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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 AND EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004
 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934  Commission file number 0-25428 MEADOW VALLEY CORPORATION  Nevada
(State or other jurisdiction of
incorporation or organization)
    
    88-0328443
(IRS Employer Identification Number)
 4411 South 40th Street, Suite D-11, Phoenix, AZ
(Address of principal executive offices)
    
    85040
(Zip Code)
 Registrants telephone number, including area code: (602) 437-5400 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of each class:
    
    Name of exchange on which registered:Common stock, $.001 par value
    
    Nasdaq SmallCap Market
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Act).
Yes o No þ On June 30, 2004, the aggregate market value of the registrants voting stock held by non-affiliates was $7,141,576 On March 11, 2005, there were 3,602,450 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE The registrant incorporates by reference into Parts II and III of this Report, information
contained in its definitive proxy statement to be disseminated in connection with its Annual
Meeting of Shareholders for the year ended December 31, 2004.




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MEADOW VALLEY CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2004 TABLE OF CONTENTS PAGEPART IItem 1.
    
    Business
    
    3Item 2.
    
    Properties
    
    11Item 3.
    
    Legal Proceedings
    
    12Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    12PART IIItem 5.
    
    Market for
Registrants Common Equity and Related Stockholders Matters
    
    12Item 6.
    
    Selected Financial Data
    
    13Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    13Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    20Item 8.
    
    Financial Statements and Supplementary Data
    
    21Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    47Item 9A.
    
    Controls and Procedures
    
    47PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    48Item 11.
    
    Executive Compensation
    
    48Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management
    
    48Item 13.
    
    Certain Relationships and Related Transactions
    
    48Item 14.
    
    Principal Accounting Fees and Services
    
    48PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    49
  2EXHIBIT 31.13EXHIBIT 31.14EX-32.7




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PART I 
 Item 1.Business About Meadow Valley Meadow Valley Corporation (Company, Meadow Valley, we, us and our), based in
Phoenix, Arizona, is engaged in the construction industry as both a provider of construction
services and a supplier of construction materials. Our construction services segment (CSS)
specializes in structural concrete construction of highway bridges and overpasses, and the paving
of highways and airport runways. The construction materials segment (CMS) provides ready mix
concrete, sand and gravel products to both to itself and primarily to other contractors. The CSS
operates throughout Nevada, Arizona and Utah. The CMS operates in the Las Vegas, Nevada and
Phoenix, Arizona metropolitan areas. Forward Looking Statements The following is a summary of certain information contained in this Report and is qualified in
its entirety by the detailed information and financial statements that appear elsewhere herein.
Except for the historical information contained herein, the matters set forth in this Report
include forward-looking statements within the meaning of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to
risks and uncertainties that may cause actual results to differ materially. These risks and
uncertainties are detailed throughout this Report and will be further discussed from time to time
in the Companys periodic reports filed with the Commission. The forward-looking statements
included in this Report speak only as of the date hereof. Recent Developments On February 11, 2005, our wholly-owned ready mix concrete subsidiary, Ready Mix, Inc., we
refer to as RMI, filed a registration statement with the Securities and Exchange Commission for
the initial public offering of 1,000,000 shares of RMI common stock at a proposed offering price of
$12.00 per share. We will retain an ownership of 1,500,000 shares, or 60%, of the total
outstanding shares of RMI. Proceeds from the initial public offering are expected to be used by
RMI for the purchase of plant and equipment, repayment of debt to Meadow Valley and working
capital. There can be no assurance that we will complete the offering or that the terms of the
offering will remain unchanged. We have begun the process of submitting tabulations of the portions of cost overruns on the
Gooseberry project, which we assert are the responsibility of the Federal Highway Administration,
to the project owner. The basis of our potential claims are primarily changed conditions and
associated delays, renegotiable unit prices due to quantity changes and interference. Our final
costs will not be known with certainty until the project is complete. We expect to complete the
work on the project by the end of the third quarter of 2005 and we believe we have recognized
adequate losses as of December 31, 2004 so as not to be adversely affected by this project in 2005.
Furthermore, while we are confident of the validity of our potential claims, we believe we have
taken a reasonably conservative posture and have made no allowance on our balance sheet for the
potential collection of future claims receivable from this project. History Meadow Valley Corporation was incorporated in Nevada on September 15, 1994. In October and
November 1995, we sold 1,926,250 Units of our securities to the public at $6.00 per Unit (the
Public Offering). Each Unit consisted of one share of $.001 par value common stock and one
common stock purchase warrant exercisable to purchase one additional share of common stock at $7.20
per share. These warrants expired unexercised on December 31, 2002. We currently have two wholly owned subsidiaries, Meadow Valley Contractors, Inc. (MVCI) and
Ready Mix, Inc (RMI). MVCI was founded in 1980 as a heavy construction contractor and has been
providing construction services since inception. We purchased all of the outstanding common stock
of MVCI on October 1, 1994, therefore, references to our history includes the history of MVCI. Through MVCI, we provide construction services. MVCI operates as a heavy highway contractor
on both public and private infrastructure projects including the construction of bridges and
overpasses, channels, roadways, highways and airport runways. MVCI generally serves as the prime
contractor for public sector customers (such as federal, state and local governmental authorities)
in the states of Nevada, Arizona, and Utah.  3




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In 1996, we expanded into the construction materials segment of the construction industry with
the formation of Ready Mix, Inc. RMI manufactures and distributes ready mix concrete, crushed
landscaping rock and other miscellaneous rock and sand products. RMI owns and operates five ready
mix concrete batch plants  two in the Las Vegas, NV area, one in Moapa, NV and two in the Phoenix,
AZ area and owns or leases 137 ready mix trucks as well as a small fleet of aggregate hauling
tractors and trailers. We produce, under a mining lease, the majority of our own rock and sand for
our Nevada plants from a crushing and screening plant in Moapa, NV. RMI primarily targets
customers such as concrete subcontractors, prime contractors, homebuilders, commercial and
industrial property developers, pool builders and homeowners. RMI began its ready mix concrete
operation from its first location in North Las Vegas in March 1997, then began processing rock and
sand from its Moapa pit in November 1999, and expanded into the Phoenix market with two plants in
2000. Consistent with our dual interests in construction services and construction materials, we
also lease one portable hot mix asphalt plant, a rubberized asphalt plant, and related asphalt
paving equipment as well as a portable crushing and screening plant. The portability of these
plants provide us an opportunity to enhance our construction operations in our existing markets,
improve our competitiveness and generate increased revenues on projects that call for large
quantities of asphaltic concrete, recycled asphalt, or rubberized asphalt. These capabilities will
also open opportunities to provide construction materials or to subcontract our services to other
construction companies. Our backlog (anticipated revenue from the uncompleted portions of awarded projects) was
approximately $94 million at December 31, 2004, compared to approximately $71 million at December
31, 2003, and consists of various projects primarily in Nevada and Arizona, with a declining number
of projects in Utah. Approximately $90 million of our backlog is scheduled for completion during
2005. We have been the prime contractor on projects funded by a number of governmental
authorities, including the Federal Highway Administration, the Arizona Department of
Transportation, the Nevada Department of Transportation, the Clark County (Nevada) Department of
Public Works, the Utah Department of Transportation, the City of Phoenix, the Salt Lake City (Utah)
Airport Authority and the New Mexico State Highway and Transportation Department. Business Strategy The business strategies we employ or are instituting include:  (i)
    Continuing to actively bid in the construction markets in Arizona, southern
Nevada and southern Utah and improving construction project profitability.We plan to
focus our construction services within the geographic markets that have historically
produced the best profits. Our emphasis will be on building transportation
infrastructure and other related heavy civil projects in our core markets of Arizona,
southern Nevada and southern Utah. At the same time, we will 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.(ii)
    Growing our client base for private construction services and insuring
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. Our strategy is to grow this client base, to add customers and maintain
continued customer satisfaction.(iii)
    Continuing to increase working capital and liquidity.We may seek to sell
certain under-performing or under-utilized assets. Doing so will lead to improved
working capital and liquidity, which will potentially add more bonding capacity,
thereby allowing us to bid on larger and, parhaps, more profitable projects.(iv)
    Consolidating area offices and decreasing overhead costs.We will complete the
implementation of our plan to reduce the number of full-time area offices to four
permanent locations  two in Las Vegas, NV and two in Phoenix, AZ, thereby eliminating
overhead costs and consolidating management and administrative functions.(v)
    Continuing diligent pursuit of the successful resolution of three construction
claims. Substantial costs were incurred in completing certain projects in New Mexico
and Clark County, Nevada. We strongly believe that much of the costs are reimbursable
due to changed conditions, owners plan errors and omissions, conflicting utility right
of ways, delays not attributable to us and inadequate administration by third party  4




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construction managers employed by the owners. The total amount of claims on the New
Mexico and Nevada projects that have been submitted and remain unpaid is
approximately $18.8 million, of which $10.5 million represents our portion of the
claims, as of December 31, 2004.(vi)
    Completing the initial public offering of Ready Mix, Inc. and utilize the
proceeds to increase revenue and profit from the construction materials segment. If
the public offering is completed, we will add to our ready mix truck fleet to increase
delivery capacity, to improve service to our customers and to increase sales. If funds
are available we may acquire and develop additional batch plant locations in
fast-growing areas of our existing markets. These additional sites will increase
productivity and permit us to better service new and existing customers.(vii)
    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 Demand for construction services and materials, continues to be strong in our core markets of
Nevada and Arizona. In spite of recent budget deficits at both State and Federal levels, public
spending for transportation infrastructure has remained steady and our volumes have been
unaffected. Low mortgage interest rates continue to drive a remarkably sustained growth in
residential construction in the Phoenix, Arizona and Las Vegas, Nevada markets. Last year, the
U.S. Congress was unable to pass a new six-year highway bill, but it has continued to provide
interim funding without interruption and at levels consistent with the range of proposals being
considered in both houses of Congress. It is reasonable to expect that a bill will pass in 2005 to
replace the expired TEA-21 legislation and that it will be an increase over the previous funding
levels. The overall economy in our markets is strong and steady and appears to remain so for the
near term. It is anticipated by management that the 2005 construction market will likely be a
repeat of 2004 or perhaps slightly better. That is, single digit percentage declines in some
segments of the construction industry with single digit percentage increases in other segments.
From a national perspective, commercial construction (non-residential buildings) is expected to
increase, while single-family housing, previously made attractive by low mortgage rates, will
likely see modest declines as the mortgage rates begin to rise. Once a federal highway bill is
passed, transportation infrastructure will likely see a small rise in activity, but is still
anticipated to be less than ten percent. As with the passage of TEA-21, it will take some time for
federal funding to filter its way through the planning, design and construction pipeline and will
not create a noticeable blip, up or down, in 2005. Most funding for State highway construction
budgets originate from user fees, gas taxes or sales taxes and are generally earmarked for
construction spending. In addition, for States to utilize Federal Highway funds, in most cases,
they must match a certain percentage of the Federal contribution. These factors will likely
minimize declines in construction budgets of the states in which we operate. One of Meadow Valleys strengths continues to be our geographic locations. With operations
centered in Nevada and Arizona, we are situated in the heart of the fastest growing markets in the
U.S. According to statistics released by the U.S. Census Bureau in December 2004, Nevada topped
the list of the fastest percentage growth of state populations for the eighteenth consecutive year
with Arizona second. The Blue Chip Job Growth Updatepublished by the ASU Bank One Economic
Outlook Center reports that from September 2003 to September 2004 Nevada ranked highest in
percentage of employment growth and Arizona was second and estimates that Nevada and Arizona will
again lead all of the ten western states in job growth in 2005 and that Nevada and Arizona will
have the strongest economies among the Western states in 2005. The health of the overall construction market provides the foundation for steady work in both
our construction services and construction materials segments. But certain economic parameters
tend to affect one segment more than the other. For example, the CMS is impacted to a greater
degree by the conditions of the residential and commercial sectors of the construction economy 
both market sectors primarily driven by population and job growth. Residential construction
activity in 2004 was at an all-time high and surpassed all expectations. New single-family
residential construction in Phoenix was up 25% over 2003. The Greater Phoenix Blue Chippanel
forecasts only a minor decline from approximately 52,000 units in 2004 to about 48,000 units in
2005. A leading real estate consultant, Elliott Pollack of Elliott D. Pollack and Company in
Scottsdale, AZ, predicts that in 2004 Phoenix will have surpassed Atlanta in new single family
housing units for the first time and that no significant declines in housing are anticipated over
the next year and commercial markets should improve. The Las Vegas housing market, while on a
smaller scale, is equally vibrant with year over year growth of new  5




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home permits of approximately 30% in 2004 over 2003 (The Las Vegas Housing Market Letter
published by Home Builders Research, Inc.). The market for our CSS is affected more by the
availability of public funding for transportation infrastructure. It is significant that in
November 2004, Maricopa County, AZ (Phoenix metropolitan area) voters passed Proposition 400 which
extends, for another twenty years, an existing half-cent sales tax dedicated to the construction
and maintenance of transportation facilities including freeways, streets and mass transit. This
sales tax has been in place since 1986 and has funded in excess of $5 billion of transportation
improvements in the past two decades. Based upon population and spending forecasts, the extension
of this existing tax could generate approximately $9 billion of funding over the next twenty years
for construction of transportation-related infrastructure. In Clark
County, Nevada an existing 1/2 cent sales tax for construction and maintenance of transportation facilities along with a healthy
capital improvement program through the Nevada Department of Transportation provide stable growth
of bid opportunities for the CSS. As we have stated before and as is well known in the industry, an excessive and/or rapid rise
in interest rates would be the likely cause of any notable decline in residential construction
activity. In addition, any event that may impact the overall economy that would decrease consumer
spending would result in lower receipts of sales tax dollars that, in turn, would diminish the
availability of funding for transportation infrastructure. Our business can also be affected by
the way in which market and economic dynamics, both domestic and international, impact the supply
and the cost of raw materials like steel, cement or fuel. Construction Services Segment (CSS) Operations The CSS constructs highways, bridges, overpasses, airport runways and constructs other heavy
civil projects. From our Phoenix, Arizona corporate office and area offices in Phoenix, Arizona,
North Las Vegas, Nevada and Springville, Utah, we market (primarily by responding to solicitations
for competitive bids) and manage all of our projects. Project management is also located on-site
to provide direct supervision for operations. We consider a number of factors when determining whether to bid on a project, including
profitability, the location of the project, likely competitors and our current and projected
workloads. We use a computer-based project estimating system which reflects our bidding and
construction experience and we perform detailed quantity take-offs from bidding documents, which we
believe helps identify a projects risks and opportunities. We develop comprehensive estimates
with each project divided into phases and line items for which separate labor, equipment, material,
subcontractor and overhead cost estimates are compiled. Once a project begins, the estimate
provides us with a budget against which ongoing project costs are measured. There can be no
assurance that every project will attain its budgeted costs. A number of factors can affect a
projects profitability including weather, availability of a quality workforce and actual
productivity rates. Each month the project manager updates the projects projected performance at
completion by using actual costs-to-date and re-forecasted costs-to-complete for the balance of the
work remaining. Regular review of these estimated costs-at-completion reports allow project, area
and corporate management to be as responsive as possible to cost overruns or other problems that
may affect profitability. We own or lease most of the equipment used in our business, including cranes, backhoes,
graders, loaders, trucks, trailers, pavers, rollers, construction material processing plants, batch
plants and related equipment. On occasion, equipment that we own may be rented on a short-term
basis to third parties. The net book value of our equipment in the CSS at December 31, 2004 was
approximately $9.0 million. Our corporate management oversees operational and strategic issues and, through the corporate
accounting staff, provides administrative support services to area managers and individual project
management at the project site. The latter are responsible for planning, scheduling and budgeting
operations, equipment maintenance and utilization and customer satisfaction. Area managers and
project managers monitor project costs on a daily and weekly basis while corporate management
monitors such costs monthly. Raw materials (primarily concrete, aggregate and steel) used in our operation are available
from a number of sources. There are usually a sufficient number of materials suppliers within our
market area to assure us of adequate competitive bids for supplying such raw materials. Generally,
we will obtain several bids from competing concrete, asphalt or aggregate suppliers whose reserves
of such materials will normally extend beyond the expected completion date of the project. Costs
for raw materials vary depending upon project duration, construction season, and other factors;
but, generally, prices quoted to us for raw materials are fixed for the projects duration.  6




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Projects and Customers We perform work for both private and public owners. In the public sector, our principal
customers are the state departments of transportation in Nevada, Arizona and Utah and bureaus and
departments of municipal and county governments in those states. Since completing the final
contracts in New Mexico, we have ceased the CSS operation in New Mexico. In the private sector, we
perform work primarily for land developers. For the year ended December 31, 2004, revenue
generated from six projects in Nevada and Arizona represented approximately 29% of the Companys
consolidated revenue, or 44% of the CSS revenue. The discontinuance of any projects, a general
economic downturn or a reduction in the number of projects let out for bid in any of the states in
which we operate could have an adverse effect on our future results of operations. For the years ended December 31, 2004, 2003 and 2002, we recognized a significant portion of
our consolidated revenue from the following customers (shown as an approximate percentage of
consolidated revenue): For the Years Ended December 31,2004
    
    
    2003
    
    
    2002Arizona Department of Transportation
    
    
    24.1
    %
    
    
    27.9
    %
    
    
    21.4
    %Clark County General Services
    
    
    0.9
    %
    
    
    1.3
    %
    
    
    14.8
    %Utah Department of Transportation
    
    
    2.2
    %
    
    
    11.8
    %
    
    
    11.6
    %
 The Contract Process Our projects are obtained primarily through competitive bidding and negotiations in
response to advertisements by federal, state and local government agencies and solicitations by
private parties. We submit bids after a detailed review of the project specifications, an internal
review of our capabilities and equipment availability and an assessment of whether the project is
likely to attain targeted profit margins. We own, lease, or are readily able to rent, most
equipment necessary to complete the projects upon which we bid. After computing estimated costs of
the project to be bid, we add our desired profit margin before submitting the bid. We believe that
success in the competitive bidding process involves (i) being selective on projects bid upon in
order to optimize use of resources, (ii) identifying projects which require our specific expertise,
(iii) becoming familiar with all aspects of the project to avoid costly bidding errors and (iv)
analyzing the local market to determine the availability and cost of labor and the degree of
competition. Since 1995, we have been awarded contracts on approximately 20.3% of the projects
upon which we have bid. A substantial portion of our revenue is derived from projects that involve
fixed unit price contracts under which we are committed to provide materials or services at fixed
unit prices (such as dollars per cubic yard of earth or concrete, or linear feet of pipe). The
unit price is determined by a number of factors including haul distance between the construction
site and the warehouses or supply facilities of local material suppliers and to or from disposal
sites, site characteristics and the type of equipment to be used. While the fixed unit price
contract generally shifts the risk of estimating the quantity of units for a particular project to
the customer, any increase in our unit cost over its unit bid price, whether due to inefficiency,
faulty estimates, weather, inflation or other factors, must be borne by us. Most public sector contracts provide for termination of the contract at the election of the
customer. In such event we are generally entitled to receive a small cancellation fee in addition
to reimbursement for all costs we incurred on the project. Many of our contracts are subject to
completion requirements with liquidated damages assessed against us if schedules are not met. In
the past these provisions have not materially adversely affected our business. We are also obligated to perform work as directed to do so by the owner. If we believe the
directives to be outside the scope of the original bid documents, or if the physical conditions as
found on the project are different than provided in the bid documents, or for any variety of
reasons we believe the directive to perform the work creates costs that could not reasonably be
ascertained from the bid documents, the contract permits us to make a claim for equitable
adjustment to the contract price. Such equitable adjustment requests are often called contract
claims. The process for resolving claims may vary from one contract to another, but in general,
there is a process to attempt resolution at the project supervisory level or with higher levels of
management within the Company and the owner. Depending upon the terms of the contract, claim
resolution may employ a variety of resolution methods including mediation, arbitration, binding
arbitration, litigation or other methods. Regardless of the process, it is typical that when a
potential claim arises on a project, we fulfill the obligation to perform the work and must incur
the costs in doing so. We will not recoup the costs until the claim is resolved. It is not
uncommon for the claim resolution process to take months, or, if it entails litigation, years to
resolve.  7




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Contracts often involve work periods in excess of one year. Revenue on uncompleted fixed price
contracts is recorded under the percentage-of-completion method of accounting. We recognize
revenue on contracts when they first incur direct costs. Pursuant to common construction industry
practice, the customer may retain a portion of billings, generally not exceeding 10%, until the
project is completed satisfactorily and all of our obligations are paid. We act as prime contractor on most of our construction projects and will subcontract certain
activities such as electrical, mechanical, guardrail and fencing, signing and signals, foundation
drilling, steel erection and other specialty work to others. As prime contractor, we bill the
customer for work performed and pay the subcontractors from funds received from the customer.
Occasionally we provide our services as a subcontractor to another prime contractor. As a
subcontractor, we will generally receive the same or similar profit margin as we would as a prime
contractor, although revenue to us will be smaller because we only contract a part of the project.
As a prime contractor, we are responsible for the performance of the entire contract, including
work assigned to subcontractors. Accordingly, we are subject to liability associated with the
failure of subcontractors to perform as required under the contract. We occasionally require our
subcontractors to furnish bonds guaranteeing their performance, although affirmative action
regulations require us to use our best efforts to hire minority subcontractors for a portion of the
project and some of these subcontractors may not be able to obtain surety bonds. On average, we
have not required performance bonds for less than 10% of the dollar amount of our subcontracted
work, but will likely increase the percentage of bonded subcontractors in the future. We are
generally aware of the skill levels and financial condition of our subcontractors through our
direct inquiry of the subcontractors and contract partners of the subcontractors, as well as our
review of financial information provided by the subcontractors and third party reporting services
including credit reporting agencies and bonding companies. In connection with public sector contracts, we are required to provide various types of surety
bonds guaranteeing our own performance. Our ability to obtain surety bonds depends upon our net
worth, liquid working capital, past performance, management expertise and other factors. Surety
companies consider such factors in light of the amount of our surety bonds then outstanding and the
surety companies current underwriting standards, which may change from time to time. See
Insurance and Bonding. Backlog Our backlog (anticipated revenue from the uncompleted portions of awarded projects) was
approximately $94 million at December 31, 2004, compared to approximately $71 million at December
31, 2003. Much of our backlog depends upon our success in the competitive bid process. Bidding
strategies and priorities may be influenced and changed from time to time by the level of our
backlog and other internal and external factors. A portion of our anticipated revenue in any year
is not reflected in its backlog at the start of the year because some projects are initiated and
completed in the same year. At December 31, 2004, our backlog included approximately $90 million
of work that is scheduled for completion during 2005. Revenue is impacted in any one period by
the backlog at the beginning of the period. Accordingly, revenue in the future may be
significantly reduced if we are unable to obtain substantial new projects in 2005. We include a
construction project in our backlog at such time as a contract is awarded or a firm letter of
commitment is obtained. We believe that our backlog figures are firm, subject to provisions
contained in some contracts, which allow customers to modify or cancel the contracts at any time
upon payment of a relatively small cancellation fee. We have not been adversely affected by
contract cancellations or modifications in the past. Competition We believe that the primary competitive factors as a prime contractor in the heavy
construction industry are price, reputation for quality work, financial strength, knowledge of
local market conditions and estimating abilities. We believe that we compete favorably with
respect to each of the foregoing factors on projects that we are able to bid. Most of our projects
involve public sector work for which contractors are first pre-qualified to bid and then are chosen
by a competitive bidding process, primarily on the basis of price. We compete with a large number
of small owner/operator contractors that tend to dominate smaller (under $4 million) projects.
When bidding on larger infrastructure projects, we also compete with larger, well capitalized
regional and national contractors, many of whom have larger net worth, higher bonding capacity and
more construction personnel. Larger competitors typically have unlimited bonding capacity and,
therefore, are able to bid on more work. Except for bonding capacity and liquidity, we contend
that we are not at a competitive disadvantage in relation to our larger competitors. With respect
to our smaller competitors, we believe that our current bonding capacity and long relationships
with subcontractors and suppliers may be a competitive advantage.  8




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In the event of a decrease of work available in the private construction market, it is
foreseeable that contractors may exit the private market and enter the public market segment
resulting in increased competition. Insurance and Bonding We carry builders risk insurance on a limited number of projects and depending upon our
assessment of individual project risk versus the cost of insurance. We are required to provide a surety bond on nearly all publicly funded projects and on some
private projects. Our ability to obtain bonding, and the amount of bonding required, is primarily
determined by our experience, net worth, liquid working capital (consisting of cash and accounts
receivable in excess of accounts payable and accrued liabilities), our performance history, the
number and size of projects under construction and other factors. Surety companies consider such
factors in light of the amount of our surety bonds then outstanding and the surety companies
current underwriting standards, which may change from time to time. The larger the project and/or
the more projects, in which we are engaged, the greater our bonding, net worth and liquid working
capital requirements will be. Bonding requirements vary depending upon the nature of the project
to be performed. We generally pay a fee to bonding companies based upon the amount of the contract
to be performed. Because these fees are generally payable at the beginning of a project, we must
maintain sufficient working capital to satisfy the fee prior to receiving revenue from the project.
Operating losses in 2000 and 2001, due primarily to losses on contracts with New Mexico and Clark
County, Nevada, resulted in decreased liquidity and a change in our surety credit. More recently,
our surety credit permits us to bid on a single project valued at approximately $10 million and an
aggregate program bond capacity of approximately $100 million. We believe our bonding capacity is
sufficient to sustain our existing levels of workload but will limit significant growth. As our
performance and our financial condition continue to improve, it is reasonable to assume, but cannot
be assured, that corresponding improvements in bonding capacity will follow. Marketing We obtain most of our projects primarily through the process of competitive bidding.
Accordingly, our marketing efforts are limited to subscribing to bid reporting services and
monitoring trade journals and other industry sources for bid solicitations by various governmental
authorities. In response to a bid request, we submit a proposal detailing our qualifications, the
services to be provided and the cost of the services to the soliciting entity which then, based on
their evaluation of the proposals submitted, awards the contract to the successful bidder.
Generally, the contract for a project is awarded to the lowest bidder, although other factors may
be taken into consideration such as the bidders track record for compliance with bid
specifications and procedures and their construction experience. Some of our CSS work is obtained
through negotiation or being included on a preferred bidders list. Accordingly, we strive to
constantly improve our relationships with our customers by being responsive and building quality
work. Construction Materials Segment (CMS) Operations We began our construction materials operations in the first quarter of 1997 with the start-up
of RMI. RMI currently operates five ready mix concrete batch plants - two in the Las Vegas, Nevada
area, one in Moapa, Nevada and two in the Phoenix, Arizona area and a total of 137 ready mix
trucks. Most of our internal sand and gravel requirements in the Las Vegas and Moapa markets are
manufactured from our rock quarry in Moapa, Nevada. Production capacity at the Moapa quarry was
increased substantially during 1999 with further refinements added in 2000. A fulltime sales staff
promotes sales of ready mix concrete, rock and sand products and landscape rock. Projects and Customers We target concrete subcontractors, prime contractors, homebuilders, commercial and industrial
property developers in the Las Vegas, Nevada and Phoenix, Arizona metropolitan areas. Revenue
generated from our top 10 CMS customers in Nevada and Arizona represented approximately 18% of our
consolidated revenue and represented 51% of the CMSs revenue. The discontinuance of service to
any of the above referenced customers or a general economic downturn could have an adverse effect
on our future results of operations within this segment. For the years ended December 31, 2004,
2003 and 2002 we did not recognize a significant portion of our consolidated revenue from any
individual CMS customer.  9




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##### Table of Contents



Competition The ready-mix concrete industry is highly competitive. Our competitive ability in our two
markets depends largely on the proximity of our customers job sites to our ready-mix concrete
plant locations, our plant operating costs and the prevailing ready-mix concrete prices in each
market. Price is the primary competitive factor among suppliers for small or simple jobs,
principally in residential construction, while timeliness of delivery and consistency of quality
and service as well as price are the principal competitive factors among suppliers for large or
complex jobs. Our competitors range from small, owner-operated private companies to subsidiaries or
operating units of large, vertically integrated cement manufacturing and concrete products
companies. Our direct competitors include Rinker Materials, Nevada Ready Mix, Silver State Materials and
All Star Ready Mix in Nevada and Rinker Materials, Cemex, Vulcan Materials and Hanson Materials in
Arizona. We also face significant competition from many smaller ready-mix concrete providers. We
believe we compete favorably with all of our competitors due to our plant locations, quality of our
raw materials, our delivery and service, and our competitive prices. However, competitors having
lower operating costs than we do or having the financial resources to enable them to accept lower
margins than we do have competitive advantages over us for jobs that are particularly
price-sensitive. Moreover, competitors having greater financial resources than we to invest in new
mixer trucks or build plants in new areas also have competitive advantages over us. Marketing General contractors typically select their suppliers of ready-mix concrete. In large, complex
projects, an engineering firm or division within a state transportation or public works department
may influence the purchasing decision, particularly where the concrete has complicated design
specifications. In those projects and in government-funded projects generally, the general
contractor or project engineer usually awards supply orders on the basis of either direct
negotiation or competitive bidding. We believe that the purchasing decision in many cases
ultimately is relationship-based. Our marketing efforts target general contractors, design
engineers and architects whose focus extends beyond the price of ready-mix concrete to product
quality and consistency and reducing their in-place cost of concrete. The CMS currently has 11 full-time sales persons and intends to hire approximately seven
additional sales people as our new Arizona and Nevada concrete plants are opened. We also intend to
develop and implement training programs to increase the marketing and sales expertise and technical
abilities of our staff. Our goal is to maintain a sales force whose service-oriented approach will
appeal to our targeted prospective customers and differentiate us from our competitors. Meadow Valley Corporation and our Segments Seasonality The construction industry is seasonal, generally due to inclement weather occurring in the
winter months. Accordingly, we may experience a seasonal pattern in our operating results with
lower revenue in the first and fourth quarters of each calendar year than other quarters.
Quarterly results may also be affected by the timing of bid solicitations by governmental
authorities, the stage of completion of major projects and revenue recognition policies. Results
for any one particular quarter, therefore, may not be indicative of results for other quarters or
for the year. Insurance We maintain general liability and excess liability insurance covering our owned and leased
construction equipment and workers compensation insurance in amounts we believe are consistent
with our risks of loss and in compliance with specific insurance coverage required by our customers
as a part of the bidding process. We carry liability insurance of $11 million per occurrence,
which we believe is adequate for our current operations and consistent or greater than the
requirements of projects currently under construction by our construction services segment.  10




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##### Table of Contents



Government Regulation Our operations are subject to compliance with regulatory requirements of federal, state and
municipal authorities, including regulations covering labor relations, safety standards,
affirmative action and the protection of the environment including requirements in connection with
water discharge, air emissions and hazardous and toxic substance discharge. Under the Federal
Clean Air Act and Clean Water Act, we must apply water or chemicals to reduce dust on road
construction projects and to contain water contaminants in run-off water at construction sites. We
may also be required to hire subcontractors to dispose of hazardous wastes encountered on a
project. We believe that we are in substantial compliance with all applicable laws and
regulations. However, future amendments to current laws or regulations imposing more stringent
requirements could have a material adverse effect on the Company. Employees On March 1, 2005, we employed approximately 82 salaried employees (including its management
personnel and executive officers) and approximately 455 hourly employees. The number of hourly
employees varies depending upon the amount of construction in progress. During the year ended
December 31, 2004, the number of hourly employees ranged from approximately 401 to approximately
541 and averaged approximately 487. At December 31, 2004, we were party to five project
agreements in Arizona with the Arizona State District Council of Carpenters, AFL-CIO that covers
approximately 5% of our hourly workforce. We believe our relations with our employees are
satisfactory. Website Access Our
website address is www.meadowvalley.com. On our website we make available, free of
charge, our annual report on Form 10-K, our most recent quarterly reports on Form 10-Q, current
reports on Form 8-K, Forms 3, 4, and 5 related to beneficial ownership of securities, code of
ethics and all amendments to those reports as soon as reasonably practicable after such material is
electronically filed with or furnished to the United States Securities and Exchange Commission.
The information on our website is not incorporated into, and is not part of, this report. 
 Item 2.Properties We owned or leased the following properties at December 31, 2004:  Approximate
    
    ApproximateBuilding Size in
    
    Land
    
    Owned orLocation
    
    Segment
    
    Purpose
    
    Square Feet
    
    in Acres
    
    Leased4411 South 40th
Street, Suites D-8,
D-10, D-11,
Phoenix, Arizona
    
    CSS
    
    Corporate office,
Area office
    
    8,280
    
    
    
    
    -
    
    
    Leased3430 East Flamingo
Suite 100, Las
Vegas, Nevada
    
    CMS
    
    Area office
    
    3,500
    
    
    
    
    -
    
    
    Leased2601 East Thomas
Road Suite 120,
Phoenix, Arizona
    
    CMS
    
    Area office
    
    3,200
    
    
    
    
    -
    
    
    Leased2250 West Center
Street Building
two, Springville,
Utah
    
    CSS
    
    Field Office
    
    1,600
    
    
    
    
    -
    
    
    Leased4635 Andrews
Street, North Las
Vegas, Nevada
    
    CSS
    
    Area office
    
    4,320
    
    
    
    
    -
    
    
    Leased109 West Delhi,
North Las Vegas,
Nevada
    
    CMS
    
    Ready Mix
production facility
    
    4,470
    
    
    
    
    5
    
    
    Owned11500 West
Beardsley Road Sun
City, Arizona
    
    CMS
    
    Ready Mix
production facility
    
    440
    
    
    
    
    5
    
    
    Leased39245 North Schnepf
Road Queen Creek,
Arizona
    
    CMS
    
    Ready Mix
production facility
    
    440
    
    
    
    
    5
    
    
    Owned
  11




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##### Table of Contents



Approximate
    
    ApproximateBuilding Size in
    
    Land
    
    Owned orLocation
    
    Segment
    
    Purpose
    
    Square Feet
    
    in Acres
    
    Leased7613 Commercial Way
Henderson, Nevada
    
    CMS
    
    Ready Mix
production facility
    
    
    720
    
    
    
    5
    
    
    Leased6210 Annie Oakley
DriveSuite 102,
Las Vegas, Nevada
    
    CSS
    
    Field Office
    
    
    1,000
    
    
    
    
    
    
    LeasedMoapa, Nevada
    
    CMS
    
    Sand and Aggregate
production facility
    
    
    840
    
    
    
    40
    
    
    LeasedMoapa, Nevada
    
    CMS
    
    Ready Mix
production facility
    
    
    440
    
    
    
    
    
    
    Leased
 Our CSS may lease office space on a short-term basis based on location, duration, and the
availability of facilities at our ongoing construction sites. We have determined that the above properties are sufficient to meet our current needs. 
 Item 3.Legal Proceedings See Note 15Litigation and Claim Matters in the accompanying consolidated financial statements
(Item 8) for information regarding material legal proceedings. 
 Item 4.Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders, through the solicitation of
proxies or otherwise, during the fourth quarter of the year ended December 31, 2004. 
 PART II 
 Item 5.Market for Registrants Common Equity and Related Stockholder Matters Meadow Valley Corporations common stock was listed on the Nasdaq National Market from October
1995 to August 2001. In August 2001, our securities were transferred to the Nasdaq SmallCap Market
and trade under the symbol MVCO. The following table represents the high and low closing prices
for our common stock on the Nasdaq SmallCap Market. As of March 11, 2005, there were 604 record
and beneficial owners of our Common Stock. On March 11, 2005, our common stock closed at $5.40 per
share. 2004
    
    
    2003High
    
    
    Low
    
    
    High
    
    
    LowFirst Quarter
    
    $
    2.75
    
    
    $
    1.59
    
    
    $
    1.29
    
    
    $
    0.60Second Quarter
    
    
    2.71
    
    
    
    2.07
    
    
    
    1.28
    
    
    
    1.09Third Quarter
    
    
    2.54
    
    
    
    1.84
    
    
    
    1.85
    
    
    
    1.10Fourth Quarter
    
    
    4.81
    
    
    
    2.43
    
    
    
    1.90
    
    
    
    1.45
 We have never declared or paid cash dividends on our common stock and do not anticipate paying
cash dividends in the foreseeable future. Any future determination to pay cash dividends will also
be at the discretion of our Board of Directors and will be dependent upon our financial condition,
results of operations, capital requirements, general business conditions and other such factors as
our Board of Directors deems relevant.  12




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##### Table of Contents



Item 6.Selected Financial Data Years Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Statement of Operations Data:Revenue
    
    $
    166,831,664
    
    
    $
    154,106,865
    
    
    $
    151,047,268
    
    
    $
    174,063,148
    
    
    $
    163,573,258Gross profit
    
    
    6,967,790
    
    
    
    6,343,618
    
    
    
    7,531,597
    
    
    
    4,658,361
    
    
    
    4,638,155Income (loss) from operations
    
    

    457,951
    
    
    
    (150,667
    )
    
    
    932,657
    
    
    
    (3,404,262
    )
    
    
    (2,139,685
    )Income (loss) before income taxes
    
    
    890,443
    
    
    
    162,381
    
    
    
    936,770
    
    
    
    (3,192,562
    )
    
    
    (1,859,447
    )Net income (loss)
    
    
    599,639
    
    
    
    120,738
    
    
    
    738,141
    
    
    
    (2,523,931
    )
    
    
    (1,574,586
    )Basic net income (loss) per common share
    
    $
    0.17
    
    
    $
    0.03
    
    
    $
    0.21
    
    
    $
    (0.71
    )
    
    $
    (0.44
    )Diluted net income (loss) per common share
    
    $
    0.16
    
    
    $
    0.03
    
    
    $
    0.21
    
    
    $
    (0.71
    )
    
    $
    (0.44
    )Basic weighted average common shares
outstanding
    
    
    3,601,250
    
    
    
    3,593,102
    
    
    
    3,559,938
    
    
    
    3,559,938
    
    
    
    3,549,458Diluted weighted average common shares
outstanding
    
    
    3,780,597
    
    
    
    3,599,259
    
    
    
    3,559,938
    
    
    
    3,559,938
    
    
    
    3,549,458Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Years Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Financial Position Data:Working capital
    
    $
    1,750,058
    
    
    $
    5,210,466
    
    
    $
    2,307,005
    
    
    $
    (1,194,786
    )
    
    $
    4,946,174Total assets
    
    
    64,784,728
    
    
    
    54,819,323
    
    
    
    57,039,942
    
    
    
    60,191,119
    
    
    
    55,386,030Long-term debt
    
    
    11,785,816
    
    
    
    8,084,793
    
    
    
    11,132,310
    
    
    
    12,448,674
    
    
    
    11,278,148Stockholders equity
    
    
    12,172,824
    
    
    
    11,573,185
    
    
    
    11,452,447
    
    
    
    10,714,306
    
    
    
    13,238,237
 
 Item 7.Managements Discussion and Analysis of Financial Condition and Results of
Operations Introduction This Annual Report on Form 10-K contains forward-looking statements within the meaning of
the safe harbor provision of the Private Securities Litigation Reform Act of 1995 regarding
future events and the future results of Meadow Valley Corporation that are based on current
expectations, estimates, forecasts, and projections as well as the beliefs and assumptions of
Meadow Valleys management. Words such as outlook, believes, expects, appears, may,
will, should, anticipates or the negative thereof or comparable terminology, are intended to
identify such forward-looking statements. These forward-looking statements are only predictions
and are subject to risks, uncertainties and assumptions that are difficult to foresee. Therefore,
actual results may differ materially and adversely from those expressed in any forward-looking
statements. Factors that might cause or contribute to such differences include, but are not
limited to those discussed in this Annual Report on Form 10-K under the section entitled
Quantitative and Qualitative Disclosures about Market Risk. You should not place undue reliance
on these forward-looking statements, which speak only as of the date of this Annual Report. We
undertake no obligation to revise or update publicly any forward-looking statements for any reason. Outstanding accomplishments in 2004 for both our CSS and CMS were overshadowed by one very
significant occurrence  the Gooseberry project. As reported in 2004, the losses on this highway
project in south central Utah had already resulted in the worst single-project loss in our history.
Unfortunately and unexpectedly, the losses continued to grow in 2004 as we battled inclement
weather, changed conditions and last minute changes to the contract demanded by the owner. The
total estimated loss at completion which has been fully recognized as of December 31, 2004 on the
Gooseberry project is approximately $7.7 million, resulting in an additional loss of approximately
$5.2 million in 2004. The Gooseberry project is within weeks of completion once our workforce
returns to the project. We expect to resume work in earnest in the end of June 2005, which is when
we anticipate the weather and ground conditions will be acceptable for the completion of the
project. Some of our accomplishments this year include our ability in our construction materials
segment to continue an aggressive growth plan without sacrificing profitability. To continue that
growth plan we have secured a site in Southwest Las Vegas to expand our CMS footprint in that
market. We have acquired the parcel of land on which our CMS Southeast Phoenix operation resides,
thereby securing, for the long term, our facility location in that market. Our construction
services  13




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##### Table of Contents



segment recognized a recovery of costs of approximately $1.8 million, previously
recognized as a loss, on the $7 million settlement of three claims with New Mexico. Our CSS also
improved its overall profitability of new work, but was overshadowed by the losses on the
Gooseberry Project. We made notable progress in resolving the remainder of our outstanding claims. Settling three
of the five New Mexico claims was a positive milestone. In the Clark County claim, the arbitration
panel concluded its hearing and ruled against us and our subcontractor on one of the claims
regarding the use of a shoring methodology, but ruled in our favor on that part of the claim
pertaining to excess costs and delays associated with quality assurance and quality control
testing, we refer to as QA/QC. Meadow Valleys portion of the denied claim was approximately
$3.7 million, while the panel awarded us approximately $2.1 million for our portion of the QA/QC
claim we valued at approximately $2.2 million. The balance of the approximate $5.5 million
arbitration award goes to one of our subcontractors. Both Meadow Valley and Clark County have
appealed the panels decisions and no payment has been made, nor is expected to be made, until
after the appeals are adjudicated. The remaining two New Mexico claims have a calendared court
date for August 2005 we anticipate that this court date will be delayed due to an extension of the
discovery process. We believe much of the cost overruns on the Gooseberry project are compensable
and we will be tabulating our costs once the project is complete and finalized. To-date we have
not booked any claim proceeds that we may receive in the future from claims on the Gooseberry
project. Results of Operations The following table sets forth statement of operations data expressed as a percentage of
revenue for the periods indicated: Years Ended December 31,2004
    
    
    2003
    
    
    2002Revenue
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %Cost of revenue
    
    
    95.82
    
    
    
    95.88
    
    
    
    95.01Gross profit
    
    
    4.18
    
    
    
    4.12
    
    
    
    4.99General and administrative expenses
    
    
    3.90
    
    
    
    4.21
    
    
    
    4.37Income (loss) from operations
    
    
    0.27
    
    
    
    (0.09
    )
    
    
    0.62Interest income
    
    
    0.05
    
    
    
    0.04
    
    
    
    0.10Interest expense
    
    
    (0.21
    )
    
    
    (0.32
    )
    
    
    (.29
    )Other income
    
    
    0.42
    
    
    
    0.48
    
    
    
    0.19Net income
    
    
    0.36
    
    
    
    0.08
    
    
    
    0.49
 Year Ended December 31, 2004 compared to Year Ended December 31, 2003 Revenue and Backlog.Revenue improved 8.3% to $166.8 million for the year ended December 31,
2004, as further referred to as 2004, from $154.1 million for the year ended December 31, 2003,
as further referred to as 2003. The improved revenue resulted from a $14.7 million increase, net
of inter-company sales, from the CMS, offset by a decrease in revenue from the CSS of $2.0 million.
The CMS revenue increase was due primarily to an approximate 25.0% volume increase in 2004 from
2003; the average unit sales price increased approximately 7.1% in 2004 from 2003. Backlog in the
CSS increased to $93.6 million compared to $70.6 million a year ago. CSS revenue was impacted less
by the amount of the beginning backlog than by the progress schedules and nature of the contracts
contained in the backlog at the beginning of 2004. Revenue in the CSS was also affected by the
Gooseberry project. Because so much of our business stems from competitively bid public works,
backlog will fluctuate depending upon the amount and type of contracts that we bid on and win. Bid
bonds provided by our surety company are required on most of the contracts that we bid, therefore,
any restrictions or limitations in the extension of surety credit can impact the amount and type of
contracts available to be bid by our CSS. Surety credit limits and conditions may improve as our
financial performance improves, but there can be no assurance that surety credit will be increased. Gross Profit.Consolidated gross profit increased to $7.0 million for 2004 from $6.3 million
for 2003 and consolidated gross margin, as a percent of revenue, increased to 4.18% in 2004 from
4.12% in 2003. Gross profit from CSS decreased to $.3 million in 2004 from $2.2 million in 2003
and the gross profit margin decreased to .3% from 2.03% in the respective periods. The decrease in
the CSS gross profit margin was greatly affected by the Gooseberry Project. In 2004, we recognized
an additional loss on the Gooseberry Project in the amount of $5.2 million bringing the total
anticipated loss at completion of the project to approximately $7.7 million. We believe, but can
not assure, that there will not be any additional future losses. This project is scheduled for
completion in the third quarter of 2005. Gross profit margins are affected by a  14




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variety of factors including, the quality and accuracy of the initial estimate, construction delays and difficulties
due to weather or other conditions, availability of materials, the timing of work performed by other
subcontractors and the physical and geological condition of the construction site. Gross profit
from the CMS increased to $6.6 million in 2004 from $4.1 million in 2003 and the gross profit
margin increased to 11.30% from 9.34% in the respective periods. The increase in the gross profit
margin in the CMS during 2004 results from an increase of 7.1% in the average unit price and an
increase in our unit volume of sales. The increase in the average unit sales price reflects our
ability to pass on additional costs to our customers, such as the increased costs of raw materials
and transportation of those materials. General and Administrative Expenses.General and administrative expenses remained flat at
$6.5 million for 2004 when compared to 2003. Although the total general and administrative
expenses remained relatively unchanged payroll, bonuses and related payroll tax expenses increased
by $.2 million, offset by a $.2 million decrease in bad debt expense. Interest Income, Expense and Other Income.Interest income remained relatively flat at $.1
million for 2004 compared to 2003. Interest expense for 2004 decreased to $.3 million from $.5
million for 2003 as a result of the reduction of our non-equipment related debt. Interest expense
directly related to equipment is expensed as a cost of the equipment and is included in the cost of
revenue. Other income for 2004 remained flat at $.7 million compared to 2003. Other income for
2004 consisted of gains on the disposal of property, equipment and land. We do not anticipate other
income to be as significant in 2005. Net Income.Net income was $.6 million for 2004 as compared to a net income of $.1 million for
2003. The increase in net income was the result of the improved gross profit, as discussed above,
complemented by other income and offset by losses on the Gooseberry project. Year Ended December 31, 2003 compared to Year Ended December 31, 2002 Revenue and Backlog.Revenue improved 2.0% to $154.1 million for the year ended December 31,
2003 (2003) from $151.0 million for the year ended December 31, 2002 (2002.) The improved
revenue resulted from a $7.2 million increase, net of inter-company sales, from the CMS, offset by
a decrease in revenue from the CSS of $4.1 million. The CMS revenue increase was due primarily to
an approximate 15.00% volume increase in 2003 from 2002; the average unit sales price increased
approximately .20% in 2003 from 2002. Backlog in the CSS increased to $71 million compared to $69
million in 2002. CSS revenue was impacted less by the amount of the beginning backlog than by the
progress schedules and nature of the contracts contained in the backlog at the beginning of 2003.
Revenue in the CSS was also affected by the Gooseberry Project. Gross Profit.Consolidated gross profit decreased to $6.3 million for 2003 from $7.5 million
for 2002 and consolidated gross margin, as a percent of revenue, decreased to 4.12% in 2003 from
4.99% in 2002. Gross profit from CSS decreased to $2.2 million in 2003 from $3.6 million in 2002
and the gross profit margin decreased to 2.03% from 3.19% in the respective periods. The decrease
in the CSS gross profit margin was greatly affected by the Gooseberry Project. We recognized an
anticipated loss on the Gooseberry Project of approximately $2.5 million in 2003. Gross profit
margins are affected by a variety of factors including, the quality and accuracy of the initial
estimate, construction delays and difficulties due to weather or other conditions, availability of
materials, the timing of work performed by other subcontractors and the physical and geological
condition of the construction site. Gross profit from the CMS increased to $4.1 million in 2003
from $3.9 million in 2002 and the gross profit margin decreased to 9.34% from 10.57% in the
respective periods. The decrease in the gross profit margin in the CMS during 2003 is the result
of only a slight increase of .20%, in the average unit price, which was not sufficient to
compensate for the increase in the unit cost. The inability to raise prices while experiencing
increased costs was the result of price competition in a challenging economic environment. General and Administrative Expenses.General and administrative expenses decreased to $6.5
million for 2003 from $6.6 million for 2002. The decrease resulted primarily from a $.4 million
decrease in legal fees, offset by a $.3 million increase in the voluntary match contribution to the
401(k) plan. Interest Income, Expense and Other Income.Interest income for 2003 decreased to $.1 million
from $.2 million for 2002 resulting primarily from a decrease in invested cash reserves. Interest
expense remained relatively flat for 2003 at $.5 million compared to $.4 million for 2002. Other
income for 2003 increased to $.7 million from $.3 million for 2002 resulting primarily from the
gain on the disposal of property, equipment, land and mineral lease rights.  15




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##### Table of Contents



Net Income.Net income was $.1 million for 2003 as compared to a net income of $.7 million for
2002. The decrease in net income was the result of the reduction in gross profit, as discussed
above, offset by a net increase in other income (expense). Liquidity and Capital Resources Our primary need for capital continues to be the expansion of the CMS. As we expand our
business we will continue to utilize the availability of capital offered by financial institutions,
in turn increasing our total debt and debt service obligations. We are also seeking to bring our
construction material segment public, in an effort to raise additional capital for that segments
expansion efforts. We are continuing our investigation into alternative sites in the Southwest Phoenix
metropolitan area to eventually locate a third ready mix facility. We broke ground on a ready mix
production facility, as part of our expansion plan in the Southwest Las Vegas metropolitan area in
December 2004. Historically, our primary source of cash has been from operations and financial institutions.
We believe our historical sources of capital will be satisfactory to meet our needs for the coming
year. Per the terms of our line of credit agreement in 2003, we elected to allow our fully drawn
line of credit to convert into a term agreement. The interest rate has remained at Chase Manhattan
Banks prime, plus 1.25% requiring equal monthly principal payments of $145,833 plus interest
through December 31, 2007. The term agreement is collateralized by all of our assets. Under the
terms of the agreement, we are required to maintain a certain level of tangible net worth as well
as maintain a ratio of total debt to tangible net worth. At December 31, 2004 we were in
compliance with the covenants. We continue to investigate new credit arrangements, which we expect
will provide us with an available line of credit. We feel that our cash reserves and cash inflow
from operations will provide sufficient liquidity until a line of credit agreement is in place. The following table sets forth, for the periods presented, certain items from our Statements
of Cash Flows. For the Years Ended December 31,2004
    
    
    2003
    
    
    2002Cash provided by operating activities
    
    $
    10,986,026
    
    
    $
    5,033,068
    
    
    $
    2,953,781Cash provided by (used in) investing activities
    
    
    (1,542,131
    )
    
    
    1,207,276
    
    
    
    1,619,844Cash used in financing activities
    
    
    (4,018,065
    )
    
    
    (4,791,491
    )
    
    
    (3,512,596
    )
 Cash provided by operating activities during 2004 of $11.0 million represents a $6.0 million
increase from the amount provided by operating activities during 2003. The change was primarily
due to the increased collection of our claim receivable in the amount of $3.4 million and our
ability to effectively control accounts payable disbursements in the amount of $2.3 million when
compared to the prior year. Cash used in investing activities during 2004 of $1.5 million represents a $2.7 million
decrease from the amount provided by investing activities during 2003. Investing activities during
2004 were due primarily to capital expenditures of $4.6 million, offset by cash received from the
disposal of assets of $2.5 million and a reduction of $.6 million in restricted cash. During 2004
we acquired $8.7 million of land and equipment through direct debt financing. Cash used in financing activities during 2004 of $4.0 million represents a $.8 million
decrease from the amount used in financing activities during 2003. Financing activities during
2004 resulted from the repayment of notes payable and capital lease obligations of $5.3 million,
offset by the receipt of $1.3 million in loan proceeds. During 2004 we refinanced $1.1 million in
capital lease obligations. Cash provided by operating activities during 2003 of $5.0 million represents a $2.0 million
increase from the amount provided by operating activities during 2002. The change was primarily
due to the increased collection of our claims receivable in the amount of $3.1 million and our
ability to effectively control our current obligation disbursements from operations in the amount
of $4.8 million when compared to the prior year, offset by a decrease of $1.2 million as it relates
to our billing and collection of our contracts in progress and sales of material, the reduction in
inventory in the amount of $3.1 million, a reduction of $.4 million in deferred taxes and a
reduction of $.6 million in net income when compared to the prior year. Cash provided by investing activities during 2003 of $1.2 million represents a $.4 decrease
from the amount provided by investing activates during 2002. Investing activities during 2003 were
due primarily to cash received from the  16




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disposal of assets including equipment and land of $1.7 million, offset by capital expenditures of $.6 million and an increase of $.2 million in restricted
cash. During 2003 we acquired $1.6 million of equipment through direct debt financing. Cash used in financing activities during 2003 of $4.8 million represents a $1.3 million
increase from the amount used in financing activities during 2002. Financing activities during
2003 were primarily the repayment of notes payable and capital lease obligations of $4.8 million. Cash provided by operating activities during 2002 amounted to $2.95 million, primarily the
result of a decrease in accounts receivable of $.4 million, a decrease in costs in excess of
billings of $3.8 million, a decrease in inventory, net of $1.4 million, a decrease in net deferred
taxes of $.5 million, an increase in accrued liabilities of $1.9 million, depreciation and
amortization of $2.8 million, and a net income of $.7 million, offset by, an increase in claims
receivable of $2.4 million, a decrease in billings in excess of costs of $.9 million, a decrease in
accounts payable of $7.1 million and a decrease in allowance for doubtful accounts of $.3 million. Cash provided by investing activities during 2002 amounted to $1.6 million, related primarily
to the proceeds from the sale of property and equipment in the amount of $1.6 million, a decrease
in restricted cash of $.7 million and the proceeds from the sale of mineral rights and pit
development of $.5 million, offset by the purchase of property and equipment of $.5 million and the
purchase of land held for sale of $.7 million. Cash used in financing activities during 2002 amounted to $3.5 million, related primarily to
repayment of notes payable and capital lease obligations in the amount of $4.1 million, offset by
the proceeds received from a note payable in the amount of $.6 million. Impact of Inflation There have been increases in the cost of our raw materials and the transport of those
materials, however, we have been able to effectively pass these additional costs on to our
customers. Therefore, we believe that inflation has not had a material impact on our operations.
However, additional substantial increases in labor costs, worker compensation rates and employee
benefits, equipment costs, material or subcontractor costs could adversely affect our operations in
future periods. Critical Accounting Policies Our significant accounting policies are described in Note 1 to the consolidated financial
statements included in Item 8 of this Form 10-K. We believe our most critical accounting policies
are the revenue recognition and cost estimation on certain contracts for which we use a
percentage-of-completion accounting method, our allowance for doubtful accounts and the allowance
for slow moving and obsolete inventory. The revenue recognition and cost estimation accounting
method is applied by the CSS to heavy construction projects executed under multi-year contracts
with various customers. Approximately 65%, 71% and 76% of total net revenue was recognized under
the percentage-of-completion method of accounting during 2004, 2003 and 2002, respectively. Revenues and costs from fixed-price and modified fixed-price construction contracts are
recognized for each contract on the percentage-of-completion method, measured by the percentage of
costs incurred to-date to the estimated total of direct costs. Direct costs include, among other
things, direct labor, field labor, equipment rent, subcontracting, direct materials, and direct
overhead. General and administrative expenses are accounted for as period costs and are,
therefore, not included in the calculation of the estimates to complete construction contracts in
progress. Project losses are provided for in their entirety in the period in which such losses are
determined, without reference to the percentage-of-completion. As contracts can extend over one or
more accounting periods, revisions in costs and earnings estimated during the course of the work
are reflected during the accounting period in which the facts that required such revisions become
known. The asset costs and estimated earnings in excess of billings on uncompleted contracts
represents revenue recognized in excess of amounts billed. The liability billings in excess of
costs and estimated earnings on uncompleted contracts represents billings in excess of revenue
recognized. The complexity of the estimation process and all issues related to the assumptions, risks and
uncertainties inherent with the application of the percentage-of-completion method of accounting
affects the amounts reported in our financial statements. A number of internal and external
factors affect our percentage-of-completion estimates, including labor rate and
efficiency variances, estimated future material prices and customer specification changes. If our
business conditions were  17




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different, or if we used different assumptions in the application of this accounting policy, it is likely that materially different amounts would be reported in our
financial statements. We are also required to estimate the collectibility of our account receivables. A
considerable amount of judgment is required in assessing the realization of these receivables,
including the current credit worthiness of each customer and the related aging of the past due
balances. Our provision for bad debts during the years ended December 31, 2004 and 2003 amounted
to $607,677 and $710,153, respectively. We determine our reserve by using percentages applied to
certain aged receivable categories and percentages of certain types of revenue generated, as well
as a review of the individual accounts outstanding. We are required to state our inventories at the lower of cost or market. In assessing the
ultimate realization of inventories, we are required to make judgments as to the future demand
requirements and compare these with the current inventory levels. Our reserve requirements
generally increase as our projected demand requirements decrease due to market conditions and
longer than expected usage periods. At December 31, 2004 and 2003, inventories of $871,112 and
$1,249,118 respectively, are net of reserves of $286,822 and $1,186,197 respectively. It is
possible that significant changes in required inventory reserves may continue to occur in the
future if there is a further decline in market conditions or market activity. Summary of Contractual Obligations and Commercial Commitments Contractual obligations at December 31, 2004, and the effects such obligations are expected to
have on liquidity and cash flow in future periods, are summarized as follows: Payments Due by PeriodLess than
    
    
    1 - 3
    
    
    4 - 5
    
    
    After(Dollars in thousands)
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsContractual ObligationsLong-term debt
    
    $
    16,016
    
    
    $
    5,212
    
    
    $
    7,681
    
    
    $
    3,123
    
    
    $
    Interest payments on long-term debt
    
    
    1,051
    
    
    
    454
    
    
    
    482
    
    
    
    115
    
    
    
    Capital lease obligations
    
    
    1,651
    
    
    
    609
    
    
    
    938
    
    
    
    104
    
    
    
    Operating leases
    
    
    5,428
    
    
    
    2,086
    
    
    
    2,663
    
    
    
    679
    
    
    
    Purchase obligations
    
    
    6,852
    
    
    
    1,368
    
    
    
    2,555
    
    
    
    2,445
    
    
    
    484Other long term liabilities
    
    
    760
    
    
    
    646
    
    
    
    114
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    31,758
    
    
    $
    10,375
    
    
    $
    14,433
    
    
    $
    6,466
    
    
    $
    484
 Recent Accounting Pronouncements In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 151 (SFAS 151), Inventory Costs. SFAS 151 amends the
guidance in APB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS
151 requires that those items be recognized as current period charges regardless of whether they
meet the criteria of so abnormal. In addition, SFAS 151 requires that allocation of fixed
production overheads to the costs of conversion be based on the normal capacity of the production
facilities. SFAS 151 is effective for financial statements issued for fiscal years beginning after
June 15, 2005. Management has not yet determined the effects of adopting this statement on the
Companys financial position or results of operations. In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 153 (SFAS 153), Exchanges of Nonmonetary Assets. SFAS 153
amends the guidance in APB No. 29, Accounting for Nonmonetary Assets.
APB No. 29 was based on the principle that exchanges of
nonmonetary assets should be measured on the fair value of the assets exchanged. SFAS 153 amends
APB No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of nonmonetary  18




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assets that do not have commercial substance if the future cash flows of the entity are expected to change significantly as
a result of the exchange. SFAS 151 is effective for financial statements issued for fiscal years
beginning after June 15, 2005. Management has not yet determined the effects of adopting this
statement on the Companys financial position or results of operations. In December 2004, the Financial Accounting Standards Board (FASB) revised Statement of
Financial Accounting Standards No. 123 (SFAS
123(R)), Share-Based Payment. The SFAS 123(R)
revision established standards for the accounting for transactions in which an entity exchanges its
equity instruments for goods or services and focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions. It does not change
the accounting guidance for share-based payment transactions with parties other than employees.
For public entities that do not file as small business issuers, the revisions to SFAS 123 are
effective as of the beginning of the first interim or annual reporting period that begins after
June 15, 2005. Management intends to comply with the standard upon its effectiveness; however, we
do not believe that the impact would be materially different from the pro forma disclosure under
SFAS N0. 123. See Note 1Summary of Significant Accounting Policies and Use of Estimates in the
accompanying consolidated financial statements (Item 8) for disclosure information regarding Stock
Option Expense. Known and Anticipated Future Trends and Contingencies Our CMS has shown steady growth since its inception and we plan to continue to exploit
opportunities within that segment of our business. The proposed public offering for a portion of
RMI is to raise capital for such purposes. The key dynamics of employment and population growth
within our geographic markets appear to present the CMS with continued growth opportunities.
Furthermore, during the past approximately eighteen months, occasional shortages of cement, a key
raw material used in the production of ready mix concrete, have created both challenges and
opportunities  while costs have increased, the market environment has permitted us to pass those
costs on to the end user rather than absorb them. It appears that demand for construction
materials will remain steady and that the supply of raw materials will remain relatively short,
thereby likely maintaining stable prices, or, if costs rise, a possibility of further price
increases. Our plan to vacate the construction services market of New Mexico, terminate our full time
presence in Utah and extricate ourselves from the burdens, in both cost and time, of trailing
claims, has taken us a number of years and is not yet entirely complete. During that process, the
performance of our CSS has been well below its historical norms, and in particular, has been
further exacerbated by the losses on the Gooseberry Project in 2003 and 2004. We believe we have
taken a conservative approach in booking the losses on the Gooseberry Project to the extent that it
is not expected to have any degrading affect on our performance in 2005. If true, the CSS
improvements, heretofore overshadowed by the Gooseberry losses, will become more visible and are
expected to be much improved. If the CSS can demonstrate operating improvements, then as profitability, working capital and
liquidity increase, so too will surety credit likely increase, thereby allowing us to bid on and
perform more and larger projects. Bidding opportunities within our focused market areas of Nevada
and Arizona are ample for the size of our current surety program and it is reasonable to believe,
given historical bidding success, that backlog may increase slightly during 2005. As public works constitute the majority of our CSS volume, and government is the primary
source of funding for infrastructure work, it is, therefore, important that funding be maintained.
The national transportation legislation, TEA-21, expired in September 2003. Interim funding
extensions have been granted while congress continues to work on a new six-year highway bill. It
is expected, but cannot be assured, that new legislation will be enacted during 2005 to fund
another six-year transportation infrastructure program. Over the next few months until funding
authority is finalized, State Departments of Transportation may not let as many contracts until
they are fully aware of the funding available to them. The competitive bidding process will continue to be the dominant method for determining
contract awards. However, other innovative bidding methods will be tried and may gain favor,
namely A Plus B contracts, where the bidders proposals are selected on both price and scheduling
criteria. Design-build projects and Construction Manager at Risk projects are becoming more common
and are likely to increase in frequency. In light of the rising needs for infrastructure work throughout the nation and the tendency of
the current needs to out-pace the supply of funds, it is anticipated that alternative funding
sources will continue to be sought. Funding for infrastructure development in the United States is
coming from a growing variety of innovative sources. An increase of
funding measures is being undertaken by various levels of government to help solve traffic
congestion and related air quality problems. Sales taxes, fuel taxes, user fees in a variety of
forms, vehicle license taxes, private toll roads and quasi-public toll roads are examples of how
transportation funding is evolving. Transportation norms are being challenged by federally  19




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mandated air quality standards. Improving traffic movement, eliminating congestion, increasing
public transit, adding or designating high occupancy vehicle (HOV) lanes to encourage car pooling
and other solutions are being considered in order to help meet EPA-imposed air quality standards.
There is also a trend toward local and state legislation regulating growth and urban sprawl. The
passage of such legislation and the degree of growth limits imposed by it could dramatically affect
the nature of our markets. In November 2004, voters in Maricopa County (Phoenix, Arizona metropolitan area) passed a
measure to extend, for another twenty years, an existing half-cent sales tax dedicated to the
construction and maintenance of transportation facilities, including freeways, streets and mass
transit. It is expected that this measure will generate approximately $9 billion of funding over
the twenty year period. 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Market risk generally represents the risk that losses may occur in the values of financial
instruments as a result of movements in interest rates, foreign currency exchange rates and
commodity prices. We do not have foreign currency exchange rate and commodity price market risk. Interest Rate Risk  From time to time we temporarily invest our excess cash and restricted
cash in interest-bearing securities issued by high-quality issuers. We monitor risk exposure to
monies invested in securities in our financial institutions. Due to the short time the investments
are outstanding and their general liquidity, these instruments are classified as cash equivalents
in the consolidated balance sheets and do not represent a material interest rate risk. Our primary
market risk exposure for changes in interest rates relates to our long-term debt obligations. We
manage our exposure to changing interest rates principally through the use of a combination of
fixed and floating rate debt. We evaluated the potential effect that near term changes in interest rates would have had on
the fair value of our interest rate risk sensitive financial instruments at December 31, 2004.
Assuming a 100 basis point increase in the prime interest rate at December 31, 2004 the potential
increase in the fair value of our debt obligations would have been approximately $54,000 at
December 31, 2004. See Note 9Notes payable and Note 10Line of credit (Item 8) in the
accompanying consolidated financial statements.  20




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Item 8. Financial Statements and Supplementary Data (SEMPLE & COOPER, LLP) Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of
Meadow Valley Corporation We have audited the accompanying balance sheets of Meadow Valley Corporation and
Subsidiaries as of December 31, 2004 and 2003 and the related statements of
operations, changes in stockholders equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Meadow Valley Corporation and
Subsidiaries at December 31, 2004 and 2003, and the results of its operations,
changes in stockholders equity and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America. (SEMPLE & COOPER, LLP) Phoenix, Arizona
March 11, 2005 INDEPENDENT MEMBER OF THE BDO SEIDMAN ALLIANCE 21




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Report of Independent Registered Public Accounting Firm Board of Directors and Stockholders
Meadow Valley Corporation
Phoenix, Arizona We have audited the accompanying consolidated statements of operations,
stockholders equity, and cash flows of Meadow Valley Corporation and
Subsidiaries for the year ended December 31, 2002. These financial statements are
the responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal controls over
financial reporting. An audit includes consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Meadow Valley Corporation and Subsidiaries for the year ended December 31, 2002,
in conformity with accounting principles generally accepted in the United States
of America. /s/ BDO Seidman, LLP Los Angeles, California March 7, 2003 22




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS December 31,2004
    
    
    2003Assets:Current assets:Cash and cash equivalents
    
    $
    10,164,218
    
    
    $
    4,738,388Restricted cash
    
    
    1,268,449
    
    
    
    1,844,891Accounts receivable, net
    
    
    22,163,719
    
    
    
    20,664,022Claims receivable
    
    
    
    
    
    
    4,101,898Prepaid expenses and other
    
    
    2,818,395
    
    
    
    2,196,899Inventory, net
    
    
    871,112
    
    
    
    1,249,118Land held for sale
    
    
    
    
    
    
    264,738Costs and estimated earnings in excess of billings on uncompleted
contracts
    
    
    449,358
    
    
    
    1,463,309Deferred tax asset
    
    
    1,597,627
    
    
    
    1,243,896Total current assets
    
    
    39,332,878
    
    
    
    37,767,159Property, equipment and land, net
    
    
    21,541,946
    
    
    
    13,127,675Refundable deposits
    
    
    21,780
    
    
    
    94,299Mineral rights and pit development, net
    
    
    252,044
    
    
    
    309,110Claims receivable, less current portion
    
    
    3,521,080
    
    
    
    3,521,080Other receivables
    
    
    115,000
    
    
    
    Total assets
    
    $
    64,784,728
    
    
    $
    54,819,323Liabilities and stockholders equity:Current liabilities:Accounts payable
    
    $
    19,711,571
    
    
    $
    18,646,857Accrued liabilities
    
    
    4,907,554
    
    
    
    4,563,816Notes payable
    
    
    5,212,187
    
    
    
    3,512,286Obligations under capital leases
    
    
    531,746
    
    
    
    878,280Billings in excess of costs and estimated earnings on uncompleted
contracts
    
    
    7,219,762
    
    
    
    4,955,454Total current liabilities
    
    
    37,582,820
    
    
    
    32,556,693Notes payable, less current portion
    
    
    10,804,017
    
    
    
    6,999,729Obligations under capital leases, less current portion
    
    
    981,799
    
    
    
    1,085,064Deferred tax liability
    
    
    3,243,268
    
    
    
    2,604,652Total liabilities
    
    
    52,611,904
    
    
    
    43,246,138Commitments and contingenciesStockholders equity:Preferred stock  $.001 par value; 1,000,000 shares authorized, none
issued and outstanding
    
    
    
    
    
    
    Common stock  $.001 par value; 15,000,000 shares authorized,
3,601,250 issued and outstanding
    
    
    3,601
    
    
    
    3,601Additional paid-in capital
    
    
    10,943,569
    
    
    
    10,943,569Capital adjustments
    
    
    (799,147
    )
    
    
    (799,147
    )Retained earnings
    
    
    2,024,801
    
    
    
    1,425,162Total stockholders equity
    
    
    12,172,824
    
    
    
    11,573,185Total liabilities and stockholders equity
    
    $
    64,784,728
    
    
    $
    54,819,323
 The Accompanying Notes are an Integral Part of the Consolidated Financial Statements 23




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31,2004
    
    
    2003
    
    
    2002Revenue:Construction services
    
    $
    108,168,921
    
    
    $
    110,119,548
    
    
    $
    114,245,704Construction materials
    
    
    58,662,743
    
    
    
    43,987,317
    
    
    
    36,801,564Total revenue
    
    
    166,831,664
    
    
    
    154,106,865
    
    
    
    151,047,268Cost of revenue:Construction services
    
    
    107,827,853
    
    
    
    107,883,229
    
    
    
    110,603,682Construction materials
    
    
    52,036,021
    
    
    

    39,880,018
    
    
    
    32,911,989Total cost of revenue
    
    
    159,863,874
    
    
    
    147,763,247
    
    
    
    143,515,671Gross profit
    
    
    6,967,790
    
    
    
    6,343,618
    
    
    
    7,531,597General and administrative expenses
    
    
    6,509,839
    
    
    
    6,494,285
    
    
    
    6,598,940Income (loss) from operations
    
    
    457,951
    
    
    
    (150,667
    )
    
    
    932,657Other income (expense):Interest income
    
    
    85,864
    
    
    
    58,622
    
    
    
    156,836Interest expense
    
    
    (348,229
    )
    
    
    (489,117
    )
    
    
    (441,585
    )Other income
    
    
    694,857
    
    
    
    743,543
    
    
    
    288,862432,492
    
    
    
    313,048
    
    
    
    4,113Income before income taxes
    
    
    890,443
    
    
    
    162,381
    
    
    
    936,770Income tax expense
    
    
    (290,804
    )
    
    
    (41,643
    )
    
    
    (198,629
    )Net income
    
    $
    599,639
    
    
    $
    120,738
    
    
    $
    738,141Basic net income per common share
    
    $
    0.17
    
    
    $
    0.03
    
    
    $
    0.21Diluted net income per common share
    
    $
    0.16
    
    
    $
    0.03
    
    
    $
    0.21Basic weighted average common shares outstanding
    
    
    3,601,250
    
    
    
    3,593,102
    
    
    
    3,559,938Diluted weighted average common shares outstanding
    
    
    3,780,597
    
    
    
    3,599,259
    
    
    
    3,559,938
 The Accompanying Notes are an Integral Part of the Consolidated Financial Statements 24




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
For the Years Ended December 31, 2004, 2003 and 2002 Common StockNumber ofShares
    
    
    
    
    
    
    Paid-in
    
    
    Capital
    
    
    RetainedOutstanding
    
    
    Amount
    
    
    Capital
    
    
    Adjustment
    
    
    EarningsBalance at January 1, 2002
    
    
    3,559,938
    
    
    $
    3,601
    
    
    $
    10,943,569
    
    
    $
    (799,147
    )
    
    $
    566,283Net income for the year ended 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    738,141Balance at December 31, 2002
    
    
    3,559,938
    
    
    
    3,601
    
    
    
    10,943,569
    
    
    
    (799,147
    )
    
    
    1,304,424Treasury stock used in funding
employer retirement plan
contributions
    
    
    41,312Net income for the year ended 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,738Balance at December 31, 2003
    
    
    3,601,250
    
    
    
    3,601
    
    
    
    10,943,569
    
    
    
    (799,147
    )
    
    
    1,425,162Net income for the year ended 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    599,639Balance at December 31, 2004
    
    
    3,601,250
    
    
    $
    3,601
    
    
    $
    10,943,569
    
    
    $
    (799,147
    )
    
    $
    2,024,801
 The Accompanying Notes are an Integral Part of the Consolidated Financial Statements 25




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31,2004
    
    
    2003
    
    
    2002Increase (decrease) in cash and cash equivalents:Cash flows from operating activities:Cash received from customers
    
    $
    173,023,546
    
    
    $
    156,457,827
    
    
    $
    152,229,244Cash paid to suppliers and employees
    
    
    (161,769,236
    )
    
    
    (151,048,332
    )
    
    
    (149,296,319
    )Interest received
    
    
    85,864
    
    
    
    58,622
    
    
    
    156,836Interest paid
    
    
    (348,229
    )
    
    
    (489,117
    )
    
    
    (441,585
    )Income taxes refunded (paid)
    
    
    (5,919
    )
    
    
    54,068
    
    
    
    305,605Net cash provided by operating activities
    
    
    10,986,026
    
    
    
    5,033,068
    
    
    
    2,953,781Cash flows from investing activities:Decrease (increase) in restricted cash
    
    
    576,442
    
    
    
    (163,530
    )
    
    
    720,187Proceeds from sale of property and equipment
    
    
    2,450,931
    
    
    
    776,822
    
    
    
    1,573,495Purchase of property and equipment
    
    
    (4,569,504
    )
    
    
    (613,800
    )
    
    
    (519,894
    )Proceeds from (payments for) land held for sale
    
    
    
    
    
    
    942,701
    
    
    
    (711,531
    )Proceeds from sale of mineral rights and
pit development
    
    
    
    
    
    
    265,083
    
    
    
    557,587Net cash provided by (used in) investing activities
    
    
    (1,542,131
    )
    
    
    1,207,276
    
    
    
    1,619,844Cash flows from financing activities:Repayment of capital lease obligations
    
    
    (906,191
    )
    
    
    (1,032,586
    )
    
    
    (1,285,232
    )Proceeds received from notes payable
    
    
    1,281,570
    
    
    
    
    
    
    
    600,000Repayment of notes payable
    
    
    (4,393,444
    )
    
    
    (3,758,905
    )
    
    
    (2,827,364
    )Net cash used in financing activities
    
    
    (4,018,065
    )
    
    
    (4,791,491
    )
    
    
    (3,512,596
    )Net increase in cash and cash equivalents
    
    
    5,425,830
    
    
    
    1,448,853
    
    
    
    1,061,029Cash and cash equivalents at beginning of year
    
    
    4,738,388
    
    
    
    3,289,535
    
    
    
    2,228,506Cash and cash equivalents at end of year
    
    $
    10,164,218
    
    
    $
    4,738,388
    
    
    $
    3,289,535
 The Accompanying Notes are an Integral Part of the Consolidated Financial Statements 26




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) For the Years Ended December 31,2004
    
    
    2003
    
    
    2002Increase (decrease) in cash and cash equivalents (Continued):Reconciliation of net income to net cash
provided by operating activities:Net income
    
    $
    599,639
    
    
    $
    120,738
    
    
    $
    738,141Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    3,201,683
    
    
    
    2,728,309
    
    
    
    2,816,406Gain on sale of property, equipment and land
    
    
    (485,911
    )
    
    
    (537,173
    )
    
    
    (34,025
    )Deferred taxes, net
    
    
    284,885
    
    
    
    95,711
    
    

    
    504,234Allowance for doubtful accounts
    
    
    (102,476
    )
    
    
    422,820
    
    
    
    (275,079
    )Inventory allowance
    
    
    (917,375
    )
    
    
    186,197
    
    
    
    1,000,000Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,397,221
    )
    
    
    116,531
    
    
    
    449,610Claims receivable, current
    
    
    4,101,898
    
    
    
    (3,714,020
    )
    
    
    (387,878
    )Prepaid expenses and other
    
    
    (238,707
    )
    
    
    (100,620
    )
    
    
    (215,739
    )Inventory
    
    
    1,295,381
    
    
    
    382,920
    
    
    
    2,668,218Costs and estimated earnings in excess of billings on
uncompleted contracts
    
    
    1,013,951
    
    
    
    79,752
    
    
    
    3,750,993Refundable deposits
    
    
    72,519
    
    
    
    (43,695
    )
    
    
    4,506Claims receivable, less current portion
    
    
    
    
    
    
    4,440,027
    
    
    
    (1,993,081
    )Other assets and receivables
    
    
    (115,000
    )
    
    
    32,223
    
    
    
    48,335Accounts payable
    
    
    1,064,714
    
    
    
    (1,265,659
    )
    
    
    (7,113,468
    )Accrued liabilities
    
    
    343,738
    
    
    
    866,705
    
    
    
    1,885,113Billings in excess of costs and estimated earnings on
uncompleted contracts
    
    
    2,264,308
    
    
    
    1,222,302
    
    
    
    (892,505
    )Net cash provided by operating activities
    
    $
    10,986,026
    
    
    $
    5,033,068
    
    
    $
    2,953,781
 The Accompanying Notes are an Integral Part of the Consolidated Financial Statements 27




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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: Meadow Valley Corporation (the Company) was organized under the laws of the State of Nevada
on September 15, 1994. The principal business purpose of the Company is to operate as the holding
company of Meadow Valley Contractors, Inc. (MVCI)(Construction Services Segment) and Ready Mix,
Inc. (RMI)(Construction Materials Segment.) MVCI is a general contractor, primarily engaged
in the construction of structural concrete highway bridges and overpasses, and the paving of
highways and airport runways for various governmental authorities, municipalities and developers in
the states of Nevada, Arizona, and Utah. RMI manufactures and distributes ready mix concrete in
the Las Vegas and Phoenix metropolitan areas. Formed by the Company, RMI commenced operations in
1997. Liquidity: The Company incurred income (loss) from operations for the years ended December 31, 2004, 2003
and 2002 of $457,951, $(150,667), and $932,657 and has provided cash from operating activities of
$10,986,026, $5,033,068 and $2,953,781for the years ended December 31, 2004, 2003 and 2002. In an
effort to improve working capital the Company sold a parcel of land, held by the construction
service segment, to a third party for $350,000 resulting in a gain on the disposal of the land in
the amount of $44,668, which is included in other income. The Company may consider the sale of
other assets to improve its working capital. In January 2004, the Company agreed to accept $7,000,000, including retention of $1,127,636,
in exchange for releasing the New Mexico State Highway and Transportation Department (NMSHTD)
from three of the five claims which had been filed against the NMSHTD. The claim amount of the
three settled claims totaled $15,463,207, of which $15,366,128 was on behalf of the Company and the
balance of $97,079 was on behalf of subcontractors. The Company previously recorded a claim
receivable in the amount of $4,101,898 related to the three claims. The Company recognized
$1,770,466 in additional income, included in construction services segment revenue, for the year
ended December 31, 2004, as a result of the $7,000,000 settlement from the New Mexico State Highway
and Transportation Department. Principles of Consolidation: The accompanying consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries MVCI and RMI. Intercompany transactions and balances have been
eliminated in consolidation. Reclassifications: Certain balances as of December 31, 2003 and for the year ended December 31, 2002 have been
reclassified in the accompanying consolidated financial statements to conform to the current year
presentation. These reclassifications had no effect on previously reported net income or
stockholders equity. Accounting Estimates: The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ materially from those estimates. Significant estimates are used when accounting for the percentage-of-completion and the
estimated gross profit on projects in progress, allowance for doubtful accounts, inventory
allowance, depreciation and amortization, realization of claims receivable, accruals, taxes and
contingencies, which are discussed in the respective notes to the consolidated financial
statements. Revenue and Cost Recognition: Revenue and costs from fixed-price and modified fixed-price construction contracts are
recognized for each contract on the percentage-of-completion method, measured by the percentage of
costs incurred to date to the estimated total of direct costs. Direct costs include, among other
things, direct labor, field labor, equipment rent, subcontracting, direct materials, and direct
overhead. General and administrative expenses are accounted for as period costs and are,
therefore, not included in the calculation of the estimates to complete construction contracts in
progress. Project losses are provided for in their entirety in the period in which such losses are
determined, without reference to the percentage-of-completion. As contracts can extend over one or
more accounting periods, revisions in costs and earnings estimated during the course of the work
are reflected during the accounting period in which the facts that required such revisions become
known. 28




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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 (Continued): Claims for additional contract revenue are recognized only to the extent that contract costs
relating to the claim have been incurred and evidence provides a legal basis for the claim. As of
December 31, 2004 and 2003, the total amount of contract claims filed by the Company with various
public entities was $18,835,979 and $46,601,386, respectively. Of those sums, the Companys
portion of the claims total was $10,548,878 and $29,953,191 and the balance of $8,287,101 and
$16,648,195 pertains to a prime contractor or subcontractors claims. Total claim amounts reported
in its financial statements are approximate and are subject to revision as final documentation,
resolution of issues, settlements progress and/or payments are received. Relative to the
aforementioned claims, the Company has recorded $3,521,080 and $7,622,978 in cumulative claims
receivable as of December 31, 2004 and 2003 to offset a portion of costs incurred to-date on the
claims. The claims receivable as of December 31, 2004 and 2003 are comprised of a long-term
portion of $3,521,080 and $3,521,080 and a current portion of $0 and $4,101,898, respectively. Although the Company believes these amounts represent a reasonably conservative posture, any
claims proceeds and payments for previously unpaid quantities, unpaid change orders and pending
change orders ultimately paid to the Company less than $3,521,080, will reduce income. Conversely,
a payment for those same items in excess of $3,521,080, will increase income. The asset costs and estimated earnings in excess of billings on uncompleted contracts
represents revenue recognized in excess of amounts billed. The liability billings in excess of
costs and estimated earnings on uncompleted contracts represents billings in excess of revenue
recognized. We recognize revenue in our construction material segment on the sale of our concrete and
aggregate products at the time of delivery. Cash and Cash Equivalents: The Company considers all highly liquid instruments purchased with an initial maturity of
three (3) months or less to be cash equivalents. Restricted Cash: At December 31, 2004 and 2003, funds in the amount of $1,268,449 and $1,844,891, respectively,
were held in trust, in lieu of retention, on certain of the Companys construction contracts and
will be released to the Company after the contracts are completed. Accounts Receivable, net: Included in accounts receivable are trade receivables that represent amounts billed but
uncollected on completed construction contracts and construction contracts in progress as well as
other trade and non-trade receivables. The Company follows the allowance method of recognizing uncollectible accounts receivable.
The allowance method recognizes bad debt expense based on a review of the individual accounts
outstanding and the Companys prior history of uncollectible accounts receivable. At December 31,
2004 and 2003, the Company had established an allowance for potentially uncollectible accounts
receivable in the amounts of $607,677 and $710,153, respectively. During the years ended December
31, 2004, 2003 and 2002 the Company incurred bad debt expense in the amounts of $278,022 , $431,909
and $201,089, respectively. The Company records delinquent finance charges on outstanding accounts
receivables only if they are collected. At December 31, 2004 and 2003 all of the Companys accounts receivables were pledged as
collateral for a note payable. Inventory, net: Inventories, which consist primarily of raw materials, are stated at the lower of cost,
determined by the first-in, first-out method, or market. Inventory quantities are determined by
physical measurements. At December 31, 2004 and 2003, the Company had an allowance for potentially
obsolete or slow moving inventory in the amounts of $286,822 and $1,186,197. At December 31, 2004 and 2003, the Companys inventory was pledged as collateral for a note
payable. 29




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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, Equipment and Land: Property, equipment and land are recorded at cost. Depreciation charged to operations during
the years ended December 31, 2004, 2003 and 2002 was $3,144,617, $2,671,242 and $2,727,860,
respectively. Depreciation is provided for on the straight-line method, over the estimated useful
lives. Leasehold improvements are recorded at cost and are depreciated over their estimated useful
lives or the lease term, whichever is shorter. The estimated useful lives of property and equipment are: Plants
    
    6-15 yearsComputer equipment
    
    5 yearsEquipment
    
    3-10 yearsVehicles
    
    5 yearsOffice furniture and equipment
    
    7 yearsLeasehold improvements
    
    2-10 years
 At December 31, 2004 and 2003, all property, equipment and land were pledged as collateral for
notes payable and capital lease obligations. Income Taxes: The Company accounts for income taxes in accordance with the Financial Accounting Standards
No. 109, Accounting for Income Taxes (SFAS 109). SFAS 109 requires the Company to recognize
deferred tax assets and liabilities for the expected future tax consequences of events that have
been recognized in a Companys financial statements or tax returns. Under this method, deferred
tax assets and liabilities are determined based on the difference between the financial statement
carrying amounts and tax basis of assets and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse. The Company files consolidated tax returns
with MVCI and RMI for federal and state tax reporting purposes. Fair Value of Financial Instruments: The carrying amounts of financial instruments including cash, restricted cash, costs and
estimated earnings in excess of billings on uncompleted contracts, certain current maturities of
long-term debt, billings in excess of costs and estimated earnings on uncompleted contracts,
accrued liabilities and long-term debt approximate fair value based on their short maturities or on
borrowing rates currently available to the Company for loans with similar terms and maturities. The carrying amount of long-term debt approximates fair value because the interest rates on
these instruments approximate the rates at which the Company could borrow at December 31, 2004 and
2003. Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of: The Company reviews property, equipment and land for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. Stock-Based Compensation: Statements of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123) establishes a fair value method of accounting for stock-based
compensation plans and for transactions in which an entity acquires goods or services from
non-employees in exchange for equity instruments. SFAS 123 also encourages, but does not require
companies to record compensation cost for stock-based employee compensation. The Company has
chosen to continue to account for stock-based compensation utilizing the intrinsic value method
prescribed in Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, compensation cost
for stock options is measured as the excess, if any, of the fair market price of the Companys
stock at the date of grant over the amount an employee must pay to acquire the stock. 30




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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): Earnings per Share: Statement of Financial Accounting Standards No. 128, Earnings per Share, (SFAS 128)
provides for the calculation of Basic and Diluted earnings per share. Basic earnings per share
includes no dilution and is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted earnings per share
reflect the potential dilution of securities that could share in the earnings of an entity, similar
to fully diluted earnings per share. Stock Option Expense: All stock options issued to employees have an exercise price not less than the fair market
value of the Companys Common Stock on the date of grant. In accordance with accounting for such
options utilizing the intrinsic value method, there is no related compensation expense recorded in
the Companys financial statements for the years ended December 31, 2004, 2003 and 2002. Had
compensation cost for stock-based compensation been determined based on the fair value of the
options at the grant dates consistent with the method of SFAS 123, the Companys net income and
earnings per share for the years ended December 31, 2004, 2003 and 2002 would have been reduced to
the pro forma amounts presented below: 2004
    
    
    2003
    
    
    2002Net income, as reported
    
    $
    599,639
    
    
    $
    120,738
    
    
    $
    738,141Add: 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
    
    
    (92,852
    )
    
    
    (58,604
    )
    
    
    (105,827
    )Pro forma net income
    
    $
    506,787
    
    
    $
    62,134
    
    
    $
    632,314Basic net income per common shareAs reported
    
    $
    0.17
    
    
    $
    0.03
    
    
    $
    0.21Pro forma
    
    
    0.14
    
    
    
    0.02
    
    
    
    0.18Diluted net income per common shareAs reported
    
    $
    0.16
    
    
    $
    0.03
    
    
    $
    0.21Pro forma
    
    
    0.13
    
    
    
    0.02
    
    
    
    0.18
 There were no options granted in the year ended December 31, 2004. The fair value of option grants is estimated as of the date of grant utilizing the
Black-Scholes option-pricing model with the following weighted average assumptions for grants in
2003: expected life of options of 3 years, expected volatility of 82.23%, risk-free interest rates
of 5%, and a 0% dividend yield. The weighted average fair value at date of grant for options
granted during 2003 was approximately $.82. The fair value of option grants is estimated as of the date of grant utilizing the
Black-Scholes option-pricing model with the following weighted average assumptions for grants in
2001: expected life of options of 5 years, expected volatility of 60.85%, risk-free interest rates
of 8%, and a 0% dividend yield. The weighted average fair value at date of grant for options
granted during 2001 was approximately $.97. Recent Accounting Pronouncements In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 151 (SFAS 151), Inventory Costs. SFAS 151 amends the
guidance in APB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS
151 requires that those items be recognized as current period charges regardless of whether they
meet the
criteria of so abnormal. In addition, SFAS 151 requires that allocation of fixed production
overheads to the costs of conversion be based on the normal capacity of the production facilities.
SFAS 151 is effective for financial statements issued 31




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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) for fiscal years beginning after June 15, 2005. Management has not yet determined the effects of
adopting this statement on the Companys financial position or results of operations. In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 153 (SFAS 153), Exchanges of Nonmonetary Assets. SFAS 153
amends the guidance in APB No. 29, Accounting for Nonmonetary Assets. APB No. 29 was based on the
principle that exchanges of nonmonetary assets should be measured on the fair value of the assets
exchanged. SFAS 153 amends APB No. 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges of nonmonetary
assets that do not have commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. SFAS 151 is effective for financial statements
issued for fiscal years beginning after June 15, 2005. Management has not yet determined the
effects of adopting this statement on the Companys financial position or results of operations. In December 2004, the Financial Accounting Standards Board (FASB) revised Statement of
Financial Accounting Standards No. 123 (SFAS 123(R)), Share-Based Payment. The SFAS 123(R)
revision established standards for the accounting for transactions in which an entity exchanges its
equity instruments for goods or services and focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions. It does not change
the accounting guidance for share-based payment transactions with parties other than employees.
For public entities that do not file as small business issuers, the revisions to SFAS 123 are
effective as of the beginning of the first interim or annual reporting period that begins after
June 15, 2005. Management intends to comply with the standard upon its effectiveness; however, we
do not believe that the impact to our financial statements would be materially different from the
pro forma disclosures under SFAS N0. 123 disclosed on the previous page under the heading Stock
Option Expense.  2.
    Concentration of Credit Risk: The Company maintains cash balances at various financial institutions. Deposits not to exceed
$100,000 for each institution are insured by the Federal Deposit Insurance Corporation. At
December 31, 2004 and 2003, the Company has uninsured cash, cash equivalents, and restricted cash
in the amounts of $12,271,670 and $9,968,660, respectively. The Companys business activities and accounts receivable are with customers in the
construction industry and various governmental authorities and municipalities located primarily in
Nevada, Arizona and Utah. The Company performs ongoing credit evaluations of its customers and
maintains allowances for potential credit losses..  3.
    Accounts Receivable, net: Accounts receivable, net consists of the following: December 31,2004

    
    
    2003Contracts in progress
    
    $
    11,635,825
    
    
    $
    8,059,848Contracts in
progress - retention
    
    
    1,801,612
    
    
    
    5,365,090Completed contracts
    
    
    273,364
    
    
    
    Completed
contracts - retention
    
    
    1,506,693
    
    
    
    Other trade receivables
    
    
    7,176,141
    
    
    
    7,233,568Other receivables
    
    
    377,761
    
    
    
    715,66922,771,396
    
    
    
    21,374,175Less: Allowance for doubtful accounts
    
    
    (607,677
    )
    
    
    (710,153
    )$
    22,163,719
    
    
    $
    20,664,022
 32




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. Contracts in Progress: Costs and estimated earnings in excess of billings and billings in excess of costs and
estimated earnings on uncompleted contracts consist of the following: December 31,2004
    
    
    2003Costs incurred on uncompleted contracts
    
    $
    97,962,831
    
    
    $
    448,808,200Estimated earnings (loss) to date
    
    
    (4,500,300
    )
    
    
    16,572,42493,462,531
    
    
    
    465,380,624Less: billings to date
    
    
    (100,232,935
    )
    
    
    (461,249,791
    )(6,770,404
    )
    
    
    4,130,833Less: claims receivable, not included in
billings to date
    
    
    
    
    
    
    (7,622,978
    )$
    (6,770,404
    )
    
    $
    (3,492,145
    )
 Included in the accompanying balance sheets under the following captions: December 31,2004
    
    
    2003Costs and estimated earnings in excess of billings on
uncompleted contracts
    
    $
    449,358
    
    
    $
    1,463,309Billings in excess of costs and estimated earnings on
uncompleted contracts
    
    
    (7,219,762
    )
    
    
    (4,955,454
    )$
    (6,770,404
    )
    
    $
    (3,492,145
    )
 5. Land held for sale: In August 2003, management chose to make available for sale a parcel of land held by the
construction services segment with a cost basis of $264,738. In February 2004, the Company sold
the parcel of land to a third party for $350,000. The Company recognized a net gain on the
disposal of the land in the amount of $44,668 which is included in other income for the year ended
December 31, 2004. In September 2003, the Company sold a parcel of land, which was held by the
construction materials segment, to a third party for $942,701, net of selling expenses. The
Company recognized a net gain on the disposal of the land in the amount of $231,170, which is
included in other income for the year ended December 31, 2003. 6. Property, Equipment and Land, net: Property, equipment and land consists of the following: December 31,2004
    
    
    2003Land
    
    $
    2,343,975
    
    
    $
    562,901Plants
    
    
    7,656,292
    
    
    
    7,283,099Computer equipment
    
    
    783,460
    
    
    
    515,183Equipment
    
    
    14,131,600
    
    
    
    10,219,060Vehicles
    
    
    8,235,239
    
    
    
    4,506,130Office furniture and fixtures
    
    
    87,241
    
    
    
    87,241Leasehold improvements
    
    
    536,798
    
    
    
    458,89133,774,605
    
    
    
    23,632,505Less: Accumulated depreciation
    
    
    (12,232,659
    )
    
    
    (10,504,830
    )$
    21,541,946
    
    
    $
    13,127,675
 33




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 7. Accounts Payable: Accounts payable consists of the following: December 31,2004
    
    
    2003Trade
    
    $
    16,787,461
    
    
    $
    15,705,914Retentions
    
    
    2,924,110
    
    
    
    2,940,943$
    19,711,571
    
    
    $
    18,646,857
 8. Accrued Liabilities: Accrued liabilities consist of the following: December 31,2004
    
    
    2003Compensation
    
    $
    2,543,308
    
    
    $
    2,369,891Taxes
    
    
    776,872
    
    
    
    517,981Insurance
    
    
    611,510
    
    
    
    556,856Other
    
    
    975,864
    
    
    
    1,119,088$
    4,907,554
    
    
    $
    4,563,816
 9. Notes Payable: Notes payable consists of the following: December 31,2004
    
    
    2003Note payable, 6.96% interest rate with monthly payments of
$7,239, due January 15, 2004, collateralized by equipment
    
    $
    
    
    
    $
    7,197Note payable, 9.00% interest rate with monthly payments of
$2,731, due December 31, 2004, collateralized by land
    
    
    
    
    
    
    31,159Notes payable, interest rates ranging from 6.9% to 8.11% with
combined monthly payments of $7,524, due dates ranging from
May 11, 2004 to November 1, 2004, collateralized by equipment
    
    
    
    
    
    
    54,086Notes payable, variable interest rate was 5.25% at December 31,
2004, with combined monthly principal payments of $15,536, due
dates ranging from July 14, 2005 to May 13, 2006, collateralized
by equipment
    
    
    237,813
    
    
    
    424,242Non-interest bearing note payable, with monthly payments of
$5,012, due September 28, 2004, collateralized by equipment
    
    
    
    
    
    
    45,108Notes payable, interest rates ranging from 4.5% to 8.84% with
combined monthly payments of $23,711 and $33,099, as of
December 31, 2004 and 2003, due dates ranging from December
20, 2004 to February 27, 2006, collateralized by equipment
    
    
    312,941
    
    
    
    668,185$
    550,754
    
    
    $
    1,229,977
 34




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 9. Notes Payable (Continued): Notes payable consists of the following (Continued): December 31,2004
    
    
    2003Total from previous page
    
    $
    550,754
    
    
    $
    1,229,977Notes payable, interest rates ranging from 4.0% to 9.0%,
with combined monthly payments of $51,422 and $69,230, as of
December 31, 2004 and 2003, due dates ranging from May 5,
2004 to October 20, 2005, collateralized by equipment
    
    
    163,410
    
    
    
    867,150Notes payable, interest rates ranging from 4.5% to 6.75%, with
combined monthly payments of $18,577, due dates ranging from
January 31, 2006 to December 1, 2008, collateralized by
equipment and vehicles
    
    
    661,476
    
    
    
    841,708Note payable, 5.99% interest rate with monthly payments of
$24,438, due July 1, 2004, collateralized by the Companys
umbrella insurance policy
    
    
    
    
    
    
    144,099Notes payable, non-interest bearing, with combined
monthly payments of $7,641, due dates ranging from
August 15, 2008 to September 15, 2008 (less
unamortized discount of $35,324 - effective rate of 6%)
collateralized by vehicles
    
    
    337,390
    
    
    
    429,081Note payable, variable interest rate was 6.50% at December 31,
2004, with equal principal payments of $145,833 plus interest,
due December 31, 2007, collateralized by all assets of the
Company (See Note 10)
    
    
    5,191,102
    
    
    
    7,000,000Notes payable, interest rates ranging from 1.99% to 6.75% with
combined monthly payments of $156,958, due dates ranging from
April 1, 2005 and May 15, 2009, collateralized by equipment
    
    
    4,145,697
    
    
    
    Note payable, 7.5% interest rate with monthly payments of
$29,855, due January 1, 2010, collateralized by equipment
    
    
    1,486,569
    
    
    
    Note payable, 6.5% interest rate with monthly payments of
$14,732, due October 11, 2009, collateralized by equipment
    
    
    1,082,912
    
    
    
    Non-interest bearing notes payable, with combined monthly
payments of $6,151, due dates ranging from May 7, 2005 to
July 23, 2007,(less unamortized discount of $11,881
- effective rate of 6%) collateralized by equipment
    
    
    166,422
    
    
    
    Notes payable, interest rates ranging from 5.31% to 5.99% with
combined monthly payments of $14,199, due dates ranging from
January 31, 2009 to January 5, 2010, collateralized by vehicles
    
    
    660,371
    
    
    
    Notes payable, interest rates ranging from 6.21% to 6.34% with
combined monthly payments of $8,371 and a principal payment
of $753,314 due April 16, 2009, collateralized by land
    
    
    947,927
    
    
    
    $
    15,394,030
    
    
    $
    10,512,015
 35




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 9. Notes Payable (Continued): December 31,2004
    
    
    2003Total from previous page
    
    $
    15,394,030
    
    
    $
    10,512,015Note payable, 7.05% interest rate with monthly payments
of $2,930 and a principal payment of $254,742, due
August 27, 2009, collateralized by land
    
    
    320,639
    
    
    
    Note payable, 6.70% interest rate with monthly payments of
$35,976, due August 1, 2005, collateralized by the companys
general liability insurance policy
    
    
    246,298
    
    
    
    Note payable, 5.90% interest rate with monthly principal
payments of $1,905 plus interest, due May 24, 2007,
collateralized by equipment
    
    
    55,237
    
    
    
    16,016,204
    
    
    
    10,512,015Less: current portion
    
    
    (5,212,187
    )
    
    
    (3,512,286
    )$
    10,804,017
    
    
    $
    6,999,729
 Following are maturities of long-term debt as of December 31, 2004 for each of the next 5
years: 2005
    
    $
    5,212,1872006
    
    
    4,068,6732007
    
    
    3,612,5452008
    
    
    1,074,5352009
    
    
    2,048,264$
    16,016,204
 10. Line of Credit: During the year ended December 31, 2003, the Company elected to convert the pre-existing line
of credit into a term loan agreement, with an interest rate at Chase Manhattan Banks prime, plus
1.25%. The term agreement requires equal monthly principal plus interest payments through December
31, 2007 and is collateralized by all of the Companys assets. Under the terms of the agreement,
the Company is required to maintain a certain level of tangible net worth as well as maintain a
ratio of total debt to tangible net worth. As of December 31, 2004 and 2003, the Company was in
compliance with these covenants. As a result of the conversion the Company has no available line
of credit as of December 31, 2004. 11. Related Party Transactions: Revenue: During the years ended December 31, 2004, 2003 and 2002 the Company provided construction
materials to a related party in the amounts of $18,346, $22,982 and $12,282, respectively.
Included in accounts receivable at December 31, 2004 and 2003 are amounts due from related parties,
in the amounts of $39,088 and $11,822, respectively. Professional Services: During the years ended December 31, 2004, 2003 and 2002, a related party rendered professional
services to the Company in the amounts of $0, $6,246 and $23,491, respectively. At December 31,
2004 and 2003 no amounts were due to a related party. During the years ended December 31, 2004,
2003 and 2002, the Company paid $40,000, $40,000 and $30,000, respectively in aggregate to outside
members of the board of directors. 36




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 11. Related Party Transactions (Continued): Subcontractor/Supplier: Various related parties provided materials and equipment used in the Companys construction
service and material businesses during the years ended December 31, 2004, 2003 and 2002, in the
amounts of $44,593, $589 and $2,099,905, respectively. At December 31, 2004 and 2003 there were no
liabilities due to related parties from subcontracts and supplies. 12. Income Taxes: The provisions for income tax benefit (expense) from operations consist of the following: For the Years Ended December 31,2004
    
    
    2003
    
    
    2002Current
    
    $
    (5,919
    )
    
    $
    54,068
    
    
    $
    Deferred
    
    
    (284,885
    )
    
    
    (95,711
    )
    
    
    (198,629
    )$
    (290,804
    )
    
    $
    (41,643
    )
    
    $
    (198,629
    )
 The Companys deferred tax asset (liability) consists of the following: December 31,2004
    
    
    2003Deferred tax asset:Allowance for bad debt and other
    
    $
    355,564
    
    
    $
    346,209Inventory allowance
    
    
    91,095
    
    
    
    442,452NOL carryforward
    
    
    1,150,968
    
    
    
    455,2351,597,627
    
    
    
    1,243,896Deferred Tax liability:Depreciation and other
    
    
    (3,243,268
    )
    
    
    (2,604,652
    )Net deferred tax liability
    
    $
    (1,645,641
    )
    
    $
    (1,360,756
    )
 For the years ended December 31, 2004, 2003 and 2002, the effective tax rate differs from the
federal statutory rate primarily due to state income taxes and permanent differences, as follows: For the Years Ended December 31,2004
    
    
    2003
    
    
    2002Statutory rate applied to income
before income taxes
    
    $
    293,668
    
    
    $
    46,579
    
    
    $
    318,502State taxes
    
    
    26,713
    
    
    
    5,358
    
    
    
    30,913Increase (decrease) in income taxes
resulting from:Valuation allowance
    
    
    
    
    
    
    
    
    
    
    (255,980
    )Non-Deductible items
    
    
    11,954
    
    
    
    11,241
    
    
    
    14,599Other
    
    
    (41,531
    )
    
    
    (21,535
    )
    
    
    90,595$
    290,804
    
    
    $
    41,643
    
    
    $
    198,629
 At December 31, 2004, the Company has available federal and state operating loss
carry-forwards of approximately $3,550,000, which will expire through the year 2021. 37




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 13. Commitments: The Company is currently leasing its main office space in Phoenix, Arizona under a
non-cancelable operating lease agreement expiring in December 2008. The lease agreement provides
for monthly payments of $9,108 from January 1, 2005 through December 31, 2007 and monthly payments
of $9,356 from January 1, 2008 through December 31, 2008. The lease also requires the Company to
pay common area maintenance, taxes, insurance and other costs. Rent under the aforementioned
operating lease was $105,623, $125,984 and $113,456 for the years ended December 31, 2004, 2003 and
2002. The Company leases additional office space, batch plants, equipment, mixer trucks and property
under leases and raw material purchase obligations expiring in various years through 2014. Rents
and purchase obligations under the aforementioned operating leases and purchase agreements were
$8,684,598, $7,169,010 and $6,641,195 for the years ended December 31, 2004, 2003 and 2002,
respectively. Minimum future rental payments under non-cancelable operating leases and purchase
agreements having remaining terms in excess of one year as of December 31, 2004 for each of the
next five years and in aggregate are: For the Years Ending December 31,
    
    Amount2005
    
    $
    3,452,5662006
    
    
    2,935,9162007
    
    
    2,282,5562008
    
    
    1,902,3962009
    
    
    1,222,073Subsequent to 2009
    
    
    484,185$
    12,279,692
 The Company has entered into employment contracts with some of its executive officers and key
managers that provide for an annual salary, issuance of the Companys common stock and various
other benefits and incentives. As of the end of December 31, 2004, the total commitments,
excluding benefits and incentives, amount to $759,844. The Company is the lessee of batch plants, equipment and vehicles under capital leases
expiring in various years through 2008. The assets and liabilities under a capital lease are
initially recorded at the lower of the present value of the minimum lease payments or the fair
value of the asset. Each asset is depreciated over the lesser of the expected useful life or the
lease term. Depreciation on the assets under capital leases charged to expense in 2004, 2003 and
2002 was $231,808, $398,345 and $482,748, respectively. At December 31, 2004 and 2003, property
and equipment included $1,671,623 and $3,380,685, net of accumulated depreciation, of batch plants,
vehicles and equipment under capital leases. Minimum future lease payments under capital leases as of December 31, 2004 for each of the
next four years and in aggregate are: For the Years Ending December 31,
    
    Amount2005
    
    $
    609,2882006
    
    
    591,3492007
    
    
    346,1052008
    
    
    104,193Total minimum payments
    
    
    1,650,935Less: amount representing interest
    
    
    (137,390
    )Present value of net minimum lease payment
    
    
    1,513,545Less: current portion
    
    
    (531,746
    )$
    981,799
 Interest rates on capitalized leases vary from 5.07% to 12.87% and are imputed based on the
lower of the Companys incremental borrowing rate at the inception of the lease or the lessors
implicit rate of return. 38




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 14. Stockholders Equity: Preferred Stock: The Company has authorized 1,000,000 shares of $.001 par value preferred stock to be issued,
with such rights, preferences, privileges, and restrictions as determined by the Board of
Directors. Initial Public Offering: During October 1995, the Company completed an initial public offering (Offering) of Units of
the Companys securities. Each unit consisted of one share of $.001 par value common stock and one
redeemable common stock purchase warrant (Warrant). Each Warrant was exercisable to purchase one
share of common stock at $7.20 per share for a period of 5 years from the date of the Offering.
The Offering included the sale of 1,926,250 Units at $6.00 per Unit. Net proceeds of the Offering,
after deducting underwriting commissions and offering expenses of $2,122,080, amounted to
$9,435,420. The warrants expired and were de-listed at the time of market closing on December 31,
2002. 15. Litigation and Claim Matters: The Company is a party to legal proceedings in the ordinary course of its business. With the
exception of those matters detailed below, the Company believes that the nature of these
proceedings (which generally relate to disputes between the Company and its subcontractors,
material suppliers or customers regarding payment for work performed or materials supplied) are
typical for a construction firm of its size and scope, and no other pending proceedings are deemed
to be materially detrimental and some claims may prove beneficial to its financial condition. The following proceedings represent matters that may become material and have already been or
may soon be referred to legal counsel for further action: Requests for Equitable Adjustment to Construction Contracts. The Company has made claims
as described below on the following 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.(2)
    Clark County Public Works, Clark County, Nevada  A final ruling on November 1,
2004, by the three-member arbitration panel awarded MVCI approximately $5,540,000 of
which $2,100,000 is due MVCI and the balance of $3,440,000 is due a subcontractor. 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 has filed, on January 28, 2005 with the District Court, a
Notice of and Motion to Vacate Arbitration Award. No hearing date on this appeal has
been set. The three-member arbitration panel, earlier in the year, made a partial
ruling rejecting a significant portion of the original claim that was primarily
asserted by another subcontractor on the project. 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 Supreme Court of the State of Nevada. The primary issues, related to the claim
filed against Clark County Public Works, were changed conditions, constructive changes,
contract modifications and associated delay costs. The combined total of all outstanding claims as of December 31, 2004 is $18,835,979. MVCIs
portion of the total claims is $10,548,878 and the balance pertaining to a prime contractor or
subcontractors claims is $8,287,101. Total claim amounts reported by the Company are approximate
and are subject to revision as final documentation progresses and as issues are resolved and/or
payments made. Claim amounts do not include any prejudgment interest, if applicable. Relative to
the aforementioned claims, MVCI has recorded $3,521,080 in cumulative claims receivable to offset a
portion of costs incurred to date on the claims. 39




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 15. Litigation and Claim Matters (Continued): The current portion of claims receivable at December 31, 2003 resulted from a settlement
agreement on three of the five New Mexico claims (NM Settlement) reached during January 2004.
MVCI agreed to accept $7,000,000, including retention of $1,127,636, in exchange for releasing the
New Mexico State Highway and Transportation Department from three of the five claims. The claim
amount of the three settled claims totaled $15,463,207, of which $15,366,128 is on behalf of MVCI
and the balance of $97,079 is on behalf of subcontractors. MVCI has not accrued a liability related to the prime contractor or subcontractors claims as
no liability would be deemed payable if their portion of the claims did not receive a favorable
final outcome. Correspondingly, no receivable has been recorded for overhead and profit included
in their portion of the claims on MVCIs behalf. Although the Company believes its claims receivable represent a reasonably conservative
posture, any claims proceeds and payments for previously unpaid quantities, unpaid change orders
and pending change orders ultimately paid to the Company less than $3,521,080 will reduce income.
Conversely, a payment for those same items in excess of $3,521,080 will increase income. The portion of accounts receivable pertaining to retention withheld on the contracts for which
claims have been filed amounts to $880,763. The degree to which the Company is successful in
recovering its costs from the claims may also impact the amount of retention paid by the owner.
The Company believes that all retention amounts currently being held by the owners on the contracts
with outstanding claims will be paid in full in accordance with the contract terms. Therefore, no
allowance has been made to reduce the receivables due from the retention on the disputed contracts. Lawsuits Filed Against Meadow Valley Corporation and its Subsidiaries  (1)
    Innovative Construction Systems, Inc. (ICS), District Court, Clark County, NV
 ICS was a subcontractor to MVCI on several projects. ICS failed to make payments of
payroll, pension fund contributions and other taxes for which the Internal Revenue
Service garnished any future payments due ICS on MVCI projects. As a result, ICS
failed to supply labor to perform its work and defaulted on its subcontracts. The
Company terminated the ICS subcontracts and performed the work with MVCIs personnel.
ICS alleges it was wrongfully terminated and is asserting numerous claims for damages.
ICS claims against MVCI total approximately $15,000,000. The Company does not believe
ICS claims have merit and intends to vigorously defend against these claims and has
filed counter-claims for approximately $3,200,000 seeking to recover the damages ICS
has caused MVCI through its failure to perform and satisfy its financial obligations.
As such, no liability has been recorded in the accompanying financial statements for
any potential loss arising from this claim. In September 2003, a binding arbitration
agreement was entered into between ICS and MVCI to stay all actions until the Clark
County, Nevada claim, as mentioned above, has concluded, a decision rendered, payment
received from the county, and the funds are escrowed. At that time, all remaining
matters between MVCI and ICS will be heard before a three-person binding arbitration
panel.(2)
    Progressive Contracting Inc. (PCI), District Court, Clark County, NV  PCI
was a subcontractor to MVCI on the Clark County project. PCI claims they were damaged
by delays in an amount in excess of $300,000. In July 2003, PCI filed a notice of
dismissal without prejudice and in February 2004 MVCI and PCI agreed to a settlement
wherein PCI agrees to accept the award of damages, if any, as determined by the
arbitrators in the above mentioned arbitration with Clark County Public Works. The
arbitration hearing regarding the claims concluded on July 30, 2004. On November 1,
2004 a final award was rendered which orders Clark County Public Works to pay damages
to MVCI on behalf of PCI in the amount of approximately $3,440,000. No liability or
receivable was recorded as of December 31, 2004 as a result of the Notice of and Motion
to Vacate Arbitration Award filed by Clark County Public Works, which has not yet been
heard by the District Court.(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. 40




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 15. Litigation and Claim Matters (Continued):  (4)
    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 leases 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 the Company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 for mutual consideration, J&D and MVCI
entered into a settlement agreement 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.(5)
    MVCI has been named in two civil actions filed in Nevada District Court, Clark
County, Nevada as a result of a fatal traffic accident involving one of its trucks. The
first complaint, Case No. A485620, was filed on April 14, 2004 and is a civil action
titled Shotzie Thomas, individually and as Administratrix of the Estate of Emberly
Thomas, vs. Duward Leslie Vernon, Meadow Valley Contractors, Inc. d/b/a Meadow Valley
Contractors, Lawrence M. Thomas and Does I-X and Roes I-X. The second complaint, Case
No. A490720, was filed August 19, 2004 and is a civil action titled Arthur M. Hoolmalu,
individually and as Special Administrator of the Estate of Tulare M. Adams, deceased,
and Sandra K. Adams and Michael Adams, dependent parents, vs. Duward Leslie Vernon,
Meadow Valley Contractors, Inc. d/b/a Meadow Valley Contractors, Lawrence M. Thomas,
American Family Insurance Company and Does I-X and Roes I-X. The complaint seeks
damages from MVCI for losses suffered by the plaintiffs as a result of the accident.
We believe that the actions do not have merit and if they were deemed to have merit,
any damages awarded would be less than our insurance limits. However, since the
complaints seek damages in excess of our insurance coverage, there can be no assurances
that any judgment against us will be within our insurance coverage. 16. Statement of Cash Flows: Non-Cash Investing and Financing Activities: The Company recognized investing and financing activities that affected assets and
liabilities, but did not result in cash receipts or payments. These non-cash activities are as
follows: During the years ended December 31, 2004, 2003 and 2002, the Company financed the purchase of
property, plant and equipment in the amounts of $8,689,666, $1,551,225 and $2,500,099,
respectively. During the year ended December 31, 2004, the Company refinanced a capital lease
obligation in the amount of $1,131,515. During the years ended December 31, 2004 and 2003, the Company financed the purchase of
various insurance policies in the amount of $382,789 and $237,800, respectively. 17. Significant Customers: For the years ended December 31, 2004, 2003 and 2002, the Company recognized a significant
portion of its revenue from the following Customers (shown as an approximate percentage of total
revenue): For the Years Ended December 31,2004
    
    
    2003
    
    
    2002A
    
    
    24.1
    %
    
    
    27.9
    %
    
    
    21.4
    %B
    
    
    0.9
    %
    
    
    1.3
    %
    
    
    14.8
    %C
    
    
    2.2
    %
    
    
    11.8
    %
    
    
    11.6
    %
 41




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 17. Significant Customers (Continued): At December 31, 2004 and 2003, amounts due from the aforementioned Customers included in
restricted cash and accounts receivables, are as follows: For the Years Ended December 31,2004
    
    
    2003A
    
    $
    3,266,513
    
    
    $
    3,342,616B
    
    
    302,810
    
    
    
    61,000C
    
    
    1,670,235
    
    
    
    1,398,098
 18. Stock Option Plan: In November 1994, the Company adopted a Stock Option Plan providing for the granting of both
qualified incentive stock options and non-qualified stock options. The Company has reserved
1,200,000 shares of its common stock for issuance under the Plan. Granting of the options is at
the discretion of the Board of Directors and may be awarded to employees and consultants.
Consultants may receive only non-qualified stock options. The maximum term of the stock options are
10 years and may be exercised after issuance as follows: 33.3% after one year of continuous
service, 66.6% after two years of continuous service and 100% after three years of continuous
service. The exercise price of each option is equal to the market price of the Companys common
stock on the date of grant. The following summarized the stock option transactions: Weighted AverageShares
    
    
    Price per ShareOutstanding January 1, 2002
    
    
    771,650
    
    
    $
    4.45Forfeited
    
    
    (27,625
    )
    
    
    4.29Outstanding December 31, 2002
    
    
    744,025
    
    
    
    4.46Granted
    
    
    369,000
    
    
    
    1.46Forfeited
    
    
    (37,200
    )
    
    
    4.68Outstanding December 31, 2003
    
    
    1,075,825
    
    
    
    3.42Forfeited
    
    
    (34,000
    )
    
    
    2.55Outstanding December 31, 2004
    
    
    1,041,825
    
    
    
    3.45
 Information relating to stock options at December 31, 2004 summarized by exercise price is as
follows: Outstanding
    
    
    ExercisableWeighted Average
    
    
    
    
    
    
    Weighted AverageRemainingExercise Price Per Share
    
    Shares
    
    
    Life ( In Years)
    
    Exercise Price
    
    
    Shares
    
    
    Exercise Price$6.250
    
    
    124,025
    
    
    1
    
    $
    6.250
    
    
    
    124,025
    
    
    $
    6.2505.410
    
    
    2,500
    
    
    2
    
    
    5.410
    
    
    
    2,500
    
    
    
    5.4104.375
    
    
    130,800
    
    
    2
    
    
    4.375
    
    
    
    130,800
    
    
    
    4.3755.310
    
    
    80,000
    
    
    3
    
    
    5.310
    
    
    
    80,000
    
    
    
    5.3105.875
    
    
    76,200
    
    
    4
    
    
    5.875
    
    
    
    76,200
    
    
    
    5.8754.563
    
    
    20,000
    
    
    5
    
    
    4.563
    
    
    
    20,000
    
    
    
    4.5634.000
    
    
    20,000
    
    
    5
    
    
    4.000
    
    
    
    20,000
    
    
    
    4.0003.875
    
    
    68,800
    
    
    5
    
    
    3.875
    
    
    
    68,800
    
    
    
    3.8752.438
    
    
    170,500
    
    
    7
    
    
    2.438
    
    
    
    170,500
    
    
    
    2.4381.460
    
    
    349,000
    
    
    9
    
    
    1.460
    
    
    
    116,333
    
    
    
    1.460$1.46 to $6.25
    
    
    1,041,825
    
    
    
    
    $
    3.452
    
    
    
    809,158
    
    
    $
    4.025
 42




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##### Table of Contents



MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 18. Stock Option Plan (Continued): All stock options issued to employees have an exercise price not less than the fair market
value of the Companys Common Stock on the date of grant. In accordance with accounting for such
options utilizing the intrinsic value method, there is no related compensation expense recorded in
the Companys financial statements for the years ended December 31, 2004, 2003 and 2002. Had
compensation cost for stock-based compensation been determined based on the fair value of the
options at the grant dates consistent with the method of SFAS 123, the Companys net income and
earnings per share for the years ended December 31, 2004, 2003 and 2002 would have been reduced to
the pro forma amounts presented below: 2004
    
    
    2003
    
    
    2002Net income, as reported
    
    $
    599,639
    
    
    $
    120,738
    
    
    $
    738,141Add: 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
    
    
    (92,852
    )
    
    
    (58,604
    )
    
    
    (105,827
    )Pro forma net income
    
    $
    506,787
    
    
    $
    62,134
    
    
    $
    632,314Basic net income per common share
As reportedAs reported
    
    $
    0.17
    
    
    $
    0.03
    
    
    $
    0.21Pro forma
    
    
    0.14
    
    
    
    0.02
    
    
    
    0.18Diluted net income per common shareAs reported
    
    $
    0.16
    
    
    $
    0.03
    
    
    $
    0.21Pro forma
    
    
    0.13
    
    
    
    0.02
    
    
    
    0.18
 The fair value of option grants is estimated as of the date of grant utilizing the
Black-Scholes option-pricing model with the following weighted average assumptions for grants in
2003: expected life of options of 3 years, expected volatility of 82.23%, risk-free interest rates
of 5%, and a 0% dividend yield. The weighted average fair value at date of grant for options
granted during 2003 was approximately $.82. The fair value of option grants is estimated as of the date of grant utilizing the
Black-Scholes option-pricing model with the following weighted average assumptions for grants in
2001: expected life of options of 5 years, expected volatility of 60.85%, risk-free interest rates
of 8%, and a 0% dividend yield. The weighted average fair value at date of grant for options
granted during 2001 was approximately $.97. 19. Employee Benefit Plan The Company maintains a 401(k) profit sharing plan allowing substantially all full-time
employees to participate. Under the terms of the Plan, the employees may elect to contribute a
portion of their salary to the Plan. The matching contributions by the Company are at the
discretion of the Board of Directors, and are subject to certain limitations. For the years ended
December 31, 2004, 2003 and 2002, the Company contributed $330,545, $294,619 and $32,223 to the
Plan. 20. Basic Earnings per Share: The Companys basic net income per share at December 31, 2004, 2003 and 2002 were computed by
dividing net income for the period by 3,601,250, 3,593,102 and 3,559,938, respectively, the basic
weighted average number of common shares outstanding during the period. The Companys diluted net income per common share at December 31, 2004 is computed based on
the weighted average number of shares of common stock outstanding during the period and the
weighted average of options to purchase 588,300 shares at a range of $1.46 to $3.875. Options to
purchase 453,525 shares at a range of $4.00 to $6.25 per share were outstanding during 2004, but
were not included in the computation of diluted net income per common shares because the options
exercise price was greater than the average market price of the common share. 43




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 20. Basic Earnings per Share (Continued): The Companys diluted net income per common share at December 31, 2003 is computed based on
the weighted average number of shares of common stock outstanding during the period and the
weighted average of options to purchase 369,000 shares at $1.46. Options to purchase 706,825
shares at a range of $2.438 to $6.25 per share were outstanding during 2003, but were not included
in the computation of diluted net income per common shares because the options exercise price was
greater than the average market price of the common share. The Companys diluted net income per common share at December 31, 2002 is computed based on
the weighted average number of shares of common stock outstanding during the period. Options to
purchase 744,025 at a range of $2.438 to $6.25 per share were outstanding during 2002, but were not
included in the computation of diluted net income per common shares because the options exercise
price was greater than the average market price of the common share. 21. Backlog: The Companys backlog (anticipated revenue from the uncompleted portions of awarded projects)
was approximately $93,600,000 at December 31, 2004, compared to approximately $70,600,000 at
December 31, 2003. At December 31, 2004, the Companys backlog included $90,000,000 of work that
is scheduled for completion during 2005. 22. Subsequent Events: During January and February 2005, the Company leased 12 additional mixer trucks, with a
combined monthly payment of $27,545. The operating leases expire in December 2009. During January and February 2005, the Company financed the purchase of 13 vehicles in the
amount of $286,050. The note payable obligations have an interest rate of 5.9%, with combined
monthly payments of $5,517, and are due between January and February 2009. During January and March 2005, the Company leased two pieces of equipment, with a combined
monthly payment of $7,586. The operating leases expire between January and March 2008. During February 2005, the Company entered into additional employment agreements with some of
its officers that provide for annual salaries and various other benefits and incentives. The total
commitments for the duration of the agreements, excluding conditional benefits and incentives,
amount to $711,000. On February 11, 2005, our wholly-owned ready mix concrete subsidiary, RMI, filed a
registration statement with the Securities and Exchange Commission for the initial public offering
of 1,000,000 shares of RMI common stock at a proposed offering price of $12.00 per share. We will
retain an ownership of 1,500,000 shares, or 60%, of the total outstanding shares of RMI. Proceeds
from the initial public offering are expected to be used by RMI for the purchase of plant and
equipment, repayment of debt to the Company and working capital. In March 2005, the Company refinanced a piece of equipment in the amount of $1,489,070. The
note payable obligation has an interest rate of 6.85%, with monthly payments of $35,554, and is due
March 2009. 23. Other Informative Disclosures: The construction materials segment manufactures and distributes ready mix concrete and sand
and gravel products in the Las Vegas, NV and Phoenix, AZ markets. Prospective customers include
concrete subcontractors, prime contractors, homebuilders, commercial and industrial property
developers, pool builders and homeowners. Construction materials sales first began from a single
location in March 1997 and, by the end of 2000, expanded to two locations in the Las Vegas, NV
vicinity, one location in the Moapa, NV vicinity and two locations in the Phoenix, AZ vicinity. The construction services segment of the Company generates revenue by providing construction
services, usually under terms of a contract with an owner or a subcontract with another contractor.
The construction services segment operates in Nevada, Arizona and Utah markets. 44




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 23. Other Informative Disclosures (Continued): The following is a summary of certain financial information of the Companys two main areas of
operations for 2004, 2003 and 2002: Construction
    
    
    ConstructionServices
    
    
    MaterialsFor the twelve months ended December 31, 2004Gross revenue
    
    $
    108,175,663
    
    
    $
    59,135,658Intercompany revenue
    
    
    (6,742
    )
    
    
    (472,915
    )Cost of revenue
    
    
    107,834,595
    
    
    
    52,508,936Interest income
    
    
    170,409
    
    
    
    28,637Interest expense
    
    
    (209,615
    )
    
    
    (251,796
    )Intercompany interest income (expense)
    
    
    113,182
    
    
    
    (113,182
    )Depreciation and amortization
    
    
    1,586,633
    
    
    
    1,615,050Income (loss) before taxes
    
    
    (2,921,056
    )
    
    
    3,811,499Income tax benefit (expense)
    
    
    1,080,728
    
    
    
    (1,371,532
    )Net income (loss)
    
    
    (1,840,328
    )
    
    
    2,439,967Total assets
    
    
    42,370,943
    
    
    
    22,413,785For the twelve months ended December 31, 2003Gross revenue
    
    $
    110,119,548
    
    
    $
    44,128,065Intercompany revenue
    
    
    
    
    
    
    (140,748
    )Cost of revenue
    
    
    107,883,229
    
    
    
    40,020,766Interest income
    
    
    50,672
    
    
    
    7,950Interest expense
    
    
    (281,555
    )
    
    
    (207,562
    )Depreciation and amortization
    
    
    1,497,089
    
    
    
    1,231,220Income (loss) before taxes
    
    
    (1,511,323
    )
    
    
    1,673,704Income tax benefit (expense)
    
    
    591,751
    
    
    
    (633,394
    )Net income (loss)
    
    
    (919,572
    )
    
    
    1,040,310Total assets
    
    
    39,105,523
    
    
    
    15,713,800For the twelve months ended December 31, 2002Gross revenue
    
    $
    114,245,704
    
    
    $
    38,849,418Intercompany revenue
    
    
    
    
    
    
    (2,047,854
    )Cost of revenue
    
    
    110,603,682
    
    
    
    34,959,843Interest income
    
    
    146,354
    
    
    
    10,482Interest expense
    
    
    (279,636
    )
    
    
    (161,949
    )Depreciation and amortization
    
    
    1,698,828
    
    
    
    1,117,578Income (loss) before taxes
    
    
    (813,327
    )
    
    
    1,750,097Income tax benefit (expense)
    
    
    299,166
    
    
    
    (497,795
    )Net income (loss)
    
    
    (514,161
    )
    
    
    1,252,302Total assets
    
    
    40,550,315
    
    
    
    16,489,627
 There are no differences in accounting principles between the operations. All centrally
incurred costs are allocated to the construction services operation. Intercompany revenue is
eliminated at cost to arrive at consolidated revenue and cost of revenue. 45




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MEADOW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 24. Quarterly Financial Data (Unaudited): March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2004Revenue
    
    $
    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
    )
    
    
    551,624Basic net income (loss) per common share
    
    
    0.12
    
    
    
    0.01
    
    
    
    (0.12
    )
    
    
    0.16Diluted net income (loss) per common share
    
    
    0.12
    
    
    
    0.01
    
    
    
    (0.12
    )
    
    
    0.15Basic 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
    
    
    
    3,754,801
    
    
    
    3,887,9002003Revenue
    
    $
    32,194,111
    
    
    $
    41,970,349
    
    
    $
    42,846,101
    
    
    $
    37,096,304Gross profit
    
    
    1,706,168
    
    
    
    2,486,882
    
    
    
    1,400,930
    
    
    
    749,638Income (loss) from operations
    
    
    126,502
    
    
    
    956,107
    
    
    
    (469,787
    )
    
    
    (763,489
    )Net income (loss)
    
    
    19,654
    
    
    
    521,303
    
    
    
    (97,094
    )
    
    
    (323,125
    )Basic net income (loss) per common share
    
    
    0.01
    
    
    
    0.14
    
    
    
    (0.03
    )
    
    
    (0.09
    )Diluted net income (loss) per common share
    
    
    0.01
    
    
    
    0.14
    
    
    
    (0.03
    )
    
    
    (0.09
    )Basic weighted average common shares
outstanding
    
    
    3,568,659
    
    
    
    3,601,250
    
    
    
    3,601,250
    
    
    
    3,601,250Diluted weighted average common shares
outstanding
    
    
    3,568,659
    
    
    
    3,601,250
    
    
    
    3,601,250
    
    
    
    3,625,8782002Revenue
    
    $
    35,005,133
    
    
    $
    41,976,217
    
    
    $
    37,523,094
    
    
    $
    36,542,824Gross profit
    
    
    1,642,374
    
    
    
    2,119,617
    
    
    
    1,477,462
    
    
    
    2,292,144Income from operations
    
    
    114,097
    
    
    
    723,829
    
    
    
    41,977
    
    
    
    52,754Net income
    
    
    20,307
    
    
    
    392,754
    
    
    
    40,807
    
    
    
    284,273Basic net income per common share
    
    
    0.01
    
    
    
    0.11
    
    
    
    0.01
    
    
    
    0.08Diluted net income per common share
    
    
    0.01
    
    
    
    0.11
    
    
    
    0.01
    
    
    
    0.08Basic weighted average common shares
outstanding
    
    
    3,559,938
    
    
    
    3,559,938
    
    
    
    3,559,938
    
    
    
    3,559,938Diluted weighted average common shares
outstanding
    
    
    3,559,938
    
    
    
    3,559,938
    
    
    
    3,559,938
    
    
    
    3,559,938
 46




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Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure On October 22, 2003, Meadow Valley Corporation dismissed BDO Seidman, LLP (BDO Seidman) as
our principal accountants and engaged Semple & Cooper, LLP (Semple & Cooper) as the principal
accountants. The decision to change principal accountants was recommended by the Audit Committee
and approved by the Board of Directors. In connection with the audits of the fiscal year ended December 31, 2002, and the subsequent
interim period through October 22, 2003, there were no disagreements with BDO Seidman on any matter
of accounting principles or practices, financial statement disclosure or an auditing scope or
procedure, which disagreement, if not resolved to BDO Seidmans satisfaction, would have caused BDO
Seidman to make reference to the subject matter of the disagreement in connection with its reports. The audit report of BDO Seidman on our financial statements as of and for the year ended
December 31, 2002 did not contain an adverse opinion or disclaimer of opinion, nor were the reports
qualified or modified as to audit scope or accounting principles. On October 22, 2003, we engaged Semple and Cooper as our new principal accountants for the
fiscal year 2003. The Registrant did not consult with Semple and Cooper regarding any matters
prior to its engagement. 
 Item 9A.Controls and Procedures Under the supervision and with the participation of our management, including the Chief
Executive Officer and Principal Accounting Officer, we have evaluated the effectiveness of the
design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule
13a-14(c) as of the end of the period covered by this report. Based on that evaluation, the Chief
Executive Officer and Principal Accounting Officer have concluded that these disclosure controls
and procedures are effective. There were no changes in our internal control over financial
reporting during the quarter ended December 31, 2004 that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial reporting. 47




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##### Table of Contents



PART III 
 Item 10.Directors and Executive Officers of the Registrant Information on our directors and executive officers will be included under the caption
Directors and Executive Officers in our definitive Proxy Statement relating to the Annual Meeting
of Shareholders for the year ended December 31, 2004, which is hereby incorporated by reference. The information in the Proxy Statement set forth under the caption Section 16(a) Beneficial
Ownership Reporting Compliance is incorporated herein by reference. Identification of the Audit Committee Our Board of Directors has established a standing Audit Committee that consists of three
outside directors. The current members of the Audit Committee are Mr. Cowan, Mr. May (Chairman) and
Mr. Norton. The Board of Directors has determined that each of these directors is independent as
defined by the applicable rules of the Nasdaq Stock Exchange and the Securities and Exchange
Commission. The Board of Directors has also determined that each of these directors is financially
literate as such term is defined by the applicable rules of the Nasdaq Stock Exchange and that Mr.
May further qualifies as an audit committee financial expert as such term is defined in the
applicable rules of the Securities and Exchange Commission. Code of Ethics Our Board of Directors has adopted a Code of Ethics that applies to our Chief Executive
Officer, Chief Financial Officer, Principal Accounting Officer, Chief Operating Officer, Chief
Administrative Officer, Treasurer, Controller and other Officers and Directors of the Company (the
Senior Management). We have posted our Code of Ethics on
our website at http://meadowvalley.com
in the investor relations section. We intend to disclose any amendment to or waiver from the Code
of Ethics applicable to any Senior Manager on a Form 8-K or on our website at
http://meadowvalley.com. 
 Item 11.Executive Compensation Information on executive compensation will be included under the caption Compensation of
Executive Officers of our definitive Proxy Statement relating to the Annual Meeting of
Shareholders for the year ended December 31, 2004, which is hereby incorporated by reference. 
 Item 12.Security Ownership of Certain Beneficial Owners and Management Information on our equity compensation plans and beneficial ownership of voting securities by
each director and all officers and directors as a group, and by any person known to beneficially
own more than 5% of any class of our voting security will be included under the caption Beneficial
Ownership of the Companys Securities of the Companys definitive Proxy Statement relating to the
Annual Meeting of the Shareholders for the year ended December 31, 2004, which is hereby
incorporated by reference. 
 Item 13.Certain Relationships and Related Transactions Information on certain relationships and related transactions including information with
respect to management indebtedness will be included under the caption Certain Relationships and
Related Transactions in our definitive Proxy Statement relating to the Annual Meeting of
Shareholders for the year ended December 31, 2004, which is hereby incorporated by reference. 
 Item 14.Principal Accounting Fees and Services Information concerning principal accounting fees and services will be included under the
caption Independent Accountants: Audit and Fees of the Companys definitive Proxy Statement
relating to the Annual Meeting of Shareholders for the year ended December 31, 2004, which is
incorporated by reference. 48




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PART IV 
 Item 15.Exhibits and Financial Statement Schedules  (a)
    (1) Financial StatementsSee Item 8 of Part II hereof.(2)
    Financial Statement SchedulesThe schedules specified under Regulation S-X are either not applicable or immaterial to the
Companys consolidated financial statements for the years ended December 31, 2004, 2003 and 2002.(3)
    Exhibits 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 (13)5.01
    
    Opinion of Gary A. Agron, regarding legality of the Common Stock (includes Consent) (1)5.02
    
    Opinion of Gary A. Agron, regarding legality of the Units, Common Stock and Warrants (1)10.01
    
    Incentive Stock Option Plan (1)10.27
    
    Stock Purchase Agreement (1)10.28
    
    Form of Lockup Letter (1)10.44
    
    Promissory Note executed by Nevada State Bank (2)10.45
    
    Escrow Settlement Documents and related Promissory Note (2)10.46
    
    Conveyor Sales Contract and Security Agreement (2)10.48
    
    Second and Third Amendments to Office Lease of Registrant (2)10.49
    
    Lease Agreement with US Bancorp (2)10.50
    
    Lease Agreement with CIT Group (2)10.56
    
    Escrow Settlement Documents (3)10.59
    
    Promissory Note executed by General Electric Capital Corporation (3)10.60
    
    Promissory Note executed by General Electric Capital Corporation (3)10.61
    
    Promissory Note executed by Nevada State Bank (3)10.67
    
    Contract between Registrant and New Mexico State Highway and Transportation Department (3)10.71
    
    Contract between Registrant and Nevada Department of Transportation (3)10.81
    
    Security Agreement with Associates Commercial Corporation (4)10.83
    
    Contract between Registrant and Clark County, Nevada (4)10.85
    
    Contract between Registrant and New Mexico State Highway and Transportation Department (4)10.86
    
    Contract between Registrant and New Mexico State Highway and Transportation Department (4)10.87
    
    Contract between Registrant and New Mexico State Highway and Transportation Department (4)10.91
    
    Contract between the Registrant and Clark County, Nevada (4)10.92
    
    General Agreement of Indemnity between the Registrant and Liberty Mutual Insurance
Company (4)10.94
    
    Lease Agreement between the Registrant and Ken Nosker (4)10.109
    
    Lease Agreement with Banc One Leasing Corp. (5)10.110
    
    Master Lease Agreement with Banc One Leasing Corp. (5)10.113
    
    Contract between Registrant and Utah Department of Transportation (5)10.115
    
    Contract between Registrant and Johnson and Danley Construction Co., Inc. (5)10.116
    
    Master Lease Agreement with The CIT Group/Equipment Financing, Inc. (6)10.117
    
    Lease Agreement with The CIT Group/Equipment Financing, Inc. (6)
 49




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##### Table of Contents



ExhibitNo.
    
    Title10.118
    
    Lease Agreement with The CIT Group/Equipment Financing, Inc. (6)10.119
    
    Lease Agreement with The CIT Group/Equipment Financing, Inc. (6)10.120
    
    Master Lease Agreement with The CIT Group/Equipment Financing, Inc. (6)10.121
    
    Lease Agreement with The CIT Group/Equipment Financing, Inc. (6)10.122
    
    Master Security Agreement with The CIT Group/Equipment Financing, Inc. (6)10.123
    
    Security Agreement with The CIT Group/Equipment Financing, Inc. (6)10.124
    
    Security Agreement with The CIT Group/Equipment Financing, Inc. (6)10.125
    
    Security Agreement with The CIT Group/Equipment Financing, Inc. (6)10.126
    
    Security Agreement with The CIT Group/Equipment Financing, Inc. (6)10.127
    
    Security Agreement with The CIT Group/Equipment Financing, Inc. (6)10.128
    
    Master Security Agreement with The CIT Group/Equipment Financing, Inc. (6)10.129
    
    Security Agreement with The CIT Group/Equipment Financing, Inc. (6)10.130
    
    Office lease of the Registrant (6)10.131
    
    Transfer and Assumption Agreement with Caterpillar Financial Services Corporation (6)10.132
    
    Installment Sale Contract with Caterpillar Financial Services Corporation (6)10.133
    
    Property Lease and Aggregate Supply Agreement with Sun State Rock & Materials Corp. (6)10.134
    
    Property Lease and Aggregate Supply Agreement with Clay R. Oliver d.b.a. Oliver
Mining Company (6)10.135
    
    Security Agreement with John Deere Construction Equipment Company (6)10.136
    
    Master Lease Agreement with The CIT Group/Equipment Financing, Inc. (6)10.137
    
    Lease Agreement with The CIT Group/Equipment Financing, Inc. (6)10.138
    
    Lease Agreement with The CIT Group/Equipment Financing, Inc. (6)10.139
    
    Security Agreement with Associates Leasing, Inc. (6)10.140
    
    Revolving Loan Agreement with The CIT Group/Equipment Financing, Inc. (6)10.141
    
    Lease Agreement with Banc One Leasing Corporation (6)10.142
    
    Office lease of the Registrant (6)10.143
    
    Security Agreement with John Deere Construction Equipment Company (6)10.148
    
    Installment Sale Contract with Caterpillar Financial Services Corporation (7)10.149
    
    Lease Agreement with Associates Leasing, Inc. (8)10.150
    
    Lease Agreement with M&I First National Leasing Corp. (8)10.151
    
    Lease Agreement with Trinity Capital Corporation (8)10.152
    
    Security Agreement with FCC Equipment Financing, Inc. (9)10.153
    
    Lease Agreement with CitiCapital (9)10.154
    
    Amended and Restated Revolving Loan Agreement with The CIT Group/Equipment
Financing, Inc. (9)10.155
    
    Revolving Loan Agreement with The CIT Group/Equipment Financing, Inc. (9)10.156
    
    Lease Agreement with Thomas Mining, LLC (9)10.158
    
    Security Agreement with Volvo Commercial Finance LLC The Americas (9)10.159
    
    Letter of Intent with RMI Enterprises, LLC (12)10.160
    
    Lease Agreement with The CIT Group/Equipment Financing, Inc. (13)10.161
    
    Lease Agreement with Associates Leasing, Inc. (13)10.162
    
    Office Lease Agreement (13)10.163
    
    Lease Agreement with Caterpillar Financial Services Corporation (13)10.164
    
    Security Agreement with John Deere Construction Equipment & Forestry Company (13)10.166
    
    Security Agreement with The CIT Group/Equipment Financing, Inc. (13)
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##### Table of Contents



ExhibitNo.
    
    Title10.167
    
    Security Agreement with The CIT Group/Equipment Financing, Inc. (13)10.168
    
    Amendment No. 1 to Restated and Amended Revolving Loan Agreement with The
CIT Group/Equipment Financing, Inc. (13)10.169
    
    Security Agreement with The CIT Group/Equipment Financing, Inc. (13)10.170
    
    Indemnification Agreement with Robert R. Morris (13)10.171
    
    Indemnification Agreement with Nicole R. Smith (13)10.172
    
    Indemnification Agreement with Alan A. Terril (13)10.173
    
    Indemnification Agreement with Bradley E. Larson (13)10.174
    
    Indemnification Agreement with Kenneth D. Nelson (13)10.175
    
    Installment Sale Contract with Caterpillar Financial Services Corporation (13)10.185
    
    Amendment No. 2 to Restated and Amended Revolving Loan Agreement with The
CIT Group/Equipment Financing, Inc. (13)10.186
    
    Notice of Termination of Non-Binding Letter of Intent with RMI Enterprises, LLC (13)10.187
    
    Security Agreement with Key Equipment Finance, a Division of Key Corporate Capital Inc. (14)10.188
    
    Amendment No. 1 to Security Agreement with Key Equipment Finance, a Division of Key
Corporate Capital Inc. (15)10.189
    
    Employment Agreement with Robert DeRuiter (15)10.190
    
    Addendum to Employment Contracts for Brad Larson, Ken Nelson, Ron Lewis and Alan
Terril (15)10.191
    
    General Agreement of Indemnity between the Registrant and Liberty Mutual Insurance
Company (15)10.192
    
    Security Agreement with The CIT Group/Equipment Financing, Inc. (15)10.193
    
    Office Lease Agreement (16)10.194
    
    Lease Agreement with The CIT Group/Equipment Financing, Inc. (16)10.198
    
    Security Agreement with Caterpillar Financial Services Corporation (16)10.199
    
    Security Agreement with Deere Credit, Inc. (16)10.200
    
    Promissory Note executed by Nevada State Bank (16)10.201
    
    Employment Agreement with Nicole R. Smith (16)10.202
    
    Employment Agreement with Robert Morris (16)10.203
    
    Employment Agreement with Robert Bottcher (16)10.204
    
    Employment Agreement with Robert Terril (16)10.205
    
    Employment Agreement with Sam Grasmick (16)10.206
    
    Purchase Agreement with Nevada Title Company (16)10.207
    
    Security Agreement with The CIT Group/Equipment Financing, Inc. (16)10.208
    
    Contract between Registrant and Arizona Department of Transportation (17)10.209
    
    Contract between Registrant and City of Phoenix (17)10.210
    
    Contract between Registrant and Arizona Department of Transportation (17)10.211
    
    Contract between Registrant and Federal Highway Administration (17)10.212
    
    Contract between Registrant and Arizona Department of Transportation (17)10.213
    
    Contract between Registrant and Utah Department of Transportation (17)10.214
    
    Contract between Registrant and Arizona Department of Transportation (17)10.215
    
    Agreement with Fisher Sand and Gravel Co. to act as the Companys
co-indemnitor (17)10.216
    
    Contract between Registrant and City of North Las Vegas (17)10.217
    
    Renewal and Amendment of Amended and Restated Revolving Loan
Agreement with The CIT Group/Equipment Financing, Inc. (17)
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##### Table of Contents



ExhibitNo.
    
    Title10.218
    
    Renewal and Amendment of Revolving Loan Agreement
with The CIT Group/Equipment Financing, Inc. (17)10.219
    
    Lease Agreement with Oshkosh/McNeilus (17)10.220
    
    Security Agreement with Wagner Equipment Co. (17)10.221
    
    Security Agreement with Wagner Equipment Co. (17)10.222
    
    Sales Agreement with Conde Del Mar Properties, L.L.C. (17)10.223
    
    Notice of Assignment of Security Agreement from Astec Financial
Services to The CIT Group/Equipment Financing, Inc. (17)10.224
    
    Notice of Assignment of Security Agreement from Astec Financial
Services to The CIT Group/Equipment Financing, Inc. (17)10.225
    
    Notice of Assignment of Lease Agreement from The CIT Group/Equipment
Financing, Inc. to General Electric Capital Corporation (17)10.226
    
    Notice of Assignment of Lease Agreement from The CIT Group/Equipment
Financing, Inc. to General Electric Capital Corporation (17)10.227
    
    Employment Agreement with Bradley E. Larson (17)10.228
    
    Employment Agreement with Kenneth D. Nelson (17)10.229
    
    Employment Agreement with Alan A. Terril (17)10.230
    
    Indemnification Agreement with Clint Tryon (17)10.231
    
    Amendment of Amended and Restated Revolving Loan Agreement with The CIT
Group/Equipment Financing, Inc. (18)10.232
    
    Amendment of Revolving Loan Agreement with The CIT Group/Equipment Financing, Inc. (18)10.233
    
    Indemnification Agreement with Clint Tryon (18)10.234
    
    Master Lease Agreement with The CIT Group/Equipment Financing, Inc. (18)10.235
    
    Lease Agreement with The CIT Group/Equipment Financing, Inc. (18)10.236
    
    Lease Agreement with The CIT Group/Equipment Financing, Inc. (18)10.237
    
    Lease Agreement with Caterpillar Financial Services Corporation (18)10.238
    
    Lease Agreement with Caterpillar Financial Services Corporation (18)10.239
    
    Amendment to Office Lease Agreement of the Registrant (19)10.240
    
    Amendment to Office Lease Agreement of the Registrant (19)10.241
    
    Security Agreement with The CIT Group/Equipment Financing, Inc. (19)10.242
    
    Line of Credit Agreement with GMAC Financial Services (20)10.243
    
    Security Agreement with Cananwill, Inc. (20)10.244
    
    Lease Agreement with The CIT Group/Equipment Financing, Inc. (20)10.245
    
    Line of Credit Agreement with Ford Motor Credit Company (20)10.246
    
    Amendment to Office Lease Agreement of the Registrant (20)10.247
    
    Security Agreement with John Deere Construction & Forestry Company (27)10.248
    
    Contract between Registrant and Arizona Department of Transportation (27)10.249
    
    Contract between Registrant and Arizona Department of Transportation (27)10.250
    
    Contract between Registrant and City of Las Vegas (27)10.251
    
    Contract between Registrant and City of North Las Vegas (27)10.252
    
    Contract between Registrant and Arizona Department of Transportation (27)10.253
    
    Subcontract agreement between Registrant and Wiser Construction LLC (27)10.254
    
    Contract between Registrant and Arizona Department of Transportation (27)10.255
    
    Amendment to Office Lease Agreement of the Registrant (27)
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##### Table of Contents



ExhibitNo.
    
    Title10.256
    
    Settlement Agreement and Release between the Registrant and New Mexico Department of
Transportation (27)10.257
    
    Security Agreement with CitiCapital Commercial Corporation (28)10.258
    
    Commitment letter from DaimlerChrysler Services (28)10.259
    
    Commitment letter from GMAC Financial Services (28)10.260
    
    Security Agreement with The CIT Group/ Equipment Financing, Inc. (28)10.261
    
    Security Agreement with Cashman Equipment Company (28)10.262
    
    Security Agreement with Cashman Equipment Company (28)10.263
    
    Master Lease Agreement with Wells Fargo Equipment Finance, Inc. (28)10.264
    
    Security Agreement with Komatsu Financial Limited Partnership (29)10.265
    
    Security Agreement with DaimlerChrysler Services North America LLC (29)10.266
    
    Security Agreement with CitiCapital Commercial Corporation (29)10.267
    
    Security Agreement with CitiCapital Commercial Corporation (29)10.268
    
    Security Agreement with Wells Fargo Commercial Corporation (29)10.269
    
    Promissory Note with Nevada State Bank (29)10.270
    
    Promissory Note with Nevada State Bank (29)10.271
    
    Security Agreement with The CIT Group/Equipment Financing, Inc. (29)10.272
    
    Security Agreement with DaimlerChrysler Services North America LLC (29)10.273
    
    Security Agreement with Cashman Equipment Company (29)10.274
    
    Lease Agreement with CitiCapital Commercial Leasing Corporation (29)10.275
    
    Master Lease Agreement with The CIT Group/Equipment Financing, Inc. (29)10.276
    
    Lease Agreement with Toshiba America Information Systems, Inc. (29)14.01
    
    Code of Ethics for Senior Management (27)16.01
    
    Letter re: Change in Certifying Accountant (1)16.02
    
    Letter re: Change in Certifying Accountant (23)16.03
    
    Letter re: Change in Certifying Accountant (24)21.01
    
    Subsidiaries of the Registrant (1)23.01
    
    Consent of Semple & Cooper (Meadow Valley Contractors, Inc.) (1)23.02
    
    Consent of Semple & Cooper (Meadow Valley Corporation) (1)23.03
    
    Consent of Gary A. Agron, Esq. (See 5.01, above) (1)23.04
    
    Consent of Semple & Cooper (Meadow Valley Contractors, Inc.) (1)23.05
    
    Consent of BDO Seidman, LLP (Meadow Valley Corporation) (1)23.06
    
    Consent of Semple & Cooper (Meadow Valley Contractors, Inc.) (1)23.07
    
    Consent of BDO Seidman, LLP (Meadow Valley Corporation) (1)23.08
    
    Consent of Semple & Cooper (Meadow Valley Contractors, Inc.) (1)23.09
    
    Consent of BDO Seidman, LLP (Meadow Valley Corporation and Meadow Valley
Contractors, Inc.) (1)23.10
    
    Consent of Semple & Cooper (Meadow Valley Contractors, Inc.) (1)23.11
    
    Consent of BDO Seidman, LLP (Meadow Valley Corporation and Meadow Valley
Contractors, Inc.) (1)23.12
    
    Consent of Semple & Cooper (Meadow Valley Contractors, Inc.) (1)23.13
    
    Consent of BDO Seidman, LLP (Meadow Valley Corporation and Meadow Valley
Contractors, Inc.) (1)23.14
    
    Consent of Semple & Cooper (Meadow Valley Contractors, Inc.) (1)23.15
    
    Consent of BDO Seidman, LLP (Meadow Valley Corporation and Meadow Valley
Contractors, Inc.) (1)31.13
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
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##### Table of Contents



ExhibitNo.
    
    Title31.14
    
    Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.32.7
    
    Certifications of Chief Executive Officer and Principal Accounting 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)
    
    Incorporated by reference to the Companys December 31, 1996 Annual Report on Form 10-K(3)
    
    Incorporated by reference to the Companys December 31, 1997 Annual Report on Form 10-K(4)
    
    Incorporated by reference to the Companys December 31, 1998 Annual Report on Form 10-K(5)
    
    Incorporated by reference to the Companys December 31, 1999 Annual Report on Form 10-K(6)
    
    Incorporated by reference to the Companys December 31, 2000 Annual Report on Form 10-K(7)
    
    Incorporated by reference to the Companys March 31, 2001 Form 10-Q(8)
    
    Incorporated by reference to the Companys June 30, 2001 Form 10-Q(9)
    
    Incorporated by reference to the Companys September 30, 2001 Form 10-Q(12)
    
    Incorporated by reference to the Companys February 14, 2002 Form 8-K(13)
    
    Incorporated by reference to the Companys December 31, 2001 Annual Report on Form 10-K(14)
    
    Incorporated by reference to the Companys March 31, 2002 Form 10-Q(15)
    
    Incorporated by reference to the Companys June 30, 2002 Form 10-Q(16)
    
    Incorporated by reference to the Companys September 30, 2002 Form 10-Q(17)
    
    Incorporated by reference to the Companys December 31, 2002 Annual Report on Form 10-K(18)
    
    Incorporated by reference to the Companys March 31, 2003 Form 10-Q(19)
    
    Incorporated by reference to the Companys June 30, 2003 Form 10-Q(20)
    
    Incorporated by reference to the Companys September 30, 2003 Form 10-Q(23)
    
    Incorporated by reference to the Companys October 27, 2003 Form 8-K(24)
    
    Incorporated by reference to the Companys November 7, 2003 Form 8-K/A(27)
    
    Incorporated by reference to the Companys December 31, 2003 Annual Report on Form 10-K(28)
    
    Incorporated by reference to the Companys March 31, 2004 Form 10-Q(29)
    
    Incorporated by reference to the Companys June 30, 2004 Form 10-Q
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized. MEADOW VALLEY CORPORATION/s/ Bradley E. LarsonBradley E. LarsonPresident and Chief Executive OfficerDate: March 30, 2005
 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the
dates indicated. /s/ Bradley E. Larson
    
    /s/ Earle C. MayBradley E. Larson
    
    Earle C. MayDirector, President and Chief Executive Officer
    
    DirectorDate: March 30, 2005
    
    Date: March 30, 2005/s/ Kenneth D. Nelson
    
    /s/ Alan A. TerrilKenneth D. Nelson
    
    Alan A. TerrilDirector, Chief Administrative Officer and
    
    Director, Vice President and Chief Operating OfficerVice President
    
    Date: March 30, 2005Date: March 30, 2005/s/ Charles E. Cowan
    
    /s/ Gary A. AgronCharles E. Cowan
    
    Gary A. AgronDirector
    
    DirectorDate: March 30, 2005
    
    Date: March 30, 2005/s/ Charles R. Norton
    
    /s/ Clint TryonCharles R. Norton
    
    Clint TryonDirector
    
    Treasurer, Secretary and Principal Accounting OfficerDate: March 30, 2005
    
    Date: March 30, 2005
 55