension funds
contributions and other taxes for which the Internal Revenue
Service garnished any future payments due ICS on MVCI projects. As
a result, ICS failed to supply labor to perform its work and
defaulted on its subcontracts. MVCI terminated the ICS
subcontracts and performed the work with MVCI personnel. ICS
alleges it was wrongfully terminated and is asserting numerous
claims for damages. ICS claims against MVCI total approximately
$15,000,000. The Company does not believe ICS' claims have merit
and intends to vigorously defend against these claims and will
eventually seek to recover the damages ICS has caused the Company
through its failure to perform.
(2) AnA Enterprises, LLC ("AnA"), District Court, Clark County, NV -
AnA supplied equipment to MVCI on a project under terms of a
variety of agreements. AnA is suing MVCI for non-payment. MVCI has
counter-sued for cost overruns deemed to be the responsibility of
AnA. AnA's suit against MVCI is for approximately $3,000,000.
MVCI's countersuit against AnA is for approximately $2,000,000.
The Company does not believe AnA's claims have merit and intends
to vigorously defend against these claims.
(3) The Company is defending a claimed preference in connection with a
payment made to it by an insurance company in the approximate
amounts of $100,000. The Company believes that the payment is not
a preference, and is vigorously defending the action.
15. 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, 1998, 1999 and 2000, the Company
financed the purchase of property, plant and equipment in the amount of
$3,273,137, $4,987,308 and $4,044,329.
During the year ended December 31, 1999, the Company received $135,000
trade in value on equipment.
During the year ended December 31, 2000, the Company sold a piece of
equipment for a total purchase price of $80,000. The Company received a cash
payment in the amount of $20,000; a piece of equipment valued at $20,000 and
accepted the remaining $40,000 to be paid in two equal installments of $20,000.
Included in account receivable, net at December 31, 2000 is $40,000 related to
the aforementioned sale.
16. Significant Customers:
For the years ended December 31, 1998, 1999 and 2000, the Company
recognized a significant portion of its revenue from three Customers (shown as
an approximate percentage of total revenue):
For the Years Ended December 31,
-------------------------------------------------------
1998 1999 2000
--------------- ----------------- -----------------
A 29.9% 26.2% 17.5%
B 12.5% 28.7% 16.3%
C 24.3% 17.2% 23.0%
At December 31, 1999 and 2000, amounts due from the aforementioned
Customers included in restricted cash and accounts receivables, are as follows:
For the Years Ended December 31,
-------------------------------------
1999 2000
----------------- -----------------
A $ 4,947,425 $ 2,968,786
B 8,866,348 1,855,666
C 1,082,888 1,124,196
F-17
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. 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% 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 summarized the stock option transactions:
Weighted Average
Shares Price 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
Forfeited (101,525) 5.23
-----------------
Outstanding December 31, 2000 671,350 5.11
=================
Information relating to stock options at December 31, 2000 summarized
by exercise price is as follows:
Outstanding Exercisable
---------------------------------------------------- --------------------------------------
Weighted Average Weighted Average
---------------------------------- ----------------- --------------------
Exercise Price Per Share Shares Life (Year) Exercise Price Shares Exercise Price
- ---------------------------- ---------------- ---------------- ----------------- ----------------- --------------------
$6.25 162,300 10 $ 6.25 162,300 $ 6.25
$5.41 5,000 10 5.41 5,000 5.41
$4.375 171,850 10 4.375 171,850 4.375
$5.31 80,000 10 5.31 80,000 5.31
$5.875 109,800 10 5.875 73,204 5.875
$4.563 20,000 10 4.563 6,667 4.563
$4.00 20,000 10 4.00 6,667 4.00
$3.875 102,400 10 3.875 34,133 3.875
- ---------------------------- ---------------- ---------------- ----------------- ----------------- --------------------
$3.875 to $6.25 671,350 10 $ 5.11 539,821 $ 5.11
============================ ================ ================ ================= ================= ====================
F-18
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. 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, 1998, 1999 and 2000. 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,
1998, 1999 and 2000 would have been reduced to the proforma amounts presented
below:
1998 1999 2000
----------------- ---------------- -----------------
Net income (loss)
As Reported $ (415,667) $2,340,106 $ (1,574,586)
Proforma (933,371) 1,784,024 (1,721,988)
Basic net income (loss) per common share
As Reported $ (0.12) $ 0.67 $ (0.44)
Proforma (0.24) 0.51 (0.49)
Diluted net income (loss) per common share
As Reported $ (0.11) $ 0.66 $ (0.44)
Proforma (0.26) 0.51 (0.49)
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 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 1998
and 1999 approximated $1.44 and $1.13.
18. Basic Earnings (Loss) Per Share:
The Company's basic net income (loss) per share at December 31, 1998,
1999 and 2000 were computed by dividing net income for the period by 3,601,250,
3,518,510 and 3,549,458, respectively, the basic weighted average number of
common shares outstanding during the period.
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.
The Company's diluted net income per common share at December 31, 2000
is computed based on the weighted average number of shares of common stock
outstanding during the period. Options to purchase 671,350 at a range of $3.875
to $6.25 per share were outstanding during 2000, 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-19
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. 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 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).
The revenue of PPI for the years ended December 31, 1998 and 1999 was
$5,419,036 and $1,460,381. These amounts are not included in revenue in the
accompanying statements of operations.
The accompanying consolidated balance sheet as of December 31, 1999
reflects the net liabilities and the estimated loss as a single amount as
follows:
December 31,
1999
-----------------
Current assets $ 653,668
Non-current assets -
Liabilities (242,113)
-----------------
Net assets 411,555
Estimated loss on disposition (217,717)
-----------------
Net asset of discontinued operations $ 193,838
=================
20. Subsequent Events:
In January 2001, the Company entered into a purchase agreement with an
officer to buy a piece of land owned by the Company in Moapa, Nevada.
In January 2001, the Company was awarded $31 million in new contracts.
These new contracts included apparent low bids prior to December 31, 2000 and
new contracts bid and awarded in January 2001. The Company's backlog as of
January 31, 2001 is approximately $97 million compared to approximately $106
million as of January 31, 2000.
In February 2001, the Company financed the purchase of equipment in
the amount of $68,077. The note payable obligation has an interest rate of
8.84%, with monthly payments of $1,690, and is due February 13, 2005.
21. Other Informative Disclosures:
In recent years, the Company's strategies have resulted in the
successful initiation and growth in the area of construction materials. The
production and retail sale of construction materials represented 12% of total
revenue in 2000.
The construction materials operation manufactures and distributes
ready mix concrete and sand and gravel products in the Las Vegas, NV and
Phoenix, AZ markets. Prospective customers include concrete subcontractors,
prime contractors, homebuilders, commercial and industrial property developers,
pool builders and homeowners. Construction materials sales first began from a
single location in March 1997 and, by the end of 2000, expanded to two locations
in Las Vegas, NV vicinity, one location in the Moapa, NV vicinity and two
locations in Phoenix, AZ vicinity.
The construction services operation of the Company generates revenue
by providing construction services, usually under terms of a contract with an
owner or a subcontract with another contractor.
F-20
MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
21. Other Informative Disclosures (Continued):
The following is a summary of certain financial items of the Company's
two main areas of operations for 1998, 1999 and 2000:
Construction Construction
Services Materials
-------------------- --------------------
For the twelve months ended December 31, 2000
Gross revenue $144,608,886 $20,330,715
Intercompany revenue - 1,366,343
Cost of revenue 140,684,222 19,617,224
Interest income 614,118 32,362
Interest expense (177,850) (73,146)
Depreciation and amortization 1,868,378 662,536
Income (loss) before taxes (532,354) (1,327,093)
Income tax benefit (expense) (210,145) 495,006
Net income (loss) (742,499) (832,087)
Total assets 42,043,028 13,343,002
For the twelve months ended December 31, 1999
Gross revenue $195,589,962 $15,664,030
Intercompany revenue - 1,251,720
Cost of revenue 187,258,844 14,063,702
Interest income 648,922 20,006
Interest expense (132,637) (77,235)
Depreciation and amortization 1,733,422 279,170
Income (loss) before taxes 3,493,888 436,698
Income tax benefit (expense) (1,427,294) (163,186)
Net income (loss) 2,066,594 273,512
Total assets 48,664,190 9,890,632
For the twelve months ended December 31, 1998
Gross revenue $174,669,177 $15,156,886
Intercompany revenue 1,825,783 964,203
Cost of revenue 166,847,072 13,534,760
Interest income 830,365 25,826
Interest expense (346,366) (88,992)
Depreciation and amortization 1,649,920 199,708
Income (loss) before taxes 2,953,073 638,946
Income tax benefit (expense) (1,216,877) (205,563)
Net income (loss) 1,736,196 433,383
Total assets 44,205,741 5,091,322
There are no differences in accounting principles between the operations.
All centrally incurred costs are allocated to the construction services
operation. Intercompany revenue is eliminated at cost to arrive at consolidated
revenue and cost of revenue.
22. Quarterly Financial Data (Unaudited):
March 31, June 30, September 30, December 31,
------------ ------------ ------------ ------------
2000
Revenue $ 38,589,472 $ 45,378,857 $ 44,434,571 $ 35,170,358
Gross Profit 1,784,830 1,413,572 1,742,034 (302,281)
Income (loss) from operations 210,286 (61,337) (50,655) (2,237,979)
Net income (loss) 227,164 15,366 17,515 (1,834,631)
Basic net income (loss) per common share 0.06 0.01 - (0.51)
Diluted net income (loss) per common share 0.06 0.01 - (0.51)
Basic weighted average common shares
outstanding 3,518,018 3,559,938 3,559,938 3,559,938
Diluted weighted average common shares
outstanding 3,518,018 3,559,938 3,559,938 3,559,938
1999
Revenue $ 58,274,203 $ 54,201,337 $ 51,440,091 $ 46,086,640
Gross Profit 2,743,186 2,672,293 2,471,529 2,044,438
Income from operations 787,617 1,054,801 857,465 560,526
Net income 551,812 676,539 732,772 378,983
Basic net income per common share 0.15 0.20 0.21 0.11
Diluted net income per common share 0.15 0.19 0.21 0.11
Basic weighted average common shares
outstanding 3,571,250 3,501,250 3,501,250 3,501,250
Diluted weighted average common shares
outstanding 3,608,009 3,509,272 3,501,250 3,601,250
F-21