SMITH MIDLAND CORP - Quarter Report: 2009 September (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
10-Q
|
x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended September 30, 2009
or
|
o
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from ________ to ________
Commission
File Number 1-13752
Smith-Midland
Corporation
(Exact
name of Registrant as specified in its charter)
|
Delaware
|
54-1727060
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
of
incorporation or organization)
|
Identification
No.)
|
5119
Catlett Road, P.O. Box 300
Midland,
VA 22728
(Address,
zip code of principal executive offices)
(540) 439-3266
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes þ No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer o Accelerated
filer o
Non-accelerated
filer o Smaller
reporting company þ
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o No þ
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
Common Stock, $.01 par
value, outstanding as of November 2, 2009: 4,629,962 shares, net of treasury
shares
SMITH-MIDLAND
CORPORATION
Form
10-Q Index
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Page
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||
| PART I. FINANCIAL INFORMATION | ||
|
Item
1. Financial
Statements
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||
|
Condensed
Consolidated Balance Sheets (Unaudited), September 30, 2009 and December
31, 2008
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3
|
|
|
Condensed
Consolidated Statements of Operations (Unaudited) for the three months
ended September 30, 2009 and September 30, 2008
|
5
|
|
|
Condensed
Consolidated Statements of Operations (Unaudited) for the nine months
ended September 30, 2009 and September 30, 2008
|
6
|
|
|
Condensed
Consolidated Statements of Cash Flows (Unaudited) for the nine months
ended September 30, 2009 and September 30, 2008
|
7
|
|
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
8
|
|
|
Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
11
|
|
|
Item
3. Quantitative
and Qualitative Disclosures About Market Risk
|
16
|
|
|
Item
4T. Controls
and Procedures
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16
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|
| PART II. OTHER INFORMATION | ||
|
Item
4. Submission
of Matters to a Vote of Security Holders
|
17
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|
|
Item
6. Exhibits
|
17
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|
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Exhibit
31.1
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||
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Exhibit
31.2
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||
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Exhibit
32
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||
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Signatures
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18
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- 2
-
SMITH-MIDLAND
CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
September
30,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Assets:
|
||||||||
|
Current
Assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 2,512,370 | $ | 1,363,284 | ||||
|
Accounts
receivable
|
||||||||
|
Trade
- billed (less allowance for doubtful accounts of
|
5,420,965 | 5,831,182 | ||||||
|
$317,153,
and $396,665, respectively)
|
||||||||
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Trade
- unbilled
|
678,675 | 660,165 | ||||||
|
Inventories
|
||||||||
|
Raw
materials
|
596,352 | 851,394 | ||||||
|
Finished
goods
|
1,211,482 | 1,572,830 | ||||||
|
Prepaid
expenses and other assets
|
97,166 | 155,772 | ||||||
|
Prepaid
income taxes
|
- | 258,150 | ||||||
|
Deferred
tax asset
|
431,000 | 471,000 | ||||||
|
Total
current assets
|
10,948,010 | 11,163,777 | ||||||
|
Property
and equipment, net
|
4,283,611 | 4,223,555 | ||||||
|
Other
assets
|
132,508 | 163,735 | ||||||
|
Total
assets
|
$ | 15,364,129 | $ | 15,551,067 | ||||
The
accompanying notes are an integral part of the condensed consolidated financial
statements.
- 3
-
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
September
30,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Liabilities
and Shareholders’ Equity:
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Accounts
payable - trade
|
$ | 949,644 | $ | 2,142,478 | ||||
|
Accrued
income taxes payable
|
378,998 | — | ||||||
|
Accrued
expenses and other liabilities
|
800,675 | 1,074,889 | ||||||
|
Current
maturities of notes payable
|
483,471 | 1,022,476 | ||||||
|
Customer
deposits
|
538,062 | 858,437 | ||||||
|
Total
current liabilities
|
3,150,850 | 5,098,280 | ||||||
|
Notes
payable – less current maturities
|
3,120,712 | 3,569,321 | ||||||
|
Deferred
taxes
|
326,000 | 317,000 | ||||||
|
Total
liabilities
|
6,597,562 | 8,984,601 | ||||||
|
Commitments
and Contingencies
|
||||||||
|
Shareholders’
Equity:
|
||||||||
|
Preferred
stock, par value $.01 per share; authorized 1,000,000 shares;
none
|
||||||||
|
issued
and outstanding
|
— | — | ||||||
|
Common
stock, par value $.01 per share; authorized 8,000,000
shares;
|
||||||||
|
issued and
outstanding 4,670,882
|
46,709 | 46,709 | ||||||
|
Additional
paid-in capital
|
4,773,051 | 4,701,820 | ||||||
|
Retained
earnings
|
4,049,107 | 1,920,237 | ||||||
|
Treasury
Stock, at cost, 40,920 shares
|
(102,300 | ) | (102,300 | ) | ||||
|
Total
shareholders’ equity
|
8,766,567 | 6,566,466 | ||||||
|
Total
liabilities and shareholders’ equity
|
$ | 15,364,129 | $ | 15,551,067 | ||||
- 4
-
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
Three Months
Ended
September
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Revenue
|
||||||||
|
Product
sales and leasing
|
$ | 5,514,234 | $ | 6,061,235 | ||||
|
Shipping
and installation revenue
|
1,602,784 | 1,175,332 | ||||||
|
Royalties
|
435,157 | 517,909 | ||||||
|
Total
revenue
|
7,552,175 | 7,754,476 | ||||||
|
Cost
of goods sold
|
5,471,205 | 6,234,087 | ||||||
|
Gross
profit
|
2,080,970 | 1,520,389 | ||||||
|
Operating
expenses
|
||||||||
|
General
and administrative expenses
|
822,647 | 821,951 | ||||||
|
Selling
expenses
|
498,934 | 557,053 | ||||||
|
Total
operating expenses
|
1,321,581 | 1,379,004 | ||||||
|
Operating
income
|
759,389 | 141,385 | ||||||
|
Other
income (expense):
|
||||||||
|
Interest
expense
|
(46,252 | ) | (82,673 | ) | ||||
|
Interest
income
|
13,344 | 4,684 | ||||||
|
Gain
on sale of fixed assets
|
37,355 | 34,453 | ||||||
|
Other,
net
|
(645 | ) | (452 | ) | ||||
|
Total
other income (expense)
|
3,802 | (43,988 | ) | |||||
|
Income
before income tax expense
|
763,191 | 97,397 | ||||||
|
Income
tax expense
|
272,000 | 71,780 | ||||||
|
Net
income
|
$ | 491,191 | $ | 25,617 | ||||
|
Net
income per common share:
|
||||||||
|
Basic
|
$ | 0.11 | $ | 0.01 | ||||
|
Diluted
|
$ | 0.10 | $ | 0.01 | ||||
|
Weighted
average number of common shares outstanding:
|
||||||||
|
Basic
|
4,670,882 | 4,670,882 | ||||||
|
Diluted
|
4,841,767 | 4,732,877 | ||||||
- 5
-
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
Nine Months
Ended
September
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Revenue
|
||||||||
|
Product
sales and leasing
|
$ | 18,998,458 | $ | 17,383,865 | ||||
|
Shipping
and installation revenue
|
4,014,216 | 2,926,059 | ||||||
|
Royalties
|
1,271,026 | 1,217,571 | ||||||
|
Total
revenue
|
24,283,700 | 21,527,495 | ||||||
|
Cost
of goods sold
|
16,688,328 | 16,614,581 | ||||||
|
Gross
profit
|
7,595,372 | 4,912,914 | ||||||
|
Operating
expenses
|
||||||||
|
General
and administrative expenses
|
2,396,617 | 2,348,168 | ||||||
|
Selling
expenses
|
1,626,215 | 1,820,661 | ||||||
|
Total
operating expenses
|
4,022,832 | 4,168,829 | ||||||
|
Operating
income
|
3,572,540 | 744,085 | ||||||
|
Other
income (expense):
|
||||||||
|
Interest
expense
|
(167,585 | ) | (266,530 | ) | ||||
|
Interest
income
|
14,358 | 24,682 | ||||||
|
Gain
on sale of fixed assets
|
61,457 | 27,894 | ||||||
|
Other,
net
|
(900 | ) | (710 | ) | ||||
|
Total
other expense
|
(92,670 | ) | (214,664 | ) | ||||
|
Income
before income tax expense
|
3,479,870 | 529,421 | ||||||
|
Income
tax expense
|
1,351,000 | 252,780 | ||||||
|
Net
income
|
$ | 2,128,870 | $ | 276,641 | ||||
|
Net
income per common share:
|
||||||||
|
Basic
|
$ | 0.46 | $ | 0.06 | ||||
|
Diluted
|
$ | 0.45 | $ | 0.06 | ||||
|
Weighted
average number of common shares outstanding:
|
||||||||
|
Basic
|
4,670,882 | 4,670,882 | ||||||
|
Diluted
|
4,773,428 | 4,756,799 | ||||||
- 6
-
SMITH-MIDLAND
CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
Nine
Months Ended
September
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Reconciliation
of net income to cash provided
|
||||||||
|
by
operating activities
|
||||||||
|
Net
income
|
$ | 2,128,870 | $ | 276,641 | ||||
|
Adjustments
to reconcile net income to net cash provided
|
||||||||
|
by
operating activities:
|
||||||||
|
Depreciation
and amortization
|
519,936 | 504,833 | ||||||
|
Stock
option compensation expense
|
71,231 | 102,359 | ||||||
|
Gain
on disposal of fixed assets
|
(61,457 | ) | (27,894 | ) | ||||
|
Deferred
taxes
|
49,000 | 28,459 | ||||||
|
(Increase)
decrease in:
|
||||||||
|
Accounts
receivable - billed
|
410,217 | 216,599 | ||||||
|
Accounts
receivable - unbilled
|
(18,510 | ) | (562,405 | ) | ||||
|
Inventories
|
616,390 | 441,395 | ||||||
|
Prepaid
taxes and other assets
|
347,983 | 432,513 | ||||||
|
Increase
(decrease) in:
|
||||||||
|
Accounts
payable - trade
|
(1,192,967 | ) | 23,279 | |||||
|
Accrued
expenses and other
|
(274,214 | ) | (66,721 | ) | ||||
|
Accrued
income taxes payable
|
378,998 | (595,045 | ) | |||||
|
Customer
deposits
|
(320,375 | ) | 490,004 | |||||
|
Net
cash provided by operating activities
|
2,655,102 | 1,264,017 | ||||||
|
Cash
flows from investing activities:
|
||||||||
|
Purchases
of property and equipment
|
(604,790 | ) | (640,585 | ) | ||||
|
Proceeds
from sale of fixed assets
|
86,388 | 48,108 | ||||||
|
Net
cash absorbed by investing activities
|
(518,402 | ) | (592,477 | ) | ||||
|
Cash
flows from financing activities:
|
||||||||
|
Repayments
on lines of credit, net
|
(500,000 | ) | (200,000 | ) | ||||
|
Proceeds
from long-term borrowings
|
- | 171,022 | ||||||
|
Repayments
of long-term borrowings and capital leases
|
(487,614 | ) | (329,815 | ) | ||||
|
Net
cash absorbed by financing activities
|
(987,614 | ) | (358,793 | ) | ||||
|
Net
increase in cash and cash equivalents
|
1,149,086 | 312,747 | ||||||
|
Cash
and cash equivalents
|
||||||||
|
Beginning
of period
|
1,363,284 | 282,440 | ||||||
|
End
of period
|
$ | 2,512,370 | $ | 595,187 | ||||
|
Supplemental
schedule of non-cash investing activities
|
||||||||
|
Cash
payments for interest
|
167,585 | 252,510 | ||||||
|
Cash
payments for income taxes
|
664,728 | 819,366 | ||||||
The
accompanying notes are an integral part of the condensed consolidated financial
statements.
- 7
-
SMITH-MIDLAND
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1. – INTERIM FINANCIAL REPORTING
Basis
of Presentation
The accompanying condensed consolidated
financial statements were prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information, and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, we have condensed or omitted certain information
and footnote disclosures that are included in our annual financial statements.
These condensed consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and the related notes
included in our Annual Report on Form 10-K for the year ended December 31,
2008. The December 31, 2008 balance sheet was derived from audited
financial statements included in the Form 10-K.
In the opinion of management, these
condensed consolidated financial statements reflect all adjustments (which
consist of normal, recurring adjustments) necessary for a fair presentation of
the financial position and results of operations and cash flows for the periods
presented.The results disclosed in the condensed consolidated statements of
income are not necessarily indicative of the results to be expected in any
future periods.
The
Company has evaluated subsequent events from the date of the financial
statements through the date of the filing of this Form 10-Q. During
this period, no material recognizable subsequent events were
identified.
Use
of 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 at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Revenue
Recognition
The
Company primarily recognizes revenue on the sale of its standard precast
concrete products at shipment date, including revenue derived from any projects
to be completed under short-term contracts. Installation of the
Company’s standard products is typically performed by the customer; however, in
some circumstances, the Company will install certain products which are
accomplished at the time of delivery. The installation activities are
usually completed the day of delivery or the following day. In
utility building sales, the majority of the buildings are erected on the
Company’s site and delivered completely installed.
Leasing
fees are paid at the beginning of the lease agreement and recorded to a deferred
revenue account. As the revenue is earned each month during the
contract, the amount earned is recorded as lease income and an equivalent amount
is debited to deferred revenue.
Royalties
are recognized as revenue as they are earned. The Company licenses
certain other precast companies to produce its licensed products to our
engineering specifications under licensing agreements. The agreements
are typically for five year terms and require royalty payments from 4% to 6%
which are paid on a monthly basis. The revenue from licensing
agreements is recognized in the month earned.
Certain
sales of Soundwall, architectural precast panels and Slenderwall™ concrete
products revenue is recognized using the percentage of completion method for
recording revenues on long term contracts pursuant to the FASB ASC
605-35-25. The contracts are executed by both parties and clearly
stipulate the requirements for progress payments and a schedule of delivery
dates. Provisions for estimated losses on contracts are made in the
period in which such losses are determined.
Shipping
revenues are recognized in the period the shipping services are provided to the
customer.
Smith-Midland
products are typically sold pursuant to an implicit warranty as to
merchantability only. Warranty claims are reviewed and resolved on a
case by case method. Although the Company does incur costs for these
types of expense, historically the amount of expense is
immaterial.
- 8
-
Reclassifications
Certain immaterial reclassifications
have been made to the prior year’s condensed consolidated financial statements
to conform to the 2009 presentation.
NOTE
2. – NET INCOME PER COMMON SHARE
Basic earnings per common share exclude
all dilutive stock options and are computed using the weighted average number of
common shares outstanding during the period. The diluted earnings per common
share calculation reflect the potential dilutive effect of securities that could
share in earnings of an entity. Outstanding options excluded from the
diluted earnings per share calculation because they would have an anti-dilutive
effect were 260,666 and 440,491 from the three months ended September 30, 2009
and 2008, respectively and 310,666 and 312,666 from the nine months ended
September 30, 2009 and 2008, respectively.
|
Three
Months Ended
September
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Basic
earnings per share
|
||||||||
|
Income
available to common shareholder
|
$ | 491,191 | $ | 25,617 | ||||
|
Weighted
average shares outstanding
|
4,670,882 | 4,670,882 | ||||||
|
Basic
earnings per share
|
$ | 0.11 | $ | 0.01 | ||||
|
Diluted
earnings per share
|
||||||||
|
Income
available to common shareholder
|
$ | 491,191 | $ | 25,617 | ||||
|
Weighted
average shares outstanding
|
4,670,882 | 4,670,882 | ||||||
|
Dilutive
effect of stock options
|
170,885 | 61,995 | ||||||
|
Diluted
weighted average shares outstanding
|
4,841,767 | 4,732,877 | ||||||
|
Diluted
earnings per share
|
$ | 0.10 | $ | 0.01 | ||||
- 9
-
|
Nine
Months ended
September
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Basic
earnings per share
|
||||||||
|
Income
available to common shareholder
|
$ | 2,128,870 | $ | 276,641 | ||||
|
Weighted
average shares outstanding
|
4,670,882 | 4,670,882 | ||||||
|
Basic
earnings per share
|
$ | 0.46 | $ | 0.06 | ||||
|
Diluted
earnings per share
|
||||||||
|
Income
available to common shareholder
|
$ | 2,128,870 | $ | 276,641 | ||||
|
Weighted
average shares outstanding
|
4,670,882 | 4,670,882 | ||||||
|
Dilutive
effect of stock options
|
102,546 | 85,917 | ||||||
|
Diluted
weighted average shares outstanding
|
4,773,428 | 4,756,799 | ||||||
|
Diluted
earnings per share
|
$ | 0.45 | $ | 0.06 | ||||
In
accordance with SFAS 123R, stock option expense for the three months ended
September 30, 2009 and 2008 was $19,699 and $40,286 respectively, and for the
nine months ended September 30, 2009 and 2008 was $71,231 and $102,359,
respectively. The Company uses the Black-Scholes option-pricing model
to measure the fair value of stock options granted to employees. The
Company did not issue any stock options for the nine months ended September 30,
2009.
The
following table summarized options outstanding at September 30,
2009:
|
Weighted
|
||||||||
|
Average
|
||||||||
|
Number
of
|
Exercise
|
|||||||
|
Shares
|
Price
|
|||||||
|
Outstanding
options at beginning of period
|
642,157 | $ | 1.52 | |||||
|
Granted
|
- | - | ||||||
|
Forfeited
|
(15,000 | ) | 1.46 | |||||
|
Exercised
|
- | - | ||||||
|
Outstanding
options at end of period
|
628,490 | $ | 1.54 | |||||
|
Outstanding
exercisable at end of period
|
521,272 | $ | 1.56 | |||||
The
intrinsic value of outstanding and exercisable options at September 30, 2009 is
approximately $314,000 and $263,000, respectively.
NOTE
4. – RECENT PRONOUNCEMENTS
In June
2009, the FASB issued FASB ASC 105, Generally Accepted Accounting
Principles, which establishes the FASB Accounting Standards Codification
(“ASC”) as the sole source of authoritative generally accepted accounting
principles. Rules and interpretive releases of the SEC under
authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants. Pursuant to the provisions of
FASB ASC 105, the Company has updated references to GAAP in its unaudited
condensed consolidated financial statements issued for the period ended
September 30, 2009. The Company adopted the requirements of ASC 105
in the third quarter of 2009. This adoption did not have a material impact
on the Company’s consolidated financial position or results of operations, as it
does not alter existing GAAP.
- 10
-
In April
2009, the FASB issued guidance now codified as ASC 825-10, “Interim Disclosures
about Fair Value of Financial Instruments” (“ASC 825-10”). ASC 825-10
amends prior authoritative guidance to require disclosures about the fair values
of financial instruments for interim reporting periods of publicly traded
companies as well as in annual financial statements. ASC 825-10
became effective for interim and annual reporting periods ending after June 15,
2009 and was adopted by the Company for the period ended June 30, 2009 with no
material effect.
In May
2009, the FASB issued guidance now codified as FASB ASC Topic 855-10 “Subsequent
Events” (“ASC 855-10”), which establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before the
financial statements are issued or are available to be issued. It
requires the disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date. The Statement sets
forth the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognitions or disclosure in the financial statements the
circumstances under which an entity should recognize events or transactions that
occurred after the balance sheet date in its financial statements and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. ASC 855-10 became effective
for the Company for the period ended June 30, 2009 and is to be applied
prospectively. The impact of adoption was not
significant.
NOTE
5. – SUBSEQUENT EVENTS
As of
November 12, 2009, the date on which the Company issued these financial
statements, management has evaluated events and transactions occurring
subsequent to September 30, 2009 and has determined that there have been no
significant events or transactions that provide additional evidence about
conditions of the Company that existed as of the balance sheet
date.
Forward-Looking
Statements
This
Quarterly Report and related documents include “forward-looking statements”
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Forward-looking statements involve known and unknown
risks, uncertainties and other factors which could cause the Company’s actual
results, performance (financial or operating) or achievements expressed or
implied by such forward looking statements not to occur or be
realized. Such forward looking statements generally are based upon
the Company’s best estimates of future results, performance or achievement,
based upon current conditions and the most recent results of
operations. Forward-looking statements may be identified by the use
of forward-looking terminology such as “may,” “will,” “expect,” “believe,”
“estimate,” “anticipate,” “continue,” or similar terms, variations of those
terms or the negative of those terms. Potential risks and
uncertainties include, among other things, such factors as:
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our
high level of indebtedness and ability to satisfy the
same,
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the
continued availability of financing in the amounts, at the times, and on
the terms required, to support our future business and capital
projects,
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the
extent to which we are successful in developing, acquiring, licensing or
securing patents for proprietary
products,
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changes
in economic conditions specific to any one or more of our markets
(including the availability of public funds and grants for
construction),
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changes
in general economic conditions, such as the continuing economic downturn
in the construction industry.
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·
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adverse
weather which inhibits the demand for our
products,
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our
compliance with governmental
regulations,
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- 11
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the
outcome of future litigation,
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·
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on
material construction projects, our ability to produce and install product
that conforms to contract specifications and in a time frame that meets
the contract requirements ,
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the
cyclical nature of the construction
industry,
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our
exposure to increased interest expense payments should interest rates
change,
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the
Board of Directors, which is composed of four members, has only one
outside, independent director,
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the
Company does not have an audit committee; the Board of Directors functions
in that role,
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the
Company’s Board of Directors does not have a member that qualifies as an
audit committee financial expert as defined in SEC
regulations,
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the
Company has experienced a high degree of employee turnover,
and
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the
other factors and information disclosed and discussed in other sections of
this report, and in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2008.
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Investors
and shareholders should carefully consider such risks, uncertainties and other
information, disclosures and discussions which contain cautionary statements
identifying important factors that could cause actual results to differ
materially from those provided in the forward-looking statements. We undertake
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
Overview
The Company was incorporated in
Delaware on August 2, 1994. Prior to a corporate reorganization
completed in October 1994, the Company conducted its business primarily through
Smith-Midland Virginia, which was incorporated in 1960 as Smith Cattleguard
Company, a Virginia corporation, and which subsequently changed its name to
Smith-Midland Corporation in 1985. The Company’s principal offices
are located at 5119 Catlett Road, Midland, Virginia 22728 and its telephone
number is (540) 439-3266. As used in this report, unless the context
otherwise requires, the term the “Company” refers to Smith-Midland Corporation
and its subsidiaries.
The
Company’s results of operations for the first three quarters of 2009 were very
positive, particularly in view of the current economic recession. However, a
temporary delay in the start of a major highway contract previously awarded to
Smith-Midland will result in lower earnings for the fourth quarter of 2009. The
Company continues to believe that its results of operations for future periods
may be favorably affected by the government stimulus package which is geared
toward infrastructure spending.
- 12
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Results of
Operations
Three
months ended September 30, 2009 compared to the three months ended September 30,
2008
Revenue: Total
revenues for the three months ended September 30, 2009, were $7,552,175 compared
to total revenues of $7,754,476 for the same period in 2008, a decrease of
$203,301 or 3%. Total product sales and leasing revenue were
$5,514,234 for the three months ended September 30, 2009, compared to $6,061,235
for the same period in 2008, a decrease of $547,001 or 9%. In the
wall sales category, soundwall sales were $230,691 for the three months ended
September 30, 2009, as compared to $1,525,784 for the same period in 2008, a
decrease of $1,295,093 or 85%. Architectural wall sales were $867,063
for the three months ended September 30, 2009, compared to $556,167 for the same
period in 2008, an increase of $310,897 or 56%. There were no
Slenderwall™ sales in the three months ended September 30, 2009 or
2008. Total wall sales for the three months ended September 30, 2009,
were $1,097,754 compared to $2,081,951 for the same period in 2008, a decrease
of $984,196 or 47%. The decrease in wall sales was due primarily to a
concentration of Company efforts in connection with a $1,007,000 contract to
provide the State of Virginia with pre-stressed concrete highway slabs for a
pilot program. Sales of the highway slabs were $780,848 for the three
month period ended September 30, 2009, with no comparative sales for the same
period in 2008. Sales of Easi-Set® precast buildings were $1,157,804
for the three months ended September 30, 2009, compared to $698,319 for the same
period in 2008, an increase of $459,486 or 66%. Management believes
the increase in sales of Easi-Set® precast buildings relates primarily to
smaller projects being funded by city and state governments rather than large,
less economical projects. In addition, stimulus funds are being made
available for these types of projects. Sales of utility and farm
products were $526,845 for the three months ended September 30, 2009, compared
to $792,789 for the same period in 2008, a decrease of $265,944 or
34%. The decrease in utility and farm products is the result of the
economic downturn in the construction industry overall. Sales of
highway barrier were $1,734,027 for the three months ended September 30, 2009,
compared to $1,738,356 for the same period ended in 2008, a decrease of $4,329
or .2%. Royalty revenues were $435,157 for the three months ended
September 30, 2009, compared to $517,909 for the same period in 2008, a decrease
of $82,752 or16%. The reduction is the result of the economic
downturn in the construction industry overall. Shipping and
installation revenues were $1,602,784 for the three months ended September 30,
2009, compared to $1,175,332 for the same period in 2008, an increase of
$427,452 or 36%. This increase in shipping and installation revenue
relates primarily to the increase in architectural sales which require
installation as part of the contract.
Cost of Goods
Sold: Total cost of goods sold for the three months ended
September 30, 2009, was $5,471,205 compared to $6,234,087 for the same period in
2008, a decrease of $762,882 or 12%. While sales decreased by only 3%
for the three months ended September 30, 2009, over the same period in 2008, the
cost of goods sold decreased by 12% during the same time period. The
decrease in the cost of goods sold was attributable to lower cost of raw
materials and fuel. In addition, with the implementation of lean
manufacturing in late 2008, the Company was able to reduce overtime as well as
reduce waste in several manufacturing processes. Lean manufacturing
is defined as the process of using the minimum amount of total resources – man,
materials, money, machines, etc. – to produce a product and deliver it on
time. As a result of the moderating costs and the implementation of
lean manufacturing, the cost of goods sold as a percentage of total revenue, not
including royalties, for the three months ended September 30, 2009, was 77%
compared to 86% for the same period in 2008. The Company plans to
continue to make the reduction of manufacturing costs the highest priority in
2009 through the implementation of lean manufacturing practices.
General and
Administrative Expenses: Total general and administrative
expenses for the three months ended September 30, 2009, were $822,647 compared
to $821,951 for the same period in 2008, an increase of $696 or less than
1%.
Selling
Expenses: Selling expenses for the three months ended
September 30, 2009 were $498,934 compared to $557,053 for the same period in
2008, a decrease of $58,119 or 10%. The decrease was primarily due to
decreased advertising costs and lower sales commissions.
Operating
Income: The Company had operating income of $759,389 for the
three months September 30, 2009, compared to $141,385 for the same period in
2008, an increase of $618,004 or 437%. The increase in operating
income was primarily the result of lower cost of goods sold as a percentage of
revenues as described more fully above.
- 13
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Interest
expense: Interest expense was $46,252 for the three months
ended September 30, 2009, compared to $82,673 for the same period in 2008, a
decrease of $36,421 or 44%. The decrease was due primarily to a
decrease in prevailing interest rates and lower outstanding debt during the
current period.
Net
Income: The Company had net income of $491,191 for the three
months ended September 30, 2009, compared to net income of $25,616 for the same
period in 2008. The basic and diluted net income per common share for
the three month period ending September 30, 2009, were $.11 and $.10
respectively, as compared to $.01 (basic and diluted) for the same period in
2008.
Nine
months ended September 30, 2009 compared to the nine months ended September 30,
2008
Revenue: Total
revenue for the nine months ended September 30, 2009, were $24,283,700 compared
to $21,527,495 for the same period in 2008, an increase of $2,756,205 or
13%. Total product sales and leasing were $18,998,458 for the nine
months ended September 30, 2009, compared to $17,383,865 for the same period in
2008, an increase of $1,614,593 or 9%. In the wall sales category,
soundwall sales were $2,883,122 for the nine months ended September 30, 2009,
compared to $6,112,230 for the same period in 2008, a decrease of $3,229,108 or
53%. Architectural wall sales were $5,188,272 for the nine months
ended September 30, 2009, compared to $1,377,656 for the same period in 2008, an
increase of $3,810,616 or 277%. There were no Slenderwall™ sales in
the nine months ended September 30, 2009 or 2008. Total wall sales
were $8,071,394 for the nine months ended September 30, 2009, compared to
$7,489,886 for the same period ended in 2008, an increase of $581,508 or
8%. In addition, the Company had sales of $780,848 for the nine month
period ended September 30, 2009, for pre-stressed concrete highway slabs for the
State of Virginia pilot program, while there were no comparative sales in the
same period in 2008. Sales of Easi-set® precast buildings were
$2,850,413 for the nine months ended September 30, 2009, compared to $1,847,400
for the same period in 2008, an increase of $1,003,013 or
54%. Management believes the increase in sales of Easi-Set® precast
buildings relates primarily to smaller projects being funded by city and state
governments rather than large, less economical projects. Sales of
utility and farm products were $1,671,946 for the nine months ended September
30, 2009, compared to $2,135,634 for the same period in 2008, a decrease of
$463,688 or 22%. The decrease in utility and farm products is the
result of the economic downturn in the construction industry
overall. Sales of highway barrier were $3,328,396 for the nine months
ended September 30, 2009, compared to $4,591,323 for the same period ended in
2008, a decrease of $1,262,927 or 28%. The decrease is due in part to
the downturn in federal and state spending on highway projects; however, the
Company has received several large highway barrier orders for delivery in the
fourth quarter of 2009, which may help offset the decrease. The
additional orders are partially the result of stimulus money awarded to states
for highway work. Royalty revenue for the nine months ended September
30, 2009 was $1,271,026 compared to $1,217,571 for the same period ended 2008,
an increase of $53,455 or 4%. Shipping and installation were
4,014,216 for the nine months ended September 30, 2009, compared to $2,926,059
the same period in 2008, an increase of $1,088,157 or 37%. The
increase was primarily due to increased shipping activity related to the rental
of highway barrier for the presidential inauguration during the month of January
2009 in Washington, D.C. and an increase in the sale of architectural products
which require installation.
Cost of Goods
Sold: Total cost of goods sold for the nine months ended
September 30, 2009 was $16,688,328 compared to $16,614,581for the same period
ended in 2008, an increase of $73,747 or less than 1%. While total
sales were up by 13%, the cost of goods sold decreased as a percent of
sales. Because of the downturn in economic conditions, raw material
costs began to moderate in late 2008 and with the implementation of lean
manufacturing in late 2008, the cost of goods sold as a percent of revenue, not
including royalties, decreased from 82% for the nine months ended September 30,
2008, to 73% for the nine months ended September 30, 2009. The
Company continues to make the reduction of manufacturing costs the highest
priority in 2009 through the implementation of lean manufacturing
practices.
General and
Administrative Expenses: General and administrative expenses
for the nine months ended September 30, 2009, were $2,396,617 compared to
$2,348,168 for the same period in 2008, an increase of $48,449 or
2%.
Selling
Expenses: Selling expenses for the nine months ended September
30, 2009 were $1,626,215 compared to $1,820,661 for the same period in 2008, a
decrease of $194,446 or 11%. The decrease was primarily due to
decreased advertising costs and lower sales commissions.
- 14
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Operating
Income: The Company had operating income of $3,572,540 for the
six months September 30, 2009, compared to $744,085 for the same period in 2008,
an increase of $2,828,455 or 380%. The increase in operating income
was primarily the result of increased sales and decreased cost of goods sold as
a percentage of revenues.
Interest
expense: Interest expense was $167,585 for the nine months
ended September 30, 2009, compared to $266,530 for the same period in 2008, a
decrease of $98,945 or 37%. The decrease was due primarily to a
decrease in prevailing interest rates and lower outstanding debt during the
current period.
Net
Income: The Company had net income of $2,128,870 for the nine
months ended September 30, 2009, as compared to $276,641 for the same period in
2008, an increase of $1,852,229 or 670%. The basic and diluted net
income per common share for the nine month period ending September 30, 2009 were
$.46 and $.45, respectively, compared to $.06 (basic and diluted) for the same
period in 2008.
Liquidity
and Capital Resources
The
Company has financed its capital expenditures and operating requirements to date
in 2009 primarily from net cash generated from operating
activities. The Company had $3,604,183 of debt obligations at
September 30, 2009, of which $483,471 was scheduled to mature within twelve
months. During the nine months ended September 30, 2009, the Company
made repayments of outstanding debt in the amount $987,614. The
Company has a $1,500,000 line of credit, of which none was outstanding at
September 30, 2009. The line of credit is evidenced by a commercial
revolving promissory note, which carries a variable interest rate of prime and
matures on May 28, 2010. In addition, the Company has a commitment
from Summit Community Bank in the amount of $700,000 for an equipment line of
credit which expires on May 28, 2010.
At
September 30, 2009, the Company had cash totaling $2,512,370 compared to cash
totaling $1,363,284 on December 31, 2008. During the period,
operating activities contributed $2,655,102, investing activities absorbed
$518,402, and financing activities absorbed $987,614.
Capital
spending totaled $604,790 for the nine months ended September 30, 2009, as
compared to $640,585 for the same period in 2008. The 2009
expenditures are primarily for the upgrade and replacement of equipment in the
precast plant. The Company plans to make additional capital
expenditures for routine equipment replacement, productivity improvements, and
plant upgrades, which are planned through 2009 based on the achievement of
operating goals and the availability of funds.
As a
result of the Company’s existing debt burden, the Company is sensitive to
changes in the prevailing interest rates. Increases in such rates may
materially and adversely affect the Company’s ability to finance its operations
either by increasing the Company’s cost to service its current debt, or by
creating a more burdensome refinancing environment. Each 1% increase
in interest rates affecting the Company’s outstanding debt will reduce income by
approximately $36,000 annually.
The Company’s cash flow from operations
is affected by production schedules set by contractors, which generally provide
for payment 35 to 75 days after the products are produced. This
payment schedule has resulted in liquidity problems in the past for the Company
because it must bear the cost of production for its products before it receives
payment. The Company’s days sales outstanding decreased from 76 days
at December 31, 2008 to 68 days at September 30, 2009. Although no
assurances can be given, the Company believes that anticipated cash flow from
operations and the available line of credit will be sufficient to finance the
Company’s operations for at least the next twelve months.
The
Company’s inventory was $1,807,834 at September 30, 2009 and at December 31,
2008 was $2,424,224 or a decrease of $616,390. Inventory turnover
increased to 9.2 for the nine months ended September 30, 2009, compared to 8.8
at December 31, 2008, on an annualized basis.
Critical
Accounting Policies and Estimates
The
Company’s critical accounting policies are more fully described in its Summary
of Accounting Policies to the Company’s consolidated financial statements on
Form 10-K for the year ended December 31, 2008. The preparation of
financial statements in conformity with accounting principles generally accepted
within the United States requires management to make estimates and assumptions
in certain circumstances that affect
amounts reported in the accompanying financial statements and related
notes. In preparing these financial statements, management has made
its best estimates and judgments of certain amounts included in the financial
statements, giving due consideration to materiality. The Company does
not believe there is a great likelihood that materially different amounts would
be reported related to the accounting policies described below, however,
application of these accounting policies involves the exercise of judgment and
the use of assumptions as to future uncertainties and as a result, actual
results could differ from these estimates.
- 15
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The
Company evaluates the adequacy of its allowance for doubtful accounts at the end
of each quarter. In performing this evaluation, the Company analyzes the payment
history of its significant past due accounts, subsequent cash collections on
these accounts and comparative accounts receivable aging
statistics. Based on this information, along with other related
factors, the Company develops what it considers to be a reasonable estimate of
the uncollectible amounts included in accounts receivable. This estimate
involves significant judgment by the management of the
Company. Actual uncollectible amounts may differ from the Company’s
estimate.
The
Company recognizes revenue on the sale of its standard precast concrete products
at shipment date, including revenue derived from any projects to be completed
under short-term contracts. Installation services for precast
concrete products, leasing and royalties are recognized as revenue as they are
earned on an accrual basis. Licensing fees are recognized under the
accrual method unless collectibility is in doubt, in which event revenue is
recognized as cash is received. Certain sales of Soundwall,
Slenderwall™, and other architectural concrete products are recognized upon
completion of units produced under long-term contracts. When
necessary, provisions for estimated losses on these contracts are made in the
period in which such losses are determined. Changes in job performance,
conditions and contract settlements that affect profit are recognized in the
period in which the changes occur. Unbilled trade accounts receivable
represents revenue earned on units produced and not yet billed.
Seasonality
The
Company services the construction industry primarily in areas of the United
States where construction activity may be inhibited by adverse weather during
the winter. As a result, the Company may experience reduced revenues
from December through February and realize the substantial part of its revenues
during the other months of the year. The Company may experience lower
profits, or losses, during the winter months, and as such, must have sufficient
working capital to fund its operations at a reduced level until the spring
construction season. The failure to generate or obtain sufficient
working capital during the winter may have a material adverse effect on the
Company.
Inflation
Significant
increases in the cost of steel, cement and other direct materials used in
production and delivery, including fuel surcharges caused an increase in the
cost of goods sold for the Company during the year ended December 31,
2008. As the downturn in the economy increased, these costs began to
moderate during the last quarter of 2008, which moderation has continued through
2009.
Production
Backlog
As of November 4, 2009, the Company’s
sales backlog was approximately $14,000,000, as compared to approximately
$13,000,000 at the same date in 2008. The Company also maintains a
regularly occurring repeat customer business, which should be considered in
addition to the ordered production backlog described above. These orders
typically have a quick turn around and represent purchases of a significant
portion of the Company’s inventoried standard products, such as highway safety
barrier, utility and Easi-Set® building products. Historically, this
regularly occurring repeat customer business has been approximately $6,500,000
annually.
Not Applicable
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ITEM 4T. Controls and
Procedures
(a) Disclosure controls and
procedures
We
carried out our evaluation, under the supervision and with the participation of
our management, including our chief executive officer and chief financial
officer, of the effectiveness of our disclosure controls and procedures as of
the end of the period covered by this report, pursuant to Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as
amended. Based on this evaluation, the chief executive officer and
chief financial officer have concluded that the Company’s disclosure controls
and procedures were effective at September 30, 2009.
(b) Changes
in Internal Control over Financial Reporting
There has
been no change in the Company’s internal control over financial reporting during
the three months ended September 30, 2009 that has materially affected, or is
reasonably likely to materially affect, its internal control over financial
reporting.
The Company held its Annual Meeting of
Stockholders on August 5, 2009 (“2009 Annual Meeting”). There were
two proposals presented by the management of the Company and both were approved
as follows:
Proposal
No. 1. Election of Directors
The
election of the following individuals to serve as directors until the next
annual meeting or until their successors are duly elected and
qualified.
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For
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Withheld
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|||||||
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Rodney
I. Smith
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3,453,405 | 503,751 | ||||||
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Ashley
B. Smith
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3,575,131 | 382,025 | ||||||
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Wesley
A. Taylor
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3,845,231 | 111,925 | ||||||
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Andrew
G. Kavounis
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3,858,699 | 98,457 | ||||||
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Proposal
No. 2.
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Proposal
to Ratify and Approve the Selection of BDO Seidman, LLP as the Independent
Auditors for the Company for the Year Ending December 31,
2009
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For
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Against
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Abstentions
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Broker
Non-Votes
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|||||||||
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3,439,667
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100 | 1,591 | 0 | |||||||||
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Exhibit
No.
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Exhibit Description |
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31.1
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Certification
of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a)
under the Securities Exchange Act of
1934.
|
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31.2
|
Certification
of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a)
under the Securities Exchange Act of
1934.
|
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32.1
|
Certification
pursuant 18 U.S.C. Section 1350 as adapted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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- 17
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
SMITH-MIDLAND
CORPORATION
(Registrant)
Date:
November 12, 2009
By: /s/ Rodney I. Smith
Rodney I.
Smith, President
(Principal
Executive Officer)
Date
November 12, 2009
By: /s/ William A. Kenter
William
A. Kenter, Chief Financial Officer
(Principal
Financial Officer)
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Exhibit
Index to Quarterly Report on Form 10-Q
For
the Nine months ended September 30, 2009
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Exhibit
No.
|
Exhibit Description |
|
31.1
|
Certification
of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a)
under the Securities Exchange Act of
1934.
|
|
31.2
|
Certification
of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a)
under the Securities Exchange Act of
1934.
|
|
32.1
|
Certification
pursuant 18 U.S.C. Section 1350 as adapted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
- 19 -