##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 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 0-25428
 MEADOW VALLEY CORPORATION
  Nevada
(State or other jurisdiction of 
incorporation or organization)
    
    88-0328443
(I.R.S. Employer Identification No.)4602 E. Thomas Road, Phoenix, AZ
(Address of principal executive offices)
    
    85018
(Zip Code)
 Registrants telephone number, including area code: (602) 437-5400
   Title of each class:
    
    Name of exchange on which registered:Common stock, $.001 par value
    
    Nasdaq Capital Market
 o þ
 o þ
 þ o
 o
  o o þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



MEADOW VALLEY CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2006
  
 TABLE OF CONTENTS
 PART IItem 1.
    
    Business
    
    
    1Item 1A.
    
    Risk Factors
    
    
    11Item 1B.
    
    Unresolved Staff Comments
    
    
    13Item 2.
    
    Properties
    
    
    13Item 3.
    
    Legal Proceedings
    
    
    14Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    14PART IIItem 5.
    
    Market for Registrants Common Equity and Related Stockholder Matters
    
    
    14Item 6.
    
    Selected Financial Data
    
    
    17Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 8.
    
    Financial Statements and Supplementary Data
    
    
    28Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    60Item 9A.
    
    Controls and Procedures
    
    
    60Item 9B.
    
    Other Information
    
    
    60PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    60Item 11.
    
    Executive Compensation
    
    
    60Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    60Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    61Item 14.
    
    Principal Accounting Fees and Services
    
    
    61PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    61Exhibit 10.2Exhibit 10.3Exhibit 10.4Exhibit 10.35Exhibit 10.36Exhibit 23Exhibit 31.1Exhibit 31.2Exhibit 32
  i




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Special Note Regarding Forward Looking Statements
    
 PART I
 
 Item 1. Business
 About Meadow Valley
  2006 Highlights
  1




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For the Years Ended December 31,2006
    
    
    2005(Pro forma)Income before minority interest in
consolidated subsidiary
    
    $
    5,729,371
    
    
    $
    4,492,242Minority interest in consolidated subsidiary
    
    
    1,563,449
    
    
    
    1,163,753Net income
    
    $
    4,165,922
    
    
    $
    3,328,489Diluted net income per share
    
    $
    0.90
    
    
    $
    0.80Diluted weighted average shares outstanding
    
    
    4,621,124
    
    
    
    4,151,096
    History
    2




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Business Strategy
  
    
    Continuing to actively bid in the construction markets in Arizona and Nevada and
improving construction project profitability.We will continue to focus our
construction services within the geographic markets that have historically produced the
best profits. Our emphasis is on building transportation infrastructure and other
related heavy civil projects in our core markets of Arizona and Nevada. At the same
time, we strive to improve margins on new contracts by, among other things, increasing,
when possible, margins on new work bidding, maximizing labor and equipment
productivity, negotiating more favorable material purchase contracts and employing the
most competitive subcontractors.
    
    Growing our client base for private construction services and ensuring satisfaction
of existing private customer base.We have succeeded in attracting and retaining a
nucleus of non-public clients for whom we regularly perform construction services. We
believe we can generate better margins in the
 3




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private sector, therefore we seek to grow
our client base, add new customers and maintain continued customer satisfaction.
    
    Continuing to increase working capital and liquidity.We strive to grow cash
balances and employ available financing opportunities that will maximize working
capital and liquidity. By doing so, we expect to increase bonding capacity, thereby
allowing us to bid on more numerous or larger projects.
    
    Continuing diligent pursuit of the successful resolution of three construction
claims. Substantial costs were incurred in completing certain projects in New Mexico
and Utah. We believe that much of the costs are reimbursable due to changed
conditions, owners plan errors and omissions, conflicting utility right of ways and
delays not attributable to us. As of December 31, 2006, the total amount of claims on
the New Mexico and Utah projects that have been submitted and remain unpaid is
approximately $19.1 million, of which $15.1 million represents our portion of the
claims.
    
    Implementing the growth strategy for Ready Mix, Inc.We will seek to enter new
geographic sub-markets initially within the Phoenix and Las Vegas metropolitan areas.
These markets will likely be located at the outer edges of the two metropolitan
markets, but at a sufficient distance from these metropolitan markets so as to require
the development of newer plants to service job sites in these areas.
    
    Acquiring sand and gravel mining rights.A key strategy for the future growth and
value of the construction materials segment is the acquisition of mining properties,
either by purchase or lease whichever is most advantageous, to decrease dependency on
third-party suppliers, to control production and to increase revenue from the sale of
sand and gravel products.
 Market Overview
     4




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Construction Services Segment (CSS)
 Operations
      Projects and Customers
  5




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##### Table of Contents



For the Years Ended December 31,2006
    
    2005
    
    2004Arizona Department of
Transportation (Public)
    
    
    20.9
    %
    
    
    21.0
    %
    
    
    24.1
    %Del Webb (Private)
    
    
    5.1
    %
    
    
    11.6
    %
    
    
    6.8
    %
 The Contract Process
      6




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Backlog
  Competition
   7




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Insurance and Bonding
   Marketing
  Construction Materials Segment (CMS)
 Operations
  Projects and Customers
  8




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Competition
   Marketing
   Construction Materials Testing Segment (CMTS)
 Operations
  Projects and Customers
  9




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Competition
  Marketing
   Meadow Valley Corporation and our Segments
 Seasonality
  Insurance
  Government Regulation
  10




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##### Table of Contents



Employees
  Website Access
  
 Item 1A. Risk Factors
  Dependence on Public Sector Customers.
 Liability for Subcontractor Performance.
 Fixed Unit Price Risks.
 Variations in Quarterly Operating Results.
 Potential Liability for Environmental Damages and Personal Injury.
 11




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An Inability to Secure and Permit Aggregate Reserves Could Negatively Impact Our Future
Operations and Results.
 We Are Subject to Significant Bonding Requirements.
 We Are Subject to Regulation.
 There Are Risks Associated with Concentration of Construction Projects and Customers.
 We Face Intense Competition.
 Our Success Depends on Attracting and Retaining Qualified Personnel in a Competitive
Environment.
 Dependence Upon Executive Officers.
 Strikes or Work Stoppages Could Have a Negative Impact on Our Operations and Results.
 12




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##### Table of Contents



Unavailability of Insurance Coverage Could Have A Negative Impact on Our Operations and
Results.
 We Use Diesel Fuel, Asphalt Oil and Other Petroleum Based Products That Are Subject To
Significant Price Fluctuations.
 
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  Approximate
    
    ApproximateBuilding Size in
    
    Land
    
    Owned/
    
    Monthly
    
    LeaseLocation
    
    Segment
    
    Purpose
    
    Square Feet
    
    in Acres
    
    Leased
    
    Rental
    
    Expires4602 East Thomas Road, 
Phoenix, Arizona
    
    CSS, CMS
    
    Corporate office,
Area office
    
    
    18,400
    
    
    
    2
    
    
    Owned
    
    
    
    
    
    3430 East Flamingo Suite 100,
Las Vegas, Nevada
    
    CMS
    
    Area office
    
    
    3,500
    
    
    
    
    
    
    Leased
    
    $
    8,230
    
    
    04/30/20072250 West Center Street, 
Springville, Utah
    
    CSS
    
    Field office
    
    
    1,600
    
    
    
    
    
    
    Leased
    
    $
    2,370
    
    
    04/30/20084635 Andrews Street, 
North Las Vegas,
Nevada
    
    CSS
    
    Area office
    
    
    4,320
    
    
    
    
    
    
    Leased
    
    $
    3,906
    
    
    09/30/2009109 West Delhi, 
North Las
Vegas, Nevada
    
    CMS
    
    Ready Mix
production facility
    
    
    4,470
    
    
    
    5
    
    
    Owned
    
    
    
    
    
    11500 West Beardsley Road, 
Sun City, Arizona (1)
    
    CMS
    
    Ready Mix
production facility
    
    
    440
    
    
    
    5
    
    
    Leased
    
    
    
    
    
    05/31/201039245 North Schnepf Road, 
Queen Creek, Arizona
    
    CMS
    
    Ready Mix
production facility
    
    
    440
    
    
    
    5
    
    
    Owned
    
    
    
    
    
    Richmar Ave., 
Las Vegas,
Nevada
    
    CMS
    
    Ready Mix
production facility
    
    
    440
    
    
    
    5
    
    
    Owned
    
    
    
    
    
    6210 Annie Oakley Drive Suite
102, Las Vegas, Nevada
    
    CSS
    
    Field office
    
    
    1,000
    
    
    
    
    
    
    Leased
    
    $
    1,200
    
    
    03/31/2009Moapa, Nevada (1)
    
    CMS
    
    Sand and Aggegate
production facility
    
    
    840
    
    
    
    40
    
    
    Leased
    
    
    
    
    
    01/01/2009Moapa, Nevada (1)
    
    CMS
    
    Ready Mix
production facility
    
    
    440
    
    
    
    
    
    
    Leased
    
    
    
    
    
    Northwest Arizona (1)
    
    CMS
    
    Sand and Aggegate
production facility
    
    
    840
    
    
    
    40
    
    
    Leased
    
    
    
    
    
    08/27/2007Northwest Las Vegas, Nevada (1)
    
    CMS
    
    Sand and Aggegate
production facility
    
    
    
    
    
    
    40
    
    
    Leased
    
    
    
    
    
    04/30/2007Northwest Las Vegas, Nevada (1)
    
    CMS
    
    Ready Mix
production facility
    
    
    440
    
    
    
    
    
    
    Leased
    
    
    
    
    
    3155 East Patrick Lane Suite
#12, Las Vegas, Nevada
    
    CMTS
    
    Area office,
laboratory facility
    
    
    3,300
    
    
    
    
    
    
    Leased
    
    $
    2,898
    
    
    12/31/2007
 
 (1)
    
    - Our facility rent is included in the cost of the material which we purchase from the lessors.  13




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Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 PART II
 
 Item 5. Market for Registrants Common Equity and Related Stockholder Matters
  2006 *
    
    2005 *High
    
    Low
    
    High
    
    LowFirst Quarter
    
    $
    15.59
    
    
    $
    11.12
    
    
    $
    7.35
    
    
    $
    3.96Second Quarter
    
    
    12.35
    
    
    
    10.13
    
    
    
    7.20
    
    
    
    4.56Third Quarter
    
    
    12.34
    
    
    
    8.78
    
    
    
    11.95
    
    
    
    6.34Fourth Quarter
    
    
    10.80
    
    
    
    9.80
    
    
    
    14.26
    
    
    
    7.88
 
 *
    
    - The quarterly highs and lows are based on daily market closing prices during each
respective period.  Equity Compensation Plan InformationNumber of securitiesremaining availableNumber of securities
    
    
    
    
    
    for future issuanceto be issued upon
    
    Weighted-average
    
    under equityexercise of
    
    exercise price of
    
    compensation plansoutstanding options,
    
    outstanding options,
    
    (excluding securitiesPlan category
    
    warrants and rights
    
    warrants and rights
    
    reflected in column (a))(a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders (1)
    
    
    434,542
    
    
    
    4.86
    
    
    
    90,149Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    434,542
    
    
    
    
    
    
    
    90,149
 
 (1)
    
    - Includes 434,542 stock options issued to employees, directors and consultants from the
2004 equity incentive plan. 14




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##### Table of Contents



Equity Compensation Plan InformationNumber of securitiesremaining availableNumber of securities
    
    
    
    
    
    for future issuanceto be issued upon
    
    Weighted-average
    
    under equityexercise of
    
    exercise price of
    
    compensation plansoutstanding options,
    
    outstanding options,
    
    (excluding securitiesPlan category
    
    warrants and rights
    
    warrants and rights
    
    reflected in column (a))(a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders (1)(2)
    
    
    466,875
    
    
    
    11.47
    
    
    
    324,375Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    466,875
    
    
    
    
    
    
    
    324,375
 
 (1)
    
    - Includes an individual compensation agreement for 116,250 warrants issued to our
underwriters as a portion of their compensation in connection with our initial public
offering.(2)
    
    - Includes 350,625 stock options issued to employees, directors and
consultants from our 2005 equity incentive plan.     15




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COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
 
 
 *
    
    $100 invested on 12/31/01 in stock or index-including
reinvestment of dividends.
Fiscal year ending December 31. 12/31/2001
    
    
    12/31/2002
    
    
    12/31/2003
    
    
    12/31/2004
    
    
    12/31/2005
    
    
    12/31/2006Meadow Valley Corporation
    
    
    
    100.00
    
    
    
    
    40.00
    
    
    
    
    87.69
    
    
    
    
    204.10
    
    
    
    
    593.85
    
    
    
    
    520.51NASDAQ Composite Index
    
    
    
    100.00
    
    
    
    
    71.97
    
    
    
    
    107.18
    
    
    
    
    117.07
    
    
    
    
    120.50
    
    
    
    
    137.02Dow Jones US Heavy Construction Index
    
    
    
    100.00
    
    
    
    
    83.87
    
    
    
    
    114.41
    
    
    
    
    138.74
    
    
    
    
    200.48
    
    
    
    
    250.08
 The stock price performance included in this graph is not necessarily indicative of future stock
price performance.
 16




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##### Table of Contents



Item 6. Selected Financial Data
 Statement of Operations Information:
  Years Ended December 31,2006
    
    2005
    
    2004
    
    2003
    
    2002Statement of Operations Data:Revenue
    
    $
    195,521,951
    
    
    $
    183,872,863
    
    
    $
    166,831,664
    
    
    $
    154,106,865
    
    
    $
    151,047,268Gross profit
    
    
    19,310,088
    
    
    
    15,187,579
    
    
    
    6,967,790
    
    
    
    6,343,618
    
    
    
    7,531,597Income (loss) from operations
    
    
    8,148,269
    
    
    
    6,521,006
    
    
    
    457,951
    
    
    
    (150,667
    )
    
    
    932,657Income before income taxes
and minority interest
    
    
    8,893,156
    
    
    
    7,063,197
    
    
    
    890,443
    
    
    
    162,381
    
    
    
    936,770Net income
    
    
    4,165,922
    
    
    
    4,203,719
    
    
    
    573,639
    
    
    
    91,635
    
    
    
    566,803Basic net income per common share
    
    $
    0.96
    
    
    $
    1.11
    
    
    $
    0.16
    
    
    $
    0.03
    
    
    $
    0.16Diluted net income per common share
    
    $
    0.90
    
    
    $
    1.01
    
    
    $
    0.15
    
    
    $
    0.03
    
    
    $
    0.16Basic weighted average common shares
outstanding
    
    
    4,328,160
    
    
    
    3,783,089
    
    
    
    3,601,250
    
    
    
    3,593,102
    
    
    
    3,559,938Diluted weighted average common shares
outstanding
    
    
    4,621,124
    
    
    
    4,151,096
    
    
    
    3,780,597
    
    
    
    3,599,259
    
    
    
    3,559,938Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Financial Position Data:Working capital
    
    $
    27,255,590
    
    
    $
    21,913,277
    
    
    $
    2,294,162
    
    
    $
    5,757,671
    
    
    $
    2,701,266Total assets
    
    
    102,105,655
    
    
    
    87,016,530
    
    
    
    65,328,832
    
    
    
    55,366,528
    
    
    
    57,434,203Long-term debt
    
    
    13,996,482
    
    
    
    11,858,042
    
    
    
    11,785,816
    
    
    
    8,084,793
    
    
    
    11,132,310Stockholders equity
    
    
    31,341,214
    
    
    
    19,795,787
    
    
    
    12,716,188
    
    
    
    12,142,549
    
    
    
    12,050,914
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Executive Overview
  
    
    focus on the construction markets of Nevada, southern Utah and Arizona which
have historically been more profitable for us,
    
    be selective in the projects we choose to bid, provide incentives and reward
outstanding project management,
    
    concentrate our efforts to prevail in our past construction claims and eliminate
distractions from lingering claims as well as to avoid future claims,
    
    gradually increase our bonding capacity in order to bid on larger single
projects and increase our contract backlog to levels that provide more sustainable
momentum, and
    
    implement expansion plans for our materials segment and focus marketing efforts
on non-residential market sector.
 17




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Results of Operations
  For the Years Ended December 31,(dollars in thousands)
    
    2006
    
    
    2005
    
    
    2004Revenue:Construction services
    
    $
    111,936
    
    
    
    57.3
    %
    
    $
    116,822
    
    
    
    63.5
    %
    
    $
    108,169
    
    
    
    64.8
    %Construction materials
    
    
    83,152
    
    
    
    42.5
    %
    
    
    67,051
    
    
    
    36.5
    %
    
    
    58,663
    
    
    
    35.2
    %Construction materials testing
    
    
    434
    
    
    
    0.2
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Total revenue
    
    
    195,522
    
    
    
    100.0
    %
    
    
    183,873
    
    
    
    100.0
    %
    
    
    166,832
    
    
    
    100.0
    %Gross profit
    
    
    19,310
    
    
    
    9.9
    %
    
    
    15,188
    
    
    
    8.3
    %
    
    
    6,968
    
    
    
    4.2
    %General and administrative
expenses
    
    
    11,162
    
    
    
    5.7
    %
    
    
    8,667
    
    
    
    4.7
    %
    
    
    6,510
    
    
    
    3.9
    %Income from operations
    
    
    8,148
    
    
    
    4.2
    %
    
    
    6,521
    
    
    
    3.6
    %
    
    
    458
    
    
    
    0.3
    %Interest income
    
    
    1,010
    
    
    
    0.5
    %
    
    
    563
    
    
    
    0.3
    %
    
    
    86
    
    
    
    0.1
    %Interest expense
    
    
    (339
    )
    
    
    -0.2
    %
    
    
    (362
    )
    
    
    -0.2
    %
    
    
    (348
    )
    
    
    -0.2
    %Other income
    
    
    74
    
    
    
    0.0
    %
    
    
    342
    
    
    
    0.2
    %
    
    
    695
    
    
    
    0.4
    %Income tax expense
    
    
    3,164
    
    
    
    1.6
    %
    
    
    2,571
    
    
    
    1.4
    %
    
    
    317
    
    
    
    0.2
    %Minority interest in consolidated
subsidiary
    
    
    1,563
    
    
    
    0.8
    %
    
    
    289
    
    
    
    0.2
    %
    
    
    
    
    
    
    0.0
    %Net income
    
    $
    4,166
    
    
    
    2.1
    %
    
    $
    4,204
    
    
    
    2.3
    %
    
    $
    574
    
    
    
    0.3
    %Depreciation and
amortization
    
    $
    5,885
    
    
    
    3.0
    %
    
    $
    4,499
    
    
    
    2.4
    %
    
    $
    3,202
    
    
    
    1.9
    %
 Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
 Revenue and Backlog.
 Gross Profit.
 18




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Depreciation and Amortization.
 General and Administrative Expenses.
 Interest Income, Expense and Other Income.
 Minority Interest in Consolidated Subsidiary.
 Income Taxes.
 Net Income.
 Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
 Revenue and Backlog.
 Gross Profit.
 19




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Depreciation and Amortization. th
 General and Administrative Expenses.
 Interest Income, Expense and Other Income.
 Minority Interest in Consolidated Subsidiary.
 Income Taxes.
 Net Income.
 Liquidity and Capital Resources
    20




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For the Years Ended December 31,2006
    
    2005
    
    2004Cash provided by operating activities
    
    $
    10,323,569
    
    
    $
    5,217,432
    
    
    $
    10,986,026Cash used in investing activities
    
    
    (8,002,773
    )
    
    
    (5,128,942
    )
    
    
    (1,542,131
    )Cash provided by (used in) financing
activities
    
    
    3,468,469
    
    
    
    13,312,609
    
    
    
    (4,018,065
    )
       Impact of Inflation
  21




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##### Table of Contents



Summary of Contractual Obligations and Commercial Commitments
  Payments Due by PeriodLess than
    
    
    1 - 3
    
    
    4 - 5
    
    
    After(Dollars in thousands)
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsContractual ObligationsLong-term debt
    
    $
    18,732
    
    
    $
    4,837
    
    
    $
    8,795
    
    
    $
    3,817
    
    
    $
    1,283Interest payments on long-term debt (1)
    
    
    3,692
    
    
    
    1,242
    
    
    
    1,541
    
    
    
    461
    
    
    
    448Capital lease obligations
    
    
    472
    
    
    
    366
    
    
    
    106
    
    
    
    
    
    
    
    Operating leases
    
    
    10,604
    
    
    
    3,470
    
    
    
    5,146
    
    
    
    1,988
    
    
    
    Purchase obligations
    
    
    27,580
    
    
    
    3,720
    
    
    
    7,181
    
    
    
    5,188
    
    
    
    11,491Other long term liabilities (2)
    
    
    2,755
    
    
    
    1,347
    
    
    
    1,408
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    63,835
    
    
    $
    14,982
    
    
    $
    24,177
    
    
    $
    11,454
    
    
    $
    13,222
 
 (1)
    
    Interest payments are based on the individual interest rates of each obligation,
which range from 1.90% to 9.75% per annum. We do not assume an increase in the variable interest
rate. See Note 10  Notes payable and Note 11  Lines of Credit in the notes to the consolidated
financial statements included in Item 8.(2)
    
    Other long-term liabilities include employment contracts with officers and key employees that
call for annual salaries ranging from $115,000 to $250,000 through October 2009, and are to be
reviewed annually by our Compensation Committee. Known and Anticipated Future Trends and Contingencies
    22




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##### Table of Contents



Critical Accounting Policies
   Revenue and Cost Recognition
  23




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##### Table of Contents



Collectibility of Accounts Receivable
  Inventory, net
  Valuation of Property and Equipment:
  Plants
    
    4 - 15 yearsComputer equipment
    
    3 - 5 yearsEquipment
    
    3 - 10 yearsLeasehold improvements
    
    2 - 10 yearsOffice furniture and equipment
    
    5 - 7 yearsVehicles
    
    3 - 10 yearsOffice Building
    
    39 years
   24




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##### Table of Contents



Income taxes
   Classification of Leases:
  Recent Accounting Pronouncements
   25




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##### Table of Contents



Off-Balance Sheet Arrangements
  26




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##### Table of Contents



Item 7A Quantitative and Qualitative Disclosures About Market Risk
    27




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##### Table of Contents



Item 8 Financial Statements and Supplementary Data
 (LOGO)
 Report of Independent Registered Public Accounting Firm
 
    
 
  28




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##### Table of Contents



MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 December 31,2006
    
    
    2005Assets:Current assets:Cash and cash equivalents
    
    $
    29,354,582
    
    
    $
    23,565,317Restricted cash
    
    
    605,243
    
    
    
    1,267,090Accounts receivable, net
    
    
    25,990,763
    
    
    
    25,139,640Prepaid expenses and other
    
    
    2,820,768
    
    
    
    3,171,670Inventory, net
    
    
    1,366,534
    
    
    
    776,978Costs and estimated earnings in excess of billings on uncompleted
contracts
    
    
    1,254,860
    
    
    
    1,991,993Note receivable
    
    
    106,499
    
    
    
    Deferred tax asset
    
    
    561,199
    
    
    
    760,724Total current assets
    
    
    62,060,448
    
    
    
    56,673,412Property and equipment, net
    
    
    35,553,000
    
    
    
    26,228,073Refundable deposits
    
    
    1,492,967
    
    
    
    478,965Note receivable, less current portion
    
    
    535,360
    
    
    
    Claims receivable
    
    
    2,463,880
    
    
    
    3,521,080Other receivables
    
    
    
    
    
    
    115,000Total assets
    
    $
    102,105,655
    
    
    $
    87,016,530Liabilities and Stockholders Equity:Current liabilities:Accounts payable
    
    $
    13,298,114
    
    
    $
    18,521,558Accrued liabilities
    
    
    7,569,928
    
    
    
    5,878,595Notes payable
    
    
    4,837,628
    
    
    
    3,518,892Obligations under capital leases
    
    
    332,898
    
    
    
    546,801Income tax payable
    
    
    399,536
    
    
    
    391,202Billings in excess of costs and estimated earnings on uncompleted
contracts
    
    
    8,366,754
    
    
    
    5,903,087Total current liabilities
    
    
    34,804,858
    
    
    
    34,760,135Notes payable, less current portion
    
    
    13,894,382
    
    
    
    11,423,044Obligations under capital leases, less current portion
    
    
    102,100
    
    
    
    434,998Deferred tax liability
    
    
    2,974,857
    
    
    
    3,177,771Total liabilities
    
    
    51,776,197
    
    
    
    49,795,948Commitments and contingenciesMinority interest in consolidated subsidiary
    
    
    18,988,244
    
    
    
    17,424,795Stockholders equity:Preferred stock  $.001 par value; 1,000,000 shares authorized, none
issued and outstanding
    
    
    
    
    
    
    Common stock  $.001 par value; 15,000,000 shares authorized,
5,098,679 and 4,136,912 issued and outstanding
    
    
    5,099
    
    
    
    4,137Additional paid-in capital
    
    
    21,197,456
    
    
    
    13,818,913Capital adjustments
    
    
    (799,147
    )
    
    
    (799,147
    )Retained earnings
    
    
    10,937,806
    
    
    
    6,771,884Total stockholders equity
    
    
    31,341,214
    
    
    
    19,795,787Total liabilities and stockholders equity
    
    $
    102,105,655
    
    
    $
    87,016,530
  29




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##### Table of Contents



MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Years Ended December 31,2006
    
    
    2005
    
    
    2004Revenue:Construction services
    
    $
    111,936,285
    
    
    $
    116,822,072
    
    
    $
    108,168,921Construction materials
    
    
    83,151,938
    
    
    
    67,050,791
    
    
    
    58,662,743Construction materials testing
    
    
    433,728
    
    
    
    
    
    
    
    Total revenue
    
    
    195,521,951
    
    
    
    183,872,863
    
    
    
    166,831,664Cost of revenue:Construction services
    
    
    101,866,540
    
    
    
    108,706,174
    
    
    
    107,827,853Construction materials
    
    
    73,945,571
    
    
    
    59,979,110
    
    
    
    52,036,021Construction materials testing
    
    
    399,752
    
    
    
    
    
    
    
    Total cost of revenue
    
    
    176,211,863
    
    
    
    168,685,284
    
    
    
    159,863,874Gross profit
    
    
    19,310,088
    
    
    
    15,187,579
    
    
    
    6,967,790General and administrative expenses
    
    
    11,161,819
    
    
    
    8,666,573
    
    
    
    6,509,839Income from operations
    
    
    8,148,269
    
    
    
    6,521,006
    
    
    
    457,951Other income (expense):Interest income
    
    
    1,010,144
    
    
    
    562,914
    
    
    
    85,864Interest expense
    
    
    (338,886
    )
    
    
    (362,326
    )
    
    
    (348,229
    )Other income
    
    
    73,629
    
    
    
    341,603
    
    
    
    694,857744,887
    
    
    
    542,191
    
    
    
    432,492Income before income taxes and minority
interest in consolidated subsidiary
    
    
    8,893,156
    
    
    
    7,063,197
    
    
    
    890,443Income tax expense
    
    
    3,163,785
    
    
    
    2,570,955
    
    
    
    316,804Income before minority interest
in consolidated subsidiary
    
    
    5,729,371
    
    
    
    4,492,242
    
    
    
    573,639Minority interest in consolidated subsidiary
    
    
    1,563,449
    
    
    
    288,523
    
    
    
    Net income
    
    $
    4,165,922
    
    
    $
    4,203,719
    
    
    $
    573,639Basic net income per common share
    
    $
    0.96
    
    
    $
    1.11
    
    
    $
    0.16Diluted net income per common share
    
    $
    0.90
    
    
    $
    1.01
    
    
    $
    0.15Basic weighted average common shares outstanding
    
    
    4,328,160
    
    
    
    3,783,089
    
    
    
    3,601,250Diluted weighted average common shares outstanding
    
    
    4,621,124
    
    
    
    4,151,096
    
    
    
    3,780,597
  30




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##### Table of Contents



MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 Common StockNumber of
    
    
    
    
    
    
    AdditionalShares
    
    
    
    
    
    
    Paid-in
    
    
    Capital
    
    
    RetainedOutstanding
    
    
    Amount
    
    
    Capital
    
    
    Adjustment
    
    
    EarningsBalance at January 1, 2004
    
    
    3,601,250
    
    
    $
    3,601
    
    
    $
    10,943,569
    
    
    $
    (799,147
    )
    
    $
    1,994,526Net income for the year ended 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    573,639Balance at December 31, 2004
    
    
    3,601,250
    
    
    
    3,601
    
    
    
    10,943,569
    
    
    
    (799,147
    )
    
    
    2,568,165Common stock issued on exercise
of options, net of tax benefit(1)
    
    
    535,662
    
    
    
    536
    
    
    
    2,875,344
    
    
    
    
    
    
    
    Net income for the year ended 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,203,719Balance at December 31, 2005
    
    
    4,136,912
    
    
    
    4,137
    
    
    
    13,818,913
    
    
    
    (799,147
    )
    
    
    6,771,884Common stock issued in
private placement offering
    
    
    817,120
    
    
    
    817
    
    
    
    6,567,083
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    267,110
    
    
    
    
    
    
    
    Excess tax benefits from stock-based
payment arrangements
    
    
    
    
    
    
    
    
    
    
    144,879
    
    
    
    
    
    
    
    Common stock issued on exercise
of options
    
    
    144,647
    
    
    
    145
    
    
    
    399,471
    
    
    
    
    
    
    
    Net income for the year ended 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,165,922Balance at December 31, 2006
    
    
    5,098,679
    
    
    $
    5,099
    
    
    $
    21,197,456
    
    
    $
    (799,147
    )
    
    $
    10,937,806
 
 (1)
    
     Additional paid-in capital associated with the issuance of common stock on exercise of
options for 2005 includes an income tax benefit of $884,083.  31




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Years Ended December 31,2006
    
    
    2005
    
    
    2004Increase (decrease) in cash and cash equivalents:Cash flows from operating activities:Cash received from customers
    
    $
    198,871,293
    
    
    $
    178,671,433
    
    
    $
    173,023,546Cash paid to suppliers and employees
    
    
    (186,080,171
    )
    
    
    (173,653,659
    )
    
    
    (161,769,236
    )Interest received
    
    
    1,010,144
    
    
    
    562,914
    
    
    
    85,864Interest paid
    
    
    (338,886
    )
    
    
    (362,326
    )
    
    
    (348,229
    )Income taxes paid
    
    
    (3,138,811
    )
    
    
    (930
    )
    
    
    (5,919
    )Net cash provided by operating activities
    
    
    10,323,569
    
    
    
    5,217,432
    
    
    
    10,986,026Cash flows from investing activities:Decrease in restricted cash
    
    
    661,847
    
    
    
    1,359
    
    
    
    576,442Proceeds from sale of property and equipment
    
    
    552,270
    
    
    
    391,504
    
    
    
    2,450,931Purchase of property and equipment
    
    
    (9,368,571
    )
    
    
    (5,521,805
    )
    
    
    (4,569,504
    )Proceeds from note receivable
    
    
    151,681
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (8,002,773
    )
    
    
    (5,128,942
    )
    
    
    (1,542,131
    )Cash flows from financing activities:Proceeds from the issuance of common stock
    
    
    7,753,696
    
    
    
    1,991,797
    
    
    
    Offering costs associated with private placement offering
    
    
    (786,180
    )
    
    
    
    
    
    
    Proceeds from minority interest in consolidated subsidiary
    
    
    
    
    
    
    17,747,900
    
    
    
    Offering costs associated with minority interest
in consolidated subsidiary
    
    
    
    
    
    
    (611,628
    )
    
    
    Repayment of capital lease obligations
    
    
    (546,801
    )
    
    
    (531,746
    )
    
    
    (906,191
    )Proceeds received from notes payable
    
    
    3,083,540
    
    
    
    543,998
    
    
    
    1,281,570Repayment of notes payable
    
    
    (6,180,665
    )
    
    
    (5,827,712
    )
    
    
    (4,393,444
    )Excess tax benefits from share-based payment arrangements
    
    
    144,879
    
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    3,468,469
    
    
    
    13,312,609
    
    
    
    (4,018,065
    )Net increase in cash and cash equivalents
    
    
    5,789,265
    
    
    
    13,401,099
    
    
    
    5,425,830Cash and cash equivalents at beginning of year
    
    
    23,565,317
    
    
    
    10,164,218
    
    
    
    4,738,388Cash and cash equivalents at end of year
    
    $
    29,354,582
    
    
    $
    23,565,317
    
    
    $
    10,164,218
  32




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##### Table of Contents



MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 For the Years Ended December 31,2006
    
    
    2005
    
    
    2004Increase (decrease) in cash and cash equivalents (Continued):Reconciliation of net income to net cash
provided by operating activities:Net income
    
    $
    4,165,922
    
    
    $
    4,203,719
    
    
    $
    573,639Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    5,885,481
    
    
    
    4,499,044
    
    
    
    3,201,683Gain on sale of property and equipment
    
    
    (42,002
    )
    
    
    (9,397
    )
    
    
    (485,911
    )Share-based compensation expense
    
    
    267,110
    
    
    
    
    
    
    
    Deferred taxes, net
    
    
    (3,389
    )
    
    
    2,198,853
    
    
    
    310,885Allowance for doubtful accounts
    
    
    69,131
    
    
    
    (281,565
    )
    
    
    (102,476
    )Inventory allowance
    
    
    (44,271
    )
    
    
    (42,551
    )
    
    
    (917,375
    )Minority interest in consolidated
subsidiary
    
    
    1,563,449
    
    
    
    288,523
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (940,284
    )
    
    
    (2,674,326
    )
    
    
    (1,397,221
    )Income taxes receivable
    
    
    20,030
    
    
    
    (20,030
    )
    
    
    Claims receivable
    
    
    1,057,200
    
    
    
    
    
    
    
    4,101,898Prepaid expenses and other
    
    
    92,456
    
    
    
    62,742
    
    
    
    (238,707
    )Inventory
    
    
    (545,285
    )
    
    
    136,685
    
    
    
    1,295,381Costs and estimated earnings in excess of billings on
uncompleted contracts
    
    
    737,133
    
    
    
    (1,542,635
    )
    
    
    1,013,951Refundable deposits
    
    
    (1,014,002
    )
    
    
    (457,185
    )
    
    
    72,519Other receivables
    
    
    115,000
    
    
    
    
    
    
    
    (115,000
    )Accounts payable
    
    
    (5,223,444
    )
    
    
    (1,190,013
    )
    
    
    1,064,714Accrued liabilities
    
    
    1,691,333
    
    
    
    971,041
    
    
    
    343,738Income taxes payable
    
    
    8,334
    
    
    
    391,202
    
    
    
    Billings in excess of costs and estimated earnings on
uncompleted contracts
    
    
    2,463,667
    
    
    
    (1,316,675
    )
    
    
    2,264,308Net cash provided by operating activities
    
    $
    10,323,569
    
    
    $
    5,217,432
    
    
    $
    10,986,026
  33




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##### Table of Contents



MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Summary of Significant Accounting Policies and Use of Estimates:
 Nature of the Corporation:
  Liquidity:
   Principles of Consolidation
  Reclassifications
  Accounting Estimates:
   34




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 1. Summary of Significant Accounting Policies and Use of Estimates (Continued):
 Revenue and Cost Recognition
     Claims Receivable:
      35




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 1. Summary of Significant Accounting Policies and Use of Estimates (Continued):
 Claims Receivable (Continued):
   Cash and Cash Equivalents:
  Restricted Cash:
  Accounts Receivable, net:
    Inventory, net
   Property and Equipment:
  36




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 1. Summary of Significant Accounting Policies and Use of Estimates (Continued):
 Property and Equipment (Continued):
  Plants
    
    4 - 15 yearsComputer equipment
    
    3 - 5 yearsEquipment
    
    3 - 10 yearsVehicles
    
    3 - 10 yearsOffice furniture and equipment
    
    5 - 7 yearsLeasehold improvements
    
    2 - 10 yearsBuilding
    
    39 years
  Income Taxes
  Fair Value of Financial Instruments
   Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of:
  Earnings per Share:
  37




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 1. Summary of Significant Accounting Policies and Use of Estimates (Continued):
 Stock-Based Compensation:
   
    
    Expected term is determined using an average of the contractual term and vesting period
of the award;
    
    Expected volatility is measured using a calculated average of historical daily changes
in the market price of the Companys common stock over the expected term of the award;
    
    Risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury
bonds with a remaining maturity equal to the expected term of the awards; and,
    
    Forfeitures are based on the history of cancellations of awards granted by both
companies and managements analysis of potential forfeitures.
  38




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 1. Summary of Significant Accounting Policies and Use of Estimates (Continued):
 Stock-Based Compensation (Continued):
  Years Ended December 31,2005
    
    
    2004Net income, as reported
    
    $
    4,203,719
    
    
    $
    573,639Add: Stock-based employee compensation expense included
in reported income, net of related tax effects
    
    
    
    
    
    
    Deduct: Total stock-based employee compensation expense
determined
under fair value based methods for all awards, net of
related tax effects
    
    
    (157,146
    )
    
    
    (92,852
    )Pro forma net income
    
    $
    4,046,573
    
    
    $
    480,787Basic net income per common shareAs reported
    
    $
    1.11
    
    
    $
    0.16Pro forma
    
    
    1.07
    
    
    
    0.13Diluted net income per common shareAs reported
    
    $
    1.01
    
    
    $
    0.15Pro forma
    
    
    0.97
    
    
    
    0.13
 Recent Accounting Pronouncements:
    39




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 1. Summary of Significant Accounting Policies and Use of Estimates (Continued):
 Recent Accounting Pronouncements (Continued):
     2. Stock-Based Compensation:
   40




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 2. Stock-Based Compensation (Continued):
   Meadow Valley Corporation Equity Incentive Plan:
    Awards duringthe year ended
    
    Awards prior toDecember 31, 2006
    
    January 1, 2006Dividend yield
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    66.25
    %
    
    
    23.94% - 82.23
    %Weighted-average expected volatility
    
    
    66.25
    %
    
    
    49.14
    %Risk-free interest rate
    
    
    5.00
    %
    
    
    5.00
    %Expected life of options (in years)
    
    
    3
    
    
    
    3Weighted-average grant-date fair value
    
    $
    4.81
    
    
    $
    1.15
 41




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##### Table of Contents



MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 2. Stock-Based Compensation (Continued):
  Weighted AverageWeighted Average
    
    
    Remaining
    
    
    Aggregate
    
    
    AggregateExercise Price
    
    
    Contractural
    
    
    Fair
    
    
    IntrinsicShares
    
    
    per Share
    
    
    Term1
    
    
    Value
    
    
    Value2Outstanding January 1, 2006
    
    
    494,857
    
    
    
    3.34
    
    
    
    4.93
    
    
    $
    554,982Granted
    
    
    85,000
    
    
    
    10.11
    
    
    
    
    
    
    
    408,850Exercised
    
    
    (144,647
    )
    
    
    2.76
    
    
    
    
    
    
    
    (144,913
    )
    
    $
    1,135,441Forfeited or expired
    
    
    (668
    )
    
    
    1.46
    
    
    
    
    
    
    
    (548
    )Outstanding December 31, 2006
    
    
    434,542
    
    
    
    4.86
    
    
    
    3.98
    
    
    $
    818,371
    
    
    $
    2,298,228Exercisable December 31, 2006
    
    
    339,542
    
    
    
    3.41
    
    
    
    3.76
    
    
    $
    357,721
    
    
    $
    2,287,128
 
 1
    
    Remaining contractual term is presented in years.2
    
    The aggregate intrinsic value is calculated as the difference between the
exercise price of the underlying awards and the closing price of the Companys common
stock as of December 31, 2006, for those awards that have an exercise price currently
below the closing price as of December 31, 2006. Awards with an exercise price above
the closing price as of December 31, 2006 are considered to have no intrinsic value.  Weighted AverageGrant-DateShares
    
    Fair ValueNonvested stock options at January 1, 2006
    
    
    124,000
    
    
    $
    1.76Granted
    
    
    85,000
    
    
    
    4.81Vested
    
    
    (114,000
    )
    
    
    1.01Forfeited
    
    
    
    
    
    
    Nonvested stock options at December 31, 2006
    
    
    95,000
    
    
    $
    4.85
   Ready Mix, Inc. Equity Incentive Plan:
  42




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##### Table of Contents



MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 2. Stock-Based Compensation (Continued):
   Awards duringthe year ended
    
    Awards prior toDecember 31, 2006
    
    January 1, 2006Dividend yield
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    39.10
    %
    
    
    21.4% - 23.3
    %Weighted-average volatility
    
    
    39.10
    %
    
    
    21.55
    %Risk-free interest rate
    
    
    5.00
    %
    
    
    5.00
    %Expected life of options (in years)
    
    
    3
    
    
    
    3Weighted-average grant-date fair value
    
    $
    3.33
    
    
    $
    2.02
  Weighted AverageWeighted Average
    
    
    Remaining
    
    
    Aggregate
    
    
    AggregateExercise Price
    
    
    Contractural
    
    
    Fair
    
    
    IntrinsicShares
    
    
    per Share
    
    
    Term (1)
    
    
    Value
    
    
    Value (2)Outstanding January 1, 2006
    
    
    253,125
    
    
    $
    11.12
    
    
    
    3.89
    
    
    $
    511,616Granted
    
    
    100,000
    
    
    
    10.35
    
    
    
    
    
    
    
    333,000Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (2,500
    )
    
    
    11.00
    
    
    
    
    
    
    
    (4,875
    )Outstanding December 31, 2006
    
    
    350,625
    
    
    $
    10.90
    
    
    
    3.65
    
    
    $
    839,741
    
    
    $
    98,038Exercisable December 31, 2006
    
    
    83,541
    
    
    $
    11.12
    
    
    
    3.14
    
    
    $
    168,912
    
    
    $
    7,679
 
 (1)
    
    Remaining contractual term is presented in years.(2)
    
    The aggregate intrinsic value is calculated as the difference between the
exercise price of the underlying awards and the closing price of RMIs common stock as
of December 31, 2006, for those awards that have an exercise price currently below the
closing price as of December 31, 2006. Awards with an exercise price above the closing
price as of December 31, 2006 are considered to have no intrinsic value.  Weighted AverageGrant-DateShares
    
    Fair ValueNonvested stock options at January 1, 2006
    
    
    253,125
    
    
    $
    2.02Granted
    
    
    100,000
    
    
    
    3.33Vested
    
    
    (83,541
    )
    
    
    2.02Forfeited
    
    
    (2,500
    )
    
    
    1.95Nonvested stock options at December 31, 2006
    
    
    267,084
    
    
    $
    2.51
 43




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##### Table of Contents



MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 2. Stock-Based Compensation (Continued):
  3. Note Receivable:
  4. Concentration of Credit Risk:
   5. Accounts Receivable, net:
  December 31,2006
    
    
    2005Contracts in progress
    
    $
    11,781,074
    
    
    $
    12,101,708Contracts in progress  retention
    
    
    3,928,480
    
    
    
    3,075,487Completed contracts
    
    
    9,481
    
    
    
    39,480Completed contracts  retention
    
    
    964,255
    
    
    
    1,044,929Other trade receivables
    
    
    9,468,930
    
    
    
    9,135,832Other receivables
    
    
    233,786
    
    
    
    68,31626,386,006
    
    
    
    25,465,752Less: Allowance for doubtful accounts
    
    
    (395,243
    )
    
    
    (326,112
    )$
    25,990,763
    
    
    $
    25,139,640
 44




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##### Table of Contents



MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 6. Contracts in Progress:
  December 31,2006
    
    
    2005Costs incurred on uncompleted contracts
    
    $
    200,904,026
    
    
    $
    165,582,867Estimated earnings to date
    
    
    17,742,674
    
    
    
    2,196,947218,646,700
    
    
    
    167,779,814Less: billings to date
    
    
    (225,758,594
    )
    
    
    (171,690,908
    )$
    (7,111,894
    )
    
    $
    (3,911,094
    )
  December 31,2006
    
    
    2005Costs and estimated earnings in excess of billings on
uncompleted contracts
    
    $
    1,254,860
    
    
    $
    1,991,993Billings in excess of costs and estimated earnings on
uncompleted contracts
    
    
    (8,366,754
    )
    
    
    (5,903,087
    )$
    (7,111,894
    )
    
    $
    (3,911,094
    )
 7. Property and Equipment:
  December 31,2006
    
    
    2005Land and building
    
    $
    4,821,556
    
    
    $
    2,647,763Plants
    
    
    13,683,086
    
    
    
    9,417,309Computer equipment
    
    
    964,178
    
    
    
    880,530Equipment
    
    
    21,214,671
    
    
    
    16,762,810Vehicles
    
    
    12,572,265
    
    
    
    9,307,975Office furniture and equipment
    
    
    123,831
    
    
    
    90,029Mineral rights and pit development
    
    
    97,488
    
    
    
    194,977Leasehold improvements
    
    
    497,654
    
    
    
    286,607Water rights
    
    
    2,250,000
    
    
    
    2,250,00056,224,729
    
    
    
    41,838,000Less: Accumulated depreciation and amortization
    
    
    (20,671,729
    )
    
    
    (15,609,927
    )$
    35,553,000
    
    
    $
    26,228,073
 8. Accounts Payable:
  December 31,2006
    
    
    2005Trade
    
    $
    11,917,720
    
    
    $
    15,238,752Retentions
    
    
    1,380,394
    
    
    
    3,282,806$
    13,298,114
    
    
    $
    18,521,558
 45




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##### Table of Contents



MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 9. Accrued Liabilities:
  December 31,2006
    
    
    2005Compensation
    
    $
    4,894,724
    
    
    $
    4,125,792Taxes
    
    
    516,683
    
    
    
    449,445Insurance
    
    
    1,572,996
    
    
    
    699,928Other
    
    
    585,525
    
    
    
    603,430$
    7,569,928
    
    
    $
    5,878,595
 10. Notes Payable:
  December 31,2006
    
    
    2005Note payable, variable interest rate was 7.25% at December 31,
2005, with monthly principal payments of $4,121, due March 11,
2006, collateralized by equipment
    
    $
    
    
    
    $
    12,363Notes payable, interest rates ranging from 6.21% to 7.05% with
combined monthly payments of $11,301, due dates ranging from
April 16, 2009 to August 27, 2009, collateralized by land
    
    
    1,154,158
    
    
    
    1,213,271Note payable, variable interest rate was 9.75% at December 31,
2006, with monthly principal payments of $21,429 plus interest,
due July 29, 2012, collateralized by mining water rights
    
    
    1,435,714
    
    
    
    1,692,8577.46% note payable, with a monthly payment of $13,867, due
May 26, 2021, collateralized by a building and land
    
    
    1,465,927
    
    
    
    Non-interest bearing note payable, with monthly payments of $390,
due February 12, 2007, collateralized by equipment
    
    
    780
    
    
    
    5,459Line of credit, variable interest rate was 8.50% at December 31,
2006, interest only payments until December 31, 2008, 36 equal
monthly principal payments plus interest thereafter,
collateralized
by all of the Companys assets (See Note 11)
    
    
    650,180
    
    
    
    1,465,733Line of credit for $2,023,102, variable interest was 9.0% at
December 31, 2006, interest only payments until December 31, 2007,
then principal plus interest payments, due December 31, 2010,
collateralized by all assets of the Company (See Note 11)
    
    
    990,669
    
    
    
    1,675,044Line of credit for $3,000,000, variable interest rate was 9.0% at
December 31, 2006, interest only payments until December 31, 2008,
then principal plus interest payments due December 31, 2011,
collateralized by all assets of the Company (See Note 11)
    
    
    250,000
    
    
    
    250,000Notes payable, interest rates ranging from 1.902% to 9.5% with
combined monthly payments of $48,861, due dates ranging from
September 28, 2008 to January 14, 2012, collateralized by
vehicles
    
    
    1,569,770
    
    
    
    1,542,548$
    7,517,198
    
    
    $
    7,857,275
 46




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##### Table of Contents



MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 10. Notes Payable (Continued):
  December 31,2006
    
    
    2005Totals from previous page
    
    $
    7,517,198
    
    
    $
    7,857,275Notes payable, interest rates ranging from 1.90% to 7.25% with
combined monthly payments of $165,386, due dates ranging from
February 25, 2007 to July 20, 2011, collateralized by equipment
    
    
    3,804,405
    
    
    
    5,232,301Notes payable, interest rates ranging from 5.90% to 8.65% with
combined monthly payments of $149,602 plus interest, due dates
ranging from February 27, 2007 to January 10, 2012,
collateralized
by equipment
    
    
    6,465,766
    
    
    
    1,393,861Notes payable, non-interest bearing, with combined monthly payments of
$6,200, due dates ranging from August 15, 2008 to September 15, 2008
(Less unamortized discount of $7,581 - effective rate of 6.00%),
collateralized by vehicles
    
    
    125,187
    
    
    
    228,341Notes payable, interest rates ranging from 6.9% to 7.79% with combined
monthly payments of $45,141, due September 1, 2007, collateralized by
the Companys general liability insurance policy
    
    
    350,806
    
    
    
    230,158Note payable, 8.18% interest rate with 44 monthly payments of
$7,353 and 1 payment of $111,853 due November 14, 2009,
collateralized by equipment
    
    
    310,644
    
    
    
    Notes payable, interest rates of 3.848% with interest only
monthly
payments until April 1, 2006 then combined monthly payments of
$4,780 due December 1, 2009, collateralized by equipment
    
    
    158,004
    
    
    
    18,732,010
    
    
    
    14,941,936Less: current portion
    
    
    (4,837,628
    )
    
    
    (3,518,892
    )$
    13,894,382
    
    
    $
    11,423,044
  2007
    
    $
    4,837,6282008
    
    
    3,938,1682009
    
    
    4,856,6012010
    
    
    2,553,9692011
    
    
    1,262,802Subsequent to 2011
    
    
    1,282,842$
    18,732,010
 47




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##### Table of Contents



MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 11. Lines of Credit:
     12. Related Party Transactions:
 Revenue and Accounts Receivable:
  Professional Services:
  48




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 12. Related Party Transactions (Continued):
 Subcontractor/Supplier:
  13. Income Taxes:
  For the Years Ended December 31,2006
    
    
    2005
    
    
    2004Current
    
    $
    (3,167,174
    )
    
    $
    (372,102
    )
    
    $
    (5,919
    )Deferred
    
    
    3,389
    
    
    
    (2,198,853
    )
    
    
    (310,885
    )$
    (3,163,785
    )
    
    $
    (2,570,955
    )
    
    $
    (316,804
    )
  December 31,2006
    
    
    2005Deferred tax asset:Nonqualified stock-based
compensation
    
    $
    25,991
    
    
    $
    Allowance for bad debt and other
    
    
    462,216
    
    
    
    417,186Inventory allowance
    
    
    72,000
    
    
    
    87,938NOL carryforward
    
    
    992
    
    
    
    255,600561,199
    
    
    
    760,724Deferred tax liability:Depreciation
    
    
    (2,974,857
    )
    
    
    (3,177,771
    )Net deferred tax liability
    
    $
    (2,413,658
    )
    
    $
    (2,417,047
    )
  For the Years Ended December 31,2006
    
    
    2005
    
    
    2004Statutory rate of 34% applied to
income before income taxes
    
    $
    3,024,000
    
    
    $
    2,401,000
    
    
    $
    303,000State taxes, net of federal benefit
    
    
    202,000
    
    
    
    140,000
    
    
    
    18,000Increase (decrease) in income taxes
resulting from:Non-Deductible items
    
    
    40,000
    
    
    
    30,000
    
    
    
    22,000Domestic production
activities deduction
    
    
    (102,000
    )
    
    
    
    
    
    
    Change in combined tax rate
    
    
    
    
    
    
    
    
    
    
    (27,000
    )$
    3,164,000
    
    
    $
    2,571,000
    
    
    $
    316,000
  49




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##### Table of Contents



MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 14. Commitments and Contingencies:
   For the Years Ending December 31,
    
    Amount2007
    
    $
    3,469,9292008
    
    
    2,895,3952009
    
    
    2,250,8982010
    
    
    1,384,5702011
    
    
    603,027$
    10,603,819
  For the Years Ending December 31,
    
    Amount2007
    
    $
    3,720,4442008
    
    
    3,630,4442009
    
    
    3,549,6442010
    
    
    2,802,9352011
    
    
    2,385,000Subsequent to 2011
    
    
    11,491,250$
    27,579,717
  For the Years Ending December 31,
    
    Amount2007
    
    $
    1,347,0002008
    
    
    966,3332009
    
    
    441,667$
    2,755,000
  50




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##### Table of Contents



MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 14. Commitments and Contingencies (Continued):
  For the Years Ending December 31,
    
    Amount2007
    
    $
    366,0052008
    
    
    105,947Total minimum payments
    
    
    471,952Less: amount representing interest
    
    
    (36,954
    )Present value of net minimum lease payment
    
    
    434,998Less: current portion
    
    
    (332,898
    )$
    102,100
    15. Minority Interest in Consolidated Subsidiary:
   51




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##### Table of Contents



MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 16. Stockholders Equity:
 Preferred Stock:
  Common Stock:
  17. Litigation and Claim Matters:
   Requests for Equitable Adjustment to Construction Contracts
 (1)
    
    Two contracts with the New Mexico State Highway and Transportation Department 
The approximate total value of claims on these projects is $12,002,782 of which
$8,336,931 is on behalf of MVCI and the balance of $3,665,851 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. The trial date
has been postponed, and no date has been scheduled as of the date of this report.(2)
    
    Clark County Public Works, Clark County, Nevada  A final ruling on November 1,
2004, by the three-member arbitration panel awarded the Company approximately
$5,540,000, of which $2,100,000 was due to MVCI and the balance of $3,440,000 was due a
subcontractor. The award included prejudgment interest and post-judgment interest,
which continued to accrue at approximately $900 per day. The approximate total value
of the claims ruled on above was $6,833,197, of which $2,211,947 was on behalf of MVCI
and the balance of $4,621,250 was on behalf of a subcontractor. MVCI has not
recognized any additional claim receivable related to this ruling since Clark County
Public Works filed, on January 28, 2005 with the District Court, a Notice of and Motion
to Vacate Arbitration Award. The Countys motion was heard on May 9, 2005 and was
denied by the District Court, but was appealed to the Nevada Supreme Court. In 2004,
the three-member arbitration panel made a partial ruling rejecting a significant
portion of the original claim that was primarily asserted by another subcontractor on
the project, which we refer to as the Shoring Entitlement claim. MVCI filed with the
District Court a Notice of and Motion to Vacate Arbitration Award on the Shoring
Entitlement. The motion was denied by the District Court and on February 7, 2005, MVCI
filed an appeal to the Nevada Supreme Court. The primary issues related to the claim
filed against Clark County Public Works were
 52




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 17. Litigation and Claim Matters (Continued):
 changed conditions, constructive changes, contract modifications and associated delay
costs. A date has not yet been established for the Nevada Supreme Court to hear the
appeals. On June 19, 2006, MVCI settled its $6,833,197 claim with Clark County for
$5,110,000, of which $2,095,000 was placed in escrow pursuant to a binding arbitration
agreement between MVCI and its subcontractor, Innovative Construction Systems, Inc.
(ICS). MVCI then settled the pending claims with ICS during its preparation for the
arbitration hearing. Both parties agreed to withdraw their respective actions with
prejudice, which resulted in the release of $2.1 million from escrow to MVCI.(3)
    
    Federal Highway Administration  The approximate total value of claims on this
project is $7.1 million, of which $6.8 million is on behalf of MVCI and the balance of
$0.3 million is on behalf of a subcontractor. The primary issues are unforeseen
conditions, 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. On September 18,
2006 MVCI submitted a formal claim with the Federal Highway Administration. MVCI was
informed on December 1, 2006 that a formal decision would not be provided until at
least June 2007.
     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s 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 its own personnel. ICS
alleged the subcontracts were wrongfully terminated and asserted numerous claims for
damages. ICS total claims against MVCI were approximately $15,000,000. MVCI defended
itself against the claims and filed counter-claims for approximately $3,200,000 seeking
to recover the damages ICS caused MVCI through its failure to perform and satisfy its
financial obligations. As such, no liability was recorded in the accompanying
financial statements for any potential loss arising from the claim. In September 2003,
a binding arbitration agreement was entered into between ICS and MVCI to stay all
actions until the Clark County, Nevada Shoring Entitlement claim, as mentioned above,
concluded, a decision rendered, payment received from the County, and the funds
escrowed. As a result of the Clark County arbitration panels decision referenced
above, MVCI requested binding
 53




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##### Table of Contents



MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 17. Litigation and Claim Matters (Continued):
 arbitration concerning all remaining matters between MVCI and ICS. MVCI settled all
matters with ICS during its preparation for the arbitration hearing. Both parties
agreed to withdraw their respective actions with prejudice, which resulted in the
release of $2.1 million from escrow to MVCI. MVCIs remaining obligation to ICS is to
continue its appeal to the Nevada Supreme Court of the Shoring Entitlement claim and to
cooperate with ICS in passing through one of their remaining claims if they decide to
pursue their rights to do so.(2)
    
    Johnson & Danley Construction Co., Inc. (JDCC), J.D. Materials, Inc. (JDM)
and Joel T. Danley (Danley) (collectively J&D), Twelfth Judicial District, District
of New Mexico  JDCC was the prime contractor and MVCI was a subcontractor to JDCC on
one of the two contracts involved in MVCIs disputes with the state of New Mexico.
JDCC was also a subcontractor to MVCI on other contracts in New Mexico. JDM is the
owner of an aggregate pit in Alamogordo, NM and leased the pit to MVCI under a mineral
lease agreement. Danley is believed to be an officer and owner of JDCC and JDM. JDCC
filed for Chapter 11 bankruptcy protection, which in accordance with the contract,
resulted in the termination of its contract with the New Mexico State Highway and
Transportation Department (NMSHTD). The payment and performance bonds supplied by
JDCC in connection with the one contract for which JDCC was the prime contractor had
been furnished by MVCIs surety companies. MVCI indemnified the surety companies
against losses and claims on the one contract. Upon JDCCs termination, the NMSHTD
entered into a takeover agreement with the surety companies who subsequently entered
into an agreement with MVCI to complete the work. MVCI has successfully completed the
projects. In its complaint, J&D alleged, among other things, that MVCI was partially
responsible for the cause of its bankruptcy and sought damages in an undetermined
amount. On February 10, 2003, J&D and MVCI entered into a settlement agreement for
mutual consideration whereby the two parties dismissed their claims and counterclaims
in their entirety. The parties have agreed to jointly prosecute their respective
claims against the NMSHTD.(3)
    
    MVCI is defending a claimed preference, in the Third Judicial Court of Salt
Lake County, in connection with a payment made to it by an insurance company, Southern
America Insurance Company, in the approximate amount of $100,000. MVCI believes that
the payment is not a preference, and is vigorously defending the action.(4)
    
    MVCI, through its insurance company, is providing a defense to the State of
Arizona, pursuant to its obligations under its contract, for a complaint brought by the
parents of Corey James and Michelle James in the Superior Court of the State of
Arizona, in and for the County of Pinal. The Complaint, No. CV00400744, was filed on
July 9, 2004. The complaint is a civil action titled John James, the Father of Decedent
Corey James, Donna James, the mother of Decedent Corey James, Marjorie Surine, the
Mother of Decedent Michelle James and Joseph Burkhamer, the Father of Decedent Michelle
James, Plaintiffs, vs. The State of Arizona, a Body Politic; John Does and Jane Does
1-10; ABC Companies 1-5; and Black and White Corporations, Partnerships and/or Sole
proprietorships 1-10, or Other Entities, Defendants. The complaint seeks damages from
the State of Arizona for losses suffered by the plaintiffs as a result of a traffic
accident. In January of 2006, Joseph Burkhamer, the father of decedent Michelle James,
was dismissed from the complaint. MVCI denies responsibility for the accident and is
vigorously defending the action. MVCI is unable to ascertain if any loss is probable
or even estimatable and accordingly, has not accrued a liability related to this
complaint as of December 31, 2006.
 54




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##### Table of Contents



MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 18. Statement of Cash Flows:
 Non-Cash Investing and Financing Activities:
      19. Significant Customers:
  For the Years Ended December 31,2006
    
    2005
    
    2004A
    
    
    20.9
    %
    
    
    21.0
    %
    
    
    24.1
    %B
    
    
    5.1
    %
    
    
    11.6
    %
    
    
    6.8
    %
  For the Years Ended December 31,2006
    
    2005A
    
    $
    1,874,446
    
    
    $
    2,042,861B
    
    
    2,153,500
    
    
    
    745,756
 20. Employee Benefit Plan:
  55




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##### Table of Contents



MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 21. Earnings per Share:
  For the Years Ended December 31,2006
    
    
    2005
    
    
    2004Weighted average common shares
outstanding
    
    
    4,328,160
    
    
    
    3,783,089
    
    
    
    3,601,250Dilutive effect of:Stock options
    
    
    292,964
    
    
    
    368,007
    
    
    
    179,347Weighted average common shares
outstanding assuming dilution
    
    
    4,621,124
    
    
    
    4,151,096
    
    
    
    3,780,597
     22. Backlog:
  23. Subsequent Events:
   56




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##### Table of Contents



MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 23. Subsequent Events (Continued):
   24. Other Informative Disclosures:
     Construction
    
    Construction
    
    ConstructionServices
    
    Materials
    
    Materials TestingFor the twelve months ended
December 31, 2006Gross revenue
    
    $
    112,948,370
    
    
    $
    83,588,803
    
    
    $
    546,548Intercompany revenue
    
    
    (1,012,085
    )
    
    
    (436,865
    )
    
    
    (112,820
    )Cost of revenue
    
    
    102,878,625
    
    
    
    74,382,436
    
    
    
    512,572Interest income
    
    
    615,365
    
    
    
    394,779
    
    
    
    Interest expense
    
    
    (175,657
    )
    
    
    (163,229
    )
    
    
    Depreciation and amortization
    
    
    2,438,374
    
    
    
    3,439,208
    
    
    
    7,899Income (loss) before taxes
    
    
    3,863,765
    
    
    
    5,211,606
    
    
    
    (182,216
    )Income tax benefit (expense)
    
    
    (1,357,211
    )
    
    
    (1,872,331
    )
    
    
    65,757Net income (loss)*
    
    
    2,506,554
    
    
    
    1,775,827
    
    
    
    (116,459
    )Total assets
    
    
    54,463,850
    
    
    
    47,022,753
    
    
    
    619,052
 57




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##### Table of Contents



MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 24. Other Informative Disclosures (Continued):
 Construction
    
    Construction
    
    ConstructionServices
    
    Materials
    
    Materials TestingFor the twelve months ended December
31, 2005Gross revenue
    
    $
    116,822,072
    
    
    $
    67,734,424
    
    
    $
    Intercompany revenue
    
    
    
    
    
    
    (683,633
    )
    
    
    Cost of revenue
    
    
    108,706,174
    
    
    
    60,662,743
    
    
    
    Interest income
    
    
    466,901
    
    
    
    173,574
    
    
    
    Interest expense
    
    
    (212,546
    )
    
    
    (227,341
    )
    
    
    Intercompany interest income (expense)
    
    
    77,561
    
    
    
    (77,561
    )
    
    
    Depreciation and amortization
    
    
    2,088,144
    
    
    
    2,410,900
    
    
    
    Income before taxes
    
    
    3,142,565
    
    
    
    3,920,632
    
    
    
    Income tax expense
    
    
    (1,135,913
    )
    
    
    (1,435,042
    )
    
    
    Net income *
    
    
    2,006,652
    
    
    
    2,197,067
    
    
    
    Total assets
    
    
    47,109,736
    
    
    
    39,906,794
    
    
    
    For the twelve months ended December
31, 2004Gross revenue
    
    $
    108,175,663
    
    
    $
    59,135,658
    
    
    $
    Intercompany revenue
    
    
    (6,742
    )
    
    
    (472,915
    )
    
    
    Cost of revenue
    
    
    107,834,595
    
    
    
    52,508,936
    
    
    
    Interest income
    
    
    170,409
    
    
    
    28,637
    
    
    
    Interest expense
    
    
    (209,615
    )
    
    
    (251,796
    )
    
    
    Intercompany interest income (expense)
    
    
    113,182
    
    
    
    (113,182
    )
    
    
    Depreciation and amortization
    
    
    1,586,633
    
    
    
    1,615,050
    
    
    
    Income (loss) before taxes
    
    
    (2,921,056
    )
    
    
    3,811,499
    
    
    
    Income tax benefit (expense)
    
    
    1,054,728
    
    
    
    (1,371,532
    )
    
    
    Net income (loss)
    
    
    (1,866,328
    )
    
    
    2,439,967
    
    
    
    Total assets
    
    
    42,915,047
    
    
    
    22,413,785
    
    
    
    
 
 *
    
    Net income for the construction materials segment includes the minority interest
deduction of $1,563,449 and $288,523 for the years ended December 31, 2006 and 2005, respectively.
In addition, in 2005 net income has been re-allocated for comparative purposes.  25. Quarterly Financial Data, Unaudited:
 March 31,
    
    June 30,
    
    September 30,
    
    December 31,2006Revenue
    
    $
    45,749,668
    
    
    $
    48,316,869
    
    
    $
    51,704,022
    
    
    $
    49,751,392Gross profit
    
    
    4,747,913
    
    
    
    4,766,927
    
    
    
    4,043,279
    
    
    
    5,751,969Income from operations
    
    
    1,988,971
    
    
    
    2,053,758
    
    
    
    1,692,828
    
    
    
    2,412,712Net income
    
    
    863,958
    
    
    
    873,727
    
    
    
    885,266
    
    
    
    1,542,971Basic net income per common share
    
    
    0.21
    
    
    
    0.21
    
    
    
    0.21
    
    
    
    0.32Diluted net income per common share
    
    
    0.19
    
    
    
    0.19
    
    
    
    0.20
    
    
    
    0.31Basic weighted average common shares
outstanding
    
    
    4,154,444
    
    
    
    4,161,732
    
    
    
    4,165,760
    
    
    
    4,830,704Diluted weighted average common shares
outstanding
    
    
    4,476,559
    
    
    
    4,481,183
    
    
    
    4,470,241
    
    
    
    5,056,513
 58




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##### Table of Contents



MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 25 Quarterly Financial Data, Unaudited (Continued):
 March 31,
    
    June 30,
    
    September 30,
    
    December 31,2005Revenue
    
    $
    39,926,013
    
    
    $
    53,443,002
    
    
    $
    47,083,476
    
    
    $
    43,420,372Gross profit
    
    
    1,946,110
    
    
    
    3,638,552
    
    
    
    4,543,061
    
    
    
    5,059,856Income from operations
    
    
    290,496
    
    
    
    1,482,142
    
    
    
    2,726,120
    
    
    
    2,022,248Net income
    
    
    252,495
    
    
    
    997,684
    
    
    
    1,639,409
    
    
    
    1,314,131Basic net income per common share
    
    
    0.07
    
    
    
    0.27
    
    
    
    0.43
    
    
    
    0.32Diluted net income per common share
    
    
    0.06
    
    
    
    0.25
    
    
    
    0.39
    
    
    
    0.30Basic weighted average common shares
outstanding
    
    
    3,604,555
    
    
    
    3,653,501
    
    
    
    3,808,809
    
    
    
    4,065,489Diluted weighted average common shares
outstanding
    
    
    3,960,138
    
    
    
    4,040,282
    
    
    
    4,198,742
    
    
    
    4,405,2202004Revenue
    
    $
    39,168,733
    
    
    $
    43,708,119
    
    
    $
    42,103,802
    
    
    $
    41,851,010Gross profit
    
    
    2,463,975
    
    
    
    1,602,522
    
    
    
    936,807
    
    
    
    1,964,486Income (loss) from operations
    
    
    791,456
    
    
    
    182,985
    
    
    
    (657,160
    )
    
    
    140,670Net income (loss)
    
    
    436,663
    
    
    
    38,437
    
    
    
    (427,085
    )
    
    
    525,624Basic net income (loss) per common share
    
    
    0.12
    
    
    
    0.01
    
    
    
    (0.12
    )
    
    
    0.15Diluted net income (loss) per common share
    
    
    0.12
    
    
    
    0.01
    
    
    
    (0.12
    )
    
    
    0.14Basic weighted average common shares
outstanding
    
    
    3,601,250
    
    
    
    3,601,250
    
    
    
    3,601,250
    
    
    
    3,601,250Diluted weighted average common shares
outstanding
    
    
    3,754,754
    
    
    
    3,742,934
    
    
    
    3,601,250
    
    
    
    3,887,900
 59




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
   
 Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
  
 Item 11. Executive Compensation
  
 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  60




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##### Table of Contents



Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accounting Fees and Services
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
       Balance at
    
    Charged to
    
    
    
    
    
    Balance atBeginning
    
    Expense
    
    
    
    
    
    EndingDescription
    
    of Year
    
    Account
    
    Deductions
    
    of YearYear ended December 31, 2004Allowance for doubtful accounts
    
    $
    710
    
    
    $
    278
    
    
    $
    (380
    )
    
    $
    608Allowance for potentially obsolete or
slow moving inventory
    
    $
    1,186
    
    
    $
    
    
    
    $
    (899
    )
    
    $
    287Year ended December 31, 2005Allowance for doubtful accounts
    
    $
    608
    
    
    $
    (207
    )
    
    $
    (75
    )
    
    $
    326Allowance for potentially obsolete or
slow moving inventory
    
    $
    287
    
    
    $
    
    
    
    $
    (43
    )
    
    $
    244Year ended December 31, 2006Allowance for doubtful accounts
    
    $
    326
    
    
    $
    126
    
    
    $
    (57
    )
    
    $
    395Allowance for potentially obsolete or
slow moving inventory
    
    $
    244
    
    
    $
    (44
    )
    
    $
    
    
    
    $
    200
  ExhibitNo.
    
    Title3.01
    
    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)3.04
    
    Bylaws of the Registrant Effective April 28, 1997 (20)3.05
    
    Bylaws of the Registrant Effective September 13, 2004 (15)
 61




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##### Table of Contents



ExhibitNo.
    
    Title3.06
    
    Bylaws of the Registrant Effective February 5, 2007 (16)3.07
    
    Certificate of Designation of Series a Participating Preferred Stock Effective February 13, 2007 (17)4.1
    
    Shareholder Rights Plan Effective February 13, 2007 (18)10.1
    
    Form of Indemnification Agreement with entered into by the Registrant with its Directors and
executive officers (2)10.2
    
    Employment Agreement with Bradley E. Larson *10.3
    
    Employment Agreement with Kenneth D. Nelson *10.4
    
    Employment Agreement with Alan A. Terril *10.5
    
    Property Lease and Aggregate Supply Agreement with Sun State Rock & Materials Corp. (7)10.6
    
    Property Lease and Aggregate Supply Agreement with Clay R. Oliver d.b.a. Oliver Mining Company (7)10.7
    
    Office Lease Agreement (20)10.8
    
    Amendment to Office Lease Agreement of the Registrant (9)10.9
    
    Amendment to Office Lease Agreement of the Registrant (9)10.10
    
    General Agreement of Indemnity between the Registrant and Liberty Mutual Insurance Company (3)10.11
    
    Settlement Agreement and Release between the Registrant and New Mexico Department of Transportation
(11)10.12
    
    Promissory Note with Nevada State Bank (12)10.13
    
    Promissory Note with Nevada State Bank (12)10.14
    
    Master Lease Agreement with The CIT Group/Equipment Financing, Inc. (7)10.15
    
    Master Lease Agreement with The CIT Group/Equipment Financing, Inc. (7)10.16
    
    Master Security Agreement with The CIT Group/Equipment Financing, Inc. (7)10.17
    
    Master Security Agreement with The CIT Group/Equipment Financing, Inc. (7)10.18
    
    Master Lease Agreement with The CIT Group/Equipment Financing, Inc. (7)10.19
    
    Master Lease Agreement with The CIT Group/Equipment Financing, Inc. (13)10.20
    
    Master Lease Agreement with The CIT Group/Equipment Financing, Inc. (12)10.21
    
    Revolving Loan Agreement with The CIT Group/Equipment Financing, Inc. (7)10.22
    
    Amended and Restated Revolving Loan Agreement with The CIT Group/Equipment Financing, Inc. (8)10.23
    
    Revolving Loan Agreement with The CIT Group/Equipment Financing, Inc. (8)10.24
    
    Amendment No. 1 to Restated and Amended Revolving Loan Agreement with The CIT Group/Equipment
Financing, Inc. (20)10.25
    
    Amendment No. 2 to Restated and Amended Revolving Loan Agreement with The CIT Group/Equipment
Financing, Inc. (20)10.26
    
    Renewal and Amendment of Amended and Restated Revolving Loan Agreement with The CIT Group/Equipment
Financing, Inc. (5)10.27
    
    Renewal and Amendment of Revolving Loan Agreement with The CIT Group/Equipment Financing, Inc. (5)
 62




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##### Table of Contents



ExhibitNo.
    
    Title10.28
    
    Amendment of Amended and Restated Revolving Loan Agreement with The CIT Group/Equipment Financing,
Inc. (13)10.29
    
    Amendment of Revolving Loan Agreement with The CIT Group/Equipment Financing, Inc. (13)10.30
    
    Line of Credit Agreement with GMAC Financial Services (10)10.31
    
    Line of Credit Agreement with Ford Motor Credit Company (10)10.32
    
    Commitment letter from DaimlerChrysler Services (14)10.33
    
    Master Lease Agreement with Wells Fargo Equipment Finance, Inc. (14)10.34
    
    Employment Agreement with David D. Doty (19)10.35
    
    Office Lease Agreement *10.36
    
    Amendment to Office Lease Agreement of the Registrant *14.1
    
    Code of Ethics for Senior Management (11)21
    
    Subsidiaries of the Registrant (1)23
    
    Consent of Independent Auditors *31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32
    
    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
 
 (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)
    
    Previously filed as an Exhibit with the same Exhibit number to the Companys Form 8-K Current Report
dated March 9, 2007(3)
    
    Incorporated by reference to the Companys June 30, 2002 Form 10-Q(4)
    
    Incorporated by reference to the Companys September 30, 2002 Form 10-Q(5)
    
    Incorporated by reference to the Companys December 31, 2002 Annual Report on Form 10-K(6)
    
    Incorporated by reference to the Companys December 31, 1998 Annual Report on Form 10-K(7)
    
    Incorporated by reference to the Companys December 31, 2000 Annual Report on Form 10-K(8)
    
    Incorporated by reference to the Companys September 30, 2001 Form 10-Q(9)
    
    Incorporated by reference to the Companys June 30, 2003 Form 10-Q(10)
    
    Incorporated by reference to the Companys September 30, 2003 Form 10-Q(11)
    
    Incorporated by reference to the Companys December 31, 2003 Annual Report on Form 10-K(12)
    
    Incorporated by reference to the Companys June 30, 2004 Form 10-Q(13)
    
    Incorporated by reference to the Companys March 31, 2003 Form 10-Q(14)
    
    Incorporated by reference to the Companys March 31, 2004 Form 10-Q(15)
    
    Previously filed as an Exhibit with the same Exhibit number to the Companys Form 8-K Current Report
dated September 13, 2004(16)
    
    Previously filed as Exhibit 3.2 to the Companys Form 8-K Current Report dated February 9, 2007 63




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##### Table of Contents



(17)
    
    Previously filed as Exhibit 3.1 to the Companys Form 8-K Current Report dated February 14, 2007(18)
    
    Previously filed as an Exhibit with the same Exhibit number to the Companys Form 8-K Current Report
dated February 14, 2007(19)
    
    Previously filed without exhibit to the Companys Form 8-K Current Report dated November 7, 2006(20)
    
    Incorporated by reference to the Companys December 31, 2001 Annual Report on Form 10-K*
    
    Filed herewith. 64




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##### Table of Contents



SIGNATURES
  MEADOW VALLEY CORPORATION/s/ Bradley E. Larson

Bradley E. LarsonPresident and Chief Executive Officer(Principal Executive Officer)Date: March 30, 2007
 POWER OF ATTORNEY
   /s/ Bradley E. Larson

Bradley E. Larson
    
    /s/ Don A. Patterson

Don A. PattersonDirector, President and Chief Executive Officer
    
    DirectorDate: March 30, 2007
    
    Date: March 30, 2007/s/ Kenneth D. Nelson

Kenneth D. Nelson
    
    /s/ Charles E. Cowan

Charles E. CowanDirector, Chief Administrative Officer and
    
    DirectorVice President
    
    Date: March 30, 2007Date: March 30, 2007/s/ Charles R. Norton

Charles R. Norton
    
    /s/ David D. Doty

David D. DotyDirector
    
    Chief Financial Officer, Treasurer, Secretary andDate: March 30, 2007
    
    Principal Financial and Accounting OfficerDate: March 30, 2007
 65