e424b3
The
information in this prospectus supplement is not complete and
may be changed. This prospectus supplement and the accompanying
prospectus are not offers to sell these securities and are not
soliciting offers to buy these securities in any jurisdiction
where offers or sales are not
permitted.
|
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-42860
SUBJECT TO COMPLETION, DATED JANUARY
23, 2006
PROSPECTUS SUPPLEMENT
(To Prospectus dated January 29, 2002)
6,500,000 Shares
U.S. Concrete, Inc.
Common Stock
$ per
share
We are selling 6,500,000 shares of our common stock. We
have granted the underwriters an option to purchase up to
975,000 additional shares of common stock to cover
over-allotments.
Our common stock is quoted on the Nasdaq National Market under
the symbol RMIX. The last reported sale price of our
common stock on the Nasdaq National Market on January 19,
2006 was $10.19 per share.
Investing in our common stock involves risks. See Risk
Factors beginning on page S-9 of this prospectus
supplement and on page 2 of the accompanying prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
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Per Share |
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Public offering price
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Underwriting discount
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Proceeds to U.S. Concrete (before expenses)
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$ |
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$ |
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The underwriters expect to deliver the shares to purchasers on
or about February , 2006.
Sole Book-Runner
Citigroup
BB&T Capital
Markets
February , 2006
You should rely only on the information contained in or
incorporated by reference in this prospectus. We have not
authorized anyone to provide you with different information. We
are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the
information contained in this prospectus is accurate as of any
date other than the date on the front of this prospectus.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
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PROSPECTUS |
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i
SUMMARY
You should read the following summary together with the more
detailed information regarding our company and the common stock
being sold in this offering and our financial statements and
notes thereto appearing elsewhere in this prospectus supplement,
the accompanying prospectus and the documents incorporated by
reference.
U.S. Concrete
We are a major producer of ready-mixed concrete and related
concrete products in the United States. We are a leading
ready-mixed concrete producer in substantially all the markets
in which we have ready-mixed concrete operations. Ready-mixed
concrete is an important building material that is used in the
vast majority of commercial, residential and public works
construction projects.
We operate principally in California, New Jersey, Michigan and
Texas, with those states representing 44%, 18%, 10% and 9%,
respectively, of our net sales for the nine months ended
September 30, 2005. According to publicly available
industry information, those states represented an aggregate of
28% of the U.S. consumption of ready-mixed concrete in 2004
(California, 12%, New Jersey, 2%, Michigan, 3% and Texas, 11%).
We believe the geographic scope of our operations enables us to
achieve cost savings through consolidated purchasing, to reduce
our administrative costs and to moderate the impact of regional
economic cycles and weather conditions. In the first nine months
of 2005, we generated revenues, net income and EBITDA of
$418.0 million, $8.6 million and $37.0 million,
respectively. See Summary Historical Financial
Data. We derived approximately 78% of those revenues from
the sale of ready-mixed concrete and the remaining 22% of those
revenues from the sale of related concrete products and
aggregates.
As of December 31, 2005, we had 100 fixed and seven
portable ready-mixed concrete plants, eight precast concrete
plants, three concrete block plants and two aggregates quarries.
In the first nine months of 2005, these facilities produced
approximately 4.9 million cubic yards of ready-mixed
concrete, 3.5 million eight-inch equivalent block units and
1.1 million tons of aggregates.
Our operations consist principally of formulating, preparing and
delivering ready-mixed concrete to our customers job
sites. Ready-mixed concrete becomes difficult to place within 90
minutes after mixing and, accordingly, the market for a
permanently installed ready-mixed concrete plant is generally
limited to a 25-mile
radius of its location. Our customers rely on us to fulfill
their requirements on a consistent and timely basis. We also
provide services intended to reduce our customers overall
construction costs by lowering the installed, or
in-place, cost of concrete. These services include
the formulation of mixtures for specific design uses,
on-site and lab-based
product quality control and customized delivery programs to meet
our customers needs. Our marketing efforts primarily
target general contractors, developers and home builders whose
focus extends beyond the price of ready-mixed concrete to
product quality and consistency and reduction of in-place
concrete costs. In addition, we manufacture and deliver various
precast and concrete masonry products to the construction
industry. These businesses are complementary to our ready-mixed
concrete operations and provide us opportunities to cross-sell
various products in markets in which we sell both ready-mixed
concrete and other concrete products. Of our sales revenues in
the first nine months of 2005, we made approximately 41% to
commercial and industrial construction contractors, 46% to
residential construction contractors, 5% to street and highway
construction contractors and 8% to other public works and
infrastructure contractors.
In this prospectus supplement, we refer to U.S. Concrete,
Inc. and its subsidiaries as we, us or
U.S. Concrete, unless we specifically state
otherwise or the context indicates otherwise. Our principal
executive offices are located at 2925 Briarpark,
Suite 1050, Houston, Texas 77042, and our telephone number
at that location is (713) 499-6200. We maintain a website
at www.us-concrete.com. The information on our website is not
part of this prospectus.
S-1
Our Strengths
Leading Market Positions
We have achieved our leading market positions by acquiring local
operations, implementing our best practices and
leveraging managements knowledge of the local market. Our
market-leading positions provide us with significant advantages
by allowing us to:
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develop enhanced local and regional operating efficiencies; |
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further strengthen relationships with suppliers; and |
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further develop our relationships with local contractors,
developers and homebuilders in order to expand our market share
of the business those customers generate. |
Proven Record of Acquisition and Integration
We have acquired 33 ready-mixed concrete and
concrete-related businesses since 1999. We selectively target
well-positioned businesses in our existing markets or new
markets we determine have attractive long-term growth prospects.
Our acquisition candidates must complement our operating
philosophy and be priced attractively. We believe we represent
an attractive alternative to various other buyers in the
U.S. market due to our financial strength, visibility as a
public company, enhanced career opportunities and potential
equity participation for local management.
We complement our capabilities in identifying and acquiring
acquisition candidates with our expertise in integrating
acquired businesses into our operating structure. We focus our
integration efforts on:
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maintaining and expanding the acquired customer base; |
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retaining key employees of the acquired business; and |
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ensuring that the equipment of the acquired business meets our
standards or is replaced over time with standardized equipment. |
We also focus on implementing our company-wide accounting
systems and controls, quality-control initiatives and
standard-operating procedures.
Focus on Operational Efficiencies and Price
Optimization
We believe our national approach and focus on operational
efficiencies provide significant opportunities for margin
expansion and corresponding advantages over smaller operators.
As a national organization, we benefit from reduced raw
materials costs and improved availability of supply due to our
greater purchasing power. In addition, we have implemented
state-of-the-art order
entry, dispatch and vehicle tracking systems, which have allowed
us to enhance our fleet utilization and productivity and to
eliminate duplicative general and administrative functions and
facilities. We expect our continued fleet standardization
efforts to enhance our purchasing power for mixer trucks and
lower our maintenance costs and parts inventory.
We have trained our sales teams to identify opportunities to
provide value-added
product to our customers and to price our products and service
capabilities to enable us to receive optimum prices.
Ready-mixed concrete
can be formulated in various ways, many of which can provide
added value to our customers, primarily by helping them to
reduce their in-place
cost of concrete. Our price optimization program focuses on
providing cost efficiencies to our customers, while allowing us
to receive optimum prices for our product.
Diverse Customers and Geographic Markets
We have over 10,000 customers in 11 states and the District
of Columbia. During the nine months ended September 30,
2005, our ten largest customers accounted for less than 16% of
our revenues and no customer accounted for more than 3% of our
revenues. Through our acquisitions, we have combined many
concrete businesses, each with its own local customer base. In
the ready-mixed concrete industry, greater geographic
S-2
diversity helps mitigate unfavorable regional economic and
weather conditions that could negatively impact local
operations. Our geographic diversity is complemented by the
diverse end markets we serve, including the residential,
commercial and industrial, street and highway and public works
construction markets. We believe that our geographic and end
market diversification enables us to access multiple sources of
demand and lends additional stability to our operating results.
Strong Technical Experience
We are integrating technology into the concrete production and
distribution process. We use computer-controlled batching to
maintain superior product quality and have invested in technical
research to create customized solutions for our customers.
Because each segment of the construction industry and each
region we serve has specific challenges, we have devoted
substantial resources to research and development of concrete
products that satisfy many different demands. For example, we
offer:
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value-added formulations of ready-mixed concrete designed to
reduce the contractors in-place cost of concrete; |
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a wide range of architectural concrete products to designers and
homeowners; |
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recycled concrete products and insulated concrete forms for
environmentally sustainable (green)
products; and |
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high performance, lightweight concrete products to replace
structural steel and address security concerns raised by recent
world events. |
Experienced Management Team
We benefit from an experienced, disciplined senior management
team with a comprehensive understanding of our industry and
proven operating experience. Our senior corporate management
team has an average of approximately 26 years of industry
or financial experience, and our senior regional management team
has an average of approximately 26 years of industry
experience. Our chief executive officer, Eugene Martineau, has
over 39 years of experience in the ready-mixed concrete
industry and has been a leader in many industry initiatives over
the course of his career. In addition, several of our directors
and members of our management are serving or have served as
directors and/or executive committee members of the National
Ready-Mixed Concrete Association. In addition to providing us
access to significant industry expertise, our management team
has significant ready-mixed concrete industry contacts and other
relationships that have facilitated our introductions to and
negotiations with acquisition candidates.
Our Business Strategy
Our objectives are to become the leading provider of ready-mixed
concrete and related concrete products in each of our markets,
to further expand the geographic scope of our business and, on a
select basis, to integrate our operations vertically through
acquisitions of aggregates supply sources that support our
ready-mixed concrete operations. We plan to achieve this
objective by continuing to implement our business strategy,
which includes the primary elements we discuss below.
Pursuing Disciplined Growth Through Acquisitions
The U.S. ready-mixed concrete industry, with over 2,300 small,
independent producers, is a fragmented but increasingly
consolidating industry. We believe these industry
characteristics present growth opportunities for a company with
a focused acquisition program and access to capital.
Our acquisition program targets opportunities for expanding in
our existing markets and entering new geographic markets in the
U.S. We typically pursue acquisitions that we believe represent
attractive opportunities to strengthen local management teams,
implement cost-saving initiatives, achieve market-leading
positions and establish best practices. We adhere to a
disciplined pricing methodology when acquiring businesses. Based
on our methodology for valuing, acquiring and integrating target
businesses, we expect our future acquisitions to be
S-3
accretive to our earnings per share after a reasonable period of
integration. We cannot provide any assurance, however, as to the
impact of any future acquisition we may complete on our future
earnings per share.
Expanding in Existing Markets. We seek to further
penetrate our markets by acquiring other well-established
companies in those markets. We have completed follow-on
acquisitions in substantially all of our ready-mixed concrete
markets. By expanding in existing markets through acquisitions,
we strive to:
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eliminate duplicate staff and facilities and reduced material
and operating costs and other selling, general and
administrative expenses; |
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increase customer cross-selling opportunities; and |
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improve utilization and range of mixer trucks through access to
additional plants. |
Entering New Geographic Markets. We seek to enter new
geographic markets that demonstrate prospects for growth. In any
new market we enter, we will target for acquisition one or more
leading local or regional companies that can serve as platform
businesses into which we can consolidate other operations. We
generally expect these platform acquisition candidates to have
historically successful operating results, established customer
relationships and superior operational management personnel whom
we will be able to retain.
We believe there are numerous potential acquisition candidates
in our existing markets and in new markets. Although we have no
binding agreement to effect any acquisition, we have experienced
increases in inquiries and similar communications with brokers
and other representatives of potential acquisition candidates
over the past year, and we are currently evaluating several
potential acquisitions. We are currently a party to several
nonbinding letters of intent relating to potential acquisitions
of ready-mixed concrete and related businesses. We expect the
economic and other industry conditions supporting recent
consolidation activity within the industry will continue into
the foreseeable future.
Improving Marketing and Sales Initiatives
Our marketing strategy emphasizes the sale of value-added
products to customers more focused on reducing their in-place
building material costs than on the price per cubic yard of the
ready-mixed concrete they purchase. Key elements of our
customer-focused
approach include:
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corporate-level marketing and sales expertise; |
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technical service expertise to develop innovative new branded
products; and |
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training programs that emphasize successful marketing and sales
techniques that focus on the sale of high-margin concrete mix
designs. |
We have also formed strategic alliances with several national
companies to provide alternative solutions for designers and
contractors by using value-added concrete products. Through
these alliances, we offer color-conditioned, fiber-strengthened
and high-performance concretes and utilize software technology
that can be used to design buildings constructed of reinforced
concrete.
Promoting Operational Excellence and Achieving Cost
Efficiencies
We strive to be an operationally excellent organization by:
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implementing and enhancing standard operating procedures; |
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standardizing plants and equipment; |
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investing in software and communications technology; |
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implementing company-wide quality-control initiatives; |
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providing technical expertise to optimize mix designs; and |
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developing strategic alliances with key suppliers of goods and
services for new product development. |
S-4
We also strive to increase operating efficiencies. We believe
that, if we continue to increase in size on both a local and
national level, we should continue to experience future
productivity and cost improvements in such areas as:
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materials, through procurement and optimized mix designs; |
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purchases of mixer trucks and other equipment, supplies, spare
parts and tools; |
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vehicle and equipment maintenance; and |
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insurance and other risk management programs. |
Recent Developments
In November 2005, we acquired substantially all the operating
assets, including real property, of City Concrete Company, City
Concrete Products, Inc. and City Transports, Inc., which produce
and deliver ready-mixed concrete from five plants in the greater
Memphis, Tennessee and northern Mississippi area. These
companies produced approximately 257,000 cubic yards of
ready-mixed concrete during the nine months ended
September 30, 2005. We purchased the assets, using cash on
hand, for $14.3 million.
In December 2005, we acquired substantially all the operating
assets of Go-Crete and South Loop Development Corporation, which
produce and deliver ready-mixed concrete from six plants and
mine sand and gravel from a quarry in the greater Dallas/
Fort Worth, Texas market. These companies produced
approximately 596,000 cubic yards of ready-mixed concrete and
521,000 tons of aggregates during the nine months ended
September 30, 2005. The aggregate quarry is situated on
2,100 acres and is estimated to have approximately ten
million tons of remaining aggregate reserves. We purchased the
assets, using cash on hand, for $27.3 million and assumed
approximately $2.0 million of capital lease liabilities.
On January 23, 2006, we issued a press release announcing
that our fourth quarter 2005 net income is expected to be
approximately $4 million, or approximately $0.13 to $0.14
per diluted share and that our full-year 2005 net income is
expected to be approximately $12 million, or approximately
$0.42 to $0.43 per diluted share. Revenues for the fourth
quarter of 2005 are expected to approximate $158 million.
Excluding the incremental volumes from our recently acquired
businesses, fourth quarter 2005 ready-mixed concrete sales
volumes are estimated to be up about 13% (19% inclusive of
recent acquisitions), while ready-mixed concrete average selling
prices are estimated to have improved approximately 9%, over the
fourth quarter of 2004. The statements above relating to
expected net income and earnings per share for the fourth
quarter and full-year 2005 and revenues, sales volumes and
average selling prices for the fourth quarter of 2005 are
forward-looking statements. These statements are based on
managements belief, as well as assumptions made by and
information currently available to management. These
forward-looking statements speak only as of the date of this
prospectus supplement. We do not intend to update these
statements unless the securities laws require us to do so, and
we caution you not to rely unduly on them. Although we believe
that the expectations reflected in these forward-looking
statements are reasonable, we can give no assurance that those
expectations will prove to have been correct. These statements
are subject to certain risks, uncertainties and assumptions,
including many of those we have identified under the heading
Forward-Looking Information in this prospectus
supplement, as well as assumptions relating to possible year-end
accounting adjustments that we may record as the audit process
relating to our year ended December 31, 2005 is completed.
Should our underlying assumptions (including our assumptions
about the risks and uncertainties we have referenced above)
prove incorrect, our actual results for the fourth quarter and
full-year 2005 could vary materially from those we have
estimated above. Please read the discussions under the headings
Risk Factors and Forward-Looking
Information in this prospectus supplement and the
accompanying prospectus and Managements Discussion
and Analysis of Financial Condition and Results of
Operations Risks and Uncertainties in this
prospectus supplement.
The Industry
Annual usage of ready-mixed concrete in the United States
remains near record levels. According to information available
from the National Ready-Mixed Concrete Association and F.W.
Dodge, total sales from the
S-5
production and delivery of ready-mixed concrete approximated
$29 billion in 2004. As an important material for
construction and repair, ready-mixed concrete historically
benefited from relatively stable demand and pricing but has
experienced significant price increases over the past
18 months, driven largely by strong construction activity
and increases in cement prices. From 1996 to 2004, demand for
ready-mixed concrete, as measured in total cubic yards shipped,
increased 24% and pricing per cubic yard increased 22%,
according to the National Ready-Mixed Concrete Association and
F.W. Dodge. Construction activity is driven by long-term
population growth, which is expected to increase in the United
States by 14% between 2005 and 2020, according to the
U.S. Census Bureau. Furthermore, advancements in concrete
products and in the use of concrete continue to expand its
potential in the construction industry.
Based on information from the National Ready-Mixed Concrete
Association, we estimate that, in addition to vertically
integrated manufacturers of cements and aggregates, over 2,300
independent ready-mixed concrete producers currently operate
approximately 6,000 plants in the United States. Larger markets
generally have numerous producers competing for business on the
basis of price, timing of delivery and reputation for quality
and service. We believe the typical ready-mixed concrete company
is family-owned and has limited access to capital, financial and
technical expertise and exit opportunities for its owners. Given
these operating constraints, we believe many ready-mixed
concrete companies are finding it difficult to both grow their
businesses and compete effectively against larger, more
cost-efficient and technically capable competitors. We also
believe acquisition activity in the ready-mixed concrete
industry has increased in recent months.
The Offering
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Common stock offered by us |
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6,500,000 shares(1) |
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Common stock to be outstanding after the offering |
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36,353,146 shares(1)(2) |
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Use of proceeds |
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We intend to use the net proceeds from this offering to fund
future acquisitions and for general corporate purposes. See
Use of Proceeds. |
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Nasdaq National Market symbol |
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RMIX |
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(1) |
Does not include 975,000 shares that may be sold upon the
underwriters exercise of their over-allotment option. |
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(2) |
Based on our shares of common stock outstanding as of
January 17, 2006. Excludes 138,884 treasury shares,
2,612,213 shares issuable upon exercise of outstanding
options at a weighted average price of $6.92 per share and
1,674,945 shares of common stock reserved for issuance
under our incentive plans. |
S-6
Summary Historical Financial Data
The following table presents summary historical financial data
as of and for the years ended December 31, 2002, 2003 and
2004 and as of and for the nine months ended September 30,
2004 and 2005. We derived this information from our audited
consolidated financial statements for the fiscal years indicated
and from our unaudited condensed consolidated financial
statements for the interim periods indicated. You should read
the following summary financial data in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our financial
statements and notes thereto included in this prospectus
supplement.
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Nine Months Ended | |
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Year Ended December 31 | |
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September 30 | |
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2002 | |
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2003 | |
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2004 | |
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2004 | |
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2005 | |
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(Unaudited) | |
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(Amounts in thousands, except selling prices) | |
Sales
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$ |
503,314 |
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$ |
473,124 |
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$ |
500,589 |
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$ |
377,193 |
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$ |
418,010 |
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Cost of goods sold before depreciation, depletion and
amortization
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404,376 |
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388,717 |
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412,209 |
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309,108 |
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343,565 |
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Gross profit before depreciation, depletion and amortization
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98,938 |
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84,407 |
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88,380 |
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68,085 |
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74,445 |
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Selling, general and administrative expenses
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47,204 |
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42,550 |
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47,988 |
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33,899 |
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38,345 |
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Restructuring charges and impairments
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28,440 |
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Depreciation, depletion and amortization(1)
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10,734 |
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12,441 |
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12,669 |
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9,351 |
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9,783 |
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Income from operations
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12,560 |
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29,416 |
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27,723 |
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24,835 |
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26,317 |
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Interest expense, net
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17,127 |
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16,855 |
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16,523 |
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12,247 |
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12,939 |
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Loss on early extinguishment of debt
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28,781 |
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28,781 |
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Other income, net
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1,137 |
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3,016 |
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665 |
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769 |
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871 |
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Income (loss) before income taxes
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(3,430 |
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15,577 |
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(16,916 |
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(15,424 |
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14,249 |
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Income tax provision (benefit)
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608 |
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5,274 |
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(6,377 |
) |
|
|
(4,858 |
) |
|
|
5,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of accounting change
|
|
|
(4,038 |
) |
|
|
10,303 |
|
|
|
(10,539 |
) |
|
|
(10,556 |
) |
|
|
8,556 |
|
Cumulative effect of accounting change
|
|
|
(24,328 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(28,366 |
) |
|
$ |
10,303 |
|
|
$ |
(10,539 |
) |
|
$ |
(10,566 |
) |
|
$ |
8,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$ |
34,933 |
|
|
$ |
26,692 |
|
|
$ |
34,423 |
|
|
$ |
15,291 |
|
|
$ |
21,216 |
|
|
|
Investing activities
|
|
|
(36,489 |
) |
|
|
(17,259 |
) |
|
|
(11,597 |
) |
|
|
(6,145 |
) |
|
|
(13,070 |
) |
|
|
Financing activities
|
|
|
(886 |
) |
|
|
(7,007 |
) |
|
|
9,770 |
|
|
|
9,091 |
|
|
|
162 |
|
|
EBITDA(2)
|
|
|
50,028 |
|
|
|
44,873 |
|
|
|
41,057 |
|
|
|
34,955 |
|
|
|
36,971 |
|
Balance Sheet Data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
382,222 |
|
|
$ |
400,974 |
|
|
$ |
449,159 |
|
|
$ |
454,686 |
|
|
$ |
483,344 |
|
|
Total debt (including current maturities)
|
|
|
161,808 |
|
|
|
155,039 |
|
|
|
200,777 |
|
|
|
200,988 |
|
|
|
200,000 |
|
|
Total stockholders equity
|
|
|
161,845 |
|
|
|
176,711 |
|
|
|
168,849 |
|
|
|
167,205 |
|
|
|
178,762 |
|
Ready-Mixed Concrete Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average selling price per cubic yard
|
|
$ |
73.71 |
|
|
$ |
73.34 |
|
|
$ |
76.38 |
|
|
$ |
75.33 |
|
|
$ |
84.41 |
|
|
Sales volume in cubic yards
|
|
|
5,215 |
|
|
|
5,026 |
|
|
|
5,052 |
|
|
|
3,845 |
|
|
|
3,857 |
|
|
|
(1) |
We adopted Statement of Financial Auditing Standards
(SFAS) No. 142, Goodwill and Other
Intangibles, effective January 1, 2002. Under
SFAS No. 142, goodwill and indefinite lived assets are
no longer amortized. Accordingly, there is no goodwill
amortization included in the years ended December 31, 2002,
2003 and 2004. |
|
(2) |
We have computed EBITDA as net income plus the provision
(benefit) for income taxes, net interest expense, loss on early
extinguishment of debt and noncash goodwill impairments,
depreciation, depletion and amortization. EBITDA does not adjust
for asset impairments of $2.5 million and
$0.5 million, respectively, in 2002 and 2004. EBITDA is a
non-GAAP financial measure that we have included because it is
widely used by investors for valuation and comparing our
financial performance with the performance of other building
material companies. We also use EBITDA to monitor and compare
the financial performance of our operations from period to
period. EBITDA does not give effect to the cash we must use to
service our debt or pay our income taxes and thus does not
reflect the funds actually available for capital expenditures.
In addition, our presentation of EBITDA may not be comparable to
similarly titled measures of other companies. |
S-7
The following table presents a reconciliation of EBITDA to net
income (loss) for each of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
Year Ended December 31 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Net income (loss)
|
|
$ |
(28,366 |
) |
|
$ |
10,303 |
|
|
$ |
(10,539 |
) |
|
$ |
(10,566 |
) |
|
$ |
8,556 |
|
Cumulative effect of change in accounting principle
|
|
|
24,328 |
(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of change in accounting
principle
|
|
|
(4,038 |
) |
|
|
10,303 |
|
|
|
(10,539 |
) |
|
|
(10,566 |
) |
|
|
8,556 |
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
608 |
|
|
|
5,274 |
|
|
|
(6,377 |
) |
|
|
(4,858 |
) |
|
|
5,693 |
|
Interest expense
|
|
|
17,127 |
|
|
|
16,855 |
|
|
|
16,523 |
|
|
|
12,247 |
|
|
|
12,939 |
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
28,781 |
|
|
|
28,781 |
|
|
|
|
|
Depreciation, depletion and amortization expense
|
|
|
10,734 |
|
|
|
12,441 |
|
|
|
12,669 |
|
|
|
9,351 |
|
|
|
9,783 |
|
Goodwill impairments(b)
|
|
|
25,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(c)
|
|
$ |
50,028 |
|
|
$ |
44,873 |
|
|
$ |
41,057 |
|
|
$ |
34,955 |
|
|
$ |
36,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Under SFAS No. 142, our goodwill is periodically tested for
impairment. We completed our initial impairment review during
the quarter ended June 30, 2002. That review resulted in
transitional goodwill impairment charges of $24.3 million,
net of tax, with respect to two reporting units. |
|
(b) |
|
In the fourth quarter of 2002, we recorded a goodwill impairment
charge of $25.6 million, representing the remaining
goodwill associated with two reporting units. |
|
(c) |
|
In 2002 and 2004, we recorded asset impairments of
$2.5 million and $0.5 million, respectively, for
certain equipment we removed from service or held for disposal.
These amounts are not reflected in any of the adjustments made
to calculate EBITDA. |
S-8
RISK FACTORS
You should carefully consider the following matters, in
addition to the risk factors beginning on page 2 of the
accompanying prospectus and the other information we have
provided in this prospectus supplement, the accompanying
prospectus and the documents we incorporate by reference, before
deciding whether to invest in our common stock.
There are risks related to our internal growth and operating
strategies.
Our ability to generate internal growth will be affected by,
among other factors, our ability to:
|
|
|
|
|
attract new customers; |
|
|
|
differentiate ourselves in a competitive market by emphasizing
new product development and value-added sales and marketing; |
|
|
|
hire and retain employees; and |
|
|
|
reduce operating and overhead expenses. |
One key component of our operating strategy is to operate our
businesses on a decentralized basis, with local or regional
management retaining responsibility for
day-to-day operations,
profitability and internal growth of the local or regional
business. If we do not implement and maintain proper overall
business controls, this decentralized operating strategy could
result in inconsistent operating and financial practices and our
overall profitability could be adversely affected.
Our resources, including management resources, are limited and
may be strained if we engage in a significant number of
acquisitions. Also, acquisitions may divert our
managements attention from initiating or carrying out
programs to save costs or enhance revenues.
Our inability to achieve internal growth could materially and
adversely affect our business, financial condition, results of
operations and cash flows.
We may be unsuccessful in continuing to carry out our
strategy of growth through acquisitions.
One of our principal growth strategies is to increase our
revenues and the markets we serve and to continue entering new
geographic markets through the acquisition of additional
ready-mixed concrete and related businesses. We may not be able
to acquire suitable acquisition candidates at reasonable prices
and on other reasonable terms for a number of reasons, including
the following:
|
|
|
|
|
the acquisition candidates we identify may be unwilling to sell; |
|
|
|
we may not have sufficient capital to pay for
acquisitions; and |
|
|
|
competitors in our industry may outbid us. |
In addition, there are risks associated with the acquisitions we
complete. We may face difficulties integrating the newly
acquired businesses into our operations efficiently and on a
timely basis. We also may experience unforeseen difficulties
managing the increased scope, geographic diversity and
complexity of our operations or mitigating contingent or assumed
liabilities, potentially including liabilities we do not
anticipate.
Our operating results may vary significantly from one
reporting period to another and may be adversely affected by the
seasonal and cyclical nature of the markets we serve.
The ready-mixed concrete business is seasonal. In particular,
demand for our products and services during the winter months is
typically lower than in other months because of inclement winter
weather. In addition, sustained periods of inclement weather or
permitting delays could postpone or delay projects over
geographic regions of the United States and consequently could
adversely affect our business, financial condition, results of
operations and cash flows. The relative demand for ready-mixed
concrete is a function of the highly cyclical construction
industry. As a result, our revenues may be adversely affected by
declines in the construction industry
S-9
generally and in our local markets for ready-mixed concrete and
other concrete products. Our results also may be materially
affected by:
|
|
|
|
|
the level of residential and commercial construction in our
regional markets, including possible reductions in the demand
for new residential housing construction below current levels; |
|
|
|
the availability of funds for public or infrastructure
construction from local, state and federal sources; |
|
|
|
unexpected events that delay or adversely affect our ability to
deliver concrete according to our customers requirements; |
|
|
|
changes in interest rates; |
|
|
|
the changes in mix of our customers and business, which result
in periodic variations in the margins of jobs performed during
any particular quarter; |
|
|
|
the timing and cost of acquisitions and difficulties or costs
encountered when integrating acquisitions; |
|
|
|
the budgetary spending patterns of our customers; |
|
|
|
increases in construction and design costs; |
|
|
|
power outages and other unexpected delays; |
|
|
|
our ability to control costs and maintain quality; |
|
|
|
employment levels; and |
|
|
|
regional or general economic conditions. |
As a result, our operating results in any particular quarter may
not be indicative of the results that you can expect for any
other quarter or for the entire year. Furthermore, negative
trends in the ready-mixed concrete industry or in our geographic
markets could have material adverse effects on our business,
financial condition, results of operations and cash flows.
We may lose business to competitors who underbid us and we
may be otherwise unable to compete favorably in our highly
competitive industry.
Our competitive position in a given market depends largely on
the location and operating costs of our ready-mixed concrete
plants and prevailing prices in that market. Generally,
ready-mixed concrete is price-sensitive. Our prices are subject
to changes in response to relatively minor fluctuations in
supply and demand, general economic conditions and market
conditions, all of which are beyond our control. Because of the
fixed-cost nature of our business, our overall profitability is
sensitive to minor variations in sales volumes and small shifts
in the balance between supply and demand. 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. Concrete manufacturers like us generally
obtain customer contracts through local sales and marketing
efforts directed at general contractors, developers and
homebuilders. As a result, we depend on local relationships.
Our competitors range from small, owner-operated private
companies to subsidiaries or operating units of large,
vertically integrated manufacturers of cement and aggregates.
Our vertically integrated competitors generally have greater
manufacturing, financial and marketing resources than we have,
providing them with a competitive advantage. Competitors having
lower operating costs than we do or having the financial
resources to enable them to accept lower margins than we do will
have a competitive advantage over us for jobs that are
particularly price-sensitive. Competitors having greater
financial resources or less financial leverage than we do to
invest in new mixer trucks, build plants in new areas or pay for
acquisitions also will have competitive advantages over us.
S-10
We depend on third parties for concrete equipment and
supplies essential to operate our business.
We rely on third parties to lease properties, plant and
equipment to us and to provide supplies, including cement and
other raw materials, necessary for our operations. We cannot
assure you that our favorable working relationships with our
suppliers will continue in the future. Also, there have
historically been periods of supply shortages in the concrete
industry, particularly in a strong economy.
If we are unable to lease necessary properties or equipment, our
operations could be severely impacted. If we lose our supply
contracts and receive insufficient supplies from other third
parties to meet our customers needs or if our suppliers
experience price increases or disruptions to their business,
such as labor disputes, supply shortages or distribution
problems, our business, financial condition, results of
operations and cash flows could be materially adversely affected.
During the last three quarters of 2004, supplies of cement were
tight in some of our markets as a result of increased demand for
cement, lower inventories of cement, downtime at certain cement
plants and insufficient availability to increase imports of
cement. This shortage curtailed some sales of our ready-mixed
concrete, and cement prices increased, which adversely affected
our gross margins. During the first quarter of 2005, cement
shortages temporarily abated, although tightness of supply
brought about by strong domestic consumption and insufficient
availability of imported cement resulted in a continuation of
the cement price increases experienced in the prior year. In the
second and third quarters of 2005, these conditions persisted
and we experienced further increases in cement prices in the
majority of our markets. During the second quarter of 2005, we
experienced cement shortages in our north Texas market that had
a negative impact on our operating results through both
decreased sales and higher cost of raw materials. Because of
expected continued strong domestic consumption and insufficient
availability of cement in certain markets, we could experience
continued shortages in future periods, which could adversely
affect our operating results, through both decreased sales and
higher cost of raw materials.
Through the third quarter of 2005, our product pricing for
ready-mixed concrete continued to increase in most of our
markets. These price increases have allowed us to absorb the
rising cost of raw materials (primarily cement and aggregates).
However, gains on increased prices were offset in part by higher
labor, freight and delivery costs, including rising diesel fuel
costs. With the national average of diesel fuel prices having
risen 40% in the third quarter of 2005 as compared to the third
quarter in 2004, we have experienced both increased freight
charges for our raw materials, in the form of fuel surcharges,
and increased cost to deliver our products. As these costs have
become more significant over the last two years, we have
instituted fuel surcharges in most of our markets in an attempt
to cover these rising costs. We do not have any long-term fuel
supply contracts that would protect us from rising fuel costs.
Sustaining or improving our margins in the future will depend on
market conditions and our ability to increase our product
pricing or realize gains in productivity to offset further
increases in raw materials and other costs.
Governmental regulations, including environmental
regulations, may result in increases in our operating costs and
capital expenditures and decreases in our earnings.
A wide range of federal, state and local laws, ordinances and
regulations apply to our operations, including the following
matters:
|
|
|
|
|
land usage; |
|
|
|
street and highway usage; |
|
|
|
noise levels; and |
|
|
|
health, safety and environmental matters. |
In many instances, we must have various certificates, permits or
licenses in order to conduct our business. Our failure to
maintain required certificates, permits or licenses or to comply
with applicable governmental requirements could result in
substantial fines or possible revocation of our authority to
conduct some of our operations. Delays in obtaining approvals
for the transfer or grant of certificates, permits or licenses,
or failure to obtain new certificates, permits or licenses,
could impede the implementation of our acquisition program.
S-11
Governmental requirements that impact our operations include
those relating to air quality, solid waste management and water
quality. These requirements are complex and subject to frequent
change. They impose strict liability in some cases without
regard to negligence or fault and may expose us to liability for
the conduct of or conditions caused by others, or for our acts
that complied with all applicable requirements when we performed
them. Our compliance with amended, new or more stringent
requirements, stricter interpretations of existing requirements
or the future discovery of environmental conditions may require
us to make unanticipated material expenditures. In addition, we
may fail to identify or obtain indemnification from
environmental liabilities of acquired businesses. We generally
do not maintain insurance to cover environmental liabilities.
In March 2005, the California Regional Water Quality Control
Board for the Central Valley Region issued a draft order to
regulate discharges of concrete wastewater and solid wastes
associated with concrete manufacturing at ready-mixed concrete
plants located in and near Sacramento, California. This order
would affect four sites in which six of our ready-mixed concrete
plants operate in northern California. If approved in its
current draft form, the order would require all existing
ready-mixed concrete plants in the area to retrofit or
reconstruct their waste management units to provide impermeable
containment of all concrete wastewater and install leak
detection systems. It also would require all new ready-mixed
concrete plants in the area to be constructed with similar waste
management units. The draft order provides that operators of
existing ready-mixed concrete plants would have 180 days to
apply for coverage under the order, and then one year after
coverage is obtained to complete all required retrofitting. In
June 2005, the California Regional Water Quality Control Board
for the Central Valley Region delayed approval of the order to
provide the Construction Materials Association of California and
various concrete producers time to provide certain information
to it for further consideration. Although our actual capital
expenditures may vary significantly and will ultimately depend
on final regulations, if the order is approved in its current
form, the cost of capital improvements to our plants at the four
sites in the affected area may be up to $1.0 million per
site. Also, if the order is considered and adopted by the
California Water Quality Control Board for the
San Francisco Bay Region, we might incur similar costs to
retrofit our existing plants in that area.
Our operations are subject to various hazards that may cause
personal injury or property damage and increase our operating
costs.
Operating mixer trucks, particularly when loaded, exposes our
drivers and others to traffic hazards. Our drivers are subject
to the usual hazards associated with providing services on
construction sites, while our plant personnel are subject to the
hazards associated with moving and storing large quantities of
heavy raw materials. Operating hazards can cause personal injury
and loss of life, damage to or destruction of properties, plant
and equipment and environmental damage. Although we conduct
training programs designed to reduce these risks, we cannot
eliminate these risks. We maintain insurance coverage in amounts
we believe are in accord with industry practice; however, this
insurance may not be adequate to cover all losses or liabilities
we may incur in our operations, and we may not be able to
maintain insurance of the types or at levels we deem necessary
or adequate or at rates we consider reasonable. A partially or
completely uninsured claim, if successful and of sufficient
magnitude, could have a material adverse effect on us.
The insurance policies we maintain are subject to varying levels
of deductibles. Losses up to the deductible amounts are accrued
based on our estimates of the ultimate liability for claims
incurred and an estimate of claims incurred but not reported. If
we were to experience insurance claims or costs above our
estimates, our business, financial condition, results of
operations and cash flows may be materially and adversely
affected.
The departure of key personnel could disrupt our business,
and our business growth will necessitate the successful hiring
of new senior managers and executive officers.
We depend on the continued efforts of our executive officers
and, in many cases, on senior management of our regional and
local operations. Our success will depend on recruiting new
senior level officers and managers, and we cannot be certain
that we can recruit and retain such additional officers and
managers. To the extent we are unable to manage our growth
effectively or are unable to attract and retain qualified
management personnel, our business, financial condition, results
of operations and cash flows could be materially and adversely
affected. We do not carry key-person life insurance on any of
our employees.
S-12
We may be unable to attract and retain qualified
employees.
Our ability to provide high-quality products and services on a
timely basis depends on our success in employing an adequate
number of skilled plant managers, technicians and drivers. Like
many of our competitors, we experience shortages of qualified
personnel from time to time. We may not be able to maintain an
adequate skilled labor force necessary to operate efficiently
and to support our growth strategy, and our labor expenses may
increase as a result of a shortage in the supply of skilled
personnel.
Collective bargaining agreements, work stoppages and other
labor relations matters may result in increases in our operating
costs, disruptions in our business and decreases in our
earnings.
At December 31, 2005, approximately 38% of our employees
were covered by collective bargaining agreements, which expire
between 2006 and 2010. Of particular note, 335 of our employees
are covered by collective bargaining agreements that expire in
2006, including approximately 250 mixer truck drivers in
our northern California region, which is our largest operation.
Our inability to negotiate acceptable new contracts or
extensions of existing contracts with these unions could cause
strikes or other work stoppages by the affected employees. In
addition, any new contracts or extensions could result in
increased operating costs attributable to both union and
nonunion employees. If any such strikes or other work stoppages
were to occur, or if other of our employees were to become
represented by a union, we could experience a significant
disruption of our operations and higher ongoing labor costs,
which could materially adversely affect our business, financial
condition, results of operations and cash flows. In addition,
the coexistence of union and nonunion employees may lead to
conflicts between union and nonunion employees or impede our
ability to integrate our operations efficiently. Moreover, labor
relations matters affecting our suppliers of cement and
aggregates could adversely impact our business from time to time.
We contribute to several multiemployer pension plans. If we were
to withdraw partially or completely from any plan that is
underfunded, we would be liable for a proportionate share of
that plans unfunded vested benefits. Based on the limited
information available from plan administrators, which we cannot
independently validate, we believe that our portion of the
contingent liability in the case of a full or partial withdrawal
or termination from several of these plans would be material to
our financial position, results of operations and cash flows.
Our overall profitability is sensitive to price changes and
minor variations in sales volumes.
Generally, ready-mixed concrete is price-sensitive. Prices for
our products are subject to changes in response to relatively
minor fluctuations in supply and demand, general economic
conditions and market conditions, all of which are beyond our
control. Because of the fixed-cost nature of our business, our
overall profitability is sensitive to price changes and minor
variations in sales volumes.
We may incur material costs and losses as a result of claims
our products do not meet regulatory requirements or contractual
specifications.
Our operations involve providing products that must meet
building code or other regulatory requirements and contractual
specifications for durability, stress-level capacity,
weight-bearing capacity and other characteristics. If we fail or
are unable to provide products meeting these requirements and
specifications, material claims may arise against us and our
reputation could be damaged. In the past, we experienced
significant claims of this kind that we have resolved. There
currently are, and we expect that in the future there will be,
additional claims of this kind asserted against us. If a
significant product-related claim or claims are resolved against
us in the future, that resolution may have a material adverse
effect on our financial condition, results of operations and
cash flows.
Our net sales attributable to infrastructure projects could
be negatively impacted by a decrease or delay in governmental
spending.
Our business depends in part on the level of governmental
spending on infrastructure projects in our markets. Reduced
levels of governmental funding for public works projects or
delays in that funding could adversely affect our business,
financial condition, results of operations and cash flows.
S-13
Some of our plants are susceptible to damage from earthquakes
for which we have a limited amount of insurance.
We maintain only a limited amount of earthquake insurance, and,
therefore, we are not fully insured against earthquake risk. Any
significant earthquake damage to our plants could materially
adversely affect our business, financial condition, results of
operations and cash flows.
Our results of operations could be adversely affected as a
result of goodwill impairments.
Goodwill represents the amount by which the total purchase price
we have paid for acquisitions exceeds our estimated fair value
of the net assets acquired. We periodically test our recorded
goodwill for impairment and charge expense with any impairment
we recognize but do not otherwise amortize that goodwill. For
2002, we recorded goodwill impairment charges of
$62.2 million.
As of September 30, 2005, goodwill represented
approximately 34.6% of our total assets. We can provide no
assurance that future goodwill impairments will not occur. If we
determine that any of our remaining balance of goodwill is
impaired, we will be required to take an immediate noncash
charge to earnings.
As a result of capital constraints and other factors, we may
not be able to grow as rapidly as we may desire through
acquiring additional businesses.
In addition to our existing working capital and cash from
operations, our senior secured credit facility provides us with
a significant source of liquidity. That facility provides us a
borrowing capacity of up to $105 million. The credit
agreement relating to this facility provides that the
administrative agent may, on the bases specified, reduce the
amount of the available credit from time to time. At
September 30, 2005, no borrowings were outstanding under
the credit facility and the amount of the available credit was
approximately $85.1 million, net of outstanding letters of
credit of $14.1 million.
We cannot readily predict the timing, size and success of our
acquisition efforts or the capital we will need for those
efforts. We may use our common stock as a component of the
consideration we pay for future acquisitions. Issuances of
common stock as acquisition consideration could have a dilutive
effect on our stockholders. If our common stock does not
maintain a sufficient market value or potential acquisition
candidates are unwilling to accept our common stock as part of
the consideration for the sale of their businesses, we may be
required to use more of our cash resources to pursue our
acquisition program.
Using cash for acquisition consideration limits our financial
flexibility and increases the likelihood that we will need to
seek additional capital through future debt or equity
financings. If we seek more debt financing, we may have to agree
to financial covenants that limit our operational and financial
flexibility. Additional equity financing may dilute the
ownership interests of our stockholders. There is no assurance
that additional debt or equity financing will be available on
terms acceptable to us.
Our substantial debt could adversely affect our financial
condition.
As of September 30, 2005, we had $200 million of
outstanding debt. Our substantial debt and other financial
obligations could:
|
|
|
|
|
make it difficult for us to satisfy our financial obligations,
including making scheduled principal and interest payments on
our indebtedness; |
|
|
|
require us to dedicate a substantial portion of our cash flow
from operations to service payments on our indebtedness, thereby
reducing funds available for other purposes; |
|
|
|
increase our vulnerability to a downturn in general economic
conditions or the industry in which we compete; |
|
|
|
limit our ability to borrow additional funds for working
capital, capital expenditures, acquisitions and general
corporate and other purposes; |
S-14
|
|
|
|
|
place us at a competitive disadvantage to our
competitors; and |
|
|
|
limit our ability to plan for and react to changes in our
business and the ready-mixed concrete industry. |
We will require a significant amount of cash to service all
our debt.
Our ability to pay or to refinance our indebtedness depends on
our future operating performance, which will be affected by
general economic, financial, competitive, legislative,
regulatory, business and other factors, many of which are beyond
our control. Our business may not generate sufficient cash flow
from operations and future financings may not be available to us
in amounts sufficient to enable us to pay our debt or fund other
liquidity needs. If we are unable to generate sufficient cash
flow to meet our debt service obligations, we may have to
renegotiate the terms of our debt or obtain additional
financing, possibly on less favorable terms than our current
debt. If we are not able to renegotiate the terms of our debt or
obtain additional financing, we could be forced to sell assets
under unfavorable circumstances. The terms of our senior secured
credit facility and the indenture governing our senior
subordinated notes limit our ability to sell assets and
generally restrict the use of proceeds from asset sales.
Our existing debt arrangements impose restrictions on us that
may adversely affect our ability to operate our business.
The indenture governing our $200 million aggregate
principal amount of senior subordinated notes and our senior
secured credit facility contain covenants that restrict, among
other things, our ability to:
|
|
|
|
|
incur additional indebtedness and issue preferred stock; |
|
|
|
pay dividends; |
|
|
|
make asset sales; |
|
|
|
make certain investments; |
|
|
|
enter into transactions with affiliates; |
|
|
|
incur liens on assets to secure other debt; |
|
|
|
engage in specified business activities; and |
|
|
|
engage in certain mergers or consolidations and transfers of
assets. |
In addition, our indenture and senior secured credit facility
contain financial covenants and other limitations with which we
must comply. Our ability to comply with these covenants may be
affected by events beyond our control, and our future operating
results may not be sufficient to comply with the covenants or,
in the event of a default under either our indenture or senior
secured credit facility, to remedy such a covenant default.
Our failure to comply with any of our financial or other
covenants under our indenture or senior secured credit facility
could result in an event of default. On the occurrence of any
such event of default, the trustee under the indenture or our
lenders could elect to declare all amounts outstanding under the
indenture or our senior secured credit facility, as applicable,
to be immediately due and payable, and our lenders could
terminate all commitments to extend further credit to us and
foreclose on any collateral we have granted to secure our
obligations under our senior secured credit facility.
FORWARD-LOOKING INFORMATION
This prospectus supplement, including the accompanying
prospectus and the information we incorporate by reference,
includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. You can
identify our forward-looking statements by words such as
estimate, project, predict,
believe, expect, anticipate,
plan, forecast, budget,
goal or other words that convey the uncertainty of
future events or outcomes. When considering
S-15
these forward-looking statements, you should keep in mind the
risk factors and other cautionary statements in this prospectus
supplement, the accompanying prospectus and the documents we
have incorporated by reference.
The forward-looking statements are not guarantees of future
performance, and we caution you not to rely unduly on them. We
have based many of these forward-looking statements on
expectations and assumptions about future events that may prove
to be inaccurate. Although our management considers these
expectations and assumptions to be reasonable, they are
inherently subject to significant business, economic,
competitive, regulatory and other risks, contingencies and
uncertainties, most of which are difficult to predict and many
of which are beyond our control. These risks, contingencies and
uncertainties relate to, among other matters, the following:
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|
|
|
|
our acquisition and national operating strategies; |
|
|
|
our ability to integrate the businesses we acquire; |
|
|
|
our ability to obtain the capital necessary to finance our
growth strategies; |
|
|
|
the availability of qualified personnel; |
|
|
|
the trends we anticipate in the ready-mixed concrete industry
and in our business; |
|
|
|
the level of activity in the construction industry generally and
in our local markets for ready-mixed concrete; |
|
|
|
the cost of capital, including the interest expense associated
with our outstanding borrowings, which is tied to market
interest rates; |
|
|
|
our ability to maintain compliance with the covenants under the
documents relating to our outstanding indebtedness; |
|
|
|
the highly competitive nature of our business; |
|
|
|
changes in, or our ability to comply with, governmental
regulations, including those relating to the environment; |
|
|
|
our labor relations and those of our suppliers of cement and
aggregates; |
|
|
|
the level of funding allocated by the United States Government
for federal highway, transit and safety spending; |
|
|
|
power outages and other unexpected events that delay or
adversely affect our ability to deliver concrete according to
our customers requirements; |
|
|
|
our ability to control costs, including the costs of raw
materials, and maintain quality; and |
|
|
|
our exposure to warranty claims from developers and other
customers. |
We have discussed some of these factors in more detail in the
Risk Factors sections of this prospectus supplement
and the accompanying prospectus and in the section of this
prospectus supplement under the heading Managements
Discussion and Analysis of Financial Condition and Results of
Operations Risks and Uncertainties. These
factors are not necessarily all the important factors that could
affect us. We advise you that you should (1) be aware that
important factors we do not refer to above could affect the
accuracy of our forward-looking statements and (2) use
caution and common sense when considering our forward-looking
statements. We do not intend to update these statements unless
the securities laws require us to do so.
USE OF PROCEEDS
We estimate the proceeds we will receive from this offering, net
of underwriting discounts and offering expenses we have paid or
will pay, will be approximately
$ .
We intend to use those net proceeds to fund future acquisitions
and for general corporate purposes. We currently expect to use
substantially all the net proceeds of this offering within the
next 12 months to complete acquisitions, based on the
existing market for
S-16
acquisition candidates and assuming we complete the due
diligence and negotiation processes to our satisfaction.
However, we cannot predict the timing, size or success of any
acquisition effort or its associated capital commitments.
PRICE RANGE OF COMMON STOCK
Our common stock is publicly traded on the Nasdaq National
Market under the symbol RMIX. The following table
sets forth the high and low sales prices per share of our common
stock as reported on the Nasdaq National Market for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
High | |
|
Low | |
|
|
| |
|
| |
2004
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
7.35 |
|
|
$ |
5.69 |
|
|
Second Quarter
|
|
|
7.20 |
|
|
|
5.18 |
|
|
Third Quarter
|
|
|
7.20 |
|
|
|
5.61 |
|
|
Fourth Quarter
|
|
|
7.85 |
|
|
|
6.08 |
|
2005
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
8.98 |
|
|
$ |
5.07 |
|
|
Second Quarter
|
|
|
7.00 |
|
|
|
5.12 |
|
|
Third Quarter
|
|
|
8.11 |
|
|
|
6.24 |
|
|
Fourth Quarter
|
|
|
9.50 |
|
|
|
5.78 |
|
2006
|
|
|
|
|
|
|
|
|
|
First Quarter (through January 19, 2006)
|
|
$ |
10.72 |
|
|
$ |
9.21 |
|
S-17
CAPITALIZATION
The following table sets forth our capitalization at
September 30, 2005 on a historical basis and as adjusted to
give effect to the issuance of the common stock offered hereby
and our application of the net proceeds from this offering as
described under Use of Proceeds.
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2005 | |
|
|
| |
|
|
Actual | |
|
As Adjusted | |
|
|
| |
|
| |
|
|
(Unaudited; dollars in | |
|
|
thousands) | |
Debt:(1)
|
|
|
|
|
|
|
|
|
|
Senior secured credit facility due 2009(2)
|
|
$ |
|
|
|
$ |
|
|
|
83/8% senior
subordinated notes due 2014
|
|
|
200,000 |
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
Total debt (including current portion)
|
|
|
200,000 |
|
|
|
200,000 |
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
30 |
|
|
|
37 |
|
|
Additional paid-in capital
|
|
|
170,920 |
|
|
|
|
|
|
Retained earnings
|
|
|
12,862 |
|
|
|
12,862 |
|
|
Treasury stock, at cost
|
|
|
(892 |
) |
|
|
(892) |
|
|
Deferred compensation
|
|
|
(4,158 |
) |
|
|
(4,158) |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
178,762 |
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization(3)
|
|
$ |
378,762 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
(1) |
This table does not reflect the capital lease obligations
effectively assumed in connection with the acquisition of the
assets of Go-Crete and South Loop Development Corporation in
December 2005. |
|
(2) |
As of September 30, 2005, we had $85.1 million of
available credit under our revolving credit facility, net of
$14.1 million of outstanding letters of credit. |
|
(3) |
Does not include $48.0 million of cash and cash equivalents
as of September 30, 2005. Subsequent to September 30,
2005, we used $41.6 million of cash to fund our
acquisitions completed in November and December 2005. |
S-18
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial
data as of and for the years ended December 31, 2000, 2001,
2002, 2003 and 2004 and as of and for the nine months ended
September 30, 2004 and 2005. We derived this information
from our audited consolidated financial statements for the
fiscal years indicated and from our unaudited condensed
consolidated financial statements for the interim periods
indicated. Our consolidated financial statements as of and for
December 31, 2002, 2003 and 2004 were audited by
PricewaterhouseCoopers LLP, an independent registered
independent public accounting firm. Our consolidated financial
statements as of and for December 31, 2000 and 2001 were
audited by Arthur Andersen LLP, which has ceased operations.
Arthur Andersen LLP has not reissued its report on those
financial statements in connection with this offering. You
should read the following selected consolidated financial data
in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations
and our audited consolidated financial statements as of
December 31, 2003 and 2004 and for each of the three years
in the period ended December 31, 2004 and our unaudited
condensed consolidated financial statements as of
September 30, 2005 and for the three and nine months ended
September 30, 2004 and 2005 and notes thereto included
in this prospectus supplement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
Year Ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2000 | |
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) | |
|
|
(In thousands, except per share amounts and selling prices) | |
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
394,636 |
|
|
$ |
493,591 |
|
|
$ |
503,314 |
|
|
$ |
473,124 |
|
|
$ |
500,589 |
|
|
$ |
377,193 |
|
|
$ |
418,010 |
|
|
Costs of goods sold before depreciation, depletion and
amortization
|
|
|
314,297 |
|
|
|
396,769 |
|
|
|
404,376 |
|
|
|
388,717 |
|
|
|
412,209 |
|
|
|
309,108 |
|
|
|
343,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit before depreciation, depletion and amortization
|
|
|
80,339 |
|
|
|
96,822 |
|
|
|
98,938 |
|
|
|
84,407 |
|
|
|
88,380 |
|
|
|
68,085 |
|
|
|
74,445 |
|
Selling, general and administrative expenses (including a
special compensation charge of $2.1 million in 2001)
|
|
|
27,741 |
|
|
|
47,057 |
|
|
|
47,204 |
|
|
|
42,550 |
|
|
|
47,988 |
|
|
|
33,899 |
|
|
|
38,345 |
|
Restructuring charges and impairments
|
|
|
|
|
|
|
|
|
|
|
28,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization(1)
|
|
|
11,212 |
|
|
|
13,828 |
|
|
|
10,734 |
|
|
|
12,441 |
|
|
|
12,669 |
|
|
|
9,351 |
|
|
|
9,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
41,386 |
|
|
|
35,937 |
|
|
|
12,560 |
|
|
|
29,416 |
|
|
|
27,723 |
|
|
|
24,835 |
|
|
|
26,317 |
|
Interest expense, net
|
|
|
14,095 |
|
|
|
19,386 |
|
|
|
17,127 |
|
|
|
16,855 |
|
|
|
16,523 |
|
|
|
12,247 |
|
|
|
12,939 |
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,781 |
|
|
|
28,781 |
|
|
|
|
|
Other income, net
|
|
|
1,319 |
|
|
|
652 |
|
|
|
1,137 |
|
|
|
3,016 |
|
|
|
665 |
|
|
|
769 |
|
|
|
871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
28,610 |
|
|
|
17,203 |
|
|
|
(3,430 |
) |
|
|
15,577 |
|
|
|
(16,916 |
) |
|
|
(15,424 |
) |
|
|
14,249 |
|
Income tax provisions (benefit)
|
|
|
11,750 |
|
|
|
7,658 |
|
|
|
608 |
|
|
|
5,274 |
|
|
|
(6,377 |
) |
|
|
(4,858 |
) |
|
|
5,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of accounting change
|
|
|
16,860 |
|
|
|
9,545 |
|
|
|
(4,038 |
) |
|
|
10,303 |
|
|
|
(10,539 |
) |
|
|
(10,566 |
) |
|
|
8,556 |
|
Cumulative effect of accounting change
|
|
|
|
|
|
|
|
|
|
|
(24,328 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
16,860 |
|
|
$ |
9,545 |
|
|
$ |
(28,366 |
) |
|
$ |
10,303 |
|
|
$ |
(10,539 |
) |
|
$ |
(10,566 |
) |
|
$ |
8,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per share before cumulative
effect of accounting change
|
|
$ |
0.78 |
|
|
$ |
0.39 |
|
|
$ |
(0.15 |
) |
|
$ |
0.37 |
|
|
$ |
(0.37 |
) |
|
$ |
(0.37 |
) |
|
$ |
0.30 |
|
|
Basic and diluted income (loss) per share
|
|
|
0.78 |
|
|
|
0.39 |
|
|
|
(1.06 |
) |
|
|
0.37 |
|
|
|
(0.37 |
) |
|
|
(0.37 |
) |
|
|
0.29 |
|
Balance Sheet Data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
357,490 |
|
|
$ |
430,836 |
|
|
$ |
382,222 |
|
|
$ |
400,974 |
|
|
$ |
449,159 |
|
|
$ |
454,686 |
|
|
$ |
483,344 |
|
|
Total debt (including current maturities)
|
|
|
157,134 |
|
|
|
163,775 |
|
|
|
161,808 |
|
|
|
155,039 |
|
|
|
200,777 |
|
|
|
200,988 |
|
|
|
200,000 |
|
|
Total stockholders equity
|
|
|
150,555 |
|
|
|
188,315 |
|
|
|
161,845 |
|
|
|
176,711 |
|
|
|
168,849 |
|
|
|
167,205 |
|
|
|
178,762 |
|
Statement of Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$ |
9,583 |
|
|
$ |
44,874 |
|
|
$ |
34,933 |
|
|
$ |
26,692 |
|
|
$ |
34,423 |
|
|
$ |
15,291 |
|
|
$ |
21,216 |
|
|
Net cash used in investing activities
|
|
|
(104,267 |
) |
|
|
(58,387 |
) |
|
|
(36,489 |
) |
|
|
(17,259 |
) |
|
|
(11,597 |
) |
|
|
(6,145 |
) |
|
|
(13,070 |
) |
|
Net cash provided by (used in) financing activities
|
|
|
94,768 |
|
|
|
(19,929 |
) |
|
|
(886 |
) |
|
|
(7,007 |
) |
|
|
9,770 |
|
|
|
9,091 |
|
|
|
162 |
|
|
EBITDA(2)
|
|
|
53,917 |
|
|
|
50,417 |
|
|
|
50,028 |
|
|
|
44,873 |
|
|
|
41,057 |
|
|
|
34,955 |
|
|
|
36,971 |
|
Ready-mixed Concrete Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average selling price per cubic yard
|
|
$ |
69.73 |
|
|
$ |
73.57 |
|
|
$ |
73.71 |
|
|
$ |
73.34 |
|
|
$ |
76.38 |
|
|
$ |
75.33 |
|
|
$ |
84.41 |
|
|
Sales volume in cubic yards
|
|
|
4,705 |
|
|
|
5,394 |
|
|
|
5,215 |
|
|
|
5,026 |
|
|
|
5,052 |
|
|
|
3,845 |
|
|
|
3,857 |
|
See footnotes on the following page.
S-19
|
|
(1) |
We adopted Statement of Financial Auditing Standards
(SFAS) No. 142, Goodwill and Other
Intangibles, effective January 1, 2002. Under
SFAS No. 142, goodwill and indefinite lived assets are
no longer amortized. Accordingly, there is no goodwill
amortization included in the years ended December 31, 2002,
2003 and 2004. |
|
(2) |
We have computed EBITDA as net income plus the provision
(benefit) for income taxes, net interest expense, loss on early
extinguishment of debt and noncash goodwill impairments,
depreciation, depletion and amortization. EBITDA does not adjust
for charges from a litigation settlement ($2.8 million in
2001), special compensation ($2.1 million in 2001) or asset
impairments ($2.5 million in 2002 and $0.5 million in
2004). We have included EBITDA because it is widely used by
investors for valuation and comparing our financial performance
with the performance of other building material companies. We
also use EBITDA to monitor and compare the financial performance
of our operations. EBITDA does not give effect to the cash we
must use to service our debt or pay our income taxes and thus
does not reflect the funds actually available for capital
expenditures. In addition, our presentation of EBITDA may not be
comparable to similarly titled measures of other companies. |
The following table presents a reconciliation of EBITDA to net
income (loss) for each of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
Year Ended December 31 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2000 | |
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
|
Net income (loss) |
|
$ |
16,860 |
|
|
$ |
9,545 |
|
|
$ |
(28,366 |
) |
|
$ |
10,303 |
|
|
$ |
(10,539 |
) |
|
$ |
(10,566 |
) |
|
$ |
8,556 |
|
|
Cumulative effect of change in accounting principle |
|
|
|
|
|
|
|
|
|
|
24,328 |
(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of change in accounting
principle
|
|
|
16,860 |
|
|
|
9,545 |
|
|
|
(4,038 |
) |
|
|
10,303 |
|
|
|
(10,539 |
) |
|
|
(10,566 |
) |
|
|
8,556 |
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
11,750 |
|
|
|
7,658 |
|
|
|
608 |
|
|
|
5,274 |
|
|
|
(6,377 |
) |
|
|
(4,858 |
) |
|
|
5,693 |
|
|
Interest expense
|
|
|
14,095 |
|
|
|
19,386 |
|
|
|
17,127 |
|
|
|
16,855 |
|
|
|
16,523 |
|
|
|
12,247 |
|
|
|
12,939 |
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,781 |
|
|
|
28,781 |
|
|
|
|
|
|
Depreciation, depletion and amortization expense
|
|
|
11,212 |
|
|
|
13,828 |
|
|
|
10,734 |
|
|
|
12,441 |
|
|
|
12,669 |
|
|
|
9,351 |
|
|
|
9,783 |
|
|
Goodwill impairments(b)
|
|
|
|
|
|
|
|
|
|
|
25,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(c)
|
|
$ |
53,917 |
|
|
$ |
50,417 |
|
|
$ |
50,028 |
|
|
$ |
44,873 |
|
|
$ |
41,057 |
|
|
$ |
34,955 |
|
|
$ |
36,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Under SFAS No. 142, our goodwill is periodically tested for
impairment. We completed our initial impairment review during
the quarter ended June 30, 2002. That review resulted in
transitional goodwill impairment charges of $24.3 million,
net of tax, with respect to two reporting units. |
|
(b) |
|
In the fourth quarter of 2002, we recorded a goodwill impairment
charge of $25.6 million, representing the remaining
goodwill associated with two reporting units. |
|
(c) |
|
In 2002 and 2004, we recorded asset impairments of
$2.5 million and $0.5 million, respectively, for
certain equipment we removed from service or held for disposal.
These amounts are not reflected in any of the adjustments made
to calculate EBITDA. |
S-20
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statements we make in the following discussion which express
a belief, expectation or intention, as well as those that are
not historical facts, are forward-looking statements that are
subject to various risks, uncertainties and assumptions. Our
actual results, performance or achievements, or industry
results, could differ materially from those we express in the
following discussion as a result of a variety of factors,
including the risks and uncertainties to which we refer in
Risk Factors and Risks and
Uncertainties below. The following discussion should be
read in conjunction with our audited consolidated financial
statements and condensed consolidated financial statements and
the accompanying notes included in this prospectus
supplement.
Overview
We derive substantially all our revenues from the sale of
ready-mixed concrete, other concrete products and related
construction materials to the construction industry in the
United States. We typically sell ready-mixed concrete under
purchase orders that require us to formulate, prepare and
deliver the product to our customers job sites. We
recognize sales from these orders when we deliver the ordered
products. The principal states in which we operate are
California (44% of sales in the nine months ended
September 30, 2005, 42% of 2004 sales and 44% of 2003
sales), New Jersey (18% of sales in the nine months ended
September 30, 2005, 17% of 2004 sales and 17% of 2003
sales), Michigan (10% of sales in the nine months ended
September 30, 2005, 12% of 2004 sales and 12% of 2003
sales) and Texas (9% of sales in the nine months ended
September 30, 2005, 8% of 2004 sales and 9% of 2003 sales).
We serve substantially all segments of the construction industry
in our markets, and our customers include contractors for
commercial and industrial, residential, street and highway and
public works construction. The approximate percentages of our
concrete product sales by construction type activity were as
follows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
Nine Months | |
|
|
December 31, | |
|
Ended | |
|
|
| |
|
September 30, | |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Residential
|
|
|
46 |
% |
|
|
41 |
% |
|
|
46 |
% |
Commercial and industrial
|
|
|
32 |
% |
|
|
38 |
% |
|
|
41 |
% |
Street and highway
|
|
|
7 |
% |
|
|
6 |
% |
|
|
5 |
% |
Other public works
|
|
|
15 |
% |
|
|
15 |
% |
|
|
8 |
% |
The markets for our products generally are local, and our
operating results are subject to swings in the level and product
mix of construction activity that occur in our markets. The
level of activity affects the demand for our products, while the
product mix of activity among the various segments of the
construction industry affects both our relative competitive
strengths and our operating margins, as ready-mixed concrete
sold for commercial and industrial construction is generally
more technical and, therefore, more profitable than that sold
for residential construction. Commercial and industrial jobs
also provide ready-mixed concrete producers more opportunities
to sell value-added concrete mix designs for various high
performance requirements that often include admixtures, such as
chemicals, minerals and fibers, or color conditioning additives.
The ready-mixed concrete business is subject to seasonal
variations. In particular, demand for our products and services
during the winter months is typically lower than in other months
of the year because of inclement weather. In addition, sustained
periods of inclement weather and other weather conditions could
postpone or delay projects in our markets.
During the first four months of 2005, we experienced sustained
adverse weather conditions and permitting delays that exceeded
historical norms for this period, primarily in our California
markets, which resulted in lower-than-expected sales volume
during that period. In the following five months, we experienced
more normalized weather conditions, which enabled us to begin to
achieve production levels and related efficiencies more
consistent with managements expectations. Should we
experience sustained adverse weather in our markets in the
future, our sales volumes and results of operations would be
adversely affected.
S-21
During the last three quarters of 2004, supplies of cement were
tight in some of our markets as a result of increased demand for
cement, lower inventories of cement, downtime at certain cement
plants and insufficient availability to increase imports of
cement. This shortage curtailed some sales of our ready-mixed
concrete, and cement prices increased, which adversely affected
our gross margins. During the first quarter of 2005, cement
shortages temporarily abated, although tightness of supply
brought about by strong domestic consumption and insufficient
availability of imported cement resulted in a continuation of
the cement price increases experienced in the prior year. In the
second and third quarters of 2005, these conditions persisted
and we experienced further increases in cement prices in the
majority of our markets. During the second quarter of 2005, we
experienced cement shortages in our north Texas market that had
a negative impact on our operating results through both
decreased sales and higher cost of raw materials. Because of
expected continued strong domestic consumption and insufficient
availability of cement in certain markets, we could experience
continued shortages in future periods, which could adversely
affect our operating results, through both decreased sales and
higher cost of raw materials.
Through the third quarter of 2005, our product pricing for
ready-mixed concrete continued to increase in most of our
markets. These price increases have allowed us to absorb the
rising cost of raw materials (primarily cement and aggregates).
However, gains on increased prices were offset in part by higher
labor, freight and delivery costs, including rising diesel fuel
costs. With the national average of diesel fuel prices having
risen 40% in the third quarter of 2005 as compared to the third
quarter in 2004, we have experienced both increased freight
charges for our raw materials in the form of fuel surcharges and
increased cost to deliver our products. As these costs have
become more significant over the last two years, we have
instituted fuel surcharges in most of our markets in an attempt
to cover these rising costs. We do not have any long-term fuel
supply contracts that would protect us from rising fuel costs.
Sustaining or improving our margins in the future will depend on
market conditions and our ability to increase our product
pricing or realize gains in productivity to offset further
increases in raw materials and other costs.
Our cost of goods sold consists principally of the costs we
incur in obtaining the cement, aggregates and admixtures we
combine to produce ready-mixed concrete and other concrete
products. We obtain most of these materials from third parties
and generally have only a few days supply at each of our
plants. These costs vary with our levels of production. Our cost
of goods sold also includes labor costs, primarily for delivery
personnel, and insurance costs and the operating, maintenance
and rental expenses we incur in operating our plants, mixer
trucks and other vehicles.
Since our inception in 1999, our growth strategy has
contemplated acquisitions. We purchased one business in 2003,
one business in 2004 and three businesses in 2005, all of which
we have accounted for in accordance with the purchase method of
accounting. Please read Liquidity and Capital
Resources Acquisitions for further information
regarding our recent acquisitions. The rate and extent to which
appropriate further acquisition opportunities are available, and
the extent to which acquired businesses are integrated and
anticipated synergies and cost savings are achieved can affect
our operations and results.
Risks and Uncertainties
Numerous factors could affect our future operating results,
including the factors discussed under the headings Risk
Factors in this prospectus supplement and the accompanying
prospectus and the following factors.
Internal Computer Network
and Applications
We rely on our network infrastructure, enterprise applications
and internal technology systems for our operational, support and
sales activities. The hardware and software systems related to
such activities are subject to damage from earthquakes, floods,
fires, power loss, telecommunication failures and other similar
events. They are also subject to acts such as computer viruses,
physical or electronic vandalism or other similar disruptions
that could cause system interruptions, delays and loss of
critical data and could prevent us from fulfilling our
customers orders. We have developed disaster recovery
plans and backup systems to reduce the potentially
S-22
adverse effects of such events. Any event that causes failures
or interruption in our hardware or software systems could result
in disruption in our business operations, loss of revenues or
damage to our reputation.
Accounting Rules and
Regulations
We prepare our consolidated financial statements in conformity
with accounting principles generally accepted in the United
States of America. These principles are subject to
interpretation by the SEC and various bodies formed to interpret
and create appropriate accounting policies. A change in these
policies can have a significant effect on our reported results
and may even retroactively affect previously reported
transactions. Our accounting policies that recently have been or
may be affected by changes in the accounting rules are as
follows:
|
|
|
|
|
accounting for share-based payments; |
|
|
|
accounting for income taxes; and |
|
|
|
accounting for business combinations and related goodwill. |
In particular, the Financial Accounting Standards Board (the
FASB) recently adopted Statement of Financial
Accounting Standards (SFAS) No. 123R, which
will require us to expense the fair value of our stock option
grants and stock purchases under our employee stock purchase
plan rather than disclose the impact on the consolidated net
income in the footnotes to our consolidated financial
statements. See Recent Accounting
Pronouncements and Note 11 to the condensed
consolidated financial statements included in this prospectus
supplement for a discussion of SFAS No. 123R.
Tax Liabilities
We are subject to federal, state and local income taxes,
applicable to corporations generally, as well as nonincome-based
taxes. Significant judgment is required in determining our
provision for income taxes and other tax liabilities. In the
ordinary course of business, we make calculations in which the
ultimate tax determination is uncertain. We are also from time
to time under audit by state and local tax authorities. Although
we can provide no assurance that the final determination of our
tax liabilities will not differ from what our historical income
tax provisions and accruals reflect, we believe our tax
estimates are reasonable.
Critical Accounting Policies and Estimates
Preparation of our financial statements requires us to make
estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses. Note 1 to our
audited consolidated financial statements and condensed
consolidated financial statements included in this prospectus
supplement describes the significant accounting policies we use
in preparing those statements. We believe the most complex and
sensitive judgments, because of their significance to our
financial statements, result primarily from the need to make
estimates about the effects of matters that are inherently
uncertain. The most significant areas involving our management
judgments and estimates are described below. Actual results in
these areas could differ from our estimates.
|
|
|
Allowance for Doubtful Accounts |
We extend credit to customers and other parties in the normal
course of business. We regularly review outstanding receivables
and provide for estimated losses on accounts receivable we
believe we may not collect in full. A provision for bad debt
expense recorded to selling, general and administrative expenses
increases the allowance, and accounts receivable that we write
off our books decrease the allowance. We determine the amount of
bad debt expense we record each period and the resulting
adequacy of the allowance at the end of each period by using a
combination of our historical loss experience,
customer-by-customer analyses of our accounts receivable
balances each period and subjective assessments of our bad debt
exposure. Our allowance for doubtful accounts was
$2.6 million as of September 30, 2005,
$2.3 million as of December 31, 2004 and
$4.6 million as of December 31, 2003.
S-23
We record as goodwill the amount by which the total purchase
price we pay for our acquisitions exceeds our estimated fair
value of the net assets we acquire. We test our recorded
goodwill annually for impairment and charge income with any
impairment we recognize, but we do not otherwise amortize that
goodwill. The impairment test we use consists of comparing our
estimates of the current fair values of our reporting units with
their carrying amounts. We use a variety of valuation
approaches, primarily the discounted future cash flow approach,
to arrive at these estimates. These approaches entail making
numerous assumptions respecting future circumstances, such as
general or local industry or market conditions, and, therefore,
are uncertain. For 2002, we recognized a transitional impairment
charge to earnings, net of tax, of $24.3 million and an
impairment charge to income from operations of
$25.6 million. We did not record a goodwill impairment
charge for 2003 or 2004. We can provide no assurance that future
goodwill impairments will not occur. Our goodwill balance was
$167.3 million as of September 30, 2005,
$166.6 million as of December 31, 2004 and
$165.2 million as of December 31, 2003. See
Note 2 to our audited consolidated financial statements and
Note 5 to our condensed consolidated financial statements
included in this prospectus supplement.
We maintain third-party insurance coverage in amounts and
against the risks we believe are reasonable. Under our current
insurance programs, we share the risk of loss with our insurance
underwriters by maintaining high deductibles subject to
aggregate annual loss limitations. Currently, our workers
compensation per occurrence retention is $1.0 million and
our automobile and general liability per occurrence retention is
$0.5 million. In connection with these automobile and
general liability and workers compensation insurance
programs, we have entered into standby letter of credit
agreements for $14.1 million at September 30, 2005 and
$11.6 million at December 31, 2004. We fund these
deductibles and record an expense for losses we expect under the
programs. We determine the expected losses using a combination
of our historical loss experience and subjective assessments of
our future loss exposure. The estimated losses are subject to
uncertainty from various sources, including changes in claims
reporting and settlement patterns, judicial decisions, new
legislation and economic conditions. Although we believe the
estimated losses are reasonable, significant differences related
to the items we have noted above could materially affect our
insurance obligations and future expense. The amount accrued for
self-insurance claims was $9.6 million at
September 30, 2005, $8.7 million as of
December 31, 2004 and $6.6 million as of
December 31, 2003, which is currently classified in accrued
liabilities.
We use the liability method of accounting for income taxes.
Under this method, we record deferred income taxes based on
temporary differences between the financial reporting and tax
bases of assets and liabilities and use enacted tax rates and
laws that we expect will be in effect when we recover those
assets or settle those liabilities, as the case may be, to
measure those taxes. We believe our earnings during the periods
when the temporary differences become deductible will be
sufficient to realize the related future income tax benefits. In
cases where the expiration date of tax carryforwards or the
projected operating results indicate that realization is not
likely, we would provide for a valuation allowance.
As of September 30, 2005, we had significant deferred tax
assets, resulting from net operating loss carryforwards and
deductible temporary differences that may reduce taxable income
in future periods. A valuation allowance is required when it is
more likely than not that all or a portion of a deferred tax
asset will not be realized. In assessing the need for a
valuation allowance, we estimate future taxable income,
considering the feasibility of ongoing tax-planning strategies
and the realizability of tax loss carryforwards. Valuation
allowances related to deferred tax assets can be impacted by
changes in tax laws, changes in statutory tax rates and future
taxable income levels. If we determined that we would not be
able to realize all or a portion of our deferred tax assets in
the future, we would reduce such amounts through a charge to
income in the period in which that determination is made.
Conversely, if we determined that we would be able to realize
our deferred tax assets in the future in excess of the net
carrying amounts, we would decrease the recorded valuation
allowance through an increase to income in the period in which
that determination is made. Subsequently recognized tax benefits
S-24
associated with valuation allowances, recorded in connection
with a business combination, will be recorded as an adjustment
to goodwill. We recorded no valuation allowance at
December 31, 2004 and December 31, 2003.
We provide reserves for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory
and the estimated net realizable value using assumptions about
future demand for those products and market conditions. If
actual market conditions are less favorable than those projected
by management, additional inventory reserves may be required.
|
|
|
Properties, Plant and Equipment, Net |
We state our properties, plant and equipment at cost and use the
straight-line method to compute depreciation of these assets
over their estimated remaining useful lives. Our estimates of
those lives may be affected by such factors as changing market
conditions, technological advances in our industry or changes in
applicable regulations.
We evaluate the recoverability of our properties, plant and
equipment when changes in circumstances indicate that the
carrying amount of the asset may not be recoverable in
accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. We compare
the carrying value of long-lived assets to our projection of
future undiscounted cash flows attributable to those assets. If
the carrying value exceeds the future undiscounted cash flows,
we record an impairment loss equal to the excess of the carrying
value over the fair value. Actual useful lives and future cash
flows could be different from those we estimate. These
differences could have a material effect on our future operating
results.
We record accruals for legal, income tax and other contingencies
when estimated future expenditures associated with those
contingencies become probable and the amounts can be reasonably
estimated. However, new information may become available, or
circumstances (such as applicable laws and regulations) may
change, thereby resulting in an increase or decrease in the
amount required to be accrued for such matters (and, therefore,
a decrease or increase in reported net income in the period of
such change).
|
|
|
Recent Account Pronouncements |
For a discussion of recently adopted accounting standards, see
Note 1 to our audited consolidated financial statements and
our condensed consolidated financial statements included in this
prospectus supplement.
S-25
Results of Operations
The following table sets forth selected historical statement of
operations information and that information as a percentage of
sales for the years indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
Nine Months Ended September 30, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) | |
|
|
(Amounts in thousands) | |
Sales
|
|
$ |
503,314 |
|
|
|
100.0 |
% |
|
$ |
473,124 |
|
|
|
100.0 |
% |
|
$ |
500,589 |
|
|
|
100.0 |
% |
|
$ |
377,193 |
|
|
|
100.0 |
% |
|
$ |
418,010 |
|
|
|
100.0 |
% |
Cost of goods sold before depreciation, depletion and
amortization
|
|
|
404,376 |
|
|
|
80.3 |
|
|
|
388,717 |
|
|
|
82.2 |
|
|
|
412,209 |
|
|
|
82.3 |
|
|
|
309,108 |
|
|
|
81.9 |
|
|
|
343,565 |
|
|
|
82.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit before depreciation, depletion and amortization
|
|
|
98,938 |
|
|
|
19.7 |
|
|
|
84,407 |
|
|
|
17.8 |
|
|
|
88,380 |
|
|
|
17.7 |
|
|
|
68,085 |
|
|
|
18.1 |
|
|
|
74,445 |
|
|
|
17.8 |
|
Selling, general and administrative expenses
|
|
|
47,204 |
|
|
|
9.4 |
|
|
|
42,550 |
|
|
|
8.9 |
|
|
|
47,988 |
|
|
|
9.6 |
|
|
|
33,899 |
|
|
|
9.0 |
|
|
|
38,345 |
|
|
|
9.2 |
|
Restructuring charges and impairments
|
|
|
28,440 |
|
|
|
5.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
10,734 |
|
|
|
2.1 |
|
|
|
12,441 |
|
|
|
2.6 |
|
|
|
12,669 |
|
|
|
2.5 |
|
|
|
9,351 |
|
|
|
2.5 |
|
|
|
9,783 |
|
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
12,560 |
|
|
|
2.5 |
|
|
|
29,416 |
|
|
|
6.3 |
|
|
|
27,723 |
|
|
|
5.6 |
|
|
|
24,835 |
|
|
|
6.6 |
|
|
|
26,317 |
|
|
|
6.3 |
|
Interest expense, net
|
|
|
17,127 |
|
|
|
3.4 |
|
|
|
16,855 |
|
|
|
3.6 |
|
|
|
16,523 |
|
|
|
3.3 |
|
|
|
12,247 |
|
|
|
3.2 |
|
|
|
12,939 |
|
|
|
3.1 |
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,781 |
|
|
|
5.8 |
|
|
|
28,781 |
|
|
|
7.6 |
|
|
|
|
|
|
|
0.0 |
|
Other income, net
|
|
|
1,137 |
|
|
|
0.2 |
|
|
|
3,016 |
|
|
|
0.6 |
|
|
|
665 |
|
|
|
0.1 |
|
|
|
769 |
|
|
|
0.2 |
|
|
|
871 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(3,430 |
) |
|
|
(0.7 |
) |
|
|
15,577 |
|
|
|
3.3 |
|
|
|
(16,916 |
) |
|
|
(3.4 |
) |
|
|
(15,424 |
) |
|
|
(4.1 |
) |
|
|
14,249 |
|
|
|
3.4 |
|
Income tax provision (benefit)
|
|
|
608 |
|
|
|
0.1 |
|
|
|
5,274 |
|
|
|
1.1 |
|
|
|
(6,377 |
) |
|
|
(1.3 |
) |
|
|
(4,858 |
) |
|
|
(1.3 |
) |
|
|
5,693 |
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of accounting change
|
|
|
(4,038 |
) |
|
|
(0.8 |
) |
|
|
10,303 |
|
|
|
2.2 |
|
|
|
(10,539 |
) |
|
|
(2.1 |
) |
|
|
(10,566 |
) |
|
|
(2.8 |
) |
|
|
8,556 |
|
|
|
2.0 |
|
Cumulative effect of accounting change
|
|
|
(24,328 |
) |
|
|
(4.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(28,366 |
) |
|
|
(5.6 |
)% |
|
$ |
10,303 |
|
|
|
2.2 |
% |
|
$ |
(10,539 |
) |
|
|
(2.1 |
)% |
|
$ |
(10,566 |
) |
|
|
(2.8 |
)% |
|
$ |
8,556 |
|
|
|
2.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2005 Compared to Nine
Months Ended September 30, 2004 |
Sales. Sales increased $40.8 million, or
10.8%, for the nine months ended September 30, 2005, as
compared to the corresponding period in 2004. This increase was
primarily attributable to a 12.0% increase in the average sales
price of ready-mixed concrete, and a 5.6% increase in other
sales as compared to the corresponding period in 2004.
Gross Profit Before Depreciation, Depletion and
Amortization. Gross profit increased $6.4 million,
or 9.3%, for the nine months ended September 30, 2005, as
compared to the corresponding period in 2004. That increase was
primarily attributable to an increase in the average sales price
of ready-mixed concrete, partially offset by increased raw
material, labor and delivery costs. Gross profit margins were
17.8% for the nine months ended September 30, 2005 and
18.1% for the corresponding period in 2004.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses increased
$4.4 million, or 13.1%, for the nine months ended
September 30, 2005, as compared to the corresponding period
in 2004. These increases were primarily attributable to higher
compensation expenses, including incentive and stock-based
compensation, and increased professional fees.
Depreciation, Depletion and Amortization.
Depreciation, depletion and amortization expense increased
$0.4 million, or 4.6%, for the nine months ended
September 30, 2005, as compared to the corresponding period
in 2004. The increase was primarily attributable to capital
expenditures for assets acquired and placed in service during
2005.
S-26
Interest Expense, Net. Interest expense, net,
increased $0.7 million for the nine months ended
September 30, 2005, as compared to the corresponding period
in 2004. Interest expense increased principally as a result of
higher interest rates associated with our indebtedness as a
result of the termination of our interest rate swap agreements
in June 2005.
Loss on Early Extinguishment of Debt. As a result
of our March 2004 refinancing discussed below, we recognized an
ordinary loss on early extinguishment of debt of
$28.8 million, which consisted of $25.9 million in
premium payments to holders of the subordinated notes we prepaid
and a write-off of $2.9 million of debt issuance costs
associated with all the debt repaid.
Income Tax Provision/Benefit. We recorded an
income tax provision of $5.7 million for the nine months
ended September 30, 2005, as compared to an income tax
benefit of $4.9 million for the corresponding period in
2004. The net loss and corresponding income tax benefit for the
nine months ended September 30, 2004 was attributable to
the loss on early extinguishment of debt in the nine months
ended September 30, 2004. At the end of each interim
reporting period, we estimate the effective income tax rate we
expect to be applicable for the full year. We use this estimate
in providing for income taxes on a
year-to-date basis, and
it may change in subsequent interim periods. Our estimated
annualized effective tax rate was 40% for the nine months ended
September 30, 2005 and 31% for the nine months ended
September 30, 2004. The effective income tax rate for 2005
is higher than the federal statutory rate due primarily to state
income taxes.
|
|
|
Year Ended December 31, 2004 Compared to Year Ended
December 31, 2003 |
Sales. Sales increased $27.5 million, or
5.8%, from $473.1 million in 2003 to $500.6 million in
2004. The increase is mostly attributable to a 9.7% increase in
the volume of other concrete product sales and a 4.1% increase
in the average selling price of ready-mixed concrete. The price
improvement was primarily due to a stable residential
construction market and moderate improvements in nonresidential
construction in most of our markets during 2004, reflecting the
general state of the overall economy, and employment levels in
the United States. Adverse weather conditions in the fourth
quarter of 2004, particularly in northern California, resulted
in lower sales volumes.
Gross Profit Before Depreciation, Depletion and
Amortization. Gross profit before depreciation,
depletion and amortization increased $4.0 million, or 4.7%,
from $84.4 million in 2003 to $88.4 million in 2004.
Gross margin decreased from 17.8% in 2003 to 17.7% in 2004. The
gross margin in 2003 reflected a $1.1 million correction of
an inventory overstatement. The rise in cement, raw material,
labor, insurance and diesel fuel costs during the year adversely
impacted gross margin and profit in 2004.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses increased
$5.4 million, or 12.8%, from $42.6 million in 2003 to
$48.0 million in 2004. This increase was attributable to
asset impairments and write-downs related to properties and
equipment ($0.7 million), increases in professional fees
($1.5 million), and higher salary and benefit expenses
($2.5 million) in 2004, primarily due to higher stock-based
and incentive-based compensation and group health insurance
costs.
Depreciation, Depletion and Amortization.
Depreciation, depletion and amortization expense increased
$0.3 million, or 1.8%, from $12.4 million in 2003 to
$12.7 million in 2004.
Interest Expense, Net. Our interest rate swap
agreements reduced interest expense by approximately
$1.4 million in 2004. Interest expense, net, decreased
$0.3 million, or 2.0%, from $16.9 million in 2003 to
$16.5 million in 2004, as a result of our 2004 refinancings
and interest rate swaps. As of December 31, 2004, we had
outstanding borrowings totaling $200.0 million, as compared
to $155.0 million as of December 31, 2003. Our
weighted average interest rate was 7.5%, after giving effect to
our interest rate swaps, as of December 31,2004, as
compared to 9.0% as of December 31, 2003.
Loss on Early Extinguishment of Debt. As a result
of our refinancings we describe under
Liquidity and Capital Resources
Senior Subordinated Notes, we recognized an ordinary loss
in 2004 on early extinguishment of debt of $28.8 million,
which consisted of $25.9 million in premium payments to
redeem our prior senior subordinated notes and a write-off of
$2.9 million of debt issuance costs associated with our
debt repayments.
S-27
Other Income, Net. Other income, net, decreased
$2.3 million, or 78.0%, from $3.0 million in 2003 to
$0.7 million in 2004. This decrease was primarily
attributable to a $2.0 million settlement we recorded in
2003 in connection with a claim we filed against the former
owners of a subsidiary in our Atlantic Region. For additional
information, see Note 4 to our audited consolidated
financial statements included in this prospectus supplement.
Income Tax Provision. We recorded a benefit for
income taxes of $6.4 million in 2004 compared to a
provision for income taxes of $5.3 million in 2003. The
2004 benefit resulted principally from the taxable loss
generated from our 2004 debt refinancings. Our effective tax
rate was 37.7% for 2004 and 33.9% for 2003. The effective income
tax rate for 2004 is greater than the federal statutory rate due
primarily to state income tax benefits and non-taxable
settlement income increasing the federal tax benefit related to
the estimated current year loss.
|
|
|
Year Ended December 31, 2003 Compared to Year Ended
December 31, 2002 |
Sales. Sales decreased $30.2 million, or
6.0%, from $503.3 million in 2002 to $473.1 million in
2003. The decrease is attributable to a 7.2% decrease in sales
volume of ready-mixed concrete and a 0.1% decline in our average
ready-mixed concrete price and was primarily due to the general
decline in nonresidential construction markets reflecting the
general state of the overall economy, employment levels in the
United States, sustained adverse weather conditions in several
of our markets for a portion of the year and the realignment of
our businesses in our North Texas operations, partially offset
by $11.3 million in additional sales contributed through
our acquisition of Builders Redi-Mix, Inc. in February
2003.
Gross Profit Before Depreciation, Depletion and
Amortization. Gross profit before depreciation,
depletion and amortization decreased $14.5 million, or
14.7%, from $98.9 million in 2002 to $84.4 million in
2003. Gross margins decreased from 19.7% in 2002 to 17.8% in
2003. The decline in gross margin is attributable in part to a
$1.1 million correction of an inventory overstatement, a
relative decline in productivity due to the adverse weather
conditions in some of our markets and a relative shift in our
project mix from commercial and industrial construction projects
to residential construction projects, which typically require
products with lower margins, and higher risk and group health
insurance costs. The decline in gross profit was partially
offset by $2.1 million in additional gross profit
contributed by the business we acquired in 2003.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses decreased
$4.6 million, or 9.9%, from $47.2 million in 2002 to
$42.6 million in 2003. This decrease was attributable to a
decline in salary and benefit expenses in 2003 primarily due to
lower incentive compensation and a reduced provision for
doubtful accounts. This decline in expenses was partially offset
by approximately $0.9 million in additional expenses
associated with the business we acquired in 2003 and
professional fees associated with our investigation of the
inventory overstatement.
Restructuring and Impairments. In 2002, we
recorded an impairment charge of $25.6 million for goodwill
impairments related to two reporting units in our North Texas/
Southwest Oklahoma and Memphis, Tennessee/ Northern Mississippi
markets. We also recorded charges totaling $2.8 million
related primarily to the realignment of our business in North
Texas. We recorded no restructuring or impairment charges in
2003. For additional information, see Note 5 to our audited
consolidated financial statements included in this prospectus
supplement.
Depreciation, Depletion and Amortization.
Depreciation, depletion and amortization expense increased
$1.7 million, or 15.9%, from $10.7 million in 2002 to
$12.4 million in 2003. This increase resulted from the
additional properties, plant and equipment we placed in service
in 2003, including those associated with the business we
acquired in February 2003.
Interest Expense, Net. Interest expense, net,
decreased $0.2 million, or 1.6%, from $17.1 million in
2002 to $16.9 million in 2003. This decrease was
attributable to a lower average outstanding balance under our
revolving credit facility during 2003, partially offset by a
write-off of $0.4 million in deferred financing costs.
Other Income, Net. Other income, net, increased
$1.9 million, from $1.1 million in 2002 to
$3.0 million in 2003. This increase was attributable to a
$2.0 million settlement we recorded in the fourth quarter
of 2003 in connection with a claim we filed against the former
owners of a subsidiary in our Atlantic Region. For additional
information, see Note 4 to our audited consolidated
financial statements included in this prospectus supplement.
S-28
Income Tax Provision. We provided for income taxes
of $5.3 million in 2003, an increase of $4.7 million
from our provision in 2002. Our income taxes increased
principally because we had restructuring charges and goodwill
impairments in 2002 that caused our results to be lower in that
year. Our effective tax rate was 33.9% for 2003 and 17.7% for
2002.
Cumulative Effect of Accounting Change. Our
2003 net income does not include any cumulative effect of
accounting change. Our 2002 net loss included a cumulative
effect of accounting change, net of tax, of $24.3 million
as a result of our adoption of SFAS No. 142. Under
SFAS No. 142, we recorded a transitional goodwill
impairment charge of $24.3 million, net of tax, effective
January 1, 2002. This impairment charge was attributable to
two reporting units, our divisions in North Texas/ Southwest
Oklahoma and Memphis, Tennessee/ Northern Mississippi. Local
market and economic conditions affected the value of
acquisitions made in North Texas (in 2000 and 2001) and Memphis,
Tennessee/ Northern Mississippi (in 1999).
Liquidity and Capital Resources
Our primary short-term liquidity needs consist of financing
seasonal increases in accounts receivable, purchasing property
and equipment and paying cash interest expense under our
83/8% senior
subordinated notes due in April 2014 and cash interest expense,
if any, under our senior secured revolving credit facility due
in March 2009. In addition to our cash from operations, our
senior secured revolving credit facility provides us with a
significant source of liquidity. That facility provides us a
borrowing capacity of up to $105 million. The credit
agreement relating to this facility provides that the
administrative agent may, on the bases specified, reduce the
amount of the available credit from time to time. At
September 30, 2005, no borrowings were outstanding under
the revolving credit facility and the amount of that available
credit was approximately $85.1 million, net of outstanding
letters of credit of $14.1 million. Our working capital
needs typically increase in the second and third quarters to
finance the increases in accounts receivable during those
periods and the cash interest payment on our
83/8% senior
subordinated notes due on April 1 of each year. Generally,
in the fourth quarter, our working capital borrowings begin to
decline and then are paid down to their lowest annual levels in
the first quarter of the following year.
The principal factors that could adversely affect the
availability of internally generated funds include:
|
|
|
|
|
any deterioration of sales because of weakness in markets in
which we operate; |
|
|
|
any decline in gross margins due to shifts in our project
mix; and |
|
|
|
the extent to which we are unable to generate internal growth
through integration of additional businesses or capital
expansions of our existing business. |
The principal factors that could adversely affect our ability to
obtain cash from external sources include:
|
|
|
|
|
covenants contained in our credit facility and the indenture
governing our
83/8% senior
subordinated notes; |
|
|
|
volatility in the markets for corporate debt; and |
|
|
|
fluctuations in the market price of our common stock or
83/8% senior
subordinated notes. |
The following key financial measurements reflect our financial
position and capital resources as of September 30, 2004 and
2005 and as of December 31, 2002, 2003 and 2004 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Cash and cash equivalents
|
|
$ |
4,685 |
|
|
$ |
7,111 |
|
|
$ |
39,707 |
|
|
$ |
25,348 |
|
|
$ |
48,015 |
|
Working capital
|
|
$ |
47,116 |
|
|
$ |
37,941 |
|
|
$ |
89,647 |
|
|
$ |
88,228 |
|
|
$ |
99,046 |
|
Total debt(1)
|
|
$ |
161,808 |
|
|
$ |
155,039 |
|
|
$ |
200,000 |
|
|
$ |
200,000 |
|
|
$ |
200,000 |
|
Available credit(2)
|
|
$ |
15,300 |
|
|
$ |
7,000 |
|
|
$ |
75,900 |
|
|
$ |
86,700 |
|
|
$ |
85,100 |
|
Debt as a percent of capital employed
|
|
|
50.0 |
% |
|
|
46.7 |
% |
|
|
54.2 |
% |
|
|
54.6 |
% |
|
|
52.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-29
|
|
(1) |
The interest rate swap
mark-to-market
adjustments of $0.8 million in 2004 are not included in the
total debt. |
|
(2) |
Based on eligible borrowing base, net of outstanding letters of
credit, in 2004 and at September 30, 2005 and maximum
leverage ratios in 2003 and 2002. |
At December 31, 2003, current maturities of long-term debt
reduced our working capital by $13.6 million.
Our cash and cash equivalents consist of highly liquid
investments in deposits we hold at major banks.
|
|
|
Senior Secured Credit Facility |
The borrowings under our credit facility are limited based on a
portion of the net amounts of our eligible accounts receivable,
inventory and mixer trucks. At our option, these borrowings will
bear annual interest at either the Eurodollar-based rate
(LIBOR) plus 2.00%, or the domestic rate plus 0.50%.
The interest rate margins will vary inversely with the amount of
unused borrowing capacity available under the facility. We pay
commitment fees at an annual rate of 0.375% on the unused
portion of the facility.
Our subsidiaries have fully and unconditionally guaranteed the
repayment of all amounts owing under our credit facility, on a
joint and several basis. In addition, we have collateralized the
facility with the capital stock and substantially all the assets
of our subsidiaries, excluding minor subsidiaries without
operations or material assets, and substantially all the assets
of those subsidiaries, excluding most of the assets of our
aggregate quarry in northern New Jersey. The credit agreement
contains covenants limiting, among other things, prepayment or
redemption of subordinated notes, distributions, dividends and
repurchases of capital stock and other equity interests,
acquisitions and investments, mergers, asset sales other than in
the ordinary course of business, indebtedness, liens, changes in
our business, changes to charter documents and affiliate
transactions. It also limits capital expenditures to 5% of
consolidated revenues in the prior 12 months and will
require us to maintain a minimum fixed charge coverage ratio of
1.0 to 1.0 on a rolling
12-month basis if the
available credit under the facility falls below
$15 million. The credit agreement provides that specified
change of control events would constitute events of default
under the agreement.
At September 30, 2005, no borrowings were outstanding under
the revolving credit facility, and we used $14.1 million of
our availability for letters of credit. The credit agreement
limits our ability to incur additional debt primarily to the
greater of (1) the borrowings available under our credit
facility, plus $20 million, or (2) additional debt if,
after giving effect to its incurrence, our total debt does not
exceed three times our earnings before interest, taxes,
depreciation, amortization and certain noncash items.
|
|
|
Senior Subordinated Notes |
To improve liquidity and provide more financial and operating
flexibility, on March 31, 2004, we issued and sold, through
a private placement, $200 million of
83/8% senior
subordinated notes maturing April 1, 2014. Interest on
these notes is payable semiannually on April 1 and
October 1 of each year. We used the net proceeds of this
financing to redeem our prior 12% senior subordinated notes
and prepay outstanding debt under our senior secured credit
facility. We paid $122.5 million to redeem our prior
12% senior subordinated notes, including a prepayment
premium of $25.9 million, plus all accrued and unpaid
interest through the redemption date of $1.6 million.
All our subsidiaries, excluding minor subsidiaries, have jointly
and severally and fully and unconditionally guaranteed the
repayment of our outstanding senior subordinated notes.
The indenture governing the notes limits our ability and that of
our subsidiaries to pay dividends or repurchase common stock,
make certain investments, incur additional debt or sell
preferred stock, create liens, merge or transfer assets. At any
time prior to April 1, 2007, we may redeem up to 35% of the
aggregate principal amount of the notes at a redemption price of
108.375% of their principal amount, plus accrued interest, with
the net cash proceeds from certain equity offerings. In
addition, after March 31, 2009, we may redeem all or a part
of the notes at a redemption price of 104.188% in 2009, 102.792%
in 2010, 101.396% in 2011 and 100% in 2012 and thereafter. The
indenture requires us to offer to repurchase (1) an
aggregate principal amount of the subordinated notes equal to
the proceeds of certain asset sales that are not reinvested in
our business or used to
S-30
pay senior debt and (2) all the notes following the
occurrence of a change of control. Our senior secured credit
agreement prohibits these repurchases.
On May 13, 2004, we filed a registration statement with the
SEC, which became effective on June 22, 2004, pursuant to
which we exchanged our outstanding $200 million
83/8% senior
subordinated notes for notes that are substantially identical,
except that the offering of the new notes was registered under
the Securities Act of 1933.
As a result of restrictions contained in the indenture relating
to the
83/8% senior
subordinated notes, our ability to incur additional debt is
primarily limited to the greater of (1) borrowings
available under our senior secured credit facility, plus the
greater of $15 million or 7.5% of our tangible assets, or
(2) additional debt if, after giving effect to such
incurrence of such additional debt, our earnings before
interest, taxes, depreciation, amortization and certain noncash
items equals or exceeds two times our total interest expense.
On April 16, 2004, we entered into interest rate swap
agreements with a notional value of $70 million. We
terminated these agreements in June 2005. When they were in
effect, these interest rate swap agreements had the economic
effect of modifying the interest obligations associated with
$70 million of our
83/8% senior
subordinated notes, such that the interest payable on these
notes effectively became variable based on the six-month LIBOR
rate, set on April 1 and October 1 of each year. The
swaps were designated as fair-value hedges and had no
ineffective portion. The notional amounts of the swaps matched
the principal amounts of the hedged portion of the notes, and
the termination dates of the swaps matched the maturity date of
the notes. As a result of the swaps, the interest rate on the
hedged portion of the notes was LIBOR plus 3.16%. The swap
agreements were marked to market each quarter, with a
corresponding
mark-to-market
adjustment reflected as either a discount or premium on the
83/8% senior
subordinated notes. Because the swap agreements were considered
an effective fair-value hedge, there was no effect on our
results of operations from these adjustments while the swap
agreements were in effect. Upon termination of these interest
rate swap agreements, we received $2.2 million in cash as
settlement proceeds. The cash proceeds have been included in
changes in operating assets and liabilities, net of
acquisitions within the accompanying unaudited condensed
consolidated statements of cash flows. The cash received has
been recorded against the fair values of the respective
agreements and the resulting net gain of $2.0 million is
being amortized over the remaining life of the underlying debt
instruments as an adjustment to interest expense. There were no
interest rate swap agreements outstanding as of
September 30, 2005. During the nine months ended
September 30, 2005, the interest rate swap agreements
reduced our interest expense by approximately $0.5 million.
|
|
|
Fair Value of Financial Instruments |
The estimated aggregate fair market value of our senior
subordinated notes increased from December 31, 2003 by
$108 million to $215 million as of December 31,
2004, due primarily to our March 31, 2004 issuance of
$200 million principal amount of
83/8% senior
subordinated notes and subsequent redemption of our prior
12% senior subordinated notes. The fair market values are
based on quoted market prices and yields obtained through
independent pricing sources for the same or similar types of
borrowing arrangements taking into consideration the underlying
terms of the debt.
The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities approximate
fair value because of their short-term maturity and variable
rates of interest.
|
|
|
Future Capital Requirements |
While we have not finalized our capital expenditure budget for
2006, as of the date of this prospectus supplement, we have
committed to or placed orders for approximately $17 million
of capital expenditures in 2006.
Our management believes, on the basis of current expectations,
that our cash on hand, internally generated cash flow and
borrowings under our credit facility will be sufficient to
provide the liquidity necessary to fund our operations and meet
our planned capital expenditure and debt-service requirements
for at least the next 12 months.
S-31
Our consolidated cash flows for each of the past three years and
the nine months ended September 30, 2004 and 2005 are
presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
Year Ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Operating activities
|
|
$ |
34,933 |
|
|
$ |
26,692 |
|
|
$ |
34,423 |
|
|
$ |
15,291 |
|
|
$ |
21,216 |
|
Investing activities
|
|
|
(36,489 |
) |
|
|
(17,259 |
) |
|
|
(11,597 |
) |
|
|
(6,145 |
) |
|
|
(13,070 |
) |
Financing activities
|
|
|
(886 |
) |
|
|
(7,007 |
) |
|
|
9,770 |
|
|
|
9,091 |
|
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating, investing and
financing activities
|
|
$ |
(2,442 |
) |
|
$ |
2,426 |
|
|
$ |
32,596 |
|
|
$ |
18,237 |
|
|
$ |
8,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our net cash provided by operating activities generally reflects
the cash effects of transactions and other events used in the
determination of net income or loss. Net cash provided by
operating activities of $34.4 million in the year ended
December 31, 2004 increased $7.7 million from the net
cash provided in the year ended December 31, 2003. This
increase reflected the receipt of approximately
$5.0 million in cash collateral previously used for our
insurance retention programs, lower interest payments in 2004
and the timing of accounts payable payments at December 31,
2004, partially offset by increases in accounts receivable and
inventory at December 31, 2004, as compared to the end of
the prior year. Net cash provided by operating activities of
$21.2 million in the nine months ended September 30,
2005 increased $5.9 million from the net cash provided by
operating activities in the nine months ended September 30,
2004. This increase was principally a result of higher operating
income, higher income tax refunds and proceeds from the early
termination of the interest rate swap agreements, partially
offset by higher interest payments.
Our net cash used for investing activities of $11.6 million
in the year ended December 31, 2004 decreased
$5.7 million from the net cash used in the year ended
December 31, 2003, primarily because of an acquisition we
made in 2003. Capital expenditures decreased by
$2.8 million during the year ended December 31, 2004,
with this decrease offset by asset disposition activities. Our
net cash used for investing activities of $13.1 million
increased $6.9 million for the nine months ended
September 30, 2005, as compared to the nine months ended
September 30, 2004, primarily because of increased
purchases of property and equipment and an acquisition we made
in 2005.
Our net cash provided by financing activities of
$9.8 million in the year ended December 31, 2004
increased $16.8 million from the net cash used in the year
ended December 31, 2003. This increase was primarily
attributable to our March 2004 refinancing activities, proceeds
from the exercise of stock options and shares sold to employees
under our employee stock purchase plan, partially offset by
repurchases of shares during the year ended December 31,
2004. As a result of these activities, cash and cash
equivalents, which totaled $39.7 million at
December 31, 2004, increased $32.6 million from
December 31, 2003. Our net cash provided by financing
activities of $0.2 million for the nine months ended
September 30, 2005 decreased $8.9 million from the net
cash provided for the nine months ended September 30, 2004.
This decline is primarily attributable to our March 2004
refinancing activities.
Net cash provided by operating activities of $26.7 million
in 2003 decreased $8.2 million, or 24.6%, from 2002. This
decrease reflected lower operating profits, partially offset by
lower income tax payments.
Our net cash used for investing activities of $17.3 in 2003
decreased $19.2 million, or 52.7%, from the net cash used
in 2002, primarily due to decreases in funds used for capital
expenditures and acquisitions.
Our net cash used in financing activities of $7.0 million
in 2003 increased $6.1 million from the net cash used in
2002. This increase was primarily attributable to an increase in
debt repayments and debt issuance costs.
We define free cash flow as net cash provided by operating
activities less purchases of property, plant and equipment (net
of disposals). Free cash flow is a performance measure not
prepared in accordance with generally
S-32
accepted accounting principles (GAAP). Our
management uses free cash flow in managing our business because
we consider it to be an important indicator of our ability to
service our debt and generate cash for acquisitions and other
strategic investments. We believe free cash flow may provide
users of our financial information additional meaningful
comparisons between current results and results in prior
operating periods. As a non-GAAP financial measure, free cash
flow should be viewed in addition to, and not as an alternative
for, our reported operating results or cash flow from operations
or any other measure of performance prepared in accordance with
GAAP.
Our historical net cash provided by operating activities and
free cash flow are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
Year Ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Net cash provided by operating activities
|
|
$ |
34,933 |
|
|
$ |
26,692 |
|
|
$ |
34,423 |
|
|
$ |
15,291 |
|
|
$ |
21,216 |
|
Less: Purchases of properties and equipment, net of disposals
|
|
|
(16,977 |
) |
|
|
(10,700 |
) |
|
|
(9,839 |
) |
|
|
(5,996 |
) |
|
|
(11,960 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$ |
17,956 |
|
|
$ |
15,992 |
|
|
$ |
24,584 |
|
|
$ |
9,295 |
|
|
$ |
9,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In February 2003, we acquired Builders Redi-Mix, Inc.,
which produces and distributes ready-mixed concrete in the
greater Lansing, Michigan market. The purchase price was
approximately $10.3 million, comprised of $5.8 million
in cash, net of cash acquired, transaction costs of
$0.2 million and 920,726 shares of our common stock
(valued at $4.3 million).
In December 2004, we acquired Riefkohl Contracting LLC, which
provides precast concrete installation services in the greater
Phoenix, Arizona market. The purchase price was approximately
$2.2 million, comprised of $1.6 million in cash,
transaction costs of $0.1 million and 73,489 shares of
our common stock (valued at $0.5 million).
In January 2005, we acquired a small ready-mixed concrete
operation in Knoxville, Tennessee. The purchase price was
approximately $1.0 million in cash.
On November 1, 2005, we acquired substantially all the
operating assets, including real property, of City Concrete
Company, City Concrete Products, Inc. and City Transports, Inc.,
which produce and deliver ready-mixed concrete from five plants
in the greater Memphis, Tennessee and northern Mississippi area,
for approximately $14.3 million in cash. We used cash on
hand to make the purchase.
In December 2005 we acquired substantially all of the operating
assets of Go-Crete and South Loop Development Corporation, which
produce and deliver ready-mixed concrete from six plants and
mine sand and gravel from a quarry in the greater Dallas/
Ft. Worth, Texas market. We purchased the assets, using
cash on hand, for $27.3 million in cash and assumed certain
capital lease liabilities with a net present value of about
$2.0 million.
Since our inception, cash has been the primary component in the
consideration we have paid to acquire businesses. We expect that
cash will be a significant, if not the principal, element in
acquisitions we may make in the future.
|
|
|
Off-Balance Sheet Arrangements |
We do not currently have any off-balance sheet arrangements.
From time to time, we may enter into noncancellable operating
leases that would not be reflected on our balance sheet. For
additional discussion on our operating leases, see Note 14
to our audited consolidated financial statements included in
this prospectus supplement.
S-33
The following are our contractual commitments associated with
our indebtedness and lease obligations as of September 30,
2005 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than | |
|
1- | |
|
4- | |
|
After | |
Contractual Obligations |
|
Total | |
|
1 Year | |
|
3 Years | |
|
5 Years | |
|
5 Years | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Principal on debt
|
|
$ |
200.0 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
200.0 |
|
Interest on debt(1)
|
|
|
150.8 |
|
|
|
8.4 |
|
|
|
33.5 |
|
|
|
33.5 |
|
|
|
75.4 |
|
Operating leases
|
|
|
29.6 |
|
|
|
2.2 |
|
|
|
13.5 |
|
|
|
7.0 |
|
|
|
6.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
380.4 |
|
|
$ |
10.6 |
|
|
$ |
47.0 |
|
|
$ |
40.5 |
|
|
$ |
282.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Interest payments due under our
83/8% senior
subordinated notes. |
The following are our commercial commitment expirations as of
September 30, 2005 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than | |
|
1- |
|
4- |
|
After |
Other Commercial Commitments |
|
Total | |
|
1 Year | |
|
3 Years |
|
5 Years |
|
5 Years |
|
|
| |
|
| |
|
|
|
|
|
|
Standby letters of credit
|
|
$ |
14.1 |
|
|
$ |
14.1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Purchase obligations
|
|
|
7.9 |
|
|
|
7.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance bonds
|
|
|
16.0 |
|
|
|
16.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
38.0 |
|
|
$ |
38.0 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
We periodically evaluate our liquidity requirements, alternative
uses of capital, capital needs and availability of resources in
view of, among other things, our dividend policy, our debt
service and capital expenditure requirements and estimated
future operating cash flows. As a result of this process, in the
future we may seek to: reduce, refinance, repurchase or
restructure indebtedness; raise additional capital; issue
additional securities; repurchase shares of our common stock;
modify our dividend policy; restructure ownership interests;
sell interests in subsidiaries or other assets; or take a
combination of such steps or other steps to manage our liquidity
and capital resources. In the normal course of our business, we
may review opportunities for the acquisition, divestiture, joint
venture or other business combinations in the ready-mix concrete
or related businesses. In the event of any acquisition or joint
venture transaction, we may consider using available cash,
issuing equity securities or increasing our indebtedness to the
extent permitted by the agreements governing our existing debt.
See Note 8 to our audited consolidated financial statements
included in this prospectus supplement.
Inflation
As a result of the relatively low levels of inflation during the
past three years, inflation did not significantly affect our
results of operations in any of those years.
S-34
BUSINESS
General
U.S. Concrete is a major producer of ready-mixed concrete
and concrete related products in select markets in the United
States. We are a leading ready-mixed concrete producer in
substantially all the markets in which we have ready-mixed
concrete operations. Ready-mixed concrete is an important
building material used in the vast majority of commercial,
residential and public works construction projects.
We were incorporated in Delaware in 1997 and began operations on
completion of our initial public offering (IPO) in
1999. Since our IPO, we have made strategic acquisitions to
expand our geographic presence and generate operating synergies
with existing businesses. We have operations in 11 states
and the District of Columbia. The principal states in which we
operate are California, New Jersey, Michigan and Texas, with
those states representing 44%, 18%, 10% and 9%, respectively, of
our net sales for the nine months ended September 30, 2005.
According to publicly available industry information, those
states represented an aggregate of 28% of the
U.S. consumption of ready-mixed concrete in 2004
(California, 12%, New Jersey, 2%, Michigan, 3% and Texas, 11%).
We believe the geographic scope of our operations enables us to
achieve cost savings through consolidated purchasing, to reduce
our administrative costs and to moderate the impact of regional
economic cycles and weather conditions. In the first nine months
of 2005, we derived approximately 78% of our revenues from the
sale of ready-mixed concrete and the remaining 22% of our
revenues from the sale of other concrete and concrete related
products and aggregates.
As of December 31, 2005, we had 100 fixed and seven
portable ready-mixed concrete plants, eight precast concrete
plants, three concrete block plants and two aggregates quarries.
In the first nine months of 2005, these facilities produced
approximately 4.9 million cubic yards of ready-mixed
concrete, 3.5 million eight-inch equivalent block units and
1.1 million tons of aggregates.
Our operations consist principally of formulating, preparing and
delivering ready-mixed concrete to the job sites of our
customers. We also provide services intended to reduce our
customers overall construction costs by lowering the
installed, or in-place, cost of concrete. These
services include the formulation of mixtures for specific design
uses, on-site and
lab-based product quality control and customized delivery
programs to meet our customers needs. Our marketing
efforts primarily target general contractors, developers and
home builders whose focus extends beyond the price of
ready-mixed concrete to product quality, product consistency and
reduction of in-place concrete costs. In addition, we
manufacture and deliver various precast and concrete masonry
products for the construction industry. These businesses are
complementary to our ready-mixed concrete operations and provide
us opportunities to cross-sell various products in markets in
which we sell both ready-mixed concrete and other concrete
products.
Industry Overview
Ready-mixed concrete is a highly versatile, low cost
construction material that the construction industry uses in
substantially all of its projects. It is a stone-like compound
that results from combining coarse and fine aggregates, such as
gravel, crushed stone and sand, with water, various admixtures
and cement. Ready-mixed concrete can be manufactured in
thousands of variations, which in each instance may reflect a
specific design use. Manufacturers of ready-mixed concrete
generally maintain only a few days inventory of raw
materials and must coordinate their daily material purchases
with the time-sensitive delivery requirements of their customers.
The quality of ready-mixed concrete is time-sensitive, as it
becomes difficult to place within 90 minutes after mixing. Many
ready-mixed concrete specifications do not allow for its
placement beyond that time. Consequently, the market for a
permanently installed ready-mixed concrete plant generally is
limited to an area within a
25-mile radius of its
location. Concrete manufacturers produce ready-mixed concrete in
batches at their plants and predominantly use mixer trucks to
distribute and place it at the job sites of their customers.
These manufacturers generally do not provide placing or
finishing services which construction contractors or
subcontractors typically perform.
S-35
Concrete manufacturers generally obtain contracts through local
sales and marketing efforts they direct at general contractors,
developers and home builders. As a result, local relationships
are very important.
On the basis of information the National Ready-Mixed Concrete
Association has provided to us, we estimate that, in addition to
a number of regional independent operators and several larger,
vertically integrated manufacturers of cement and ready-mixed
concrete, over 2,300 small independent concrete producers
currently operate a total of approximately 6,000 plants in the
United States. Larger markets generally have numerous producers
competing for business on the basis of price, timing of delivery
and reputation for quality and service.
Annual usage of ready-mixed concrete in the United States
remains near record levels. According to information available
from the National Ready-Mixed Concrete Association and F.W.
Dodge, total sales from the production and delivery of
ready-mixed concrete in the United States between 2002 and 2005
were as follows (in millions):
|
|
|
|
|
2005
|
|
$ |
33,219 |
|
2004
|
|
$ |
29,109 |
|
2003
|
|
$ |
26,938 |
|
2002
|
|
$ |
26,971 |
|
According to F.W. Dodge data, the four major segments of the
construction industry accounted for the following approximate
percentages of the total volume of ready-mixed concrete produced
in the United States in the first nine months of 2005:
|
|
|
|
|
Residential construction
|
|
|
34 |
% |
Commercial and industrial construction
|
|
|
19 |
% |
Street and highway construction and paving
|
|
|
29 |
% |
Other public works and infrastructure construction
|
|
|
18 |
% |
As an important material for construction and repair,
ready-mixed concrete historically benefited from relatively
stable demand and pricing but has experienced significant price
increases over the past 18 months, driven largely by strong
construction activity and increases in cement prices. From 1996
to 2004, demand for ready-mixed concrete, as measured in total
cubic yards shipped, increased 24% and pricing per cubic yard
increased 22%, according to the National Ready-Mixed Concrete
Association and F.W. Dodge. Construction activity is driven by
long-term population growth, which is expected to increase in
the United States by 14% between 2005 and 2020, according to the
U.S. Census Bureau. Furthermore, advancements in concrete
products and in the use of concrete continue to expand its
potential in the construction industry.
Based on information from the National Ready-Mixed Concrete
Association, we estimate that, in addition to vertically
integrated manufacturers of cements and aggregates, over 2,300
independent ready-mixed concrete producers currently operate
approximately 6,000 plants in the United States. Larger markets
generally have numerous producers competing for business on the
basis of price, timing of delivery and reputation for quality
and service. We believe the typical ready-mixed concrete company
is family-owned and has limited access to capital, financial and
technical expertise and exit opportunities for its owners. Given
these operating constraints, we believe many ready-mixed
concrete companies are finding it difficult to both grow their
businesses and compete effectively against larger, more
cost-efficient and technically capable competitors. We also
believe that acquisition activity in the ready-mixed concrete
industry has increased in recent months.
Historically, barriers to the
start-up of a new
ready-mixed concrete manufacturing operation were low. Over the
past decade, public concerns about dust, process water runoff,
noise and heavy mixer and other truck traffic associated with
the operation of ready-mixed concrete plants and their general
appearance have made obtaining the permits and licenses required
for new plants increasingly difficult. Difficulties and expense
associated with the regulatory process, coupled with the
substantial capital investment
start-up operations
entail, have raised the barriers to entry for those operations.
For a discussion of the seasonality of the ready-mixed concrete
industry generally, see Risk Factors Our
operating results may vary significantly from reporting period
to reporting period and may be adversely affected
S-36
by the seasonal and cyclical nature of the markets we
serve and Managements Discussion and Analysis
of Financial Condition and Results of Operations
Overview in this prospectus supplement.
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Significant Factors Impacting the Market for Ready-Mixed
Concrete |
On the basis of available industry information, we believe that
ready-mix concrete revenue as a percentage of total construction
expenditures in the United States has increased over the last
five years. In addition to favorable trends in the overall
economy of the United States, we believe three significant
factors have been expanding the market for ready-mix concrete in
particular:
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the increased level of industry-wide promotional and marketing
activities; |
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the development of new and innovative uses for ready-mix
concrete; and |
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the enactment of federal highway funding legislation. |
Industry-Wide Promotional and Marketing
Activities. We believe industry participants have, only
since the 1990s, significantly increased their focus on and
benefited from promotional activities to increase the
industrys share of street and highway construction,
commercial and industrial construction and residential
construction expenditures. Many of these promotional efforts
resulted from an industry-wide initiative called RMC 2000, a
program established in 1993 under the leadership of our chief
executive officer, Eugene P. Martineau. The National Ready-Mixed
Concrete Association, the industrys largest trade
organization, has adopted this program. Its principal goals have
been to (1) promote ready-mixed concrete as a building and
paving material, (2) improve the overall image of the
ready-mixed concrete industry and (3) improve financial
returns for producers of ready-mixed concrete. We believe RMC
2000 has been a catalyst for increased investment by the
industry in the promotion of concrete.
Development of Concrete Products. Concrete has
many attributes that make it a highly versatile construction
material. In recent years, industry participants have developed
various uses for concrete products, including:
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concrete housing; |
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precast modular paving stones; |
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pre-stressed concrete railroad ties to replace wood ties; |
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flowable fill for backfill applications; |
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continuous-slab rail-support systems for rapid transit and
heavy-traffic rail lines; and |
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concrete bridges, tunnels and other structures for rapid transit
systems. |
Other examples of successful innovations that have opened new
markets for concrete include:
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overlaying asphalt pavement with concrete, or white
topping; |
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highway median barriers; |
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highway sound barriers; |
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paved shoulders to replace less permanent and increasingly
costly asphalt shoulders; |
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pervious concrete parking lots providing a long-lasting and
aesthetically pleasing urban environment; and |
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colored pavements to mark entrance and exit ramps and lanes of
expressways. |
Federal Highway Funding Legislation. In August
2005, President Bush signed a six-year, $244.1 billion
transportation reauthorization act known as the Safe,
Accountable, Flexible and Efficient Transportation Equity Act: A
Legacy for Users. The new law funds, among other things, federal
bridge and highway construction programs. While we do not expect
this new law to affect our revenue materially in 2006, we
believe that the new law may lead to market opportunities for
our products and a strong base for the public works construction
segment for the future.
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Our Strengths
We have achieved our leading market positions by acquiring local
operations, implementing our best practices and
leveraging managements knowledge of the local market. Our
market-leading positions provide us with significant advantages
by allowing us to:
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develop enhanced local and regional operating efficiencies; |
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further strengthen relationships with suppliers; and |
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further develop our relationships with local contractors,
developers and homebuilders in order to expand our market share
of the business those customers generate. |
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Proven Record of Acquisition and Integration |
We have acquired 33 ready-mixed concrete and
concrete-related businesses since 1999. We selectively target
well-positioned businesses in our existing markets or new
markets we determine have attractive long-term growth prospects.
Our acquisition candidates must complement our operating
philosophy and be priced attractively. We believe we represent
an attractive alternative to various other buyers in the
U.S. market due to our financial strength, visibility as a
public company, enhanced career opportunities and potential
equity participation for local management.
We complement our capabilities in identifying and acquiring
acquisition candidates with our expertise in integrating
acquired businesses into our operating structure. We focus our
integration efforts on:
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maintaining and expanding the acquired customer base; |
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retaining key employees of the acquired business; and |
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ensuring that the equipment of the acquired business meets our
standards or is replaced over time with standardized equipment. |
We also focus on implementing our company-wide accounting
systems and controls, quality-control initiatives and
standard-operating procedures.
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Focus on Operational Efficiencies and Price
Optimization |
We believe our national approach and focus on operational
efficiencies provide significant opportunities for margin
expansion and corresponding advantages over smaller operators.
As a national organization, we benefit from reduced raw
materials costs and improved availability of supply due to our
greater purchasing power. In addition, we have implemented
state-of-the-art order
entry, dispatch and vehicle tracking systems, which have allowed
us to enhance our fleet utilization and productivity and to
eliminate duplicative general and administrative functions and
facilities. We expect our continued fleet standardization
efforts to enhance our purchasing power for mixer trucks and
lower our maintenance costs and parts inventory.
We have trained our sales teams to identify opportunities to
provide value-added
product to our customers and to price our products and service
capabilities to enable us to receive optimum prices.
Ready-mixed concrete
can be formulated in various ways, many of which can provide
added value to our customers, primarily by helping them to
reduce their in-place
cost of concrete. Our price optimization program focuses on
providing cost efficiencies to our customers, while allowing us
to receive optimum prices for our product.
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Diverse Customers and Geographic Markets |
We have over 10,000 customers in 11 states and the District
of Columbia. During the nine months ended September 30,
2005, our ten largest customers accounted for less than 16% of
our revenues and no customer accounted for more than 3% of our
revenues. Through our acquisitions, we have combined many
concrete businesses, each with its own local customer base. In
the ready-mixed concrete industry, greater geographic diversity
helps mitigate unfavorable regional economic and weather
conditions that could negatively impact local
S-38
operations. Our geographic diversity is complemented by the
diverse end markets we serve, including the residential,
commercial and industrial, street and highway and public works
construction markets. We believe that our geographic and end
market diversification enables us to access multiple sources of
demand and lends additional stability to our operating results.
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Strong Technical Experience |
We are integrating technology into the concrete production and
distribution process. We use computer-controlled batching to
maintain superior product quality and have invested in technical
research to create customized solutions for our customers.
Because each segment of the construction industry and each
region we serve has specific challenges, we have devoted
substantial resources to research and development of concrete
products that satisfy many different demands. For example, we
offer:
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value-added formulations of ready-mixed concrete designed to
reduce the contractors in-place cost of concrete; |
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a wide range of architectural concrete products to designers and
homeowners; |
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recycled concrete products and insulated concrete forms for
environmentally sustainable (green)
products; and |
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high performance, lightweight concrete products to replace
structural steel and address security concerns raised by recent
world events. |
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Experienced Management Team |
We benefit from an experienced, disciplined senior management
team with a comprehensive understanding of our industry and
proven operating experience. Our senior corporate management
team has an average of approximately 26 years of industry
or financial experience, and our senior regional management team
has an average of approximately 26 years of industry
experience. Our chief executive officer, Eugene Martineau, has
over 39 years of experience in the ready-mixed concrete
industry and has been a leader in many industry initiatives over
the course of his career. In addition, several of our directors
and members of our management are serving or have served as
directors and/or executive committee members of the National
Ready-Mixed Concrete Association. In addition to providing us
access to significant industry expertise, our management team
has significant ready-mixed concrete industry contacts and other
relationships that have facilitated our introductions to and
negotiations with acquisition candidates.
Our Business Strategy
Our objectives are to become the leading provider of ready-mixed
concrete and related concrete products in each of our markets,
to further expand the geographic scope of our business and, on a
select basis, to integrate our operations vertically through
acquisitions of aggregates supply sources that support our
ready-mixed concrete operations. We plan to achieve this
objective by continuing to implement our business strategy,
which includes the primary elements we discuss below.
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Pursuing Disciplined Growth Through Acquisitions |
The U.S. ready-mixed concrete industry, with over 2,300 small,
independent producers, is a fragmented but increasingly
consolidating industry. We believe these industry
characteristics present growth opportunities for a company with
a focused acquisition program and access to capital.
We typically pursue acquisitions that we believe represent
attractive opportunities to strengthen local management teams,
implement cost-saving initiatives, achieve market-leading
positions and establish best practices. We adhere to a
disciplined pricing methodology when acquiring businesses. Based
on our methodology for valuing, acquiring and integrating target
businesses, we expect our future acquisitions to be accretive to
our earnings per share after a reasonable period of integration.
We cannot provide any assurance, however, as to the
S-39
impact of any future acquisition we may complete on our future
earnings per share. Our acquisition program targets
opportunities for expanding in our existing markets and entering
new geographic markets in the U.S.
Expanding in Existing Markets. We seek to further
penetrate our markets by acquiring other well-established
companies in those markets. We have completed follow-up
acquisitions in substantially all of our ready-mixed concrete
markets. By expanding in existing markets through acquisitions,
we strive to:
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eliminate duplicate staff and facilities and reduced material
and operating costs and other selling, general and
administrative expenses; |
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increase customer cross-selling opportunities; and |
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improve utilization and range of mixer trucks through access to
additional plants. |
Entering New Geographic Markets. We seek to enter new
geographic markets that demonstrate prospects for growth. In any
new market we enter, we will target for acquisition one or more
leading local or regional companies that can serve as platform
businesses into which we can consolidate other operations. We
generally expect these platform acquisition candidates to have
historically successful operating results, established customer
relationships and superior operational management personnel whom
we will be able to retain.
We believe there are numerous potential acquisition candidates
in our existing markets and in new markets. Although we have no
binding agreement to effect any acquisition, we have experienced
increases in inquiries and similar communications with brokers
and other representatives of potential acquisition candidates
over the past year, and we are currently evaluating several
potential acquisitions. We are currently a party to several
nonbinding letters of intent relating to potential acquisitions
of ready-mixed concrete and related businesses. We expect the
economic and other industry conditions supporting recent
consolidation activity within the industry will continue into
the foreseeable future.
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Improving Marketing and Sales Initiatives |
Our marketing strategy emphasizes the sale of value-added
products to customers more focused on reducing their in-place
building material costs than on the price per cubic yard of the
ready-mixed concrete they purchase. Key elements of our
customer-focused
approach include:
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corporate-level marketing and sales expertise; |
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technical service expertise to develop innovative new branded
products; and |
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training programs that emphasize successful marketing and sales
techniques that focus on the sale of high-margin concrete mix
designs. |
We have also formed strategic alliances with several national
companies to provide alternative solutions for designers and
contractors by using value-added concrete products. Through
these alliances, we offer color-conditioned, fiber-strengthened
and high-performance concretes and utilize software technology
that can be used to design buildings constructed of reinforced
concrete.
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Promoting Operational Excellence and Achieving Cost
Efficiencies |
We strive to be an operationally excellent organization by:
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implementing and enhancing standard operating procedures; |
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standardizing plants and equipment; |
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investing in software and communications technology; |
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implementing company-wide quality-control initiatives; |
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providing technical expertise to optimize mix designs; and |
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developing strategic alliances with key suppliers of goods and
services for new product development. |
S-40
We also strive to increase operating efficiencies. We believe
that, if we continue to increase in size on both a local and
national level, we should continue to experience future
productivity and cost improvements in such areas as:
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materials, through procurement and optimized mix designs; |
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purchases of mixer trucks and other equipment, supplies, spare
parts and tools; |
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vehicle and equipment maintenance; and |
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insurance and other risk management programs. |
Products and Services
Ready-Mixed Concrete
Our ready-mixed concrete products consist of proportioned mixes
we prepare and deliver in an unhardened plastic state for
placement and shaping into designed forms. Selecting the optimum
mix for a job entails determining not only the ingredients that
will produce the desired permeability, strength, appearance and
other properties of the concrete after it has hardened and
cured, but also the ingredients necessary to achieve a workable
consistency considering the weather and other conditions at the
job site. We believe we can achieve product differentiation for
the mixes we offer because of the variety of mixes we can
produce, our volume production capacity and our scheduling,
delivery and placement reliability. We also believe we
distinguish ourselves with our value-added service approach that
emphasizes reducing our customers overall construction
costs by reducing the in-place cost of concrete and the time
required for construction.
From a contractors perspective, the in-place cost of
concrete includes both the amount paid to the ready-mixed
concrete manufacturer and the internal costs associated with the
labor and equipment the contractor provides to form, place and
finish the product. A contractors unit cost of concrete is
often only a small component of the total in-place cost that
takes into account all the labor and equipment costs required to
build the forms for the ready-mixed concrete and place and
finish the ready-mixed concrete, including the cost of
additional labor and time lost as a result of substandard
products or delivery delays not covered by warranty or
insurance. By carefully designing proper mixes and using
advances in mixing technology, we can assist our customers in
reducing the amount of reinforcing steel, time and labor they
will require in various applications.
We provide a variety of services in connection with our sale of
ready-mixed concrete that can help reduce our customers
in-place cost of concrete. These services include:
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production of formulations and alternative product
recommendations that reduce labor and materials costs; |
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quality control, through automated production and laboratory
testing, that ensures consistent results and minimizes the need
to correct completed work; and |
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automated scheduling and tracking systems that ensure timely
delivery and reduce the downtime incurred by the customers
placing and finishing crews. |
We produce ready-mixed concrete by combining the desired type of
cement, sand, gravel and crushed stone with water and,
typically, one or more admixtures. These admixtures, such as
chemicals, minerals and fibers, determine the usefulness of the
product for particular applications.
We use a variety of chemical admixtures to achieve one or more
of five basic purposes:
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relieve internal pressure and increase resistance to cracking in
subfreezing weather; |
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retard the hardening process to make concrete more workable in
hot weather; |
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strengthen concrete by reducing its water content; |
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accelerate the hardening process and reduce the time required
for curing; and |
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facilitate the placement of concrete having low water content. |
S-41
We frequently use various mineral admixtures as supplementary
cementing materials to alter the permeability, strength and
other properties of concrete. These materials include fly ash,
ground granulated blast-furnace slag and silica fume.
We also use synthetic fibers, as well as steel, glass and carbon
filaments, as additives in various formulations of concrete.
Fibers help to control shrinkage cracking, thus reducing
permeability and improving abrasion resistance and overall
durability of concrete. In many applications, fibers replace
welded steel wire and reinforcing bars. Relative to the other
components of ready-mixed concrete, these additives generate
comparatively high margins.
We produce precast concrete products at eight plants in three
states, including six in California. Our precast concrete
products consist of concrete we produce and then pour into molds
at our plant sites. These operations produce a wide variety of
specialized finished products, including specialty engineered
structures, custom signage, manholes, catch basins, highway
barriers and curb inlets. After the concrete sets, we strip the
molds from the products and ship the finished product to our
customers. Because these products are not perishable, precast
concrete plants can serve a much broader market area than
ready-mixed concrete plants. Our precast operations in northern
California and Delaware are located near our ready-mixed
concrete operations and provide us
cross-selling
opportunities in those markets.
Our building materials operations supply various resale
materials, products and tools contractors use in the concrete
construction industry. These materials include rebar, wire mesh,
color additives, curing compounds, grouts, forming materials and
numerous other items. Our building materials operations are
located near several of our ready-mixed concrete operations in
northern California, central New Jersey, Michigan and Delaware
and near one of our ready-mixed concrete operations in Memphis,
Tennessee.
We produce crushed stone aggregates from our granite quarry in
northern New Jersey. We sell these aggregates for use in
commercial, residential and public works projects primarily in
that area and Orange County, New York. Production during the
first nine months of 2005 was approximately 0.6 million
tons, and we estimate the quarry had approximately
33 million tons of remaining reserves as of that date,
assuming a 20% loss factor for unusable material. We believe
additional reserves may be obtainable at mining levels below the
level used to make our reserve estimate. We acquired the quarry
in January 2002 principally to expand our market presence in
northern New Jersey and to provide crushed stone aggregates to
third-party customers as well as to our existing ready-mixed
concrete operations in that market. In addition, in connection
with our December 2005 acquisition of substantially all the
operating assets of Go-Crete and South Loop Development
Corporation, we acquired a sand and gravel quarry in the Dallas/
Fort Worth, Texas area. The aggregate quarry is situated on
2,100 acres and is estimated to have approximately
10 million tons of remaining aggregate reserves. These
aggregate reserves provide us with additional raw materials
sourcing flexibility and supply availability.
We manufacture various shapes and sizes of concrete masonry,
commonly known as concrete block, for use in various
applications. We produced approximately 4.8 million units
of concrete masonry during 2005 at our three plants in Michigan,
Delaware and New Jersey. All our concrete masonry plants are
located near our
ready-mixed concrete
operations and provide us
cross-selling
opportunities in those markets.
Operations
We have made substantial capital investments in equipment and
systems to facilitate continuous multi-customer deliveries of
highly perishable products. In any given market, we may maintain
a number of plants
S-42
whose production we centrally coordinate to meet customer
production requirements. We must be able to adapt promptly to
frequently changing delivery schedules.
Our ready-mixed concrete plants consist of fixed and portable
facilities that produce ready-mixed concrete in wet or dry
batches. Our fixed-plant facilities produce ready-mixed concrete
that we transport to job sites by mixer trucks. Our portable
plant division deploys our seven portable plant facilities to
produce ready-mixed concrete at the job site that we direct into
place using a series of conveyor belts or a mixer truck. Several
factors govern the choice of plant type, including:
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production consistency requirements; |
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daily production capacity requirements; and |
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job-site proximity to fixed plants. |
A wet batch plant generally has a higher initial cost and daily
operating expense, but yields greater consistency with less time
required for quality control in the concrete produced and
generally has greater daily production capacity than a dry batch
plant. We believe that a wet batch plant having an hourly
capacity of 250 cubic yards currently would cost approximately
$1.5 million, while a dry batch plant having the same
capacity currently would cost approximately $0.7 million.
At December 31, 2005, our fixed batch plants included 21
wet batch plants and 79 dry batch plants. Of our seven portable
plants, six are dry batch plants and one is a wet batch plant.
Any future plant decisions we make will be impacted by market
factors, including:
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the expected production demand for the plant; |
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the expected types of projects the plant will service; and |
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the desired location of the plant. |
Generally, plants intended primarily to serve high-volume,
commercial or public works projects may be wet batch plants,
while plants intended primarily to serve low-volume, residential
construction projects will likely be dry batch plants. We use
our portable plants to service high-volume projects or projects
in remote locations.
The batch operator in a dry batch plant simultaneously loads the
dry components of stone, sand and cement with water and
admixtures in a mixer truck that begins the mixing process
during loading and completes that process while driving to the
job site. In a wet batch plant, the batch operator blends the
dry components and water in a plant mixer from which he loads
the already mixed concrete into the mixer truck, which leaves
for the job site promptly after loading.
Mixer trucks slowly rotate their loads en route to job sites in
order to maintain product consistency. A mixer truck typically
has a load capacity of 10 cubic yards, or approximately 20 tons,
and an estimated useful life of 12 years. A new truck of
this size currently costs approximately $160,000. Depending on
the type of batch plant from which the mixer trucks generally
are loaded, some components of the mixer trucks usually require
refurbishment after three to five years. At December 31,
2005, we operated a fleet of approximately 1,120 mixer
trucks, with an average age of approximately 7.6 years.
In our ready-mixed concrete operations, we emphasize quality
control, pre-job planning, customer service and coordination of
supplies and delivery. We often obtain purchase orders for
ready-mixed concrete months in advance of actual delivery. A
typical order contains specifications the contractor requires
the concrete to meet. After receiving the specifications for a
particular job, we use computer modeling, industry information
and historical data from similar jobs to formulate a variety of
mixtures of cement, aggregates, water and admixtures which meet
or exceed the contractors specifications. We perform
testing to determine which mix design is most appropriate to
meet the required specifications. The test results enable us to
select the mixture that has the lowest cost and meets or exceeds
the job specifications. The testing center creates and maintains
a project file that details the mixture we will use when we
produce the concrete for the job. For quality control purposes,
the testing center also is responsible for maintaining batch
samples of concrete we have delivered to a job site.
S-43
We use computer modeling to prepare bids for particular jobs
based on job size, location, desired margin, cost of raw
materials and the design mixture identified in our testing
process. If the job is large enough and has a projected duration
beyond the supply arrangement in place at that time, we obtain
quotes from our suppliers as to the cost of raw materials we use
in preparing the bid. Once we obtain a quotation from our
suppliers, the price of the raw materials for the specified job
is informally established. Several months may elapse from the
time a contractor has accepted our bid until actual delivery of
the ready-mixed concrete begins. During this time, we maintain
regular communication with the contractor concerning the status
of the job and any changes in the jobs specifications in
order to coordinate the multi-sourced purchases of cement and
other materials we will need to fill the job order and meet the
contractors delivery requirements. We confirm that our
customers are ready to take delivery of manufactured product
throughout the placement process. On any given day, a particular
plant may have production orders for dozens of customers at
various locations throughout its area of operation. To fill an
order:
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the customer service office coordinates the timing and delivery
of the concrete to the job site; |
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a load operator supervises and coordinates the receipt of the
necessary raw materials and operates the hopper that dispenses
those materials into the appropriate storage bins; |
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a batch operator, using a computerized batch panel, prepares the
specified mixture for the order and oversees the loading of the
mixer truck with either dry ingredients and water in a dry batch
plant or the premixed concrete in a wet batch plant; and |
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the driver of the mixer truck delivers the load to the job site,
discharges the load and, after washing the truck, departs at the
direction of the dispatch office. |
The central dispatch system tracks the status of each mixer
truck as to whether a particular truck is:
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loading concrete; |
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en route to a particular job site; |
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on the job site; |
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discharging concrete; |
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washing out the mixer; or |
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en route to a particular plant. |
The system is updated continuously via signals received from the
individual truck operators as to their status. In this manner,
the dispatcher can determine the optimal routing and timing of
subsequent deliveries by each mixer truck and monitor the
performance of each driver.
A plant manager oversees the operation of each plant. Our
employees also include:
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maintenance personnel who perform routine maintenance work
throughout our plants; |
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mechanics who perform substantially all the maintenance and
repair work on our vehicles; |
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testing center staff who prepare mixtures for particular job
specifications and maintain quality control; |
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various clerical personnel who perform administrative
tasks; and |
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sales personnel who are responsible for identifying potential
customers and maintaining existing customer relationships. |
We generally operate each of our plants on a single shift, with
some overtime operation during the year. On occasion, however,
we may have projects that require deliveries around the clock.
Cement and Raw Materials
We obtain most of the materials necessary to manufacture
ready-mixed concrete on a daily basis. These materials include
cement, which is a manufactured product, stone, gravel and sand.
Each plant typically maintains
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an inventory level of these materials sufficient to satisfy its
operating needs for a few days. Cement represents the highest
cost material used in manufacturing a cubic yard of ready-mixed
concrete, while the combined cost of the stone, gravel and sand
used is slightly less than the cement cost. In each of our
markets, we purchase each of these materials from several
suppliers. Please read Industry Overview
and Managements Discussion and Analysis of Financial
Condition and Results of Operations Overview
for further information regarding our raw materials supplies.
Marketing and Sales
General contractors typically select their suppliers of
ready-mixed concrete. In large, complex projects, an engineering
firm or division within a state transportation or public works
department may influence the purchasing decision, particularly
if 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 the purchasing decision in many cases
ultimately is relationship-based. Our marketing efforts target
general contractors, developers, design engineers, architects
and homebuilders whose focus extends beyond the price of
ready-mixed concrete to product quality and consistency and
reducing the in-place cost of concrete.
Customers
Of our sales revenues in the first nine months of 2005, we made
approximately 41% to commercial and industrial construction
contractors, 46% to residential construction contractors, 5% to
street and highway construction contractors and 8% to other
public works and infrastructure contractors. In the first nine
months of 2005, no single customer or project accounted for more
than 5% of our total sales. Of our 2004 sales, we made
approximately 38% to commercial and industrial construction
contractors, 41% to residential construction contractors, 6% to
street and highway construction contractors and 15% to other
public works and infrastructure contractors. In 2004, no single
customer or project accounted for more than 4% of our total
sales.
We rely heavily on repeat customers. Our management and sales
personnel are responsible for developing and maintaining
successful long-term relationships with key customers.
Competition
The ready-mixed concrete industry is highly competitive. Our
competitive position in a market depends largely on the location
and operating costs of our ready-mixed concrete plants and
prevailing prices in that 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 manufacturers of cement
and aggregates. Our vertically integrated competitors generally
have greater manufacturing, financial and marketing resources
than we have, providing them with a competitive advantage.
Competitors having lower operating costs than we do or having
the financial resources to enable them to accept lower margins
than we do will have a competitive advantage over us for jobs
that are particularly price-sensitive. Competitors having
greater financial resources also may have competitive advantages
over us. See Risk Factors We may lose business
to competitors who underbid us and we may be otherwise unable to
compete favorably in our highly competitive industry.
Employees
As of December 31, 2005, we had approximately 482 salaried
employees, including executive officers and management, sales,
technical, administrative and clerical personnel, and
approximately 989 non-union hourly personnel. The
number of employees fluctuates depending on the number and size
of projects ongoing at any particular time, which may be
impacted by variations in weather conditions throughout the year.
As of December 31, 2005, approximately 895 of our employees
were represented by labor unions having collective bargaining
agreements with us. Generally, these agreements have multi-year
terms and expire on a
S-45
staggered basis between 2006 and 2010. Under these agreements,
we pay specified wages to covered employees and make payments to
multi-employer pension plans and employee benefit trusts rather
than administering the funds on behalf of these employees.
Other than a two-day strike at certain operations within our
Atlantic Region in 2004, we have not experienced any strikes or
significant work stoppages in the past five years. We believe
our relationships with our employees and union representatives
are satisfactory.
Training and Safety
Our future success will depend, in part, on the extent to which
we can attract, retain and motivate qualified employees. We
believe that our ability to do so will depend on the quality of
our recruiting, training, compensation and benefits, the
opportunities we afford for advancement and our safety record.
We support and fund continuing education and training programs
for our employees. We intend to continue and expand these
programs. We require all field employees to attend periodic
safety training meetings and all drivers and other delivery
personnel to participate in training seminars. The
responsibilities of our national safety director include
coordinating a unified, company-wide safety program.
Governmental Regulation and Environmental Matters
A wide range of federal, state and local laws, ordinances and
regulations apply to our operations, including the following
matters:
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land usage; |
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street and highway usage; |
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noise levels; and |
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health, safety and environmental matters. |
In many instances, we are required to have various certificates,
permits or licenses to conduct our business. Our failure to
maintain these required authorizations or to comply with
applicable laws or other governmental requirements could result
in substantial fines or possible revocation of our authority to
conduct some of our operations. Delays in obtaining approvals
for the transfer or grant of authorizations, or failures to
obtain new authorizations, could impede acquisition efforts.
Environmental laws that impact our operations include those
relating to air quality, solid waste management and water
quality. These laws are complex and subject to frequent change.
They impose strict liability in some cases without regard to
negligence or fault. Sanctions for noncompliance may include
revocation of permits, corrective action orders, administrative
or civil penalties and criminal prosecution. Some environmental
laws provide for joint and several strict liability for
remediation of spills and releases of hazardous substances. In
addition, businesses may be subject to claims alleging personal
injury or property damage as a result of alleged exposure to
hazardous substances, as well as damage to natural resources.
These laws also may expose us to liability for the conduct of or
conditions caused by others, or for acts that complied with all
applicable laws when performed.
We have conducted Phase I investigations to assess
environmental conditions on substantially all the real
properties we own or lease and have engaged independent
environmental consulting firms to complete those assessments. We
have not identified any environmental concerns we believe are
likely to have a material adverse effect on our business,
financial position, results of operations or cash flows, but we
can provide no assurance material liabilities will not occur. In
addition, we can provide no assurance our compliance with
amended, new or more stringent laws, stricter interpretations of
existing laws or the future discovery of environmental
conditions will not require additional, material expenditures.
OSHA regulations establish requirements our training programs
must meet.
We have all material permits and licenses we need to conduct our
operations and are in substantial compliance with applicable
regulatory requirements relating to our operations. Our capital
expenditures relating
S-46
to environmental matters were not material in 2004. We currently
do not anticipate any material adverse effect on our business,
financial condition, results of operations or cash flows as a
result of our future compliance with existing environmental laws
controlling the discharge of materials into the environment.
Product Warranties
Our operations involve providing ready-mixed and other concrete
formulations that must meet building code or other regulatory
requirements and contractual specifications for durability,
stress-level capacity, weight-bearing capacity and other
characteristics. If we fail or are unable to provide product
meeting these requirements and specifications, material claims
may arise against us and our reputation could be damaged. In the
past, we have had significant claims of this kind asserted
against us that we have resolved. There currently are, and we
expect that in the future there will be, additional claims of
this kind asserted against us. If a significant product-related
claim is resolved against us in the future, that resolution may
have a material adverse effect on our business, financial
condition, results of operations and cash flows.
Insurance
Our employees perform a significant portion of their work moving
and storing large quantities of heavy raw materials, driving
large mixer trucks in heavy traffic conditions or delivering
concrete at construction sites or in other areas that may be
hazardous. These operating hazards can cause personal injury and
loss of life, damage to or destruction of properties and
equipment and environmental damage. We maintain insurance
coverage in amounts and against the risks we believe accord with
industry practice, but this insurance may not be adequate to
cover all losses or liabilities we may incur in our operations,
and we may be unable to maintain insurance of the types or at
levels we deem necessary or adequate or at rates we consider
reasonable. For additional discussion of our insurance programs,
see Note 14 to our audited consolidated financial
statements and Note 10 to our condensed consolidated
financial statements included in this prospectus supplement.
S-47
UNDERWRITING
Citigroup Global Markets Inc., BB&T Capital Markets, a
division of Scott & Stringfellow, Inc., Sanders Morris
Harris Inc. and Davenport & Company LLC are
underwriters of this offering. Subject to the terms and
conditions stated in the underwriting agreement dated the date
of this prospectus, each underwriter named below has agreed to
purchase, and we have agreed to sell to that underwriter, the
number of shares set forth opposite the underwriters name.
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Number | |
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of Shares | |
Underwriter |
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Citigroup Global Markets Inc.
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BB&T Capital Markets, a division of Scott &
Stringfellow, Inc.
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Sanders Morris Harris Inc.
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Davenport & Company LLC
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Total
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|
|
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|
The underwriting agreement provides that the obligations of the
underwriters to purchase the shares included in this offering
are subject to approval of legal matters by counsel and to other
conditions. The underwriters are obligated to purchase all the
shares (other than those covered by the over-allotment option
described below) if they purchase any of the shares.
The underwriters propose to offer some of the shares directly to
the public at the public offering price set forth on the cover
page of this prospectus and some of the shares to dealers at the
public offering price less a concession not to exceed
$ per
share. The underwriters may allow, and dealers may reallow, a
concession not to exceed $0.10 per share on sales to other
dealers. If all of the shares are not sold at the initial
offering price, the underwriters may change the public offering
price and the other selling terms.
We have granted to the underwriters an option, exercisable for
30 days from the date of this prospectus, to purchase up to
975,000 additional shares of common stock at the public offering
price less the underwriting discount. The underwriters may
exercise the option solely for the purpose of covering
over-allotments, if any, in connection with this offering. To
the extent the option is exercised, each underwriter must
purchase a number of additional shares approximately
proportionate to that underwriters initial purchase
commitment.
We and our officers and directors have agreed that, for a period
of 90 days from the date of this prospectus, we and they
will not, without the prior written consent of Citigroup,
dispose of or hedge any shares of our common stock or any
securities convertible into or exchangeable for our common
stock, except that one of our non-employee directors,
Robert S. Walker, will be permitted to sell up to
250,000 shares of our common stock at any time from and
after the later of (1) the date that is two full trading
days after we publicly announce our earnings for the fourth
quarter of 2005 and (2) February 27, 2006. Citigroup
in its sole discretion may release any of the securities subject
to these lock-up agreements at any time without notice.
The common stock is quoted on the Nasdaq National Market under
the symbol RMIX.
The following table shows the underwriting discounts and
commissions that we are to pay to the underwriters in connection
with this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters option to
purchase additional shares of common stock.
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No Exercise | |
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Full Exercise | |
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| |
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Per share
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$ |
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|
$ |
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|
Total
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$ |
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|
$ |
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|
In connection with the offering, Citigroup, on behalf of the
underwriters, may purchase and sell shares of common stock in
the open market. These transactions may include short sales,
syndicate covering transactions and stabilizing transactions.
Short sales involve syndicate sales of common stock in excess of
the number of shares to be purchased by the underwriters in the
offering, which creates a syndicate short position.
Covered short sales are sales of shares made in an
amount up to the number of shares represented by the
underwriters
S-48
over-allotment option. In determining the source of shares to
close out the covered syndicate short position, the underwriters
will consider, among other things, the price of shares available
for purchase in the open market as compared to the price at
which they may purchase shares through the over-allotment
option. Transactions to close out the covered syndicate short
involve either purchases of the common stock in the open market
after the distribution has been completed or the exercise of the
over-allotment option. The underwriters may also make
naked short sales of shares in excess of the
over-allotment option. The underwriters must close out any naked
short position by purchasing shares of common stock in the open
market. A naked short position is more likely to be created if
the underwriters are concerned that there may be downward
pressure on the price of the shares in the open market after
pricing that could adversely affect investors who purchase in
the offering. Stabilizing transactions consist of bids for or
purchases of shares in the open market while the offering is in
progress.
The underwriters also may impose a penalty bid. Penalty bids
permit the underwriters to reclaim a selling concession from a
syndicate member when Citigroup repurchases shares originally
sold by that syndicate member in order to cover syndicate short
positions or make stabilizing purchases.
Any of these activities may have the effect of preventing or
retarding a decline in the market price of the common stock.
They may also cause the price of the common stock to be higher
than the price that would otherwise exist in the open market in
the absence of these transactions. The underwriters may conduct
these transactions on the Nasdaq National Market or in the
over-the-counter
market, or otherwise. If the underwriters commence any of these
transactions, they may discontinue them at any time.
We estimate that our portion of the total expenses of this
offering will be $380,000.
The underwriters and their affiliates have performed investment
banking, commercial banking and advisory services for us from
time to time for which they have received customary fees and
expenses. The underwriters and their affiliates may, from time
to time, engage in transactions with and perform services for us
in the ordinary course of their business. Affiliates of each of
Citigroup Global Markets Inc. and BB&T Capital Markets are
lenders under our senior secured credit facility, and Citigroup
Global Markets Inc. and BB&T Capital Markets were initial
purchasers of the
83/8% senior
subordinated notes we issued in March 2004.
A prospectus in electronic format may be made available on the
websites maintained by one or more of the underwriters. The
representatives may agree to allocate a number of shares to
underwriters for sale to their online brokerage account holders.
The representatives will allocate shares to underwriters that
may make Internet distributions on the same basis as other
allocations. In addition, shares may be sold by the underwriters
to securities dealers who resell shares to online brokerage
account holders.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments that the underwriters may be
required to make because of any of those liabilities.
S-49
LEGAL MATTERS
Baker Botts L.L.P., Houston, Texas, will issue an opinion about
the legality of the common stock we are offering pursuant to
this prospectus supplement. Vinson & Elkins L.L.P.,
Dallas, Texas, will issue an opinion for the underwriters about
certain matters relating to this offering.
EXPERTS
The financial statements as of December 31, 2004 and 2003
and for each of the three years in the period ended
December 31, 2004 and managements assessment of the
effectiveness of internal control over financial reporting
(which is included in Managements Report on Internal
Control over Financial Reporting in the
Form 10-K for the
year ended December 31, 2004) as of December 31, 2004
included in this prospectus supplement have been so included in
reliance on the reports of PricewaterhouseCoopers LLP, an
independent registered public accounting firm, given on the
authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other information with the SEC. You can read and copy any
materials we file with the SEC at the SECs public
reference room at 100 F Street, N.E., Washington, D.C.
20549. You can obtain information about the operation of the
SECs public reference room by calling the SEC at
1-800-SEC-0330. The SEC
also maintains a Web site that contains information we file
electronically with the SEC, which you can access over the
Internet at www.sec.gov. We make our SEC filings available to
the public from our web site, www.us-concrete.com. The other
information on our web site does not constitute part of this
prospectus supplement.
This prospectus supplement relates to a registration statement
we have filed with the SEC relating to the securities we may
offer. This prospectus supplement does not contain all the
information the registration statement sets forth or includes in
its exhibits, in accordance with the rules and regulations of
the SEC, and we refer you to that omitted information. The
statements this prospectus supplement makes respecting the
content of any contract, agreement or other document that is an
exhibit to the registration statement necessarily are summaries
of their material provisions, and we qualify them in their
entirety by reference to those exhibits for complete statements
of their provisions. The registration statement and its exhibits
are available at the SECs public reference room or through
its web site.
The SEC allows us to incorporate by reference the
information we file with it, which means we can disclose
important information to you by referring you to those
documents. The information we incorporate by reference is an
important part of this prospectus supplement, and later
information we file with the SEC will automatically update and
supersede that information. We incorporate by reference the
following documents listed below, and any future filings we make
with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until we sell all the offered
securities. The documents we incorporate by reference are:
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our annual report on
Form 10-K for the
year ended December 31, 2004; |
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our quarterly reports on
Form 10-Q for the
quarters ended March 31, 2005, June 30, 2005 and
September 30, 2005; |
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our current reports on
Form 8-K dated
April 1, 2005, April 8, 2005, May 17, 2005,
June 1, 2005, December 5, 2005 and December 16,
2005; and |
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|
|
the description of the common stock and the description of the
rights to purchase preferred stock in our registration
statements on
Form 8-A filed on
May 10, 1999. |
S-50
You may request a copy of those filings, other than any exhibit
to any of those filings, unless we have specifically
incorporated that exhibit by reference into the information this
prospectus supplement incorporates. You may request copies, at
no cost, by writing or telephoning us at the following address:
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U.S. Concrete, Inc. |
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2925 Briarpark Suite 1050 |
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Houston, Texas 77042 |
|
Attention: Corporate Secretary |
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Telephone: (713) 499-6200 |
S-51
INDEX TO FINANCIAL STATEMENTS
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Audited Consolidated Financial Statements
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F-2 |
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F-4 |
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F-5 |
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|
F-6 |
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|
|
|
|
F-7 |
|
|
|
|
|
F-8 |
|
|
Unaudited Condensed Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
F-29 |
|
|
|
|
|
F-30 |
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|
|
|
|
F-31 |
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|
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|
F-32 |
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
U.S. Concrete, Inc.:
We have completed an integrated audit of U.S. Concrete,
Inc.s 2004 consolidated financial statements and of its
internal control over financial reporting as of
December 31, 2004 and audits of its 2003 and 2002
consolidated financial statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Our opinions, based on our audits, are
presented below.
Consolidated financial statements
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statement of operations, of changes in
stockholders equity and of cash flows present fairly, in
all material respects, the financial position of
U.S. Concrete, Inc. and its subsidiaries (the
Company) at December 31, 2004 and 2003, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2004 in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements 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 of financial statements
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, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
Internal control over financial reporting
Also, in our opinion, managements assessment, included in
Managements Report on Internal Control Over
Financial Reporting appearing under Item 9A of
Part II of the Companys Annual Report on
Form 10-K for the
year ended December 31, 2004, that the Company maintained
effective internal control over financial reporting as of
December 31, 2004 based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects,
based on those criteria. Furthermore, in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2004,
based on criteria established in Internal Control
Integrated Framework issued by the COSO. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on managements
assessment and on the effectiveness of the Companys
internal control over financial reporting based on our audit. We
conducted our audit of internal control over financial reporting
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 effective internal control over
financial reporting was maintained in all material respects. An
audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance
F-2
with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in
accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets
that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
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/s/ PricewaterhouseCoopers LLP |
Houston, Texas
March 16, 2005
F-3
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands, except | |
|
|
per share amounts) | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
39,707 |
|
|
$ |
7,111 |
|
|
Trade accounts receivable, net
|
|
|
68,131 |
|
|
|
64,086 |
|
|
Inventories
|
|
|
20,085 |
|
|
|
18,104 |
|
|
Deferred income taxes
|
|
|
10,293 |
|
|
|
2,061 |
|
|
Prepaid expenses
|
|
|
2,140 |
|
|
|
2,566 |
|
|
Income tax receivables
|
|
|
4,406 |
|
|
|
2,340 |
|
|
Other current assets
|
|
|
7,381 |
|
|
|
13,203 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
152,143 |
|
|
|
109,471 |
|
|
|
|
|
|
|
|
Properties, plant and equipment, net
|
|
|
118,748 |
|
|
|
121,022 |
|
Goodwill
|
|
|
166,644 |
|
|
|
165,226 |
|
Other assets
|
|
|
11,624 |
|
|
|
5,255 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
449,159 |
|
|
$ |
400,974 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$ |
|
|
|
$ |
13,610 |
|
|
Accounts payable
|
|
|
36,506 |
|
|
|
35,723 |
|
|
Accrued liabilities
|
|
|
25,990 |
|
|
|
22,197 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
62,496 |
|
|
|
71,530 |
|
|
|
|
|
|
|
|
Long-term debt, net of current maturities
|
|
|
200,777 |
|
|
|
141,429 |
|
Other long-term obligations
|
|
|
4,137 |
|
|
|
3,980 |
|
Deferred income taxes
|
|
|
12,900 |
|
|
|
7,324 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
280,310 |
|
|
|
224,263 |
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 14)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value per share
(10,000 shares authorized; none issued)
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value per share
(60,000 shares authorized; 29,344 shares in 2004 and
28,806 shares in 2003 issued and outstanding) shares issued)
|
|
|
29 |
|
|
|
29 |
|
|
Additional paid-in capital
|
|
|
168,850 |
|
|
|
164,123 |
|
|
Deferred compensation
|
|
|
(3,936 |
) |
|
|
(2,286 |
) |
|
Retained earnings
|
|
|
4,306 |
|
|
|
14,845 |
|
|
Cost of treasury stock, 59 common shares in 2004
|
|
|
(400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
168,849 |
|
|
|
176,711 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
449,159 |
|
|
$ |
400,974 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except per share amounts) | |
Sales
|
|
$ |
500,589 |
|
|
$ |
473,124 |
|
|
$ |
503,314 |
|
Cost of goods sold before depreciation, depletion and
amortization
|
|
|
412,209 |
|
|
|
388,717 |
|
|
|
404,376 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit before depreciation, depletion and amortization
|
|
|
88,380 |
|
|
|
84,407 |
|
|
|
98,938 |
|
Selling, general and administrative expenses
|
|
|
47,988 |
|
|
|
42,550 |
|
|
|
47,204 |
|
Restructuring charges and impairments
|
|
|
|
|
|
|
|
|
|
|
28,440 |
|
Depreciation, depletion and amortization
|
|
|
12,669 |
|
|
|
12,441 |
|
|
|
10,734 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
27,723 |
|
|
|
29,416 |
|
|
|
12,560 |
|
Interest expense, net
|
|
|
16,523 |
|
|
|
16,855 |
|
|
|
17,127 |
|
Loss on early extinguishment of debt
|
|
|
28,781 |
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
665 |
|
|
|
3,016 |
|
|
|
1,137 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax provision (benefit)
|
|
|
(16,916 |
) |
|
|
15,577 |
|
|
|
(3,430 |
) |
Income tax provision (benefit)
|
|
|
(6,377 |
) |
|
|
5,274 |
|
|
|
608 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of accounting change
|
|
|
(10,539 |
) |
|
|
10,303 |
|
|
|
(4,038 |
) |
Cumulative effect of accounting change
|
|
|
|
|
|
|
|
|
|
|
(24,328 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(10,539 |
) |
|
$ |
10,303 |
|
|
$ |
(28,366 |
) |
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per share before cumulative
effect of accounting change
|
|
$ |
(0.37 |
) |
|
$ |
0.37 |
|
|
$ |
(0.15 |
) |
|
Cumulative effect of accounting change, net of tax
|
|
|
|
|
|
|
|
|
|
|
(0.91 |
) |
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per share
|
|
$ |
(0.37 |
) |
|
$ |
0.37 |
|
|
$ |
(1.06 |
) |
|
|
|
|
|
|
|
|
|
|
Number of shares used in calculating earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
28,247 |
|
|
|
28,003 |
|
|
|
26,825 |
|
|
Diluted
|
|
|
28,247 |
|
|
|
28,105 |
|
|
|
26,825 |
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Additional | |
|
|
|
|
|
|
|
Total | |
|
|
|
|
Par | |
|
Paid-In | |
|
Deferred | |
|
Retained | |
|
Treasury | |
|
Stockholders | |
|
|
Shares | |
|
Value | |
|
Capital | |
|
Compensation | |
|
Earnings | |
|
Stock | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
BALANCE, December 31, 2001
|
|
|
26,711 |
|
|
$ |
27 |
|
|
$ |
155,380 |
|
|
$ |
|
|
|
$ |
32,908 |
|
|
$ |
|
|
|
$ |
188,315 |
|
|
Issuance of shares for acquisitions
|
|
|
18 |
|
|
|
|
|
|
|
349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
349 |
|
|
Employee purchase of ESPP shares
|
|
|
247 |
|
|
|
|
|
|
|
1,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,247 |
|
|
Stock issued in connection with compensation plan
|
|
|
48 |
|
|
|
|
|
|
|
300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300 |
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,366 |
) |
|
|
|
|
|
|
(28,366 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2002
|
|
|
27,024 |
|
|
|
27 |
|
|
|
157,276 |
|
|
|
|
|
|
|
4,542 |
|
|
|
|
|
|
|
161,845 |
|
|
Issuance of shares for acquisitions and contingent consideration
|
|
|
1,009 |
|
|
|
1 |
|
|
|
4,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,480 |
|
|
Exchange of stock options for restricted common stock
|
|
|
286 |
|
|
|
|
|
|
|
1,374 |
|
|
|
(1,374 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee purchase of ESPP shares
|
|
|
265 |
|
|
|
1 |
|
|
|
866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
867 |
|
|
Restricted common stock issued in connection with compensation
plan
|
|
|
222 |
|
|
|
|
|
|
|
1,128 |
|
|
|
(1,128 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216 |
|
|
|
|
|
|
|
|
|
|
|
216 |
|
|
Receivable of common stock to be canceled
|
|
|
|
|
|
|
|
|
|
|
(1,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000 |
) |
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,303 |
|
|
|
|
|
|
|
10,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2003
|
|
|
28,806 |
|
|
|
29 |
|
|
|
164,123 |
|
|
|
(2,286 |
) |
|
|
14,845 |
|
|
|
|
|
|
|
176,711 |
|
|
Issuance of shares for acquisitions
|
|
|
73 |
|
|
|
|
|
|
|
538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
538 |
|
|
Employee purchase of ESPP shares
|
|
|
149 |
|
|
|
|
|
|
|
849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
849 |
|
|
Stock options exercised
|
|
|
78 |
|
|
|
|
|
|
|
524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
524 |
|
|
Restricted common stock issued in connection with compensation
plan
|
|
|
467 |
|
|
|
|
|
|
|
2,816 |
|
|
|
(2,816 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166 |
|
|
|
|
|
|
|
|
|
|
|
1,166 |
|
|
Cancellation of shares
|
|
|
(170 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury shares
|
|
|
(59 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(400 |
) |
|
|
(400 |
) |
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,539 |
) |
|
|
|
|
|
|
(10,539 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2004
|
|
|
29,344 |
|
|
$ |
29 |
|
|
$ |
168,850 |
|
|
$ |
(3,936 |
) |
|
$ |
4,306 |
|
|
$ |
(400 |
) |
|
$ |
168,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(10,539 |
) |
|
$ |
10,303 |
|
|
$ |
(28,366 |
) |
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of accounting change
|
|
|
|
|
|
|
|
|
|
|
24,328 |
|
|
|
Restructuring and impairments
|
|
|
|
|
|
|
|
|
|
|
28,115 |
|
|
|
Loss on early extinguishment of debt
|
|
|
28,781 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
12,669 |
|
|
|
12,441 |
|
|
|
10,734 |
|
|
|
Debt issuance cost amortization
|
|
|
1,355 |
|
|
|
1,930 |
|
|
|
1,361 |
|
|
|
Net (gain) loss on sale of assets
|
|
|
25 |
|
|
|
(60 |
) |
|
|
(485 |
) |
|
|
Deferred income taxes
|
|
|
(2,656 |
) |
|
|
8,445 |
|
|
|
(4,232 |
) |
|
|
Provision for doubtful accounts
|
|
|
1,040 |
|
|
|
931 |
|
|
|
2,126 |
|
|
|
Provision to write down inventories
|
|
|
|
|
|
|
1,137 |
|
|
|
|
|
|
|
Stock based compensation
|
|
|
1,166 |
|
|
|
216 |
|
|
|
|
|
|
|
Changes in assets and liabilities, excluding effects of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(4,345 |
) |
|
|
(4,242 |
) |
|
|
10,976 |
|
|
|
|
Inventories
|
|
|
(1,981 |
) |
|
|
1,086 |
|
|
|
(2,420 |
) |
|
|
|
Prepaid expenses and other current assets
|
|
|
4,182 |
|
|
|
(565 |
) |
|
|
(1,111 |
) |
|
|
|
Other assets and liabilities, net
|
|
|
1,393 |
|
|
|
(2,358 |
) |
|
|
(414 |
) |
|
|
|
Accounts payable and accrued liabilities
|
|
|
3,333 |
|
|
|
(2,572 |
) |
|
|
(5,679 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
34,423 |
|
|
|
26,692 |
|
|
|
34,933 |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of properties, plant and equipment
|
|
|
(10,447 |
) |
|
|
(13,287 |
) |
|
|
(18,045 |
) |
|
|
Payments for acquisitions, net of cash received of $0, $1,081
and $0
|
|
|
(1,592 |
) |
|
|
(5,814 |
) |
|
|
(17,064 |
) |
|
|
Payment of direct costs in connection with acquisitions
|
|
|
(162 |
) |
|
|
(164 |
) |
|
|
(242 |
) |
|
|
Proceeds from disposals of properties, plant and equipment
|
|
|
608 |
|
|
|
2,587 |
|
|
|
1,068 |
|
|
|
Other investing activities
|
|
|
(4 |
) |
|
|
(581 |
) |
|
|
(2,206 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(11,597 |
) |
|
|
(17,259 |
) |
|
|
(36,489 |
) |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings
|
|
|
264,000 |
|
|
|
|
|
|
|
|
|
|
|
Repayments of borrowings
|
|
|
(219,039 |
) |
|
|
(6,769 |
) |
|
|
(1,967 |
) |
|
|
Proceeds from issuances of common stock
|
|
|
1,373 |
|
|
|
867 |
|
|
|
1,247 |
|
|
|
Common stock issuance costs
|
|
|
|
|
|
|
(36 |
) |
|
|
|
|
|
|
Purchase of treasury shares
|
|
|
(400 |
) |
|
|
|
|
|
|
|
|
|
|
Debt retirement costs
|
|
|
(25,851 |
) |
|
|
|
|
|
|
|
|
|
|
Debt issuance costs
|
|
|
(10,313 |
) |
|
|
(1,069 |
) |
|
|
(166 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
9,770 |
|
|
|
(7,007 |
) |
|
|
(886 |
) |
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
32,596 |
|
|
|
2,426 |
|
|
|
(2,442 |
) |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
7,111 |
|
|
|
4,685 |
|
|
|
7,127 |
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$ |
39,707 |
|
|
$ |
7,111 |
|
|
$ |
4,685 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
14,428 |
|
|
$ |
15,374 |
|
|
$ |
15,306 |
|
|
|
Cash paid for income taxes
|
|
$ |
279 |
|
|
$ |
303 |
|
|
$ |
6,445 |
|
Supplemental Disclosure of Noncash Investing and Financing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to properties, plant and equipment from exchanges
|
|
$ |
788 |
|
|
$ |
|
|
|
$ |
88 |
|
|
|
Receivable from sale of assets
|
|
$ |
|
|
|
$ |
|
|
|
$ |
450 |
|
|
|
Common stock and stock options issued in connection with
acquisitions and contingent consideration
|
|
$ |
538 |
|
|
$ |
4,480 |
|
|
$ |
349 |
|
|
|
Common stock received in settlement
|
|
$ |
1,000 |
|
|
$ |
|
|
|
$ |
|
|
|
|
Exchange of stock options for restricted stock
|
|
$ |
|
|
|
$ |
1,374 |
|
|
$ |
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
U.S. CONCRETE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
1. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
U.S. Concrete, Inc., a Delaware corporation, provides
ready-mixed concrete and related concrete products and services
to the construction industry in several major markets in the
United States. U.S. Concrete is a holding company and
conducts its businesses through its consolidated subsidiaries.
U.S. Concrete commenced operations in May 1999, when it
acquired six operating businesses in three major markets in the
United States. Since then, and through December 31, 2004,
U.S. Concrete has acquired an additional 24 operating
businesses in these and seven additional markets in the United
States.
U.S. Concretes future success depends on a number of
factors, which include attracting and retaining qualified
management and employees, complying with government regulations
and other regulatory requirements or contract specifications and
addressing risks associated with competition, seasonality and
quarterly fluctuations, integrating operations successfully,
managing growth, identifying and acquiring satisfactory
acquisition candidates and obtaining acquisition financing.
The consolidated financial statements consist of the accounts of
U.S. Concrete and its wholly owned subsidiaries. All
significant intercompany account balances and transactions have
been eliminated.
|
|
|
Cash and Cash Equivalents |
U.S. Concrete records as cash equivalents all highly liquid
investments having maturities of three months or less at the
date of purchase. Cash held as collateral or escrowed for
contingent liabilities is included in other current and
noncurrent assets based on the expected release date of the
underlying obligation.
Inventories consist primarily of cement and other raw materials,
precast products, building materials and repair parts that
U.S. Concrete holds for use or sale in the ordinary course
of business. It uses the
first-in, first-out
method to value inventories at the lower of cost or market.
Prepaid expenses primarily include amounts U.S. Concrete
has paid for insurance, licenses, taxes, rent and maintenance
contracts. It expenses or amortizes all prepaid amounts as used
or over the period of benefit, as applicable.
|
|
|
Properties, Plant and Equipment, Net |
U.S. Concrete states properties, plant and equipment at
cost and uses the straight-line method to compute depreciation
of these assets other than mineral deposits over the following
estimated useful lives: buildings and land improvements, from 10
to 40 years; machinery and equipment, from 10 to
30 years; mixers, trucks and other vehicles, from six to
12 years; and other, from three to 10 years. It
capitalizes leasehold improvements on properties held under
operating leases and amortizes them over the lesser of their
estimated useful lives or the applicable lease term.
U.S. Concrete expenses maintenance and repair costs when
incurred and capitalizes and depreciates expenditures for major
renewals and betterments that extend the useful lives of its
existing assets. When U.S. Concrete retires or disposes of
properties, plant or equipment, it removes the related cost and
accumulated depreciation from its accounts and reflects any
resulting gain or loss in its statements of operations.
F-8
U.S. CONCRETE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Depletion of the related mineral deposits is computed on the
basis of the estimated quantity of recoverable raw materials.
The Securities and Exchange Commission (the SEC) has
questioned public companies in the oil, gas and mining
industries as to the proper accounting for, and reporting of,
acquired contractual mineral interests under Statement of
Financial Accounting Standards (SFAS) No. 141,
Business Combinations, and SFAS No. 142,
Goodwill and Intangible Assets. These accounting
standards became effective for U.S. Concrete on
July 1, 2001, and January 1, 2002, respectively. At
issue, is whether the acquired contractual mineral interest
costs should be classified on the balance sheet as part of
properties, plant and equipment or as
intangible assets. U.S. Concrete intends to
continue classifying these costs as properties, plant and
equipment until authoritative guidance is provided.
U.S. Concrete evaluates the recoverability of its
properties, plant and equipment in accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. U.S. Concrete compares
the carrying value of long-lived assets to its projection of
future undiscounted cash flows attributable to those assets, and
if the carrying value exceeds the future undiscounted cash
flows, U.S. Concrete records an impairment charge against
income equal to the excess of the carrying value over the
assets fair value. In restructuring charges and
impairments, U.S. Concrete recorded asset impairment
charges for certain equipment totaling $2.5 million in 2003
(see Note 5 for further discussion).
Goodwill represents the amount by which the total purchase price
U.S. Concrete has paid to acquire businesses accounted for
as purchases exceeds the estimated fair value of the net assets
acquired. As a result of adopting SFAS No. 142,
U.S. Concretes goodwill is no longer amortized. Under
SFAS No. 142, U.S. Concretes goodwill is
periodically tested for impairment. SFAS No. 142
provided a six-month transitional period to complete the initial
impairment review. U.S. Concrete completed its initial
impairment review during the quarter ended June 30, 2002.
That review indicated impairments attributable to two reporting
units. As a result, U.S. Concrete recorded a transitional
goodwill impairment charge of $24.3 million, net of tax,
which it presented as a cumulative effect of accounting change
in the consolidated statement of operations for the year ended
December 31, 2002 (see Note 2 for further discussion).
In the fourth quarter of 2002, U.S. Concrete recorded a
goodwill impairment charge of $25.6 million, representing
the remaining goodwill associated with those two reporting units
(see Notes 2 and 5 for further discussion).
U.S. Concrete amortizes debt issue costs related to its
prior revolving credit facility and prior senior subordinated
notes at December 31, 2003, and its current senior secured
credit facility and current senior subordinated notes at
December 31, 2004, as interest expense over the scheduled
maturity period of the debt. Unamortized debt issuance costs
were $8.7 million as of December 31, 2004 and
$2.5 million as of December 31, 2003.
U.S. Concrete includes those unamortized costs in other
assets.
|
|
|
Allowance for Doubtful Accounts |
U.S. Concrete provides an allowance for accounts receivable
it believes it may not collect in full. A provision for bad debt
expense recorded to selling, general and administrative expenses
increases the allowance. Accounts receivable are written off
when U.S. Concrete feels the receivable will not be
collected. Accounts receivable that U.S. Concrete writes
off its books decrease the allowance. U.S. Concrete
determines the amount of bad debt expense it records each period
and the resulting adequacy of the allowance at the end of each
period by using a combination of its historical loss experience,
a customer-by-customer analysis of its accounts receivable
balances each period and subjective assessments of its bad debt
exposure. The allowance for doubtful accounts balance was
$2.3 million as of December 31, 2004 and
$4.6 million as of December 31, 2003.
F-9
U.S. CONCRETE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
U.S. Concrete derives substantially all its sales from the
production and delivery of ready-mixed concrete, other onsite
products and related building materials. It recognizes sales
when products are delivered. Amounts billed to customers for
delivery costs are classified as a component of total revenues
and the related delivery costs (excluding depreciation) are
classified as a component of total cost of goods sold. Cost of
goods sold consists primarily of product costs and operating
expenses (excluding depreciation, depletion and amortization).
Operating expenses consist primarily of wages, benefits,
insurance and other expenses attributable to plant operations,
repairs and maintenance and delivery costs. Selling expenses
consist primarily of sales commissions, salaries of sales
managers, travel and entertainment expenses and trade show
expenses. General and administrative expenses consist primarily
of executive and administrative compensation and benefits,
office rent, utilities, communication and technology expenses,
provision for doubtful accounts and professional fees.
U.S. Concrete maintains third-party insurance coverage in
amounts and against the risks it believes are reasonable. Under
its insurance programs in effect since July 2001,
U.S. Concrete shares the risk of loss with its insurance
underwriters by maintaining high deductibles subject to
aggregate annual loss limitations. U.S. Concretes
deductible retentions per occurrence for auto and general
liability insurance programs were $0.5 million in 2002,
2003 and 2004, and for its workers compensation insurance
program was $0.5 million in 2002 and $1.0 million in
2003 and 2004. In connection with these automobile and general
liability and workers compensation insurance programs,
U.S. Concrete has entered into standby letter of credit
agreements of $11.6 million at December 31, 2004.
U.S. Concrete funds those deductibles and records an
expense for losses it expects under the programs.
U.S. Concrete determines expected losses using a
combination of its historical loss experience and subjective
assessments of its future loss exposure. The estimated losses
are subject to uncertainty from various sources, including
changes in claim reporting patterns, claim settlement patterns,
judicial decisions, legislation and economic conditions.
Although U.S. Concrete believes that the estimated losses
are reasonable, significant differences related to the items
noted above could materially affect U.S. Concretes
insurance obligations and future expense. The amounts accrued
for self-insurance claims were $8.7 million as of
December 31, 2004 and $6.6 million as of
December 31, 2003. U.S. Concrete includes those
accruals in accrued liabilities.
If a legal obligation exists for the retirement of an asset,
U.S. Concrete records a fair estimate of the liability and
adds a corresponding amount to the carrying value.
U.S. Concrete records depreciation of the additional
carrying value over the life of the asset. If U.S. Concrete
accrues the obligation for other than the carrying amount of the
liability, it recognizes a gain or loss on settlement.
U.S. Concrete settles expenditures to reclaim land to the
reserves as it incurs them.
U.S. Concrete uses the liability method of accounting for
income taxes. Under this method, it records deferred income
taxes based on temporary differences between the financial
reporting and tax bases of assets and liabilities and uses
enacted tax rates and laws that U.S. Concrete expects will
be in effect when it recovers those assets or settles those
liabilities, as the case may be, to measure those taxes.
U.S. Concrete records a valuation allowance to reduce the
deferred tax assets to the amount that is more likely than not
to be realized. As of December 31, 2004 and
December 31, 2003, no valuation allowances were recorded.
F-10
U.S. CONCRETE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
U.S. Concrete recognizes derivatives as either assets or
liabilities in its consolidated balance sheets and measures
those instruments at fair value. U.S. Concretes
derivatives are interest rate swaps, which represent fair value
hedges. U.S. Concretes objective for holding these
derivatives is to balance its exposure to the fixed and variable
interest rate markets. In accordance with
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, these hedges are
considered perfectly effective, and no net gain or loss is
recorded for changes in fair value of the interest rate swaps or
the related debt. See Note 9 for a description of
U.S. Concretes derivative financial instruments and
related accounting policies.
|
|
|
Fair Value of Financial Instruments |
The financial instruments of U.S. Concrete consist
primarily of cash and cash equivalents, trade receivables, trade
payables and long-term debt. U.S. Concretes
management considers the carrying values of cash and cash
equivalents, trade receivables, trade payables and the revolving
credit facility to be representative of their respective fair
values because of their short-term maturities or expected
settlement dates. The fair market value of
U.S. Concretes long-term debt borrowings at year end
was estimated at $215 million in 2004 and $107 million
in 2003.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires the use of estimates and assumptions by
management in determining 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 revenues and expenses during the reporting period. Actual
results could differ from those estimates. Estimates and
assumptions that U.S. Concrete considers significant in the
preparation of its financial statements include those related to
its allowance for doubtful accounts, realization of goodwill,
accruals for self-insurance, accruals for income taxes, reserves
for inventory obsolescence and the valuation and useful lives of
properties, plant and equipment.
|
|
|
Earnings (Loss) Per Share |
Basic earnings per share are computed using the weighted average
number of common shares outstanding during the year. Diluted
earnings per share are computed using the weighted average
number of common shares outstanding during the year, but also
include the dilutive effect of stock-based incentives and option
plans (including stock options and awards of restricted stock).
The following table reconciles the numerator and denominator of
the basic and diluted earnings per share during the years ended
December 31, 2004, 2003 and 2002 (in thousands, except per
share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(10,539 |
) |
|
$ |
10,303 |
|
|
$ |
(28,366 |
) |
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding-basic
|
|
|
28,247 |
|
|
|
28,003 |
|
|
|
26,825 |
|
|
Effect of dilutive stock options and restricted stock
|
|
|
|
|
|
|
102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding-diluted
|
|
|
28,247 |
|
|
|
28,105 |
|
|
|
26,825 |
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(0.37 |
) |
|
$ |
0.37 |
|
|
$ |
(1.06 |
) |
|
Diluted
|
|
$ |
(0.37 |
) |
|
$ |
0.37 |
|
|
$ |
(1.06 |
) |
F-11
U.S. CONCRETE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the years ended December 31, stock options and awards
covering 3.7 million shares in 2004, 3.1 million
shares in 2003 and 4.1 million shares in 2002 were excluded
from the computation of diluted earnings (loss) per share
because their effect would have been antidilutive.
Comprehensive income represents all changes in equity of an
entity during the reporting period, except those resulting from
investments by and distributions to stockholders. For each of
the three years in the period ended December 31, 2004, no
differences existed between the historical consolidated net
income and consolidated comprehensive income of
U.S. Concrete.
U.S. Concrete has adopted SFAS No. 131,
Disclosures About Segments of an Enterprise and Related
Information, which establishes standards for the manner by
which public enterprises are to report information about
operating segments in annual financial statements and requires
the reporting of selected information about operating segments
in interim financial reports issued to stockholders. All
segments that meet a threshold of 10% of revenues, reported
profit or loss or combined assets are defined as significant
segments. U.S. Concrete currently aggregates its
ready-mixed concrete and concrete related products as one
reportable segment. All its operations, sales and long-lived
assets are in the United States.
Under the requirements of SFAS No. 123, as amended by
SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, an amendment of FASB
Statement No. 123, U.S. Concrete accounts for
stock option awards in accordance with Accounting Principles
Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees (APB
No. 25), and its related interpretations. Under APB
No. 25, no compensation expense is recognized when the
exercise price is greater than or equal to the market price of
the underlying common stock on the date of grant. The exercise
price per share of each stock option U.S. Concrete awarded
during 2004, 2003 and 2002 was greater than or equal to the fair
market value of a share of U.S. Concretes common
stock on the date of grant. See Note 10 for a description
of U.S. Concretes stock-based compensation plans.
The following table reflects pro forma net income (loss) and
earnings (loss) per share implications if the fair value method
of SFAS No. 123 had been applied to all awards that
vested during the years ended December 31, 2004, 2003 and
2002 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Net income (loss)
|
|
$ |
(10,539 |
) |
|
$ |
10,303 |
|
|
$ |
(28,366 |
) |
Add: Total stock-based employee compensation expense included in
reported net income (loss), net of related tax effects
|
|
|
726 |
|
|
|
130 |
|
|
|
|
|
Deduct: Total stock-based employee compensation expense
determined under fair value method for all awards vested during
the year, net of any tax effects
|
|
|
(1,775 |
) |
|
|
(1,918 |
) |
|
|
(1,713 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
$ |
(11,588 |
) |
|
$ |
8,515 |
|
|
$ |
(30,079 |
) |
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported basic and diluted
|
|
$ |
(0.37 |
) |
|
$ |
0.37 |
|
|
$ |
(1.06 |
) |
|
Pro forma basic and diluted
|
|
$ |
(0.41 |
) |
|
$ |
0.30 |
|
|
$ |
(1.12 |
) |
The weighted average fair values of stock options at their grant
date for 2004, 2003 and 2002, where the exercise price equaled
the market price on the grant date, was $1.95, $1.43, and $2.01,
respectively. The
F-12
U.S. CONCRETE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
estimated fair values for options granted in 2004, 2003 and 2002
were calculated using a Black-Scholes option pricing model, with
the following weighted-average assumptions for 2004, 2003 and
2002, respectively: risk-free interest rate of 2.87%, 3.25%, and
2.78%; no dividend yield; volatility factor of 0.307, 0.314, and
0.313; and an expected option life of five years.
The weighted average fair values of restricted stock awards at
their grant date for 2004 and 2003 was $6.44 and $5.36,
respectively.
For additional discussion related to stock options, see
Note 10.
|
|
|
Recent Accounting Requirements |
In December 2004, the FASB issued SFAS No. 123R,
Share-Based Payment, which is effective for public
companies for interim or annual periods beginning after
June 15, 2005 and is required to be adopted by
U.S. Concrete in its third quarter of fiscal 2005,
beginning on July 1, 2005. This statement will have a
significant impact on U.S. Concretes consolidated
statements of operations, as it will be required to expense the
fair value of its stock option grants and stock purchases under
its employee stock purchase plan rather than disclose the pro
forma impact on the consolidated net income within the footnotes
as is its current practice. U.S. Concrete intends to comply
with the standard upon its effectiveness; however, it does not
believe that the impact would be materially different from the
above pro forma disclosures under SFAS No. 123.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs An Amendment of ARB
No. 43, Chapter 4
(SFAS No. 151). SFAS No. 151
amends the guidance in ARB No. 43, Chapter 4,
Inventory Pricing, to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Among other provisions,
the new rule requires that items such as idle facility expense,
excessive spoilage, double freight, and rehandling costs be
recognized as current-period charges regardless of whether they
meet the criterion of so abnormal as stated in ARB
No. 43. Additionally, SFAS No. 151 requires that
the allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production
facilities. SFAS No. 151 is effective for fiscal years
beginning after June 15, 2005 and is required to be adopted
by U.S. Concrete in its first quarter of fiscal 2006,
beginning on January 1, 2006. U.S. Concrete is
currently evaluating the effect that the adoption of
SFAS No. 151 will have on its consolidated financial
position, results of operations or cash flows but does not
expect SFAS No. 151 to have a material impact.
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets An Amendment
of APB Opinion No. 29, Accounting for Nonmonetary
Transactions (SFAS No. 153).
SFAS No. 153 eliminates the exception from fair value
measurement for nonmonetary exchanges of similar productive
assets in paragraph 21(b) of APB Opinion No. 29,
Accounting for Nonmonetary Transactions, and
replaces it with an exception for exchanges that do not have
commercial substance. SFAS No. 153 specifies that a
nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a
result of the exchange. SFAS No. 153 is effective for
the fiscal periods beginning after June 15, 2005 and is
required to be adopted by U.S. Concrete in its first
quarter of fiscal 2006, beginning on January 1, 2006.
U.S. Concrete is currently evaluating the effect that the
adoption of SFAS No. 153 will have on its consolidated
financial position, results of operations or cash flows but does
not expect it to have a material impact.
U.S. Concrete adopted SFAS No. 142 effective
January 1, 2002. Under SFAS No. 142,
substantially all of U.S. Concretes intangible assets
are no longer amortized and U.S. Concrete performs an
annual impairment test for goodwill and other intangible assets.
U.S. Concrete allocates these assets to various reporting
units, consisting of eight operating divisions.
SFAS No. 142 requires U.S. Concrete to compare
the fair value of the reporting unit to its carrying amount on
an annual basis to determine if there is a potential impairment.
If the fair value of the reporting unit is less than its
carrying value, U.S. Concrete would record an impairment
loss to the extent of that
F-13
U.S. CONCRETE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
difference. The impairment test for indefinite-lived intangible
assets consists of comparing the fair value of the intangible
asset to its carrying amount. If the carrying amount of the
intangible asset exceeds its fair value, U.S. Concrete
would recognize an impairment. U.S. Concrete bases the fair
values of its reporting units on a combination of valuation
approaches, including discounted cash flows, multiples of sales
and earnings before interest, taxes, depreciation, depletion and
amortization and comparisons of recent transactions. Under
SFAS No. 142, U.S. Concrete recorded a
transitional goodwill impairment charge of $36.6 million
($24.3 million, net of tax), which it presented as a
cumulative effect of accounting change in the first quarter of
2002. This impairment charge was attributable to two reporting
units, its divisions in North Texas/ Southwest Oklahoma and
Memphis, Tennessee/ Northern Mississippi. Local market and
economic conditions affected the value of acquisitions made in
North Texas (in 2000 and 2001) and Memphis, Tennessee/ Northern
Mississippi (in 1999).
Subsequently, in the fourth quarter of 2002, U.S. Concrete
conducted its annual valuation test and determined that two
reporting units, its divisions in North Texas/ Southwest
Oklahoma and Memphis, Tennessee/ Northern Mississippi, had
experienced a further decline in value and determined that the
fair value of goodwill in those reporting units was less than
its carrying amount. U.S. Concrete recorded a goodwill
impairment charge of $25.6 million, representing the
remaining goodwill associated with those reporting units. This
charge was included as a component of restructuring and
impairment charges in the consolidated statement of operations
in 2002 (see Note 5 for further discussion). In the fourth
quarter of each of 2003 and 2004, U.S. Concrete conducted
its annual valuation test and determined it was not required to
recognize any goodwill impairment. There can be no assurance
that goodwill impairments will not occur in the future.
The changes in the carrying amount of goodwill for 2004 and 2003
were as follows (in thousands):
|
|
|
|
|
Balance at January 1, 2003
|
|
$ |
157,364 |
|
Acquisition
|
|
|
6,269 |
|
Adjustments
|
|
|
1,593 |
|
|
|
|
|
Balance at December 31, 2003
|
|
|
165,226 |
|
Acquisition
|
|
|
1,418 |
|
|
|
|
|
Balance at December 31, 2004
|
|
$ |
166,644 |
|
|
|
|
|
During the third quarter of 2003, U.S. Concrete increased
goodwill by $0.8 million to correct an inventory
overstatement as of the acquisition date of one of its
subsidiaries in its Atlantic Region (see Note 6 for
discussion). The $0.8 million increase in goodwill
represents a correction of a $1.4 million overstatement of
inventories in the opening balance sheet of that subsidiary and
a $0.6 million increase of deferred tax assets established
in the opening balance sheet related to the change in
inventories. The other goodwill adjustments in 2003 primarily
represent post-acquisition adjustments to reflect the contingent
consideration payment related to that 2001 business acquisition
and the adjustment of certain pre-acquisition tax contingencies
related to the acquisition of a business in 2000.
In February 2003, U.S. Concrete completed the acquisition
of Builders Redi-Mix, Inc., which produces and distributes
ready-mixed concrete in the greater Lansing, Michigan market.
The purchase price was approximately $10.3 million,
comprised of $5.8 million in cash, net of cash acquired,
transaction costs of $0.2 million and 920,726 shares
of U.S. Concrete common stock (valued at
$4.3 million). The purchase price has been allocated to the
fair value of properties, plant and equipment of
$4.4 million, goodwill of $6.3 million and net assumed
liabilities of $0.4 million (net of other current assets of
$2.3 million) in the accompanying consolidated balance
sheets. U.S. Concrete has accounted for this transaction
under the purchase method of accounting, and the excess of the
purchase price compared to the fair market value of assets
acquired has been allocated to goodwill.
F-14
U.S. CONCRETE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In December 2004, U.S. Concrete completed the acquisition
of Riefkohl Contracting LLC, which provides precast concrete
installation services in the greater Phoenix, Arizona market.
The purchase price was approximately $2.2 million,
comprised of $1.6 million in cash, transaction costs of
$0.1 million and 73,489 shares of U.S. Concrete
common stock (valued at $0.5 million). The purchase price
has been allocated to the fair value of properties and equipment
of $0.2 million, identifiable intangibles of
$0.6 million, net current assets of $0.1 million (net
of other current liabilities of $0.6 million) and goodwill
of $1.4 million in the accompanying consolidated balance
sheet as of December 31, 2004.
In 2003, U.S. Concrete asserted a legal claim against two
former owners of a U.S. Concrete subsidiary in the Atlantic
Region for indemnification under an acquisition agreement for
breach of representations made by the former owners in the
acquisition agreement. Those prior owners provided
U.S. Concrete with indemnification consideration of
$2.0 million to settle the claim, consisting of cash, the
return of U.S. Concrete common stock and other assets.
U.S. Concrete recorded the receipt of that consideration as
other income in the fourth quarter of 2003. Receivables of
$0.8 million in cash and $0.2 million in other assets
were included in other current receivables and other assets as
of December 31, 2003. A receivable of $1.0 million in
U.S. Concrete common stock was reflected as a reduction in
stockholders equity as of December 31, 2003. In 2004,
U.S. Concrete received and cancelled approximately
144,000 shares of its common stock related to this
settlement.
In January 2004, U.S. Concrete settled a previously
reported lawsuit that Bay-Crete Transportation &
Materials, LLC filed in July 2000 in a California state court
against U.S. Concrete and one of its subsidiaries, Central
Concrete Supply Co., Inc., for an alleged breach of a 1983
contract. Under the settlement agreement resolving this dispute,
Bay-Crete is entitled to perform certain hauling services for
Central at market rates. The former owners of one of
Centrals predecessors provided U.S. Concrete with
indemnification consideration that offset the settlement payment
it made to Bay-Crete. As a result, the settlement did not have a
material impact on U.S. Concretes earnings.
|
|
5. |
RESTRUCTURING AND IMPAIRMENT CHARGES |
In the fourth quarter of 2002, U.S. Concrete implemented
operational initiatives focusing on the realignment of the
businesses in its North Texas/ Southwest Oklahoma and Memphis,
Tennessee/ Northern Mississippi markets. In connection with
those initiatives, U.S. Concrete completed a restructuring
plan that included severance for one employee, lease
terminations, the disposal of assets, the write-down of certain
equipment and other actions. U.S. Concrete recorded
restructuring and impairment charges totaling $28.4 million
($18.9 million, net of tax) for the year ended
December 31, 2002. The restructuring and impairment charges
were composed of goodwill impairments of $25.6 million
related to two reporting units in U.S. Concretes
North Texas/ Southwest Oklahoma and Memphis, Tennessee/ Northern
Mississippi markets (see Note 2 for discussion), assets
impairment charges of $2.5 million primarily related to
rolling stock, severance costs of $0.1 million and lease
termination and other exit costs of $0.2 million. The
impaired assets sold, totaling approximately $0.9 million
as of December 31, 2002, were included in prepaid and other
current assets in the consolidated balance sheet.
U.S. Concrete sold substantially all of those assets in the
first quarter of 2003 for $1.3 million. The restructuring
liability as of December 31, 2004 and 2003 was immaterial.
F-15
U.S. CONCRETE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventory consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Raw materials
|
|
$ |
8,114 |
|
|
$ |
8,218 |
|
Precast products
|
|
|
6,003 |
|
|
|
4,410 |
|
Building materials for resale
|
|
|
3,934 |
|
|
|
3,605 |
|
Repair parts
|
|
|
2,034 |
|
|
|
1,871 |
|
|
|
|
|
|
|
|
|
|
$ |
20,085 |
|
|
$ |
18,104 |
|
|
|
|
|
|
|
|
During the third quarter of 2003, U.S. Concrete identified
an inventory overstatement at one of its subsidiaries in its
Atlantic Region. As a result, U.S. Concrete reduced
inventory by $2.5 million to account for this overstatement
in the third quarter of 2003. Since the impact to
U.S. Concretes 2001 and 2002 annual financial
statements was not material, U.S. Concrete recorded an
increase of $1.1 million, or $0.7 million net of tax,
to cost of goods sold in the third quarter of 2003. The cost of
goods sold, properly reflected in the respective prior periods,
would have decreased annual net income for 2001 by
$0.2 million and increased the annual net loss for 2002 by
$0.5 million. U.S. Concrete reflected the remaining
$1.4 million of the overstatement, which related to the
acquisition date, as a $0.8 million increase in goodwill
and a $0.6 million increase in deferred tax assets as of
December 31, 2003 (see Note 2 for discussion).
|
|
7. |
PROPERTIES, PLANT AND EQUIPMENT |
A summary of properties, plant and equipment is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Land and mineral deposits
|
|
$ |
34,760 |
|
|
$ |
33,461 |
|
Buildings and improvements
|
|
|
10,194 |
|
|
|
10,094 |
|
Machinery and equipment
|
|
|
61,269 |
|
|
|
56,808 |
|
Mixers, trucks and other vehicles
|
|
|
61,125 |
|
|
|
62,934 |
|
Other, including construction in progress
|
|
|
5,213 |
|
|
|
2,346 |
|
|
|
|
|
|
|
|
|
|
|
172,561 |
|
|
|
165,643 |
|
Less: accumulated depreciation and depletion
|
|
|
(53,813 |
) |
|
|
(44,621 |
) |
|
|
|
|
|
|
|
|
|
$ |
118,748 |
|
|
$ |
121,022 |
|
|
|
|
|
|
|
|
As of December 31, the carrying amounts of mineral deposits
were $10.4 million in 2004 and $10.7 million in 2003.
F-16
U.S. CONCRETE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
8. |
DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS |
Activity in U.S. Concretes allowance for doubtful
accounts receivable consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Balance, beginning of period
|
|
$ |
4,639 |
|
|
$ |
4,497 |
|
|
$ |
3,667 |
|
|
Additions from acquisitions
|
|
|
|
|
|
|
83 |
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
1,040 |
|
|
|
931 |
|
|
|
2,126 |
|
|
Uncollectible receivables written off, net of recoveries
|
|
|
(3,387 |
) |
|
|
(872 |
) |
|
|
(1,296 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$ |
2,292 |
|
|
$ |
4,639 |
|
|
$ |
4,497 |
|
|
|
|
|
|
|
|
|
|
|
Other current assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Interest receivables
|
|
$ |
440 |
|
|
$ |
|
|
Receivables from suppliers
|
|
|
4,350 |
|
|
|
2,214 |
|
Other current receivables
|
|
|
1,306 |
|
|
|
3,399 |
|
Restricted cash equivalents
|
|
|
|
|
|
|
6,352 |
|
Other current assets
|
|
|
1,285 |
|
|
|
1,238 |
|
|
|
|
|
|
|
|
|
|
$ |
7,381 |
|
|
$ |
13,203 |
|
|
|
|
|
|
|
|
Accrued liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Accrued compensation and benefits
|
|
$ |
3,451 |
|
|
$ |
2,918 |
|
Accrued interest
|
|
|
4,281 |
|
|
|
2,009 |
|
Accrued income taxes
|
|
|
234 |
|
|
|
775 |
|
Accrued insurance
|
|
|
8,658 |
|
|
|
6,589 |
|
Other
|
|
|
9,366 |
|
|
|
9,906 |
|
|
|
|
|
|
|
|
|
|
$ |
25,990 |
|
|
$ |
22,197 |
|
|
|
|
|
|
|
|
F-17
U.S. CONCRETE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9. |
DEBT AND DERIVATIVE FINANCIAL INSTRUMENTS |
A summary of debt is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Senior secured credit facility due 2009
|
|
$ |
|
|
|
$ |
|
|
83/8% senior
subordinated notes due 2014(1)
|
|
|
200,777 |
|
|
|
|
|
Refinanced debt
|
|
|
|
|
|
|
155,000 |
|
Other
|
|
|
|
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
200,777 |
|
|
|
155,039 |
|
|
Less: current maturities
|
|
|
|
|
|
|
(13,610 |
) |
|
|
|
|
|
|
|
|
|
$ |
200,777 |
|
|
$ |
141,429 |
|
|
|
|
|
|
|
|
|
|
(1) |
The carrying amount of the notes includes a $0.8 million
mark-to-market
adjustment at December 31, 2004 for the fair value of
interest rate swaps. A corresponding amount is included in other
assets. |
At December 31, 2004, there were no borrowings under
U.S. Concretes senior secured credit facility and no
maturities of its long-term debt until 2014.
|
|
|
Senior Secured Credit Facility |
On March 12, 2004, U.S. Concrete entered into a senior
secured credit facility under which it initially borrowed
$64 million to retire debt outstanding under its prior
senior credit facility and to pay related transaction fees. It
prepaid this borrowing on March 31, 2004 with the proceeds
from its sale of its
83/8% senior
subordinated notes described below. At December 31, 2004,
the facility consisted of a $105 million revolving credit
facility, with borrowings limited based on a portion of the net
amounts of eligible accounts receivable, inventory and mixer
trucks. The facility matures in March 2009. At December 31,
2004, borrowings under the facility would have borne annual
interest at the Eurodollar-based rate (LIBOR) plus
2.25% or the domestic rate plus 0.75%. The interest rate margins
will vary inversely with the amount of unused borrowing capacity
available under the facility. Commitment fees at an annual rate
of 0.375% are payable on the unused portion of the facility.
The credit agreement relating to the facility provides that the
administrative agent may, on the bases specified, reduce the
amount of the available credit from time to time. At
December 31, 2004, the amount of the available credit was
approximately $75.9 million, net of outstanding letters of
credit of $11.6 million.
U.S. Concretes subsidiaries have jointly and
severally, and fully and unconditionally, guaranteed the
repayment of all amounts owing under the senior secured credit
facility. In addition, U.S. Concrete collateralized the
facility with the capital stock of its subsidiaries, excluding
minor subsidiaries without operations or material assets, and
substantially all the assets of those subsidiaries, excluding
most of the assets of the aggregate quarry in northern New
Jersey. The credit agreement contains covenants restricting,
among other things, prepayment or redemption of subordinated
notes, distributions, dividends and repurchases of capital stock
and other equity interests, acquisitions and investments,
mergers, asset sales other than in the ordinary course of
business, indebtedness, liens, changes in business, changes to
charter documents and affiliate transactions. The credit
agreement limits capital expenditures to 5% of consolidated
revenues in the prior 12 months. It will require
U.S. Concrete to maintain a minimum fixed charge coverage
ratio of 1.0 to 1.0 on a rolling
12-month basis if the
available credit under the credit facility falls below
$15 million. The credit agreement provides that specified
change of control events would constitute events of default
under the agreement.
F-18
U.S. CONCRETE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Senior Subordinated Notes |
On March 31, 2004, U.S. Concrete issued and sold,
through a private placement, $200 million of
83/8% senior
subordinated notes due April 1, 2014. Interest on these
notes is payable semiannually on April 1 and October 1
of each year. U.S. Concrete used the net proceeds of this
financing to redeem its prior 12% senior subordinated notes
and prepay the outstanding debt under its new credit facility.
U.S. Concrete paid $122.5 million to redeem its prior
12% senior subordinated notes, including a prepayment
premium of $25.9 million, plus all accrued and unpaid
interest through the redemption date of $1.6 million.
As a result of the March 2004 refinancing, U.S. Concrete
recognized an ordinary loss on early extinguishment of debt of
$28.8 million, which consisted of the $25.9 million in
premium payments and a write-off of $2.9 million of debt
issuance costs associated with all the debt repaid.
All the subsidiaries of U.S. Concrete, excluding minor
subsidiaries, have jointly and severally and fully and
unconditionally guaranteed the repayment of the
83/8% senior
subordinated notes. U.S. Concrete directly or indirectly
owns 100% of each subsidiary guarantor. Separate financial
statements of the subsidiary guarantors are not provided because
U.S. Concrete has no independent assets or operations, the
guarantees are full and unconditional and joint and several, and
the non-guarantor subsidiaries are minor. There are no
significant restrictions on the ability of U.S. Concrete or
any guarantor to obtain funds from its subsidiaries by dividend
or loan.
The indenture governing the notes limits the ability of
U.S. Concrete and its subsidiaries to pay dividends or
repurchase common stock, make certain investments, incur
additional debt or sell preferred stock, create liens, merge or
transfer assets. At any time prior to April 1, 2007,
U.S. Concrete may redeem up to 35% of the aggregate
principal amount of the notes at a redemption price of 108.375%
of their principal amount, plus accrued interest, with the net
cash proceeds from certain equity offerings. In addition, after
March 31, 2009, U.S. Concrete may redeem all or a part
of the notes at a redemption price of 104.188% in 2009, 102.792%
in 2010, 101.396% in 2011 and 100% in 2012 and thereafter. The
indenture requires U.S. Concrete to redeem the subordinated
notes from the proceeds of certain asset sales that are not
reinvested in the business or used to pay senior debt and on the
occurrence of a change of control. U.S. Concretes
senior secured credit agreement prohibits these redemptions.
Effective April 16, 2004, U.S. Concrete entered into
interest rate swap agreements that have the economic effect of
modifying the interest obligations associated with
$70 million of its
83/8% senior
subordinated notes, such that the interest payable on these
notes effectively becomes variable based on the six-month LIBOR
rate, set on April 1 and October 1 of each year. The
swaps have been designated as fair-value hedges and have no
ineffective portion. The notional amounts of the swaps match the
principal amounts of the hedged portion of the senior
subordinated notes, and the termination dates of the swaps match
the maturity date of the notes. As a result of the swaps, the
interest rate on the hedged portion of the notes will be LIBOR
plus 3.16%. The swap agreements are marked to market each
quarter, with a corresponding
mark-to-market
adjustment reflected as either a discount or premium on the
notes. Because the swap agreements are considered an effective
fair-value hedge, there will be no effect on
U.S. Concretes results of operations from the
mark-to-market
adjustment as long as the swap agreements are in effect. At
December 31, 2004, the fair value of the interest rate swap
was $0.8 million and included in other assets. During the
year ended December 31, 2004, the interest rate swap
agreements reduced U.S. Concretes interest expense by
approximately $1.4 million ($0.9 million, net of tax).
F-19
U.S. CONCRETE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Common Stock and Preferred Stock |
The following table presents information regarding
U.S. Concretes common stock (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Shares authorized
|
|
|
60,000 |
|
|
|
60,000 |
|
Shares outstanding at end of period
|
|
|
29,344 |
|
|
|
28,806 |
|
Shares held in treasury
|
|
|
59 |
|
|
|
|
|
U.S. Concrete is authorized to issue 10,000,000 shares
of preferred stock, $0.001 par value, of which none were
outstanding as of December 31, 2004 and 2003.
Shares of restricted common stock issued under
U.S. Concretes 1999 Incentive Plan and 2001 Employee
Incentive Plan are subject to restrictions on transfer and
certain other conditions. On issuance of the stock, an
unamortized compensation expense equivalent to the market value
of the shares on the date of grant is charged to
stockholders equity and is amortized over the restriction
period. During the restriction period, the holders of restricted
shares are entitled to vote and receive dividends, if any, on
those shares.
During the first quarter of 2003, U.S. Concrete awarded to
certain key employees approximately 98,000 restricted shares of
its common stock, at a total valued at $0.4 million. These
awards vest on the fifth anniversary from the date of grant.
In the third quarter of 2003, U.S. Concrete offered
eligible employees the opportunity to exchange certain
outstanding stock options for shares of restricted stock. In
September 2003, U.S. Concrete accepted for exchange and
canceled eligible options to purchase an aggregate of
approximately 859,000 shares of its common stock,
representing approximately 93% of the approximately 922,000
options that were eligible to be tendered in the offer as of the
expiration date. Under the offer, U.S. Concrete granted an
aggregate of approximately 286,000 restricted shares of its
common stock, or approximately $1.4 million in value, in
exchange for the tendered eligible options. The value of this
stock was established by the market price on the date of the
grant and was recorded as a reduction in stockholders
equity on the consolidated balance sheet. This restricted
deferred compensation reflected as stock issuance requires
U.S. Concrete to recognize a noncash stock compensation
charge of approximately $0.5 million per year over the
three-year vesting period of the restricted stock. Of the
eligible options subject to the offer, approximately 63,000
options were not exchanged. Of those options, as of
December 31, 2004, approximately 58,000 remained
outstanding and will be accounted for under variable plan
accounting under APB No. 25. The weighted average exercise
price of these remaining eligible options is approximately
$8.11. In the future, to the extent that
U.S. Concretes stock price exceeds an options
exercise price, the difference will be recorded as a noncash
compensation charge, with an offset to additional paid-in
capital.
During the years ended December 31, U.S. Concrete
awarded approximately 467,000 shares in 2004 and
124,000 shares in 2003 of restricted stock under the plans
to employees and retired employees, at a total value of
$2.8 million in 2004 and $0.7 million in 2003, as part
of the 2004 and 2003 annual grant or as grants issued for
promotions and new hires. The awards are subject to vesting
requirements. The value of this stock was established by the
market price on the date of grant and was recorded as deferred
compensation. The deferred compensation is reflected as a
reduction in stockholders equity on the consolidated
balance sheet and is being amortized ratably over the applicable
restricted stock vesting period of four years.
During the year ended December 31, 2004, approximately
26,000 shares of restricted stock were canceled.
F-20
U.S. CONCRETE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, the outstanding shares of restricted
stock totaled approximately 816,000 in 2004 and approximately
516,000 in 2003. U.S. Concrete recognized stock-based
compensation expense of approximately $1.2 million
($0.7 million, net of tax) in 2004, $0.2 million
($0.1 million, net of tax) in 2003 and none in 2002.
Employees may elect to satisfy their tax obligations on the
vesting of their restricted stock by having U.S. Concrete
make the required tax payments and withhold a number of vested
shares having a value on the date of vesting equal to the tax
obligation. As a result of such employee elections,
U.S. Concrete withheld approximately 42,000 shares
during the year ended December 31, 2004, at a total value
of $0.3 million, and those shares were accounted for as
treasury stock. In 2004, U.S. Concrete also purchased
16,551 shares of its common stock in private transactions
from its chief executive officer and chief operating officer at
a total value of $0.1 million. All shares were accounted
for as treasury stock.
U.S. Concretes 1999 Incentive Plan and 2001 Employee
Incentive Plan enable U.S. Concrete to grant nonqualified
and incentive options, restricted stock, stock appreciation
rights and other long-term incentive awards to employees and
nonemployee directors of U.S. Concrete and nonemployee
consultants and other independent contractors who provide
services to U.S. Concrete (except that no officers or
directors of U.S. Concrete are eligible to participate in
the 2001 Employee Incentive Plan). Option grants under these
plans generally vest over a four-year period and expire if not
exercised prior to the tenth anniversary following the grant
date. The number of shares available for awards under these
plans was approximately 1.9 million as of December 31,
2004, approximately 2.1 million as of December 31,
2003 and approximately 1.3 million as of December 31,
2002. The board of directors of U.S. Concrete may, in its
discretion, grant additional awards or establish other
compensation plans.
The following tables set forth certain stock option information
(shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- | |
|
|
Number | |
|
Average | |
|
|
of | |
|
Exercise | |
|
|
Options | |
|
Price | |
|
|
| |
|
| |
Options outstanding at December 31, 2001
|
|
|
3,414 |
|
|
$ |
7.53 |
|
|
Granted
|
|
|
1,138 |
|
|
|
6.25 |
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(458 |
) |
|
|
7.05 |
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2002
|
|
|
4,094 |
|
|
|
7.22 |
|
|
Granted
|
|
|
125 |
|
|
|
4.58 |
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(1,119 |
) |
|
|
7.80 |
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2003
|
|
|
3,100 |
|
|
|
6.90 |
|
|
Granted
|
|
|
85 |
|
|
|
6.85 |
|
|
Exercised
|
|
|
(78 |
) |
|
|
6.38 |
|
|
Canceled
|
|
|
(226 |
) |
|
|
6.66 |
|
|
|
|
|
|
|
|
F-21
U.S. CONCRETE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- | |
|
|
Number | |
|
Average | |
|
|
of | |
|
Exercise | |
|
|
Options | |
|
Price | |
|
|
| |
|
| |
Options outstanding at December 31, 2004
|
|
|
2,881 |
|
|
$ |
6.93 |
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2002
|
|
|
1,698 |
|
|
$ |
7.64 |
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2003
|
|
|
1,796 |
|
|
$ |
7.16 |
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2004
|
|
|
2,237 |
|
|
$ |
7.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- | |
|
|
|
|
|
|
|
|
|
|
Average | |
|
|
|
|
|
|
|
|
|
|
Remaining | |
|
Weighted- | |
|
|
|
Weighted- | |
|
|
Number of | |
|
Years of | |
|
Average | |
|
Number of | |
|
Average | |
|
|
Outstanding | |
|
Contractual | |
|
Exercise | |
|
Exercisable | |
|
Exercise | |
Range of Exercise Prices |
|
Options | |
|
Life | |
|
Price | |
|
Options | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
$4.08 $5.99
|
|
|
126 |
|
|
|
4.2 |
|
|
$ |
4.72 |
|
|
|
106 |
|
|
$ |
4.69 |
|
$6.00 $6.99
|
|
|
1,118 |
|
|
|
6.8 |
|
|
|
6.35 |
|
|
|
649 |
|
|
|
6.39 |
|
$7.00 $7.99
|
|
|
899 |
|
|
|
5.8 |
|
|
|
7.07 |
|
|
|
744 |
|
|
|
7.08 |
|
$8.00 $8.75
|
|
|
738 |
|
|
|
4.6 |
|
|
|
8.03 |
|
|
|
738 |
|
|
|
8.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,881 |
|
|
|
|
|
|
|
|
|
|
|
2,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 1 for pro forma disclosure of net income (loss)
and earnings (loss) per share under SFAS No. 123.
|
|
|
Employee Stock Purchase Plan |
In January 2000, U.S. Concretes board of directors
adopted, and its stockholders approved, the U.S. Concrete
2000 Employee Stock Purchase Plan (the ESPP). The
ESPP is intended to qualify as an employee stock purchase
plan under Section 423 of the Internal Revenue Code
of 1986. All U.S. Concrete personnel employed for at least
20 hours per week and five months per calendar year are
eligible to participate in the ESPP. Eligible employees electing
to participate are granted the right to purchase shares of
U.S. Concrete common stock at a price generally equal to
85% of the lower of the fair market value of a share of
U.S. Concrete common stock on the first or last day of the
offering period. U.S. Concrete issued approximately
149,000 shares in 2004, 265,000 shares in 2003 and
247,000 shares in 2002.
U.S. Concretes consolidated federal and state tax
returns include the results of operations of acquired businesses
from their dates of acquisition.
F-22
U.S. CONCRETE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of U.S. Concretes effective income
tax rate to the amounts calculated by applying the federal
statutory corporate tax rate of 35% during the years ended
December 31, 2004, 2003 and 2002 is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Tax at statutory rate
|
|
$ |
(5,921 |
) |
|
$ |
5,452 |
|
|
$ |
(1,201 |
) |
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes
|
|
|
253 |
|
|
|
262 |
|
|
|
401 |
|
|
Settlement income
|
|
|
(298 |
) |
|
|
(700 |
) |
|
|
|
|
|
Tax audit settlement
|
|
|
(136 |
) |
|
|
|
|
|
|
|
|
|
Tax credits
|
|
|
(238 |
) |
|
|
|
|
|
|
|
|
|
Other
|
|
|
(37 |
) |
|
|
260 |
|
|
|
1,408 |
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
$ |
(6,377 |
) |
|
$ |
5,274 |
|
|
$ |
608 |
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
37.7 |
% |
|
|
33.9 |
% |
|
|
17.7 |
% |
|
|
|
|
|
|
|
|
|
|
The amounts of consolidated federal and state income tax
provisions (benefit) during the years ended December 31,
2004, 2003 and 2002 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
(3,769 |
) |
|
$ |
(2,337 |
) |
|
$ |
3,478 |
|
|
State
|
|
|
48 |
|
|
|
(834 |
) |
|
|
1,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,721 |
) |
|
|
(3,171 |
) |
|
|
4,840 |
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
(2,273 |
) |
|
$ |
7,209 |
|
|
$ |
(3,487 |
) |
|
State
|
|
|
(383 |
) |
|
|
1,236 |
|
|
|
(745 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,656 |
) |
|
|
8,445 |
|
|
|
(4,232 |
) |
|
|
|
|
|
|
|
|
|
|
Total provision (benefit)
|
|
$ |
(6,377 |
) |
|
$ |
5,274 |
|
|
$ |
608 |
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax provisions result from temporary differences
in the recognition of expenses for financial reporting purposes
and for tax reporting purposes. U.S. Concrete presents the
effects of those differences as deferred income tax liabilities
and assets, as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
|
Properties, plant and equipment, net
|
|
$ |
21,014 |
|
|
$ |
19,499 |
|
|
Other
|
|
|
93 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
21,107 |
|
|
|
19,549 |
|
|
|
|
|
|
|
|
F-23
U.S. CONCRETE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
7,298 |
|
|
|
11,886 |
|
|
Allowance for doubtful accounts
|
|
|
900 |
|
|
|
780 |
|
|
Inventory
|
|
|
566 |
|
|
|
390 |
|
|
Accrued insurance
|
|
|
3,550 |
|
|
|
97 |
|
|
Other accrued expenses
|
|
|
1,724 |
|
|
|
207 |
|
|
Net operating loss carryforwards
|
|
|
3,978 |
|
|
|
652 |
|
|
Other
|
|
|
484 |
|
|
|
274 |
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
18,500 |
|
|
|
14,286 |
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
|
2,607 |
|
|
|
5,263 |
|
|
|
Current deferred tax assets
|
|
|
10,293 |
|
|
|
2,061 |
|
|
|
|
|
|
|
|
|
|
|
Long-term deferred income tax liabilities
|
|
$ |
12,900 |
|
|
$ |
7,324 |
|
|
|
|
|
|
|
|
As of December 31, 2004, U.S. Concrete had a federal
income tax receivable of approximately $4 million primarily
as the result of federal net operating losses incurred during
2003 and 2004, which currently is classified in other current
assets. U.S. Concrete intends to file carryback claims with
the Internal Revenue Service in 2005. At December 31, 2004,
after the effect of the carryback claims, U.S. Concrete had
federal net operating loss carryforwards of approximately
$15.7 million. These carryforwards, which may provide
future tax benefits, begin to expire in 2024. If certain
substantial changes in U.S. Concretes ownership
should occur, there would be an annual limitation on the amount
of the carryforwards which can be utilized.
In assessing the value of deferred tax assets at
December 31, 2004, U.S. Concrete considered whether it
was more likely than not that some or all of the deferred tax
assets would not be realized. The ultimate realization of
deferred tax assets depends on the generation of future taxable
income during the periods in which those temporary differences
become deductible. U.S. Concrete considers the scheduled
reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in making this assessment.
Based on these considerations, U.S. Concrete determined
that its deferred tax assets would be realized and a valuation
allowance was not required at December 31, 2004.
The American Jobs Creation Act of 2004, which was enacted on
October 22, 2004, makes a number of changes to the income
tax laws which will affect U.S. Concrete in future years,
the most significant of which is a new deduction for qualifying
domestic production activities. The impact of this and other
changes made by that Act cannot be quantified at this time but
U.S. Concrete expects that the impact would not be material
on its consolidated financial position, results of operations or
cash flows.
|
|
12. |
RELATED-PARTY TRANSACTIONS |
On completion of its initial public offering, U.S. Concrete
entered into new facilities leases, or extended existing leases,
with former stockholders or affiliates of former stockholders of
Central Concrete Supply Co., Inc. and Eastern Concrete
Materials, Inc. (formerly known as Baer Concrete, Incorporated).
Those leases generally
F-24
U.S. CONCRETE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
provide for initial lease terms of 15 to 20 years, with one
or more extension options U.S. Concrete may exercise. The
following summarizes the current annual rentals
U.S. Concrete must pay during the initial lease terms:
|
|
|
|
|
|
|
|
|
|
|
Number | |
|
Aggregate | |
|
|
of | |
|
Annual | |
Locations: |
|
Facilities | |
|
Rentals | |
|
|
| |
|
| |
|
|
|
|
(In | |
|
|
|
|
thousands) | |
Central
|
|
|
2 |
|
|
$ |
324 |
|
Eastern
|
|
|
2 |
|
|
$ |
264 |
|
U.S. Concrete believes the rentals it must pay under each
of these leases are at fair market rates. William T. Albanese, a
former owner of Central, Thomas J. Albanese, a former owner of
Central, and Michael D. Mitschele, the former owner of Eastern,
are executive officers of U.S. Concrete.
Central sold concrete products to a company owned by a cousin of
William T. Albanese and Thomas J. Albanese totaling
approximately $11.0 million in 2004, $9.6 million in
2003 and $14.1 million in 2002. U.S. Concrete believes
the amounts it received for the concrete products were fair and
substantially equivalent to amounts it would have received from
an unaffiliated third party.
Central paid a company owned by a cousin of William T. Albanese
and Thomas J. Albanese approximately $0.1 million in 2004,
$0.6 million in 2003, and $59,000 in 2002. These payments
were for construction related services. U.S. Concrete
believes the amounts it paid for these services were fair and
substantially equivalent to amounts it would have paid to an
unaffiliated third party.
In 2002, U.S. Concrete extended interest-free loans of
$70,595 to its Chief Executive Officer, Eugene P. Martineau, and
$50,000 to its Chief Operating Officer, Michael W. Harlan, who
repaid these loans in 2004 with the proceeds from the sale to
U.S. Concrete, in private transactions, of
9,689 shares of U.S. Concrete common stock by
Mr. Martineau having an aggregate value of $70,594 and
6,862 shares of U.S. Concrete common stock by
Mr. Harlan having an aggregate value of $49,997.
U.S. Concrete reimbursed Main Street Mezzanine Fund, LLC
(or its predecessor), of which Vincent D. Foster,
U.S. Concretes chairman, is a senior managing
director, approximately $17,000, $57,000, and $397,000 in 2004,
2003 and 2002, respectively, for expenses primarily related to
U.S. Concretes business development activities.
U.S. Concrete grants credit, generally without collateral,
to its customers, which include general contractors,
municipalities and commercial companies located primarily in
California, New Jersey/ New York, Michigan, Texas and Tennessee.
Consequently, it is subject to potential credit risk related to
changes in business and economic factors in those states.
U.S. Concrete generally has lien rights in the work it
performs, and concentrations of credit risk are limited because
of the diversity of its customer base. Further, management
believes that its contract acceptance, billing and collection
policies are adequate to minimize any potential credit risk.
Cash deposits were distributed among various banks in areas of
operations throughout the United States as of December 31,
2004. In addition, U.S. Concrete had money-market funds
with a financial institution with a strong credit rating. As a
result, it believes that credit risk in such instruments is
minimal.
F-25
U.S. CONCRETE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14. |
COMMITMENTS AND CONTINGENCIES |
|
|
|
Litigation and Other Claims |
From time to time, and currently, U.S. Concrete and its
subsidiaries are subject to various claims and litigation
brought by employees, customers and other third parties for,
among other matters, personal injuries, property damages,
product defects and delay damages that have, or allegedly have,
resulted from the conduct of its operations.
U.S. Concrete believes that the resolution of all
litigation currently pending or threatened against it or any of
its subsidiaries should not have a material adverse effect on
its business, financial condition, results of operations or
liquidity; however, because of the inherent uncertainty of
litigation, it can provide no assurance that the resolution of
any such litigation will not have a material adverse effect on
its consolidated financial condition, results of operations or
liquidity for the fiscal period in which that resolution occurs.
U.S. Concrete expects in the future it and its subsidiaries
may, from time to time, be a party to litigation or
administrative proceedings that arise in the normal course of
its business.
U.S. Concrete retains various self-insurance risks with
respect to losses for third-party liability and property damage.
U.S. Concrete is subject to federal, state and local
environmental laws and regulations concerning, among other
matters, air emissions and wastewater discharge. Its management
believes it is in substantial compliance with applicable
environmental laws and regulations. From time to time, it
receives claims from federal and state environmental regulatory
agencies and entities asserting that it may be in violation of
environmental laws and regulations. Based on experience and the
information currently available, management of
U.S. Concrete believes that these claims should not have a
material impact on U.S. Concretes consolidated
financial condition, results of operations or liquidity. Despite
compliance and experience, it is possible that
U.S. Concrete could be held liable for future charges,
which might be material, but are not currently known or
estimable. In addition, changes in federal or state laws,
regulations or requirements, or discovery of currently unknown
conditions, could require additional expenditures.
As permitted under Delaware law, U.S. Concrete has
agreements that provide indemnification of officers and
directors for certain events or occurrences while the officer or
director is or was serving at U.S. Concretes request
in such capacity. The maximum potential amount of future
payments that U.S. Concrete could be required to make under
these indemnification agreements is not limited; however,
U.S. Concrete has a director and officer insurance policy
that limits its exposure and enables U.S. Concrete to
recover a portion of any future amounts paid. Many of the
indemnification agreements were grandfathered under the
provisions of FASB Interpretation No. 45, because they were
in effect prior to December 31, 2002. As a result of the
insurance policy coverage, U.S. Concrete believes the
estimated fair value of these indemnification agreements is
minimal. Accordingly, U.S. Concrete has not recorded any
liabilities for these agreements as of December 31, 2004.
U.S. Concrete is party to agreements that require it to
provide indemnification in certain instances when it acquires
businesses and real estate and in the ordinary course of
business with its customers, suppliers and service providers.
U.S. Concrete leases certain mobile and other equipment,
land, facilities, office space and other items which, in the
normal course of business, are renewed or replaced by subsequent
leases. Total expense for such operating leases amounted to
$12.0 million in 2004, $12.6 million in 2003 and
$12.4 million in 2002. Non cancelable operating leases with
an initial or remaining term of more than one year totaled
$36.1 million at December 31, 2004. Estimated lease
payments for each of the five succeeding years are
$8.7 million, $7.2 million, $6.3 million,
$4.3 million and $2.6 million.
F-26
U.S. CONCRETE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
U.S. Concrete maintains third-party insurance coverage in
amounts and against the risks it believes is reasonable. Under
its insurance programs, U.S. Concrete shares the risk of
loss with its insurance underwriters by maintaining high
deductibles subject to aggregate annual loss limitations.
U.S. Concretes deductible retentions per occurrence
for automobile and general liability insurance programs were
$0.5 million in 2002, 2003 and 2004, and for its
workers compensation insurance program was
$0.5 million in 2002 and $1.0 million in 2003 and
2004. In connection with these automobile and general liability
and workers compensation insurance programs,
U.S. Concrete has entered into standby letter of credit
agreements of $11.6 million at December 31, 2004.
U.S. Concrete funds these deductibles and records an
expense for expected losses under the programs. The expected
losses are determined using a combination of
U.S. Concretes historical loss experience and
subjective assessments of U.S. Concretes future loss
exposure. The estimated losses are subject to uncertainty from
various sources, including changes in claims reporting patterns,
claims settlement patterns, judicial decisions, legislation and
economic conditions. Although U.S. Concrete believes that
the estimated losses are reasonable, significant differences
related to the items noted above could materially affect
U.S. Concretes insurance obligations and future
expenses.
In the normal course of business, U.S. Concrete is
contingently liable for performance under $16.7 million as
of December 31, 2004 in performance bonds that various
contractors, states and municipalities have required. The bonds
are principally related to construction contracts.
U.S. Concrete has indemnified the underwriting insurance
company that issued the bonds against any exposure under the
bonds. In U.S. Concretes past experience, no material
claims have been made against these bonds.
|
|
15. |
SIGNIFICANT CUSTOMERS AND SUPPLIERS |
U.S. Concrete did not have any customers that accounted for
more than 10% of its revenues or any suppliers that accounted
for more than 10% of its cost of goods sold in 2004, 2003 or
2002.
|
|
16. |
EMPLOYEE BENEFIT PLANS |
In 2000, U.S. Concrete established a defined contribution
401(k) profit sharing plan for employees meeting various
employment requirements. Eligible employees may contribute
amounts up to the lesser of 15% of their annual compensation or
the maximum amount IRS regulations permit. U.S. Concrete
matches 100% of employee contributions up to a maximum of 5% of
their compensation. U.S. Concrete paid matching
contributions of $2.3 million in 2004, $2.2 million in
2003 and $2.0 million in 2002.
U.S. Concrete maintained defined contribution
profit-sharing and money purchase pension plans for the nonunion
employees of certain of its companies for the period from their
acquisition by U.S. Concrete through the date that those
companies adopted the U.S. Concrete 401(k) plan.
Contributions made to these plans were approximately $117,000 in
2003 and none in 2004 and 2002.
U.S. Concretes subsidiaries are parties to various
collective bargaining agreements with labor unions having
multi-year terms that expire on a staggered basis. Under these
agreements, U.S. Concrete pays specified wages to covered
employees, observes designated workplace rules and makes
payments to multi-employer pension plans and employee benefit
trusts rather than administering the funds on behalf of these
employees.
In connection with its collective bargaining agreements,
U.S. Concrete participates with other companies in the
unions multi-employer pension plans. These plans cover
substantially all of U.S. Concretes employees who are
members of such unions. The Employee Retirement Income Security
Act of 1974, as amended by the Multi-Employer Pension Plan
Amendments Act of 1980, imposes liabilities on employers who are
contributors to a multi-employer plan in the event of the
employers withdrawal from, or on termination of, that
plan. In 2001, a
F-27
U.S. CONCRETE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
subsidiary of U.S. Concrete withdrew from the
multi-employer pension plan of the union that represented
several of its employees. That union disclaimed interest in
representing those employees. U.S. Concrete has no plans to
withdraw from any other multi-employer plans. U.S. Concrete
made contributions to these plans of $13.3 million in 2004,
$11.9 million in 2003 and $11.3 million in 2002.
See Note 10 for discussions of U.S. Concretes
incentive plans and employee stock purchase plan.
|
|
17. |
QUARTERLY SUMMARY (unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
90,314 |
|
|
$ |
138,627 |
|
|
$ |
148,252 |
|
|
$ |
123,396 |
|
|
Income (loss) from operations
|
|
|
(3,219 |
) |
|
|
12,663 |
|
|
|
15,392 |
|
|
|
2,887 |
|
|
Net income (loss)(1)
|
|
|
(24,603 |
) |
|
|
6,050 |
|
|
|
7,987 |
|
|
|
27 |
|
|
Basic and diluted earnings (loss) per share(2)
|
|
|
(0.87 |
) |
|
|
0.21 |
|
|
|
0.28 |
|
|
|
0.00 |
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
85,068 |
|
|
$ |
124,610 |
|
|
$ |
140,885 |
|
|
$ |
122,561 |
|
|
Income (loss) from operations
|
|
|
(2,876 |
) |
|
|
9,908 |
|
|
|
14,244 |
|
|
|
8,140 |
|
|
Net income (loss)
|
|
|
(4,040 |
) |
|
|
3,546 |
|
|
|
6,244 |
|
|
|
4,553 |
|
|
Basic and diluted earnings (loss) per share(2)
|
|
|
(0.15 |
) |
|
|
0.13 |
|
|
|
0.22 |
|
|
|
0.16 |
|
|
|
(1) |
Net income (loss) reflects the loss on the early extinguishment
of debt of $28.8 million in the first quarter of 2004 (see
Note 9 for discussion). |
|
(2) |
Earnings (loss) per share (EPS) for each quarter are
computed using the weighted-average number of shares outstanding
during the quarter, while EPS for the fiscal year is computed
using the weighted-average number of shares outstanding during
the year. Thus, the sum of the EPS for each of the four quarters
may not equal the EPS for the fiscal year. |
F-28
U.S. CONCRETE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
|
(In thousands) | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
48,015 |
|
|
$ |
39,707 |
|
|
Trade accounts receivable, net
|
|
|
98,199 |
|
|
|
68,131 |
|
|
Inventories, net
|
|
|
20,906 |
|
|
|
20,085 |
|
|
Prepaid expenses
|
|
|
3,358 |
|
|
|
2,140 |
|
|
Other current assets
|
|
|
13,846 |
|
|
|
22,080 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
184,324 |
|
|
|
152,143 |
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
121,678 |
|
|
|
118,748 |
|
Goodwill
|
|
|
167,345 |
|
|
|
166,644 |
|
Other assets
|
|
|
9,997 |
|
|
|
11,624 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
483,344 |
|
|
$ |
449,159 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$ |
85,278 |
|
|
$ |
62,496 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
85,278 |
|
|
|
62,496 |
|
|
|
|
|
|
|
|
Debt
|
|
|
200,000 |
|
|
|
200,777 |
|
Other long-term liabilities
|
|
|
19,304 |
|
|
|
17,037 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
304,582 |
|
|
|
280,310 |
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 10)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
30 |
|
|
|
29 |
|
|
Additional paid-in capital
|
|
|
170,920 |
|
|
|
168,850 |
|
|
Retained earnings
|
|
|
12,862 |
|
|
|
4,306 |
|
|
Treasury stock, at cost
|
|
|
(892 |
) |
|
|
(400 |
) |
|
Deferred compensation
|
|
|
(4,158 |
) |
|
|
(3,936 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
178,762 |
|
|
|
168,849 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
483,344 |
|
|
$ |
449,159 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
F-29
U.S. CONCRETE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
|
(In thousands, except per share amounts) | |
Sales
|
|
$ |
172,297 |
|
|
$ |
148,252 |
|
|
$ |
418,010 |
|
|
$ |
377,193 |
|
Cost of goods sold before depreciation, depletion and
amortization
|
|
|
136,997 |
|
|
|
118,157 |
|
|
|
343,565 |
|
|
|
309,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit before depreciation, depletion and amortization
|
|
|
35,300 |
|
|
|
30,095 |
|
|
|
74,445 |
|
|
|
68,085 |
|
Selling, general and administrative expenses
|
|
|
12,892 |
|
|
|
11,533 |
|
|
|
38,345 |
|
|
|
33,899 |
|
Depreciation, depletion and amortization
|
|
|
3,454 |
|
|
|
3,170 |
|
|
|
9,783 |
|
|
|
9,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
18,954 |
|
|
|
15,392 |
|
|
|
26,317 |
|
|
|
24,835 |
|
Interest expense, net
|
|
|
4,336 |
|
|
|
4,134 |
|
|
|
12,939 |
|
|
|
12,247 |
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,781 |
|
Other income, net
|
|
|
396 |
|
|
|
207 |
|
|
|
871 |
|
|
|
769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
15,014 |
|
|
|
11,465 |
|
|
|
14,249 |
|
|
|
(15,424 |
) |
Income tax provision (benefit)
|
|
|
6,014 |
|
|
|
3,478 |
|
|
|
5,693 |
|
|
|
(4,858 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
9,000 |
|
|
$ |
7,987 |
|
|
$ |
8,556 |
|
|
$ |
(10,566 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$ |
0.31 |
|
|
$ |
0.28 |
|
|
$ |
0.30 |
|
|
$ |
(0.37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$ |
0.31 |
|
|
$ |
0.28 |
|
|
$ |
0.29 |
|
|
$ |
(0.37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic common shares outstanding
|
|
|
28,691 |
|
|
|
28,279 |
|
|
|
28,559 |
|
|
|
28,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted common shares outstanding
|
|
|
29,278 |
|
|
|
28,792 |
|
|
|
29,097 |
|
|
|
28,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
F-30
U.S. CONCRETE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
September 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
|
(In thousands) | |
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
8,556 |
|
|
$ |
(10,566 |
) |
|
Adjustments to reconcile net income (loss) to net cash provided
by operations:
|
|
|
|
|
|
|
|
|
|
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
28,781 |
|
|
|
|
Depreciation, depletion and amortization
|
|
|
9,783 |
|
|
|
9,351 |
|
|
|
|
Debt issuance cost amortization
|
|
|
977 |
|
|
|
1,035 |
|
|
|
|
Net gain on sale of property, plant and equipment
|
|
|
(201 |
) |
|
|
(318 |
) |
|
|
|
Deferred income taxes
|
|
|
4,848 |
|
|
|
(1,271 |
) |
|
|
|
Provision for doubtful accounts
|
|
|
946 |
|
|
|
703 |
|
|
|
|
Stock-based compensation
|
|
|
1,186 |
|
|
|
820 |
|
|
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
(31,014 |
) |
|
|
(22,414 |
) |
|
|
|
Inventories
|
|
|
(814 |
) |
|
|
(2,346 |
) |
|
|
|
Prepaids and other current assets
|
|
|
1,919 |
|
|
|
(1,771 |
) |
|
|
|
Other assets
|
|
|
(338 |
) |
|
|
618 |
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
25,368 |
|
|
|
12,669 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operations
|
|
|
21,216 |
|
|
|
15,291 |
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net of disposals of $640 and $553
|
|
|
(11,960 |
) |
|
|
(5,996 |
) |
|
Payments for acquisitions
|
|
|
(1,000 |
) |
|
|
|
|
|
Other investing activities
|
|
|
(110 |
) |
|
|
(149 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(13,070 |
) |
|
|
(6,145 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings
|
|
|
|
|
|
|
264,000 |
|
|
Repayments of borrowings
|
|
|
|
|
|
|
(219,039 |
) |
|
Debt retirement costs
|
|
|
|
|
|
|
(25,851 |
) |
|
Debt issuance costs
|
|
|
|
|
|
|
(10,259 |
) |
|
Purchase of treasury stock
|
|
|
(492 |
) |
|
|
(280 |
) |
|
Other financing activities
|
|
|
654 |
|
|
|
520 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
$ |
162 |
|
|
$ |
9,091 |
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
8,308 |
|
|
|
18,237 |
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
39,707 |
|
|
|
7,111 |
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$ |
48,015 |
|
|
$ |
25,348 |
|
|
|
|
|
|
|
|
Supplemental disclosure of investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Assets acquired in business combination
|
|
$ |
332 |
|
|
$ |
|
|
|
Issuance of common stock related to exercised stock options
|
|
$ |
265 |
|
|
$ |
117 |
|
|
Additions to property, plant and equipment from exchanges
|
|
$ |
|
|
|
$ |
788 |
|
|
Common stock received in settlement
|
|
$ |
|
|
|
$ |
1,000 |
|
The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
F-31
U.S. CONCRETE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying Condensed Consolidated Financial Statements
include the accounts of U.S. Concrete and its subsidiaries
and have been prepared by U.S. Concrete, without audit,
pursuant to the rules and regulations of the Securities and
Exchange Commission (the SEC). Some information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the
SECs rules and regulations, although U.S. Concrete
believes that the disclosures made are adequate to make the
information presented not misleading. These unaudited Condensed
Consolidated Financial Statements should be read in conjunction
with the consolidated financial statements and related notes in
U.S. Concretes annual report on
Form 10-K for the
year ended December 31, 2004 (the
2004 10-K).
In the opinion of U.S. Concrete, all adjustments necessary
to state fairly the information in its unaudited Condensed
Consolidated Financial Statements have been included. Operating
results for the three- and nine-month periods ended
September 30, 2005 are not necessarily indicative of the
results expected for the year ending December 31, 2005.
The preparation of financial statements and accompanying notes
in conformity with accounting principles generally accepted in
the United States requires management to make estimates and
assumptions that affect the amounts reported. Actual results
could differ from those estimates.
|
|
2. |
SIGNIFICANT ACCOUNTING POLICIES |
U.S. Concrete has not changed its accounting policies since
December 31, 2004. For a description of those policies,
refer to note 1 of the consolidated financial statements in
the 2004 10-K.
|
|
3. |
STOCK-BASED COMPENSATION |
U.S. Concrete accounts for its stock-based compensation
plans under Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to
Employees. Its consolidated statements of operations do
not reflect any stock-based employee compensation cost for its
stock option plans if options granted under these plans have an
exercise price equal to the market value of the underlying
common stock on the date of grant.
The following table illustrates the pro forma effect on net
income (loss) and income (loss) per share as if
U.S. Concrete were applying the fair value recognition
provisions of Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for
Stock-Based Compensation, as amended, to its stock-based
F-32
U.S. CONCRETE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
compensation plans for the periods shown (in thousands, except
per share amounts). Fair value has been determined using the
Black-Scholes option-pricing model.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
|
|
|
Ended | |
|
Nine Months Ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Net income (loss)
|
|
$ |
9,000 |
|
|
$ |
7,987 |
|
|
$ |
8,556 |
|
|
$ |
(10,566 |
) |
Add: Total stock-based employee compensation expense included in
reported net income (loss), net of related tax effects
|
|
|
285 |
|
|
|
247 |
|
|
|
712 |
|
|
|
566 |
|
Deduct: Total stock-based employee compensation expense
calculated using the fair value method, net of related tax
effects
|
|
|
(354 |
) |
|
|
(498 |
) |
|
|
(1,047 |
) |
|
|
(1,306 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
$ |
8,931 |
|
|
$ |
7,736 |
|
|
$ |
8,221 |
|
|
$ |
(11,306 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$ |
0.31 |
|
|
$ |
0.28 |
|
|
$ |
0.30 |
|
|
$ |
(0.37 |
) |
Diluted as reported
|
|
$ |
0.31 |
|
|
$ |
0.28 |
|
|
$ |
0.29 |
|
|
$ |
(0.37 |
) |
Basic pro forma
|
|
$ |
0.31 |
|
|
$ |
0.27 |
|
|
$ |
0.29 |
|
|
$ |
(0.40 |
) |
Diluted pro forma
|
|
$ |
0.30 |
|
|
$ |
0.27 |
|
|
$ |
0.28 |
|
|
$ |
(0.40 |
) |
In August 2005, the compensation committee of
U.S. Concretes board of directors awarded
approximately 163,000 share price performance units to
certain salaried employees, other than executive officers and
senior management, which vest in four equal annual installments
beginning in May 2006. Each share price performance unit is
equal in value to one share of U.S. Concretes common
stock. Upon vesting, a holder of share price performance units
will receive a cash payment from U.S. Concrete equal to the
number of vested share price performance units multiplied by the
closing price of a share of U.S. Concretes common
stock on the vesting date. During the period prior to vesting,
holders of share price performance units would be entitled to
receive a cash amount equal to dividends paid, if any, on shares
of U.S. Concretes common stock equal to the number of
then unvested share price performance units. The value of these
awards is accrued and charged to expense over the performance
period of the units. U.S. Concrete recognized compensation
expense from the units of approximately $0.1 million as
selling, general and administrative expense during the
three-month period ended September 30, 2005.
Inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Raw materials
|
|
$ |
7,598 |
|
|
$ |
8,114 |
|
Finished products and supplies
|
|
|
13,308 |
|
|
|
11,971 |
|
|
|
|
|
|
|
|
|
|
$ |
20,906 |
|
|
$ |
20,085 |
|
|
|
|
|
|
|
|
F-33
U.S. CONCRETE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The change in the carrying amount of goodwill from
December 31, 2004 to September 30, 2005 was as follows
(in thousands):
|
|
|
|
|
Balance at December 31, 2004
|
|
$ |
166,644 |
|
Acquisition
|
|
|
701 |
|
|
|
|
|
Balance at September 30, 2005
|
|
$ |
167,345 |
|
|
|
|
|
|
|
6. |
DEBT AND DERIVATIVE FINANCIAL INSTRUMENTS |
A summary of debt is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
September 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Senior secured credit facility due 2009
|
|
$ |
|
|
|
$ |
|
|
83/8% senior
subordinated notes due 2014(1)
|
|
|
200,000 |
|
|
|
200,777 |
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
200,777 |
|
|
Less: current maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
200,000 |
|
|
$ |
200,777 |
|
|
|
|
|
|
|
|
|
|
(1) |
The December 31, 2004 carrying amount of the notes included
a $0.8 million fair-value adjustment related to the
interest rate swap agreements which were terminated in June 2005. |
On March 12, 2004, U.S. Concrete entered into a senior
secured credit facility under which it initially borrowed
$64 million to retire debt outstanding under its prior
senior credit facility and to pay related transaction fees. It
prepaid this borrowing on March 31, 2004 with the proceeds
from its sale of its
83/8% senior
subordinated notes described below. At September 30, 2005,
the facility consisted of a $105 million revolving credit
facility, with borrowings limited to an amount equal to a
portion of the net amounts of eligible accounts receivable,
inventory and mixer trucks. The facility is scheduled to mature
in March 2009. At September 30, 2005, borrowings under the
facility would have borne annual interest at the
Eurodollar-based rate (LIBOR) plus 2.00% or the
domestic rate plus 0.50%. The interest rate margins will vary
inversely with the amount of unused borrowing capacity available
under the facility. Commitment fees accrue at an annual rate of
0.375% on the unused portion of the facility.
The credit agreement relating to the new facility provides that
the administrative agent may, on the bases specified, reduce the
amount of the available credit from time to time. At
September 30, 2005, no borrowings were outstanding under
the credit facility and the amount of the available credit was
approximately $85.1 million, net of outstanding letters of
credit of $14.1 million.
U.S. Concretes subsidiaries have jointly and
severally and fully and unconditionally guaranteed the repayment
of all amounts owing under the senior secured credit facility.
In addition, U.S. Concrete collateralized the facility with
the capital stock of its subsidiaries and substantially all the
assets of those subsidiaries, excluding minor subsidiaries
without operations or material assets and excluding most of the
assets of the aggregate quarry in northern New Jersey. The
credit agreement contains covenants limiting, among other
things, prepayment or redemption of subordinated notes,
distributions, dividends and repurchases of capital stock and
other equity interests, acquisitions and investments, mergers,
asset sales other than in the ordinary course of business,
indebtedness, liens, changes in business, changes to charter
documents and affiliate transactions. It also limits capital
expenditures to 5% of consolidated revenues in the prior
12 months and will require us to maintain a minimum fixed
charge coverage ratio of 1.0 to 1.0 on a rolling
12-month basis if the
available credit under the
F-34
U.S. CONCRETE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
facility falls below $15 million. The credit agreement
provides that specified change of control events would
constitute events of default under the agreement.
On March 31, 2004, U.S. Concrete issued and sold
$200 million of
83/8% senior
subordinated notes due April 1, 2014. Interest on these
notes is payable semi-annually on April 1 and
October 1 of each year. U.S. Concrete used the net
proceeds of this financing to redeem its prior senior
subordinated notes and prepay the outstanding debt under its new
credit facility. U.S. Concrete paid $122.5 million to
redeem its prior senior subordinated notes, including a
prepayment premium of $25.9 million, plus all accrued and
unpaid interest through the redemption date of $1.6 million.
As a result of the March 2004 refinancing, U.S. Concrete
recognized an ordinary loss on early extinguishment of debt of
$28.8 million, which consisted of the $25.9 million in
premium payments and a write-off of $2.9 million of debt
issuance costs associated with all the debt repaid.
All subsidiaries of U.S. Concrete, excluding minor
subsidiaries, have jointly and severally and fully and
unconditionally guaranteed the repayment of the
83/8% senior
subordinated notes. U.S. Concrete directly or indirectly
owns 100% of each subsidiary guarantor. Separate financial
statements of the subsidiary guarantors are not provided because
U.S. Concrete has no independent assets or operations, the
guarantees are full and unconditional and joint and several, and
the nonguarantor subsidiaries are minor. There are no
significant restrictions on the ability of U.S. Concrete or
any guarantor to obtain funds from its subsidiaries by dividend
or loan.
The indenture governing the notes limits the ability of
U.S. Concrete and its subsidiaries to pay dividends or
repurchase common stock, make certain investments, incur
additional debt or sell preferred stock, create liens, merge or
transfer assets. At any time prior to April 1, 2007,
U.S. Concrete may redeem up to 35% of the aggregate
principal amount of the notes at a redemption price of 108.375%
of their principal amount, plus accrued interest, with the net
cash proceeds from certain equity offerings. In addition, after
March 31, 2009, U.S. Concrete may redeem all or a part
of the notes at a redemption price of 104.188% in 2009, 102.792%
in 2010, 101.396% in 2011 and 100% in 2012 and thereafter. The
indenture requires U.S. Concrete to redeem the subordinated
notes from the proceeds of certain asset sales that are not
reinvested in the business or used to pay senior debt and on the
occurrence of a change of control. U.S. Concretes
senior secured credit agreement prohibits these redemptions.
As a result of restrictions contained in the indenture relating
to the
83/8% senior
subordinated notes, U.S. Concretes ability to incur
additional debt is primarily limited to the greater of
(i) borrowings available under U.S. Concretes
senior secured credit facility, plus the greater of
$15 million or 7.5% of its tangible assets, or
(ii) additional debt if, after giving effect to the
incurrence of such additional debt, U.S. Concretes
earnings before interest, taxes, depreciation, amortization and
certain noncash items equals or exceeds two times its total
interest expense.
On April 16, 2004, U.S. Concrete entered into interest
rate swap agreements with a notional value of $70 million.
U.S. Concrete terminated these agreements in June 2005.
When they were in effect, these interest rate swap agreements
had the economic effect of modifying the interest obligations
associated with $70 million of U.S. Concretes
83/8% senior
subordinated notes, such that the interest payable on these
notes effectively became variable based on the six-month LIBOR
rate, set on April 1 and October 1 of each year. The
swaps were designated as fair-value hedges and had no
ineffective portion. The notional amounts of the swaps matched
the principal amounts of the hedged portion of the notes, and
the termination dates of the swaps matched the maturity date of
the notes. As a result of the swaps, the interest rate on the
hedged portion of the notes was LIBOR plus 3.16%. The swap
agreements were marked to market each quarter, with a
corresponding
mark-to-market
adjustment reflected as either a discount or premium on the
83/8% senior
subordinated notes. Because the swap agreements were considered
an effective fair-value hedge, there was no effect on
U.S. Concretes results of operations from these
adjustments while the swap agreements were in effect. Upon
termination of these interest
F-35
U.S. CONCRETE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
rate swap agreements, U.S. Concrete received
$2.2 million in cash as settlement proceeds. The cash
proceeds have been included in changes in operating assets
and liabilities, net of acquisitions within the
accompanying Condensed Consolidated Statements of Cash Flows.
The cash received has been recorded against the fair values of
the respective agreements and the resulting net gain of
$2.0 million is being amortized over the remaining life of
the underlying debt instruments as an adjustment to interest
expense. There were no interest rate swap agreements outstanding
as of September 30, 2005. During the nine months ended
September 30, 2005, the interest rate swap agreements
reduced U.S. Concretes interest expense by
approximately $0.5 million, $0.3 million, net of tax.
For the nine months ended September 30,
U.S. Concretes interest payments were approximately
$8.8 million in 2005 and $5.9 million in 2004.
In accordance with applicable generally accepted accounting
principles, U.S. Concrete estimates for each interim
reporting period the effective tax rate it expects for the full
fiscal year and uses that estimated rate in providing its income
taxes on a current
year-to-date basis.
The effective income tax rate increased to 40% for the nine
months ended September 30, 2005 from 31% for the
corresponding period in 2004, due primarily to the ordinary loss
on early extinguishment of debt in 2004.
The American Jobs Creation Act of 2004, among other things,
allows a deduction for income from qualified domestic production
activities, which will be phased in from 2005 through 2010.
U.S. Concrete is currently evaluating the impact of the new
law on its future taxable income. For financial reporting
purposes, any deductions for qualified domestic production
activities will be accounted for as a special deduction rather
than as a rate reduction.
For the nine months ended September 30,
U.S. Concretes income tax payments were approximately
$0.5 million in 2005 and $0.2 million in 2004. For the
nine months ended September 30, U.S. Concrete received
income tax refunds of approximately $2.4 million in 2005,
primarily related to a federal net operating loss carryback, and
$1.6 million in 2004, primarily from the overpayment of its
2003 estimated federal income taxes.
|
|
|
Common Stock and Preferred Stock |
The following table presents information regarding
U.S. Concretes common stock (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Shares authorized
|
|
|
60,000 |
|
|
|
60,000 |
|
Shares outstanding at end of period
|
|
|
29,690 |
|
|
|
29,344 |
|
Shares held in treasury
|
|
|
130 |
|
|
|
59 |
|
U.S. Concrete is authorized to issue 10,000,000 shares
of preferred stock, $0.001 par value, of which none were
outstanding as of September 30, 2005 and December 31,
2004.
Shares of restricted common stock issued under
U.S. Concretes incentive plans or otherwise are
subject to restrictions on transfer and certain other
conditions. On issuance of the stock, an unamortized
compensation expense equivalent to the market value of the
shares on the date of grant is charged to stockholders
equity and is amortized ratably over the restriction period.
During the restriction period, the holders of restricted shares
are entitled to vote and receive dividends, if any, on those
shares.
F-36
U.S. CONCRETE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In 2003, U.S. Concrete offered eligible employees the
opportunity to exchange certain outstanding stock options for
shares of restricted stock. Of the eligible options subject to
the offer, 62,614 options were not exchanged. Of those options,
as of September 30, 2005, approximately 51,894 options
remained outstanding and are accounted for under variable plan
accounting under APB Opinion No. 25. The weighted average
exercise price of these remaining eligible options is
approximately $8.11. In the future, to the extent that
U.S. Concretes stock price exceeds an options
exercise price, the difference will be recorded as a noncash
compensation charge, with an offset to additional paid-in
capital.
During the nine months ended September 30, 2005,
U.S. Concrete issued approximately 222,000 shares of
restricted stock under its plans, primarily to executive
officers and senior management employees, at a total value of
$1.5 million. In general, the restricted stock grants vest
ratably over a four-year period.
As of September 30, the outstanding shares of restricted
stock totaled approximately 803,000 in 2005 and approximately
739,000 in 2004. U.S. Concrete recognized stock-based
compensation expense of approximately $0.4 million for the
three months ended September 30, 2005 and $1.2 million
for the nine months ended September 30, 2005.
U.S. Concrete recognized stock-based compensation expense
of approximately $0.4 million for the three months ended
September 30, 2004 and $0.8 million for the nine
months ended September 30, 2004.
Employees may elect to satisfy their tax obligations on the
vesting of their restricted stock by having U.S. Concrete
make the required tax payments and withhold a number of vested
shares having an aggregate value on the date of vesting equal to
the tax obligation. As a result of such employee elections,
U.S. Concrete withheld approximately 71,000 shares
during the nine months ended September 30, 2005, at a total
value of $0.5 million, and those shares were accounted for
as treasury stock.
|
|
9. |
SHARES USED IN COMPUTING NET INCOME (LOSS) PER SHARE |
The following table summarizes the number of shares (in
thousands) of common stock U.S. Concrete has used on a
weighted average basis in calculating basic and diluted net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Nine Months | |
|
|
Ended | |
|
Ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Basic weighted average common shares outstanding
|
|
|
28,691 |
|
|
|
28,279 |
|
|
|
28,559 |
|
|
|
28,202 |
|
Effect of dilutive stock options and awards
|
|
|
587 |
|
|
|
513 |
|
|
|
538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding
|
|
|
29,278 |
|
|
|
28,792 |
|
|
|
29,097 |
|
|
|
28,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three-month periods ended September 30, stock
options and awards covering 1.0 million shares in 2005 and
1.9 million shares in 2004 were excluded from the
computation of the net income per share because their effect
would have been antidilutive. For the nine-month periods ended
September 30, stock options and awards covering
1.0 million shares in 2005 and 3.7 million shares in
2004 were excluded from the computation of the net income (loss)
per share because their effect would have been antidilutive.
|
|
10. |
COMMITMENTS AND CONTINGENCIES |
From time to time, and currently, U.S. Concrete is subject
to various claims and litigation brought by employees, customers
and other third parties for, among other matters, personal
injuries, property damages, product defects and delay damages
that have, or allegedly have, resulted from the conduct of its
operations.
U.S. Concrete believes that the resolution of all
litigation currently pending or threatened against it or any of
its subsidiaries should not have a material adverse effect on
its consolidated financial condition, results of
F-37
U.S. CONCRETE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
operations or liquidity; however, because of the inherent
uncertainty of litigation, U.S. Concrete cannot provide
assurance that the resolution of any particular claim or
proceeding to which it or any of its subsidiaries is a party
will not have a material adverse effect on its consolidated
results of operations or liquidity for the fiscal period in
which that resolution occurs. U.S. Concrete expects in the
future that it and its operating subsidiaries will from time to
time be a party to litigation or administrative proceedings that
arise in the normal course of its business.
U.S. Concrete is subject to federal, state and local
environmental laws and regulations concerning, among other
matters, air emissions and wastewater discharge. Its management
believes it is in substantial compliance with applicable
environmental laws and regulations. From time to time, it
receives claims from federal and state environmental regulatory
agencies and entities asserting that it may be in violation of
environmental laws and regulations. Based on experience and the
information currently available, management of
U.S. Concrete believes that these claims should not have a
material impact on U.S. Concretes consolidated
financial condition, results of operations or liquidity. Despite
compliance and experience, it is possible that
U.S. Concrete could be held liable for future charges,
which might be material, but are not currently known or
estimable. In addition, changes in federal or state laws,
regulations or requirements, or discovery of currently unknown
conditions, could require additional expenditures.
As permitted under Delaware law, U.S. Concrete has
agreements that provide indemnification of officers and
directors for certain events or occurrences while the officer or
director is or was serving at U.S. Concretes request
in such capacity. The maximum potential amount of future
payments that U.S. Concrete could be required to make under
these indemnification agreements is not limited; however,
U.S. Concrete has a director and officer insurance policy
that limits its exposure and enables U.S. Concrete to
recover a portion of any future amounts paid. As a result of the
insurance policy coverage, U.S. Concrete believes the
estimated fair value of these indemnification agreements is
minimal. Accordingly, U.S. Concrete has not recorded any
liabilities for these agreements as of September 30, 2005.
U.S. Concrete and its subsidiaries are parties to
agreements that require them to provide indemnification in
certain instances when they acquire businesses and real estate
and in the ordinary course of business with their customers,
suppliers, lessors and service providers.
U.S. Concrete maintains third-party insurance coverage in
amounts and against the risks it believes are reasonable. Under
certain components of its insurance program, U.S. Concrete
shares the risk of loss with its insurance underwriters by
maintaining high deductibles subject to aggregate annual loss
limitations. Generally, U.S. Concretes deductible
retention per occurrence for auto and general liability
insurance programs is $0.5 million for 2005 and 2004, and
its deductible retention per occurrence for its workers
compensation insurance programs is $1.0 million for 2005
and 2004, although certain of its operations are self-insured
for workers compensation. U.S. Concrete funds these
deductibles and records an expense for expected losses under the
programs. The expected losses are determined using a combination
of U.S. Concretes historical loss experience and
subjective assessments of U.S. Concretes future loss
exposure. The estimated losses are subject to uncertainty from
various sources, including changes in claims reporting patterns,
claims settlement patterns, judicial decisions, legislation and
economic conditions. Although U.S. Concrete believes that
the estimated losses it has recorded are reasonable, significant
differences related to the items noted above could materially
affect U.S. Concretes insurance obligations and
future expense.
In the normal course of business, U.S. Concrete and its
subsidiaries are contingently liable for performance under
$16.0 million in performance bonds that various
contractors, states and municipalities have required. The bonds
principally relate to construction contracts, reclamation
obligations and mining permits. U.S. Concrete and
F-38
U.S. CONCRETE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
its subsidiaries have indemnified the underwriting insurance
company against any exposure under the performance bonds. No
material claims have been made against these bonds.
|
|
11. |
RECENT ACCOUNTING PRONOUNCEMENTS |
In December 2004, the Financial Accounting Standards Board (the
FASB) issued SFAS No. 123R,
Share-Based Payment, which is effective for public
companies for interim or annual periods beginning after
June 15, 2005 and was initially required to be adopted by
U.S. Concrete in its third quarter of fiscal 2005,
beginning on July 1, 2005. However, in April 2005, the SEC
announced the adoption of a new rule that amends the compliance
dates for SFAS No. 123R. Accordingly,
U.S. Concrete will adopt SFAS No. 123R beginning
January 1, 2006. SFAS No. 123R will require
U.S. Concrete to expense the fair value of its stock option
grants and stock purchases under its employee stock
purchase plan rather than disclose the impact on the
consolidated net income in the footnotes to its consolidated
financial statements. U.S. Concrete does not expect that
the adoption of SFAS 123R will have a significant effect on
its consolidated financial position, results of operations or
cash flows.
In March 2005, the Emerging Issues Task Force (EITF)
reached a consensus on
Issue 04-6,
Accounting for Stripping Costs in the Mining
Industry
(EITF 04-6),
that stripping costs incurred after the first saleable minerals
are extracted from the mine (i.e., post-production
stripping costs) are a component of mineral inventory cost. As a
result of this consensus, all post-production stripping costs
will be considered variable production costs that should be
included in the costs of the inventory produced during the
period that the stripping costs are incurred. The guidance in
this consensus is effective for financial statements issued for
fiscal years beginning after December 15, 2005, with early
adoption permitted. At September 30, 2005,
U.S. Concretes capitalized stripping costs were
$0.4 million. U.S. Concrete is currently evaluating
the impact
EITF 04-6 will
have on its financial statements.
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections.
SFAS No. 154 replaces APB Opinion No. 20,
Accounting Changes and SFAS No. 3,
Reporting Accounting Changes in Interim Financial
Statements, and changes the requirements for the
accounting for and reporting of a change in accounting
principle. SFAS No. 154 applies to all voluntary
changes in accounting principles and to changes required in
accounting pronouncements when no specific transition provisions
are provided. When a pronouncement includes specific transition
provisions, those provisions should be followed.
SFAS No. 154 is effective for the fiscal periods
beginning after December 15, 2005 and is required to be
adopted by U.S. Concrete beginning on January 1, 2006.
U.S. Concrete is currently evaluating the effect of the
adoption of SFAS No. 154 on its consolidated financial
position, results of operations and cash flows, but does not
expect it to have a material impact.
In March 2005, the FASB issued Interpretation No. 47,
Accounting for Conditional Asset Retirement
Obligations (FIN 47). FIN 47
requires an entity to recognize a liability for a conditional
asset retirement obligation when incurred if the liability can
be reasonably estimated. FIN 47 clarifies that the term
conditional asset retirement obligation refers to a
legal obligation to perform an asset retirement activity in
which the timing and/or method of settlement are conditioned on
a future event that may or may not be within the control of the
entity. FIN 47 also clarifies when an entity would have
sufficient information to reasonably estimate the fair value of
the asset retirement obligation. FIN 47 is effective no
later than the end of the fiscal year ending after
December 15, 2005. U.S. Concrete is currently
evaluating the effect of the adoption of FIN 47 on its
consolidated financial position, results of operations and cash
flows, but does not expect it to have a material impact.
F-39
PROSPECTUS
U.S. Concrete, Inc.
2925 Briarpark, Suite 1050
Houston, Texas 77042
(713) 499-6200
$185,440,000
Senior Debt Securities
Subordinated Debt Securities
Preferred Stock
Common Stock
Warrants
The Offering
We may offer from time to time any of the following securities:
|
|
|
|
|
senior debt securities; |
|
|
|
subordinated debt securities; |
|
|
|
shares of preferred stock; |
|
|
|
shares of common stock; and |
|
|
|
warrants to purchase debt securities or shares of preferred
stock or common stock. |
This prospectus provides a general description of the securities
we may offer. Each time we offer securities under this
prospectus, we will provide a supplement to this prospectus that
will contain specific information about the offering and the
terms of the securities. The supplement may also add, update or
change information that this prospectus contains. You should
read this prospectus and the related prospectus supplement
carefully before you invest in our securities. No person may use
this prospectus to offer and sell securities unless a prospectus
supplement that describes those securities accompanies this
prospectus.
We may sell our securities to or through underwriters, to other
purchasers and/or through agents. The accompanying prospectus
supplement will specify the names of any underwriters or agents
we engage to offer and sell any securities under this prospectus.
Of the shares of our common stock we may offer under this
prospectus, we may offer and sell a number of shares that could
result in maximum gross proceeds to us of up to $12,255,168
under an agreement we have entered into with Ramius Securities,
LLC, as underwriter. The total amount of common stock we may
offer and sell under that agreement will not exceed
1,800,000 shares. Please see the description of that
agreement under the heading Plan of
Distribution Existing Underwriting Arrangement
beginning on page 23 of this prospectus.
Our common stock is quoted on the Nasdaq National Market under
the symbol RMIX.
You should carefully consider the risks described under the
caption Risk Factors beginning on page 2.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is January 29, 2002.
TABLE OF CONTENTS
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About This Prospectus
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1 |
About U.S. Concrete, Inc.
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1 |
Risk Factors
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2 |
Forward-Looking Information
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Use of Proceeds
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8 |
Ratio of Earnings to Fixed Charges
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Description of Debt Securities
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Description of Capital Stock
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Description of Warrants
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20 |
Plan of Distribution
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22 |
Legal Matters
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26 |
Experts
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26 |
Where You Can Find More Information
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i
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have
filed with the Securities and Exchange Commission under a
shelf registration process. Using this process, we
may offer any combination of the securities this prospectus
describes in one or more offerings with a total initial offering
price of up to $185,440,000. This prospectus provides you with a
general description of the securities we may offer. Each time we
use this prospectus to offer securities, we will provide a
prospectus supplement and, if applicable, a pricing supplement.
The prospectus supplement and any pricing supplement will
describe the specific terms of that offering. The prospectus
supplement and any pricing supplement may also add, update or
change the information this prospectus contains. Please
carefully read this prospectus, the prospectus supplement and
any pricing supplement, in addition to the information contained
in the documents we refer to under the heading Where You
Can Find More Information.
The registration statement originally covered securities having
a maximum aggregate offering price of $200,000,000. In July
2001, we offered and sold 1,820,000 shares of our common
stock under the registration statement for an aggregate public
offering price of $14,560,000. As a result, the securities we
offer under this prospectus will have a total initial offering
price that does not exceed $185,440,000.
About U.S. Concrete, Inc.
U.S. Concrete provides ready-mixed concrete and related
products and services to the construction industry in several
major markets in the United States. As of December 31,
2001, we have 83 operating plants producing over
5.8 million cubic yards of concrete annually. Our
operations consist principally of formulating, preparing,
delivering and placing ready-mixed concrete at the job sites of
our customers. We provide services intended to reduce our
customers overall construction costs by lowering the
installed, or in-place, cost of concrete. These
services include the formulation of new mixtures for specific
design uses, on-site
and lab-based product quality control and delivery programs we
configure to meet our customers needs.
We completed our initial public offering in May 1999. At the
same time, we acquired six ready-mixed concrete and related
businesses and began operating 26 concrete plants in three
major markets in the United States. Since our IPO and through
December 31, 2001, we have acquired an additional 21
ready-mixed concrete and related businesses, operating an
additional 57 concrete plants, in seven additional major markets
in the United States.
To increase our geographic diversification and expand the scope
of our operations, we seek to acquire businesses operating under
quality management teams in growing markets. Our acquisition
strategy has two primary objectives. In a new market, we target
one or more companies that can serve as platform businesses into
which we can integrate other concrete operations. In markets
where we have existing operations and seek to increase our
market penetration, we pursue acquisitions that can complement
our existing operations.
In this prospectus, we refer to U.S. Concrete, Inc., its
wholly owned subsidiaries and its ownership interest in equity
affiliates as we, us or
U.S. Concrete, unless we specifically state
otherwise or the context indicates otherwise. Our principal
executive offices are located at 2925 Briarpark, Suite 500,
Houston, Texas 77042, and our telephone number at that location
is (713) 499-6200.
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RISK FACTORS
You should carefully consider the following matters, in addition
to the other information we have provided in this prospectus,
the accompanying prospectus supplement and the documents we
incorporate by reference, before reaching a decision regarding
an investment in our securities. The risks and uncertainties we
describe below are not the only ones relating to these
securities or facing our company. Additional risks and
uncertainties not presently known to us or that we currently do
not believe are material may also impact our business,
operations, financial condition or results of operations.
We have a limited history of operating and integrating
acquired businesses, and we may not be able to realize our
business strategy of reducing costs and achieving revenue
enhancements in the operations of the businesses we acquire
If we are unable to integrate or successfully manage the
companies we have acquired or may acquire in the future, our
business, financial condition and results of operations could be
materially and adversely affected. We completed our initial
public offering in May 1999. At the same time, we acquired six
ready-mixed concrete and related businesses. Since our IPO and
through December 31, 2001, we have grown rapidly through
the acquisition of an additional 21 ready-mixed concrete and
related businesses. To manage the combined enterprise on a
profitable basis, we must implement several common systems and
various control mechanisms in each of the businesses we acquire.
We may not be able to realize our business strategy of reducing
costs and achieving revenue enhancements in the operations of
the businesses we acquire for a number of reasons, including the
following:
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we may fail to integrate the businesses we acquire into a
cohesive, efficient enterprise with company-wide information and
management systems and effective cost and other control
mechanisms; |
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we will have to rely on existing accounting, information and
administrative systems of acquired businesses, which may be
inadequate, until we can implement the systems we use in our
existing operations; |
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our resources, including management resources, are limited and
may be strained if we engage in a significant number of
acquisitions, and acquisitions may divert our managements
attention from initiating or carrying out programs to save costs
or enhance revenues; and |
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our ability to realize significant cost savings and customer
cross-selling opportunities in any market will depend on the
extent to which our acquisition strategy succeeds in that market. |
We may be unsuccessful in identifying and acquiring
sufficient acquisition candidates to carry out our growth
strategy
One of our principal growth strategies is to increase our
revenues and the markets we serve through the acquisition of
additional ready-mixed concrete and related businesses. We
expect to face competition for acquisition candidates and we may
not be able to identify and acquire sufficient suitable
acquisition candidates available for sale at reasonable prices
and on other reasonable terms for a number of reasons, including:
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the unwillingness of candidates to sell during a period of
growing demand for ready-mixed concrete; |
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competitors in our industry may outbid us; |
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we may not have sufficient available capital to pay for
acquisitions; or |
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our lenders may not provide the necessary consent under our
revolving credit facility, which requires the consent of the
lenders for all acquisitions. |
There are risks related to our operating and internal growth
strategies
A key element of our strategy is to increase the profitability
and revenues of the businesses we acquire. Although we have been
implementing this strategy by various means since our IPO, you
have no assurance that we will be able to continue to do so
successfully. Another key component of our strategy is to
operate the
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businesses we acquire on a decentralized basis, with local
management retaining responsibility for
day-to-day operations,
profitability and the internal growth of the individual
business. If we do not implement and maintain proper overall
business controls, this decentralized operating strategy could
result in inconsistent operating and financial practices at the
businesses we acquire, and our overall profitability could be
adversely affected. Our ability to generate internal growth will
be affected by, among other factors, our ability to:
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emphasize new product development and value-added sales and
marketing; |
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attract new customers; |
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hire and retain employees; and |
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reduce operating and overhead expenses. |
Many of the factors affecting our ability to generate internal
growth may be beyond our control, and you have no assurance that
our strategies will be successful or that we will be able to
generate cash flow sufficient to fund our operations and to
support internal growth. Our inability to achieve internal
growth could materially and adversely affect our business,
financial condition and results of operations.
We may not have access to sufficient funding to finance
future acquisitions
If we cannot secure additional financing on acceptable terms, we
may be unable to continue pursuing our acquisition strategy
successfully and we may be unable to support our growth
strategy. We cannot readily predict the timing, size and success
of our acquisition efforts or the capital we will need for those
efforts. We intend to continue to use our common stock as a
significant component of the consideration we pay for future
acquisitions. Issuances of common stock as acquisition
consideration could have a dilutive effect on our then existing
stockholders. If our common stock does not maintain a sufficient
market value or potential acquisition candidates are unwilling
to accept our common stock as part of the consideration for the
sale of their businesses, we may be required to use more of our
cash resources to pursue our acquisition program. Using cash for
acquisition consideration limits our financial flexibility and
increases the likelihood that we will need to seek additional
capital through future debt or equity financings. If we seek
more debt financing, we may have to agree to financial covenants
that limit our operational and financial flexibility. Additional
equity financing may dilute the ownership interests of our then
existing stockholders. You have no assurance that additional
debt or equity financing will be available on terms acceptable
to us. Our principal credit facility contains a general
requirement for us to obtain the consent of the lenders for
acquisitions.
Our business growth could outpace the capability of our
corporate management and systems
We expect to grow both internally and through acquisitions. We
expect to expend significant time and effort in evaluating,
completing and integrating acquisitions and opening new
facilities. We cannot be certain that our systems, procedures
and controls will be adequate to support our operations as they
expand. Any future growth also will impose significant
additional responsibilities on members of our senior management
and executive officers. Our success will also depend on
recruiting new senior level managers and officers and we cannot
be certain that we can recruit and retain such additional
managers and officers. To the extent we are unable to manage our
growth effectively, or are unable to attract and retain
additional qualified management personnel, our business,
financial condition and results of operations could be
materially and adversely affected.
The departure of key personnel could disrupt our business
We depend on the continued efforts of our executive officers
and, in many cases, on senior management of the businesses we
acquire. The loss of key personnel, or the inability to hire and
retain qualified replacements, could adversely effect our
business, financial condition and results of operations. We do
not carry key-person life insurance on any of our employees.
3
We may be unable to attract and retain qualified employees
Our ability to provide high-quality products and services on a
timely basis requires that we employ an adequate number of
skilled plant managers, technicians and drivers. Accordingly,
our ability to increase our productivity and profitability will
be limited by our ability to employ, train and retain skilled
personnel necessary to meet our requirements. Like many of our
competitors, we are currently experiencing shortages of
qualified personnel. You have no assurance that we will be able
to maintain an adequate skilled labor force necessary to operate
efficiently and to support our growth strategy or that our labor
expenses will not increase as a result of a shortage in the
supply of skilled personnel.
We may lose business to competitors who underbid us and
otherwise be unable to compete favorably in our highly
competitive industry
We may lose business to competitors who underbid us and
otherwise be unable to compete favorably in our highly
competitive industry. Our competitive position in a given market
will depend largely on the location and operating costs of our
ready-mixed concrete plants and prevailing prices in that
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 offering simple mixes to subsidiaries or operating
units of large, vertically integrated cement manufacturing and
concrete products companies. Competitors having lower operating
costs than we do or having the financial resources to enable
them to accept lower margins than we do will have a competitive
advantage over us for jobs that are particularly
price-sensitive. Competitors having greater financial resources
than we do to invest in new mixer trucks, build plants in new
areas or pay for acquisitions also will have competitive
advantages over us.
Our operating results may vary significantly
quarter-to-quarter
The ready-mixed concrete business is subject to seasonal
variations. In particular, demand for our products and services
during the winter months is typically lower than in other months
of the year due to inclement weather. Additionally, the
ready-mixed concrete industry can be highly cyclical. As a
result, our volume of business may be adversely affected by
declines in construction in various geographic regions of the
U.S. Our quarterly results may also be materially affected
by, among other things:
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the timing of acquisitions; |
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variations in the margins of jobs performed during any
particular quarter; |
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the timing and magnitude of acquisition assimilation costs; |
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the budgetary spending patterns of customers; |
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costs we incur to support growth internally or through
acquisitions or otherwise; |
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the change in mix of our customers and business; |
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increases in construction and design costs; and |
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regional or general economic conditions. |
As a result, our operating results in any particular quarter may
not be indicative of the results that you can expect for any
other quarter or for the entire year.
Our results of operations could be adversely affected as a
result of goodwill impairments
When we acquire a business, we record an asset called
goodwill equal to the excess amount we pay for the
business, including liabilities we assume, over the fair value
of the tangible and separately identifiable intangible assets of
the business we acquire. The Financial Accounting Standards
Board recently adopted changes to its accounting standards that
relate to business combinations, goodwill and other intangible
assets. These standards continue to require recognition of
goodwill as an asset, but will not permit amortization of
goodwill as
4
currently required by applicable generally accepted accounting
principles. These changes will require us to test goodwill
periodically for impairment using a fair-value based approach.
We will evaluate goodwill for impairment on an annual basis or
when events or circumstances occur indicating that goodwill
might be impaired. If we determine that any of the remaining
balance of goodwill is impaired, we will be required to take an
immediate charge to earnings. We will be required to apply the
new standards beginning January 1, 2002, except that for
the business combinations we completed after June 30, 2001
the new standards are currently effective. We are currently
evaluating the potential impact of the adoption of these changes
on our financial position and results of operations. As of
September 30, 2001, goodwill represented approximately 50%
of our total assets.
Governmental regulations, including environmental
regulations, may result in increases in our operating costs and
capital expenditures and decreases in our earnings
A wide range of federal, state and local laws, ordinances and
regulations apply to our operations, including the following
matters:
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land usage; |
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street and highway usage; |
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noise levels; and |
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health, safety and environmental matters. |
In many instances, we must have various certificates, permits or
licenses in order to conduct our business. Our failure to
maintain required certificates, permits or licenses or to comply
with applicable governmental requirements could result in
substantial fines or possible revocation of our authority to
conduct some of our operations. Delays in obtaining approvals
for the transfer or grant of certificates, permits or licenses,
or failure to obtain new certificates, permits or licenses,
could impede the implementation of our acquisition program.
Governmental requirements that impact our operations include
those relating to air quality, solid waste management and water
quality. These requirements are complex and subject to frequent
change. They impose strict liability in some cases without
regard to negligence or fault and expose us to liability for the
conduct of or conditions caused by others, or for our acts that
complied with all applicable requirements when we performed
them. Our compliance with amended, new or more stringent
requirements, stricter interpretations of existing requirements
or the future discovery of environmental conditions may require
us to make material expenditures we currently do not anticipate.
In addition, although we intend to conduct appropriate
investigations with respect to environmental matters in
connection with future acquisitions, we may fail to identify or
obtain indemnification from all potential environmental
liabilities of any acquired business.
Collective bargaining agreements, work stoppages and other
labor relations matters may result in increases in our operating
costs, disruptions in our business and decreases in our
earnings
At September 30, 2001, approximately 46% of our employees
were covered by collective bargaining agreements. Any inability
by us to negotiate acceptable new contracts with these unions
could cause strikes or other work stoppages by the affected
employees, and new contracts could result in increased operating
costs attributable to both union and non-union employees. If any
such strikes or other work stoppages were to occur, or if other
of our employees were to become represented by a union, we could
experience a significant disruption of our operations and higher
ongoing labor costs which could materially adversely affect our
business, financial condition and results of operations. In
addition, the coexistence of union and non-union employees may
lead to conflicts between union and non-union employees or
impede our ability to integrate our operations efficiently.
Labor relations matters affecting our suppliers of cement and
aggregates could adversely impact our business from time to time.
5
Our operations are subject to various hazards that may cause
personal injury or property damage and increase our operating
costs
Operating mixer trucks, particularly when loaded, exposes our
drivers and others to traffic hazards. Our drivers are subject
to the usual hazards associated with providing services on
construction sites, while our plant personnel are subject to the
hazards associated with moving and storing large quantities of
heavy raw materials.
Our operating hazards can cause personal injury and loss of
life, damage to or destruction of property, plant and equipment
and environmental damage. Although we conduct training programs
designed to reduce the risks of these occurrences, we cannot
eliminate these risks. We maintain insurance coverage in amounts
and against the risks we believe accord with industry practice,
but this insurance may not be adequate to cover all losses or
liabilities we may incur in our operations, and we may not be
able to maintain insurance of the types or at levels we deem
necessary or adequate or at rates we consider reasonable.
We may incur material costs and losses as a result of claims
our products do not meet regulatory requirements or contractual
specifications
Our operations generally involve providing mixed designs of
concrete which must meet building code or other regulatory
requirements and contractual specifications for durability,
stress-level capacity, weight-bearing capacity and other
characteristics. We generally warrant to our customers that the
concrete we provide: (1) in its plastic state on site will
be delivered on time and in conformity with applicable tests and
contractual specifications; and (2) in its hardened state
will satisfy any applicable industry compressive strength test
conducted by an independent testing laboratory. If we fail to
provide product in accordance with these requirements and
specifications, claims may arise against us or our reputation
may be damaged.
The market price of our common stock may be volatile
The market price of our common stock may be volatile. Factors
that could cause that volatility include:
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fluctuations in our annual or quarterly financial results or
those of our competitors or consolidators having growth
strategies similar to ours in other industries; |
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price and volume volatility in the stock market generally or in
the group of companies having smaller market capitalizations
similar to ours; |
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changes in the market valuations of other consolidators; |
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failures of our operating results to meet the estimates of
securities analysts or the expectations of our stockholders or
changes by securities analysts in their estimates of our future
earnings; |
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the perceived risks associated with our possible future
issuances of additional shares of common stock; |
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changing conditions in our cyclical industry or in the local and
regional economies in which we operate; and |
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unfavorable publicity or changes in laws or regulations which
adversely affect our industry or us. |
We may issue preferred stock whose terms could adversely
affect the voting power or value of our common stock
Our certificate of incorporation authorizes us to issue, without
the approval of our stockholders, one or more classes or series
of preferred stock having such preferences, powers and relative,
participating, optional and other rights, including preferences
over our common stock respecting dividends and distributions, as
our board of directors may determine. The terms of one or more
classes or series of preferred stock could adversely impact the
voting power or value of our common stock. For example, we might
afford holders of preferred stock the right to elect some number
of our directors in all events or on the happening of specified
events or the right to veto specified transactions. Similarly,
the repurchase or redemption rights or liquidation preferences
we might assign to holders of preferred stock could affect the
residual value of the common stock. See Description of
Capital Stock Preferred Stock and
Stockholders Rights Plan.
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Provisions in our corporate documents and Delaware law could
delay or prevent a change in control of our company, even if
that change would be beneficial to our stockholders
The existence of some provisions in our corporate documents and
Delaware law could delay or prevent a change in control of our
company, even if that change would be beneficial to our
stockholders. Our certificate of incorporation and bylaws
contain provisions that may make acquiring control of our
company difficult, including:
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provisions relating to the classification, nomination and
removal of our directors; |
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provisions limiting the right to call special meetings of our
board of directors and our stockholders; |
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provisions regulating the ability of our stockholders to bring
matters for action at annual meetings of our stockholders; |
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a prohibition of action by our stockholders without a
meeting; and |
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the authorization given to our board of directors to issue and
set the terms of preferred stock. |
In addition, we have adopted a stockholder rights plan that
would cause extreme dilution to any person or group who attempts
to acquire a significant interest in U.S. Concrete without
advance approval of our board of directors, while the Delaware
General Corporation Law would impose some restrictions on
mergers and other business combinations between us and any
holder of 15% or more of our outstanding common stock. See
Description of Capital Stock.
FORWARD-LOOKING INFORMATION
This prospectus, including the information we incorporate by
reference, includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. You can
identify our forward-looking statements by words such as
estimate, project, predict,
believe, expect, anticipate,
plan, forecast, budget,
goal or other words that convey the uncertainty of
future events or outcomes. When considering these
forward-looking statements, you should keep in mind the risk
factors and other cautionary statements in this prospectus, any
prospectus supplement and the documents we have incorporated by
reference.
The forward-looking statements are not guarantees of future
performance, and we caution you not to rely unduly on them. We
have based many of these forward-looking statements on
expectations and assumptions about future events that may prove
to be inaccurate. Although our management considers these
expectations and assumptions to be reasonable, they are
inherently subject to significant business, economic,
competitive, regulatory and other risks, contingencies and
uncertainties, most of which are difficult to predict and many
of which are beyond our control. These risks, contingencies and
uncertainties relate to, among other matters, the following:
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our acquisition and national operating strategies; |
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our ability to integrate the businesses we acquire; |
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our ability to obtain the capital necessary to finance our
growth strategies; |
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the availability of qualified personnel; |
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the trends we anticipate in the
ready-mixed concrete
industry and in our business; |
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the level of activity in the construction industry generally and
in our local markets for ready-mixed concrete; |
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the cost of capital, including the interest expense associated
with our outstanding borrowings, which is tied to market
interest rates; |
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our ability to maintain compliance with the covenants under the
documents relating to our outstanding indebtedness; |
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the highly competitive nature of our business; |
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changes in, or our ability to comply with, governmental
regulations, including those relating to the environment; |
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our labor relations and those of our suppliers of cement and
aggregates; |
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the level of funding allocated by the United States Government
for federal highway, transit and safety spending; |
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power outages and other unexpected events that delay or
adversely affect our ability to deliver concrete according to
our customers requirements; |
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our ability to control costs and maintain quality; and |
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our exposure to warranty claims from developers and other
customers. |
We have discussed some of these factors in more detail in the
Risk Factors section of this prospectus. These
factors are not necessarily all the important factors that could
affect us. We advise you that you should (1) be aware that
important factors we do not refer to above could affect the
accuracy of our forward-looking statements and (2) use
caution and common sense when considering our forward-looking
statements. We do not intend to update these statements unless
the securities laws require us to do so.
USE OF PROCEEDS
Unless we inform you otherwise in the prospectus supplement, we
will use the net proceeds from the sale of the offered
securities for general corporate purposes. These purposes may
include acquisitions, working capital, capital expenditures,
repayment and refinancing of indebtedness and repurchases and
redemptions of securities. Pending any specific application, we
may initially invest those funds in short-term marketable
securities or apply them to the reduction of short-term
indebtedness.
RATIO OF EARNINGS TO FIXED CHARGES
The following table presents our ratio of earnings to fixed
charges for each of the periods shown. We have computed the
ratios of earnings to fixed charges by dividing earnings by
fixed charges. For this purpose, earnings consist of
income before income taxes plus fixed charges exclusive of
capitalized interest. Fixed charges consist of
interest, whether expensed or capitalized, amortization of
capitalized expenses relating to indebtedness and an estimate of
the portion of annual rental expense on operating leases that
represents the interest factor. Because our financial statements
present Central Concrete Supply Co., Inc., one of the businesses
we acquired in May 1999 when we completed our IPO, as the
purchaser of the other businesses we have acquired and
U.S. Concrete, in accordance with the purchase method of
accounting, the following information reflects results of
Central only for periods prior to June 1, 1999, the date we
recorded our initial acquisitions for accounting purposes, and
for U.S. Concrete and its consolidated subsidiaries after
that date.
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Nine Months | |
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Ended | |
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Year Ended December 31, | |
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September 30, | |
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2001 | |
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2000 | |
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1999 | |
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1998 | |
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Ratio of earnings to fixed charges
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1.8x |
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3.0x |
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9.3x |
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36.1x |
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17.0x |
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4.7x |
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DESCRIPTION OF DEBT SECURITIES
The debt securities this prospectus covers will be our general
unsecured obligations. The debt securities will be either senior
debt securities or subordinated debt securities. We will issue
the debt securities under one or more separate indentures
between us and a trustee that we will name in the prospectus
supplement. Senior debt securities will be issued under a senior
indenture, and subordinated debt securities will be issued under
a subordinated indenture. We sometimes call the senior indenture
and the subordinated indenture the indentures.
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We have summarized selected provisions of the indentures and the
debt securities below. You should read the indentures for more
details regarding the provisions we describe below and for other
provisions that may be important to you. We have filed the forms
of the indentures with the SEC as exhibits to the registration
statement. Please read Where You Can Find More
Information.
In this summary description of the debt securities, all
references to U.S. Concrete or us
mean U.S. Concrete, Inc. only, unless we state otherwise or
the context clearly indicates otherwise.
General
The senior debt securities will constitute senior debt and will
rank equally with all our unsecured and unsubordinated debt. The
subordinated debt securities will be subordinated to, and thus
have a position junior to, any senior debt securities and all
our other senior debt. The indentures will not limit the amount
of debt we may issue under the indentures, and, unless we inform
you otherwise in the prospectus supplement, they will not limit
the amount of other unsecured debt or securities we may incur or
issue. We may issue debt securities under either indenture from
time to time in one or more series, each in an amount we
authorize prior to issuance.
We conduct our operations through our subsidiaries, and they
generate substantially all our operating income and cash flow.
As a result, distributions or advances from our subsidiaries are
important sources of funds to meet our debt service obligations.
Contractual provisions or laws, as well as our
subsidiaries financial condition and operating
requirements, may limit our ability to obtain from our
subsidiaries cash that we need to pay our debt service
obligations, including payments on the debt securities. In
addition, holders of the debt securities will have a position
junior to the claims of creditors of our subsidiaries on their
assets and earnings.
Unless we inform you otherwise in the prospectus supplement, the
indentures and the debt securities will not contain:
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any covenants or other provisions designed to protect holders of
the debt securities in the event we participate in a highly
leveraged transaction; or |
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provisions that give holders of the debt securities the right to
require us to repurchase their securities in the event of a
decline in our credit rating resulting from a takeover,
recapitalization or similar restructuring or otherwise. |
The prospectus supplement relating to any series of debt
securities being offered will include specific terms relating to
the offering. These terms will include some or all of the
following:
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the title of the debt securities; |
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the total principal amount of the debt securities; |
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whether the debt securities are senior debt securities or
subordinated debt securities; |
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whether we will issue the debt securities in individual
certificates to each holder or in the form of temporary or
permanent global securities held by a depositary on behalf of
holders; |
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the date or dates on which the principal of and any premium on
the debt securities will be payable; |
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any interest rate, the date from which interest will accrue,
interest payment dates and record dates for interest payments; |
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whether and under what circumstances any additional amounts with
respect to the debt securities will be payable; |
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the place or places where payments on the debt securities will
be payable; |
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any provisions for redemption or early repayment; |
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any sinking fund or other provisions that would obligate us to
redeem, purchase or repay the debt securities prior to maturity; |
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the denominations in which we may issue the debt securities; |
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whether payments on the debt securities will be payable in
foreign currency or currency units or another form, and whether
payments will be payable by reference to any index or formula; |
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the portion of the principal amount of the debt securities that
will be payable if the maturity is accelerated, if other than
the entire principal amount; |
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any additional means of defeasance of the debt securities, any
additional conditions or limitations to defeasance of the debt
securities or any changes in those conditions or limitations; |
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any changes in or additions to the events of default or
covenants this prospectus describes; |
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any restrictions or other provisions relating to the transfer or
exchange of the debt securities; |
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any terms for the conversion or exchange of the debt securities
for other securities issued by U.S. Concrete or any other
entity; and |
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any other terms of the debt securities. |
We may sell the debt securities at a discount, which may be
substantial, below their stated principal amount. Those debt
securities may bear no interest or interest at a rate that at
the time of issuance is below market rates.
If we sell any of the debt securities for any foreign currency
or currency unit or if payments on the debt securities are
payable in any foreign currency or currency unit, we will
describe in the prospectus supplement the restrictions,
elections, tax consequences, specific terms and other
information relating to those debt securities and the foreign
currency or currency unit.
Subordination
Under the subordinated indenture, payment of the principal,
interest and any premium on the subordinated debt securities
will generally be subordinated and junior in right of payment to
the prior payment in full of all Senior Debt. Unless we inform
you otherwise in the prospectus supplement, we may not make any
payment of principal, interest or any premium on the
subordinated debt securities if:
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we fail to pay the principal, interest, premium or any other
amounts on any Senior Debt when due; or |
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we default in performing any other covenant (a covenant
default) in any Senior Debt that we have designated if the
covenant default allows the holders of that Senior Debt to
accelerate the maturity of the Senior Debt they hold. |
Unless we inform you otherwise in the prospectus supplement, a
covenant default will prevent us from making payments on the
subordinated debt securities only for up to 179 days after
holders of the Senior Debt give the trustee for the subordinated
debt securities notice of the covenant default.
The subordination provisions will not affect our obligation,
which will be absolute and unconditional, to pay, when due,
principal of, premium, if any, and interest on the subordinated
debt securities. In addition, the subordination provisions will
not prevent the occurrence of any default under the subordinated
indenture.
Unless we inform you otherwise in the prospectus supplement, the
subordinated indenture will not limit the amount of Senior Debt
that we may incur. As a result of the subordination of the
subordinated debt securities, if we became insolvent, holders of
subordinated debt securities may receive less on a proportionate
basis than our other creditors.
Unless we inform you otherwise in the prospectus supplement,
Senior Debt will mean all notes or other
indebtedness, including guarantees, of U.S. Concrete for
money borrowed and similar obligations, unless the indebtedness
states that it is not senior to the subordinated debt securities
or our other junior debt.
Consolidation, Merger and Sale of Assets
The indentures generally will permit a consolidation or merger
between us and another entity. They also will permit the sale by
us of our assets substantially as an entirety to a single
entity. The indentures will provide,
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however, that we may consolidate with another entity to form a
new entity or merge into any other entity or transfer or dispose
of our assets substantially as an entirety to any other entity
only if:
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the resulting entity is organized and existing under the laws of
any United States jurisdiction and assumes the due and punctual
payments on the debt securities and the performance of our
covenants and obligations under the applicable indenture and the
debt securities; and |
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immediately after giving effect to the transaction, no default
or event of default would occur and be continuing. |
Events of Default
Unless we inform you otherwise in the prospectus supplement, the
following will be events of default with respect to a series of
debt securities:
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our failure to pay interest or any required additional amounts
on any debt securities of that series for 30 days; |
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our failure to pay principal of or any premium on any debt
securities of that series when due; |
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our failure to deposit any mandatory sinking fund payment for
that series of debt securities for 30 days; |
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our failure to comply with any of our covenants or agreements in
the debt securities of that series or the applicable indenture,
other than an agreement or covenant that we have included in
that indenture solely for the benefit of other series of debt
securities, for 90 days after written notice by the trustee
or by the holders of at least 25% in principal amount of all the
outstanding debt securities issued under that Indenture that are
affected by that failure; |
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certain events involving bankruptcy, insolvency or
reorganization of U.S. Concrete; and |
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any other event of default provided for that series of debt
securities. |
A default under one series of debt securities will not
necessarily be a default under another series. The trustee may
withhold notice to the holders of the debt securities of any
default or event of default, except in any payment on the debt
securities, if the trustee in good faith determines that
withholding notice is in the interest of the holders of the debt
securities.
If an event of default for any series of debt securities occurs
and is continuing, the trustee or the holders of at least 25% in
principal amount of the outstanding debt securities of the
series affected by the default (or, in some cases, 25% in
principal amount of all senior debt securities or subordinated
debt securities affected, voting as one class) may declare the
principal of and all accrued and all unpaid interest on those
debt securities to be due and payable. If an event of default
relating to events of bankruptcy, insolvency or reorganization
occurs, the principal of and all accrued and unpaid interest on
all the debt securities will become immediately due and payable
without any action on the part of the applicable trustee or any
holder. The holders of a majority in principal amount of the
outstanding debt securities of the series affected by the
default (or of all senior debt securities or subordinated debt
securities affected, voting as one class) may in some cases
rescind this accelerated payment requirement. Depending on the
terms of our other indebtedness, an event of default under
either of the indentures may give rise to cross defaults on our
other indebtedness.
A holder of a debt security of any series will be able to pursue
any remedy under the applicable indenture only if:
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the holder gives the trustee written notice of a continuing
event of default for that series; |
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the holders of at least 25% in principal amount of the
outstanding debt securities of that series make a written
request to the trustee to pursue the remedy; |
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the holder or holders offer to the trustee indemnity reasonably
satisfactory to it, |
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the trustee fails to act for a period of 60 days after
receipt of notice and offer of indemnity; and |
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during that 60-day
period, the holders of a majority in principal amount of the
debt securities of that series do not give the trustee a
direction inconsistent with the request. |
This provision will not, however, affect the right of a holder
of a debt security to sue for enforcement of any overdue payment.
In most cases, holders of a majority in principal amount of the
outstanding debt securities of a series (or of all debt
securities affected, voting as one class) will be able to direct
the time, method and place of:
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conducting any proceeding for any remedy available to the
applicable trustee; and |
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exercising any trust or power conferred on the applicable
trustee not relating to or arising in respect of an event of
default. |
Each indenture will require us to file with the trustee each
year a written statement as to our compliance with the covenants
that indenture contains.
Modification and Waiver
We may amend or supplement either indenture if the holders of a
majority in principal amount of the outstanding debt securities
of all series issued under the applicable indenture and affected
by the amendment or supplement, acting as one class, consent to
it. Without the consent of the holder of each debt security
affected, however, no amendment or supplement may:
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reduce the amount of debt securities whose holders must consent
to an amendment, supplement or waiver; |
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reduce the rate of or change the time for payment of interest on
any debt security; |
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reduce the principal of, premium on or any mandatory sinking
fund payment for any debt security; |
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change the stated maturity of any debt security; |
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reduce any premium payable on the redemption of any debt
security or change the time at which any debt security may or
must be redeemed; |
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change any obligation to pay additional amounts on any debt
security; |
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make the payments on any debt security payable in any currency
or currency unit other than as the debt security originally
states; |
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impair the holders right to institute suit for the
enforcement of any payment on any debt security; |
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make any change in the percentage of principal amount of debt
securities necessary to waive compliance with specified
provisions of the applicable indenture or to make any change in
the applicable indentures provisions for modification; |
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waive a continuing default or event of default regarding any
payment on any debt security; or |
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with respect to the subordinated indenture, modify the
provisions relating to the subordination of any subordinated
debt security in a manner adverse to the holder of that security. |
We and the applicable trustee may agree to amend or supplement
either indenture or waive any provision of either indenture
without the consent of any holders of debt securities in some
circumstances, including:
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to cure any ambiguity, omission, defect or inconsistency; |
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to provide for the assumption of our obligations under the
indenture by a successor on any merger, consolidation or asset
transfer; |
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to provide for uncertificated debt securities in addition to or
in place of certificated debt securities or to provide for
bearer debt securities; |
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to provide any security for or add guarantees of any series of
debt securities; |
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to comply with any requirement to effect or maintain the
qualification of the indenture under the Trust Indenture Act of
1939; |
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to add covenants that would benefit the holders of any debt
securities or to surrender any rights we have under the
indenture; |
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to add events of default with respect to any debt securities; |
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to make any change that does not adversely affect any
outstanding debt securities of any series in any material
respect; |
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to facilitate the defeasance or discharge of any series of debt
securities if that change does not adversely affect the holders
of debt securities of that series or any other series under the
indenture in any material respect; and |
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to provide for the acceptance of a successor or another trustee. |
The holders of a majority in principal amount of the outstanding
debt securities of any series (or of all senior debt securities
or subordinated debt securities affected, voting as one class)
may waive any existing or past default or event of default with
respect to those debt securities. Those holders may not,
however, waive any default or event of default in any payment on
any debt security or compliance with a provision that cannot be
amended or supplemented without the consent of each holder
affected.
Defeasance
When we use the term defeasance, we mean discharge
from some or all of our obligations under an indenture. If we
deposit with the applicable trustee funds or government
securities sufficient to make payments on the debt securities of
a series on the dates those payments are due and payable, then,
at our option, either of the following will occur:
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we will be discharged from our obligations with respect to the
debt securities of that series (legal
defeasance); or |
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we will no longer have any obligation to comply with the
restrictive covenants under the applicable indenture, and the
related events of default will no longer apply to us, but some
of our other obligations under the indenture and the debt
securities of that series, including our obligation to make
payments on those debt securities, will survive (covenant
defeasance). |
If we defease a series of debt securities, the holders of the
debt securities of the series affected will not be entitled to
the benefits of the applicable indenture, except for our
obligations to:
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register the transfer or exchange of debt securities; |
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replace stolen, lost or mutilated debt securities; and |
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maintain paying agencies and hold moneys for payment in trust. |
Unless we inform you otherwise in the prospectus supplement, we
will be required to deliver to the applicable trustee an opinion
of counsel that the deposit and related defeasance would not
cause the holders of the debt securities to recognize income,
gain or loss for United States federal income tax purposes. If
we elect legal defeasance, that opinion of counsel must be based
on a ruling from the United States Internal Revenue Service or a
change in law to that effect.
Governing Law
New York law will govern the indentures and the debt securities.
Trustee
If an event of default occurs and is continuing, the trustee
must use the degree of care and skill of a prudent person in the
conduct of his own affairs. The trustee will become obligated to
exercise any of its powers under the
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indenture at the request of any of the holders of any debt
securities only after those holders have offered the trustee
indemnity reasonably satisfactory to it.
Each indenture will limit the right of the trustee, if it is one
of our creditors, to obtain payment of claims or to realize on
certain property received for any such claim, as security or
otherwise. The trustee may engage in other transactions with us.
If it acquires any conflicting interest, however, it must
eliminate that conflict or resign.
Form, Exchange, Registration and Transfer
If we issue the debt securities in registered form, we will not
charge a service charge for any registration of transfer or
exchange of those securities. We may, however, require the
payment of any tax or other governmental charge payable for that
registration.
Debt securities of any series will be exchangeable for other
debt securities of the same series with the same total principal
amount and the same terms but in different authorized
denominations in accordance with the applicable indenture.
Holders may present registered debt securities for registration
of transfer at the office of the security registrar or any
transfer agent we designate. The security registrar or transfer
agent will effect the transfer or exchange when it is satisfied
with the documents of title and identity of the person making
the request.
Unless we inform you otherwise in the prospectus supplement, we
will appoint the trustee under each indenture as security
registrar for the debt securities we issue in registered form
under that indenture. If the prospectus supplement refers to any
transfer agents initially designated by us, we may at any time
rescind that designation or approve a change in the location
through which any transfer agent acts. We will be required to
maintain an office or agency for transfers and exchanges in each
place of payment. We may at any time designate additional
transfer agents for any series of debt securities or rescind the
designation of any transfer agent.
In the case of any redemption, neither the security registrar
nor the transfer agent will be required to register the transfer
or exchange of any debt security:
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during a period beginning 15 business days before the day of
mailing of the relevant notice of redemption and ending on the
close of business on that day of mailing; or |
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if we have called the debt security for redemption in whole or
in part, except the unredeemed portion of any debt security
being redeemed in part. |
Payment and Paying Agents
Unless we inform you otherwise in the prospectus supplement, we
will make payments on the debt securities in U.S. dollars
at the office of the applicable trustee or any paying agent we
designate. At our option, we may make payments by check mailed
to the holders registered address or, with respect to
global debt securities, by wire transfer. Unless we inform you
otherwise in the prospectus supplement, we will make interest
payments to the person in whose name the debt security is
registered at the close of business on the record date for the
interest payment.
Unless we inform you otherwise in the prospectus supplement, we
will designate the trustee under each indenture as our paying
agent for payments on debt securities we issue under that
indenture. We may at any time designate additional paying agents
or rescind the designation of any paying agent or approve a
change in the office through which any paying agent acts.
Subject to the requirements of any applicable abandoned property
laws, the trustee and paying agent will repay to us on our
written request any funds they hold for payments on the debt
securities that remain unclaimed for two years after the date
upon which that payment has become due. After repayment to us,
holders entitled to those funds must look only to us for payment.
Book-entry Debt Securities
We may issue the debt securities of a series in the form of one
or more global debt securities that would be deposited with a
depositary or its nominee identified in the prospectus
supplement. We may issue global debt
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securities in either temporary or permanent form. We will
describe in the prospectus supplement the terms of any
depositary arrangement and the rights and limitations of owners
of beneficial interests in any global debt security.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of:
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60,000,000 shares of common stock; and |
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10,000,000 shares of preferred stock, issuable in series. |
Each authorized share has a par value of $.001. As of
December 31, 2001, 26,549,830 shares of common stock
were issued and outstanding. Also as of December 31, 2001,
no shares of our preferred stock were issued and outstanding.
In the discussion that follows, we have summarized selected
provisions of our certificate of incorporation, as amended, and
our amended and restated bylaws relating to our capital stock.
You should read the provisions of our certificate of
incorporation and bylaws as currently in effect for more details
regarding the provisions we describe below and for other
provisions that may be important to you. We have filed copies of
those documents with the SEC, and they are incorporated by
reference as exhibits to the registration statement. Please read
Where You Can Find More Information.
Common Stock
Each share of common stock has one vote in the election of each
director and on other corporate matters, other than any matter
that (1) solely relates to the terms of any outstanding
series of preferred stock or the number of shares of that series
and (2) does not affect the number of authorized shares of
preferred stock or the powers, privileges and rights pertaining
to the common stock. No share of common stock affords any
cumulative voting rights. This means that the holders of a
majority of the voting power of the shares voting for the
election of directors can elect all directors to be elected if
they choose to do so. Our board of directors may grant holders
of preferred stock, in the resolutions creating the series of
preferred stock, the right to vote on the election of directors
or any questions affecting us.
Holders of common stock will be entitled to dividends in such
amounts and at such times as our board of directors in its
discretion may declare out of funds legally available for the
payment of dividends. We currently intend to retain our entire
available discretionary cash flow to finance the growth,
development and expansion of our business and do not anticipate
paying any cash dividends on the common stock in the foreseeable
future. Any future dividends will be at the discretion of our
board of directors after taking into account various factors,
including:
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our financial condition and performance; |
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our cash needs and expansion plans; |
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our obligations to holders of any preferred stock we may issue; |
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income tax consequences; and |
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the restrictions Delaware and other applicable laws and our
credit arrangements then impose. |
In addition, the terms of our principal credit facility prohibit
the payment of cash dividends.
If we liquidate or dissolve our business, the holders of common
stock will share ratably in all assets available for
distribution to stockholders after our creditors are paid in
full and the holders of all series of our outstanding preferred
stock, if any, receive their liquidation preferences in full.
The common stock has no preemptive rights and is not convertible
or redeemable or entitled to the benefits of any sinking or
repurchase fund. All issued and outstanding shares of common
stock are fully paid and nonassessable. Any shares of common
stock we offer and sell under this prospectus will also be fully
paid and nonassessable.
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The common stock is quoted on the Nasdaq National Market under
the symbol RMIX.
Preferred Stock
At the direction of our board of directors, without any action
by the holders of common stock, we may issue one or more series
of preferred stock from time to time. Our board of directors can
determine the number of shares of each series of preferred stock
and the rights, preferences, privileges and restrictions,
including dividend rights, voting rights, conversion or exchange
rights, terms of redemption and liquidation preferences, of each
series.
The prospectus supplement relating to any series of preferred
stock we offer will include specific terms relating to the
offering. These terms will include some or all of the following:
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the series designation of the preferred stock; |
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the maximum number of shares of the series; |
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the dividend rate (or the method of calculating the dividend),
the date from which dividends will accrue and whether dividends
will be cumulative; |
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any liquidation preference; |
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any optional redemption provisions; |
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any sinking fund or other provisions that would obligate us to
redeem or repurchase the preferred stock; |
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any terms for the conversion or exchange of the preferred stock
for any other securities; |
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any voting rights; and |
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any other preferences and relative, participating, optional or
other special rights or any qualifications, limitations or
restrictions on the rights of the shares. |
Any preferred stock we offer and sell under this prospectus will
be fully paid and nonassessable.
The description of the terms of the preferred stock to be set
forth in an applicable prospectus supplement will not be
complete and will be subject to and qualified by the certificate
of designation relating to the applicable series of preferred
stock. The registration statement will include the certificate
of designation as an exhibit or will incorporate the certificate
of designation by reference. You should read that document for
provisions that may be important to you.
Undesignated preferred stock may enable our board of directors
to render more difficult or to discourage an attempt to obtain
control of us by means of a tender offer, proxy contest, merger
or otherwise, and to thereby protect the continuity of our
management. The issuance of shares of preferred stock may
adversely affect the rights of the holders of common stock. For
example, any preferred stock issued may rank prior to the common
stock as to dividend rights, liquidation preference or both, may
have full or limited voting rights and may be convertible into
shares of common stock. As a result, the issuance of shares of
preferred stock may discourage bids for common stock or may
otherwise adversely affect the market price of the common stock
or any existing preferred stock.
Stockholder Rights Plan
On May 10, 1999, we entered into a rights agreement with
American Stock Transfer & Trust Company, as rights
agent, providing for the issuance of preferred stock purchase
rights to holders of common stock. Under the plan, each share of
common stock currently includes one right to purchase from us a
unit consisting of one one-hundredth of a share of our
Series A junior participating preferred stock at an
exercise price of $35.00 per unit, subject to adjustment.
We have summarized selected provisions of the rights agreement
below. You should read the rights agreement for more details
regarding the provisions we describe below and for other
provisions that may be important to you. We have filed a copy of
the rights agreement with the SEC, and it is incorporated by
reference as an exhibit to the registration statement. Please
read Where You Can Find More Information.
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The rights are attached to all certificates representing our
currently outstanding common stock and will attach to all common
stock certificates we issue prior to the rights
distribution date. That date would occur, except in some
cases, on the earlier of:
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10 days following a public announcement that a person or
group of affiliated or associated persons (collectively, an
acquiring person) has acquired or obtained the right
to acquire beneficial ownership of 15% or more of the
outstanding shares of common stock; or |
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10 business days following the start of a tender or exchange
offer that would result, if closed, in a persons becoming
an acquiring person. |
Our board of directors may defer the rights distribution date in
some circumstances, and some inadvertent acquisitions will not
result in a person becoming an acquiring person if the person
promptly divests itself of sufficient common stock.
Until the rights distribution date:
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common stock certificates will evidence the rights; |
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the rights will be transferable only with those certificates; |
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those certificates will contain a notation incorporating the
rights agreement by reference; and |
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the surrender for transfer of any of those certificates also
will constitute the transfer of the rights associated with the
stock that certificate represents. |
The rights are not exercisable until after the rights
distribution date and will expire at the close of business on
April 30, 2009, unless we earlier redeem or exchange them
as we describe below.
As soon as practicable after the rights distribution date, the
rights agent will mail certificates representing the rights to
holders of record of common stock as of the close of business on
that date and, from and after that date, only separate rights
certificates will represent the rights.
We will not issue rights with any shares of common stock we
issue after the rights distribution date, except (1) as our
board of directors otherwise may determine and (2) together
with shares of common stock we issue as a result of previously
established incentive plans or convertible securities.
A flip-in event will occur under the rights
agreement when a person becomes an acquiring person otherwise
than as a result of a permitted offer. The rights
agreement defines permitted offer to mean a tender
or exchange offer for all outstanding shares of common stock at
a price and on terms that a majority of the independent members
of our board of directors determines to be fair to and otherwise
in our best interests and the best interests of our stockholders.
If a flip-in event occurs, our board of directors may, at any
time until 10 days after the public announcement that a
person has become an acquiring person, cause us to redeem the
rights in whole, but not in part, at a redemption price of
$.01 per right, subject to adjustment for any stock split,
stock dividend or similar transaction occurring before the date
of redemption. At our option, we may pay that redemption price
in cash, shares of common stock or any other consideration our
board of directors selects. The rights will not be exercisable
after a flip-in event until they are no longer redeemable. If
our board of directors timely orders the redemption of the
rights, the rights will terminate on the effectiveness of that
action.
If a flip-in event occurs and we do not redeem the rights, each
right, other than any right that has become null and void as we
describe below, will become exercisable, at the time we no
longer may redeem it, to receive the number of shares of common
stock (or, in some cases, cash, property or other of our
securities) which has a current market price (as the
rights agreement defines that term) equal to two times the
exercise price of the right.
When a flip-in event occurs, all rights that then are, or under
the circumstances the rights agreement specifies previously
were, beneficially owned by an acquiring person or specified
related parties will become null and void in the circumstances
the rights agreement specifies.
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A flip-over event will occur under the rights
agreement when, at any time from and after the time a person
becomes an acquiring person, (1) we are acquired in a
merger or other business combination transaction, other than
specified mergers that follow a permitted offer of the type we
describe above, or (2) 50% or more of our assets or earning
power is sold or transferred. If a flip-over event occurs, each
holder of a right (except rights that previously have become
void as we describe above) thereafter will have the right to
receive, on exercise of that right, the number of shares of
common stock of the acquiring company which has a current market
price equal to two times the exercise price of the right.
The number of outstanding rights associated with a share of
common stock, the number of fractional shares of junior
participating preferred stock issuable on exercise of a right
and the exercise price of the rights are subject to adjustment
in the event of a stock dividend on, or a subdivision,
combination or reclassification of, the common stock occurring
prior to the rights distribution date. The exercise price of the
rights and the number of fractional shares of junior
participating preferred stock or other securities or property
issuable on exercise of the rights also are subject to
adjustment from time to time to prevent dilution in the event of
some transactions affecting the junior participating preferred
stock.
With some exceptions, the rights agreement will not require us
to adjust the exercise price of the rights until cumulative
adjustments amount to at least 1% of that exercise price. It
also will not require us to issue fractional shares of junior
participating preferred stock that are not integral multiples of
one one-hundredth, and, in lieu thereof, we will make a cash
adjustment based on the market price of the junior participating
preferred stock on the last trading date prior to the date of
exercise. The rights agreement reserves to us the right to
require prior to the occurrence of any
flip-in event or
flip-over event that, on any exercise of rights, a number of
rights must be exercised so that we will issue only whole shares
of junior participating preferred stock.
At any time after the occurrence of a
flip-in event and prior
to a persons becoming the beneficial owner of 50% or more
of the shares of common stock then outstanding or the occurrence
of a flip-over event, we may, at our option, exchange the rights
(other than rights owned by an acquiring person or an affiliate
or an associate of an acquiring person, which will have become
void), in whole or in part, at an exchange ratio of one share of
common stock, and/or other equity securities we deem to have the
same value as one share of common stock, per right, subject to
adjustment.
During the time we may redeem the rights, we may, at the
direction of our board of directors, amend any of the provisions
of the rights agreement other than the redemption price.
Thereafter, we may amend the provisions of the rights agreement,
other than the redemption price, only as follows:
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to cure any ambiguity, defect or inconsistency; |
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to make changes that do not materially adversely affect the
interests of holders of rights, excluding the interests of any
acquiring person; or |
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to shorten or lengthen any time period under the rights
agreement; provided, however, that we cannot lengthen the time
period governing redemption if the rights are no longer
redeemable. |
Until a right is exercised, the holder thereof, as such, will
have no rights to vote or receive dividends or any other rights
as a stockholder.
The rights have anti-takeover effects. They will cause severe
dilution to any person or group that attempts to acquire us
without the approval of our board of directors. As a result, the
overall effect of the rights may be to render more difficult or
discourage any attempt to acquire us, even if the acquisition
may be favorable to the interests of our stockholders. Because
our board of directors can redeem the rights or approve a
permitted offer, the rights should not interfere with a merger
or other business combination our board of directors approves.
Limitation on Directors Liability
Delaware law authorizes Delaware corporations to limit or
eliminate the personal liability of their directors to them and
their stockholders for monetary damages for breach of a
directors fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation,
directors must exercise an informed business judgment based on
all material information reasonably available to them. Absent
the limitations Delaware law
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authorizes, directors of Delaware corporations are accountable
to those corporations and their stockholders for monetary
damages for conduct constituting gross negligence in the
exercise of their duty of care. Delaware law enables Delaware
corporations to limit available relief to equitable remedies
such as injunction or rescission. Our certificate of
incorporation limits the liability of our directors to us or our
stockholders to the fullest extent Delaware law permits.
Specifically, no member of our board of directors will be
personally liable for monetary damages for any breach of the
members fiduciary duty as a director, except for liability:
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for any breach of the members duty of loyalty to us or our
stockholders; |
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for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; |
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for unlawful payments of dividends or unlawful stock repurchases
or redemptions as provided in Section 174 of the Delaware
General Corporation Law; and |
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for any transaction from which the member derived an improper
personal benefit. |
This provision could have the effect of reducing the likelihood
of derivative litigation against our directors and may
discourage or deter our stockholders or management from bringing
a lawsuit against our directors for breach of their duty of
care, even though such an action, if successful, might otherwise
have benefited our stockholders and us. Our bylaws provide
indemnification to our officers and directors and other
specified persons with respect to their conduct in various
capacities, and we have entered into agreements with each of our
directors and executive officers which indemnify them to the
fullest extent Delaware law and our certificate of incorporation
permit.
Statutory Business Combination Provision
As a Delaware corporation, we are subject to Section 203 of
the Delaware General Corporation Law. In general,
Section 203 prevents an interested stockholder,
which is defined generally as a person owning 15% or more of a
Delaware corporations outstanding voting stock or any
affiliate or associate of that person, from engaging in a broad
range of business combinations with the corporation
for three years following the date that person became an
interested stockholder unless:
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before that person became an interested stockholder, the board
of directors of the corporation approved the transaction in
which that person became an interested stockholder or approved
the business combination; |
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on completion of the transaction that resulted in that
persons becoming an interested stockholder, that person
owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, other than
stock held by (1) directors who are also officers of the
corporation or (2) any employee stock plan that does not
provide employees with the right to determine confidentially
whether shares held subject to the plan will be tendered in a
tender or exchange offer; or |
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following the transaction in which that person became an
interested stockholder, both the board of directors of the
corporation and the holders of at least two-thirds of the
outstanding voting stock of the corporation not owned by that
person approve the business combination. |
Under Section 203, the restrictions described above also do
not apply to specific business combinations proposed by an
interested stockholder following the announcement or
notification of designated extraordinary transactions involving
the corporation and a person who had not been an interested
stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the
corporations directors, if a majority of the directors who
were directors prior to any persons becoming an interested
stockholder during the previous three years, or were recommended
for election or elected to succeed those directors by a majority
of those directors, approve or do not oppose that extraordinary
transaction.
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Other Matters
Some of the provisions of our certificate of incorporation and
bylaws discussed below may have the effect, either alone or in
combination with the provisions of Section 203 of the
Delaware General Corporation Law, of making more difficult or
discouraging a tender offer, proxy contest or other takeover
attempt that our board of directors opposes but that a
stockholder might consider to be in its best interest.
Our certificate of incorporation provides that our stockholders
may act only at an annual or special meeting of stockholders and
may not act by written consent. Our bylaws provide that only the
chairman of our board of directors or a majority of the board
may call a special meeting of our board of directors or of our
stockholders.
Our certificate of incorporation provides for a classified board
of directors. Except for directors that the holders of preferred
stock may elect, our board of directors is divided into three
classes, with the directors of each class as nearly equal in
number as possible. At each annual meeting of our stockholders,
the term of a different class of our directors will expire. As a
result, we contemplate that stockholders will elect
approximately one-third of our board of directors each year.
Board classification could prevent a party who acquires control
of a majority of our outstanding voting stock from obtaining
control of our board of directors until the second annual
stockholders meeting following the date that party obtains
that control.
Our certificate of incorporation provides that the number of
directors will be as the board of directors determines from time
to time, but will not be less than three. It also provides that
directors may be removed only for cause and then only by the
affirmative vote of the holders of at least a majority of all
outstanding voting stock entitled to vote. This provision, along
with the provisions authorizing the board of directors to fill
vacant directorships, will prevent stockholders from removing
incumbent directors without cause and filling the resulting
vacancies with their own nominees.
Stockholder Proposals
Our bylaws contain advance-notice and other procedural
requirements that apply to stockholder nominations of persons
for election to the board of directors at any annual or special
meeting of stockholders and to stockholder proposals that
stockholders take any other action at any annual meeting. In the
case of any annual meeting, a stockholder proposing to nominate
a person for election to the board of directors or proposing
that any other action be taken must give our corporate secretary
written notice of the proposal not less than 90 days and
not more than 180 days before the anniversary date of the
immediately preceding annual meeting. These stockholder proposal
deadlines are subject to exceptions if the pending annual
meeting date differs by more than specified periods from that
anniversary date. If the chairman of our board of directors or a
majority of the board of directors calls a special meeting of
stockholders for the election of directors, a stockholder
proposing to nominate a person for that election must give our
corporate secretary written notice of the proposal not earlier
than 180 days prior to that special meeting and not later
than the last to occur of (1) 90 days prior to that
special meeting or (2) the 10th day following the day
we publicly disclose the date of the special meeting. Our bylaws
prescribe the specific information any advance written
stockholder notice must contain.
The advance-notice procedure may have the effect of precluding a
contest for the election of directors or the consideration of
stockholder proposals if the proper procedures are not followed,
and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or
to approve its own proposal, without regard to whether
consideration of those nominees or proposals might be harmful or
beneficial to our company and our stockholders.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is
American Stock Transfer & Trust Company.
DESCRIPTION OF WARRANTS
We may issue warrants to purchase debt securities, common stock,
preferred stock or other securities. We may issue warrants
independently or together with other securities. Warrants we
sell with other securities may be
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attached to or separate from those other securities. If we issue
warrants, we will do so under one or more warrant agreements
between us and a warrant agent that we will name in the
prospectus supplement.
We have summarized selected provisions of the warrants below. If
we offer any warrants, we will file the forms of warrant
certificate and warrant agreement with the SEC, and you should
read those documents for provisions that may be important to you.
The prospectus supplement relating to any warrants being offered
will include specific terms relating to the offering. These
terms will include some or all of the following:
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the title of the warrants; |
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the aggregate number of warrants offered; |
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the designation, number and terms of the debt securities, common
stock, preferred stock or other securities purchasable on
exercise of the warrants, and procedures that may result in the
adjustment of those numbers; |
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the exercise price of the warrants; |
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the dates or periods during which the warrants are exercisable; |
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the designation and terms of any securities with which the
warrants are issued; |
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if the warrants are issued as a unit with another security, the
date on and after which the warrants and the other security will
be separately transferable; |
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if the exercise price is not payable in U.S. dollars, the
foreign currency, currency unit or composite currency in which
the exercise price is denominated; |
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any minimum or maximum amount of warrants that may be exercised
at any one time; |
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any terms, procedures and limitations relating to the
transferability, exchange or exercise of the warrants; and |
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any other terms of the warrants. |
Warrant certificates will be exchangeable for new warrant
certificates of different denominations at the office indicated
in the prospectus supplement. Prior to the exercise of their
warrants, holders of warrants will not have any of the rights of
holders of the securities subject to the warrants.
Modifications
We may amend the warrant agreements and the warrants without the
consent of the holders of the warrants to cure any ambiguity, to
cure, correct or supplement any defective or inconsistent
provision, or in any other manner that will not materially and
adversely affect the interests of holders of outstanding
warrants.
We may also modify or amend various other terms of the warrant
agreements and the warrants with the consent of the holders of
not less than a majority in number of the then outstanding
unexercised warrants affected. Without the consent of the
holders affected, however, no modification or amendment may:
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shorten the period of time during which the warrants may be
exercised; or |
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otherwise materially and adversely affect the exercise rights of
the holders of the warrants. |
Enforceability of Rights
The warrant agent will act solely as our agent. The warrant
agent will not have any duty or responsibility if we default
under the warrant agreements or the warrant certificates. A
warrant holder may, without the consent of the warrant agent,
enforce by appropriate legal action on its own behalf the
holders right to exercise the holders warrants.
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PLAN OF DISTRIBUTION
We may sell the offered securities in and outside the United
States (1) through underwriters or dealers,
(2) directly to purchasers or (3) through agents. The
prospectus supplement will set forth the following information:
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the terms of the offering; |
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the names of any underwriters or agents; |
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the name or names of any managing underwriter or underwriters; |
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the purchase price of the securities from us; |
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the net proceeds we will receive from the sale of the securities; |
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any delayed delivery arrangements; |
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any underwriting discounts, commissions and other items
constituting underwriters compensation; |
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any initial public offering price; |
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any discounts or concessions allowed or reallowed or paid to
dealers; and |
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any commissions paid to agents. |
Sale Through Underwriters or Dealers
If we use underwriters in the sale of the offered securities,
the underwriters will acquire the securities for their own
account. The underwriters may resell the securities from time to
time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying
prices determined at the time of sale. Underwriters may offer
securities to the public either through underwriting syndicates
represented by one or more managing underwriters or directly by
one or more firms acting as underwriters. Unless we inform you
otherwise in the prospectus supplement, the obligations of the
underwriters to purchase the securities will be subject to
several conditions, and the underwriters will be obligated to
purchase all the offered securities if they purchase any of
them. The underwriters may change from time to time any initial
public offering price and any discounts or concessions allowed
or reallowed or paid to dealers.
If we use underwriters in the sale of the offered securities,
rules of the SEC may limit the ability of the underwriters and
certain selling group members to bid for and purchase our
securities until the distribution of the offered securities is
completed. As an exception to these rules, the underwriters are
permitted to engage in certain transactions that stabilize,
maintain or otherwise affect the price of the offered securities.
In connection with an underwritten offering, the underwriters
may make short sales of the offered securities and may purchase
our securities on the open market to cover positions created by
short sales. Short sales involve the sale by the underwriters of
a greater number of securities than they are required to
purchase in the offering. Covered short sales are
made in an amount not greater than the over-allotment option we
may grant to the underwriters in connection with the offering.
The underwriters may close out any covered short position by
either exercising the over-allotment option or purchasing our
securities in the open market. In determining the source of
securities to close out the covered short position, the
underwriters will consider, among other things, the price of
securities available for purchase in the open market as compared
to the price at which they may purchase securities through the
over-allotment option. Naked short sales are sales
in excess of the over-allotment option. The underwriters must
close out any naked short position by purchasing our securities
in the open market. A naked short position is more likely to be
created if the underwriters are concerned that there may be
downward pressure on the price of the securities in the open
market after pricing that could adversely affect investors who
purchase in the offering.
The underwriters may also impose a penalty bid on certain
selling group members. This means that if the underwriters
purchase our securities in the open market to reduce the selling
group members short position or to
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stabilize the price of the securities, they may reclaim the
amount of the selling concession from the selling group members
who sold those securities as part of the offering.
In general, purchases of a security for the purpose of
stabilization or to reduce a short position could cause the
price of the security to be higher than it might be in the
absence of those purchases or those purchases could prevent or
retard a decline in the price of the security. The imposition of
a penalty bid might also have an effect on the price of a
security to the extent that it were to discourage resales of the
security.
Neither we nor the underwriters will make any representation or
prediction as to the direction or magnitude of any effect that
the transactions we describe above may have on the price of the
offered securities. In addition, neither we nor the underwriters
will make any representation that the underwriters will engage
in these transactions or that these transactions, once
commenced, will not be discontinued without notice.
If we use dealers in the sale of securities, we will sell the
securities to them as principals. They may then resell those
securities to the public at varying prices determined by the
dealers at the time of resale. We will include in the prospectus
supplement the names of the dealers and the terms of the
transaction.
We may also sell shares of our common stock through Ramius
Securities, LLC under the underwriting agreement we describe
below under Existing Underwriting Arrangement.
Direct Sales and Sales Through Agents
We may sell the securities directly. In that event, no
underwriters or agents would be involved. We may also sell the
securities through agents we designate from time to time. In the
prospectus supplement, we will name any agent involved in the
offer or sale of the offered securities, and we will describe
any commissions payable by us to the agent. Unless we inform you
otherwise in the prospectus supplement, any agent will agree to
use its reasonable best efforts to solicit purchases for the
period of its appointment.
We may sell the securities directly to institutional investors
or others who may be deemed to be underwriters within the
meaning of the Securities Act of 1933 with respect to any sale
of those securities. We will describe the terms of any such
sales in the prospectus supplement.
Existing Underwriting Arrangement
We have entered into a Flexible Underwritten Equity Facility
(FUEL(R)) Agreement, dated as of January 7, 2002, with
Ramius Securities LLC, as underwriter. We have summarized that
agreement below. In the following discussion, we refer to that
agreement as the underwriting agreement. You should read the
underwriting agreement for more details regarding the provisions
we describe below and for other provisions that may be important
to you. We have filed a copy of the underwriting agreement with
the SEC, and it is incorporated by reference as an exhibit to
the registration statement. Please read Where You Can Find
More Information.
Under the underwriting agreement, we may issue and sell through
the underwriter shares of our common stock from time to time
until January 7, 2004, or until the earlier termination of
the underwriting agreement under the termination provisions we
describe below. The underwriting agreement does not obligate us
to sell any shares of common stock through the underwriter. If
we elect to sell shares of common stock under the underwriting
agreement, we may issue and sell an aggregate number of shares,
in a series of capital raising periods (each consisting of ten
trading days), that results in up to a maximum of $12,255,168 in
aggregate gross proceeds to us, provided that the total amount
of common stock we may offer and sell under the underwriting
agreement will not exceed 1,800,000 shares. During each
capital raising period, we may elect to issue and sell a number
of shares of common stock with an aggregate value of not less
than $1,500,000 and not more than $6,000,000 by giving the
underwriter a capital demand notice. In each capital demand
notice, we will specify a minimum offering price per share at
which we are willing to sell the shares of common stock being
offered.
After we deliver a capital demand notice and subject to the
satisfaction of the conditions we describe below, the
underwriter (1) will be obligated to sell a portion of the
shares of common stock to be offered pursuant to the capital
demand notice on a firm-commitment basis and (2) will offer
the remaining shares to be offered pursuant to that capital
demand notice on a best-efforts basis. The number of shares to
be sold on a firm-commitment basis
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will equal the number of shares whose proceeds equal the lesser
of (1) the sum of the qualified daily trading limit for
each trading day during the capital raising period or
(2) $1,000,000. The qualified daily trading limit for any
trading day will generally be the lesser of 10% of the dollar
amount of the net proceeds we request in the capital demand
notice or 15% of the dollar trading volume of our common stock
(excluding block trades of more than 5,000 shares) traded
at or above the minimum offering price on that trading day. The
underwriter may elect to reduce the number of shares to be sold
on a firm-commitment basis to zero, if the volume weighted
average price per share of our common stock is below the minimum
offering price we specify in the capital demand notice for any
four consecutive trading days during the capital raising period.
In addition, the underwriter will not be obligated to sell
shares of common stock during any capital raising period if the
aggregate value of the number of shares to be sold on a
firm-commitment basis is less than $100,000.
Any shares of common stock the underwriter sells under the
underwriting agreement will be sold at prices related to the
then prevailing market price for our common stock. During a
capital raising period, the underwriter will effectively pay us
for any shares it sells on our behalf on any trading day a
purchase price equal to the daily volume weighted average price
for that trading day, excluding block trades of more than
5,000 shares, as reported by Bloomberg Financial LP, less a
discount of either 4.00 or 4.25%, depending on our market
capitalization on the day we provide the related capital demand
notice to the underwriter.
Under the terms of the underwriting agreement, the underwriter
and its affiliates are prohibited from engaging in any put,
call, short-sale, hedge, straddle, collar or similar transaction
with respect to any shares of our common stock.
Under some circumstances, the underwriter will not be obligated
to sell any shares of our common stock following our delivery of
a capital demand notice. These circumstances generally include:
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the withdrawal or suspension of the effectiveness of the
registration statement; |
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our failure to maintain the inclusion of our common stock on the
Nasdaq National Market; |
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a suspension of trading of our common stock on the Nasdaq
National Market; |
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a general suspension of trading of securities on the Nasdaq
National Market; |
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a general moratorium on commercial banking activities or
securities clearance and settlement services declared by federal
or New York state authorities; |
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a material outbreak or escalation of hostilities involving the
United States or the declaration by the United States of a
national emergency or war that, in the reasonable judgment of
the underwriter, makes it impracticable to proceed with the
offering; |
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our failure to satisfy the conditions precedent to sales of
common stock that the underwriting agreement sets forth; |
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our failure to comply with our covenants that the underwriting
agreement sets forth; |
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any merger or consolidation of our company into another entity; |
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a transfer of all or substantially all of our assets to another
entity; or |
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the occurrence of an event which makes any statement of material
fact made in this prospectus, the registration statement, any
amendment to the registration statement, any supplement to this
prospectus or any document we have incorporated by reference
into this prospectus untrue in any material respect or which
requires us to amend the registration statement or this
prospectus. |
The underwriter may terminate the underwriting agreement if:
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we commit a material breach of any of our representations,
warranties or covenants or other obligations in the underwriting
agreement; |
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we fail to comply with our covenants the underwriting agreement
sets forth; |
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we merge or consolidate with another entity or transfer all or
substantially all of our assets to another entity; |
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the underwriter reasonably determines that the adoption of,
change in, or any change in the interpretation or application of
any law, regulation, rule, guideline or treaty makes it illegal
or materially impracticable for the underwriter to fulfill its
commitment under the terms of the underwriting agreement; or |
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we fail to maintain the inclusion of our common stock on the
Nasdaq National Market or the suspension of trading on that
market for a period of ten or more consecutive trading days. |
We may, in our sole discretion, terminate the underwriting
agreement at any time.
We have paid the underwriter $50,000 to cover a portion of its
out-of-pocket expenses
in connection with the execution of the underwriting agreement
and its conduct of an initial due diligence review of our
company. In addition, we have agreed to pay the
underwriters reasonable
out-of-pocket expenses
relating to its ongoing due diligence review in any quarter in
which we provide the underwriter a capital demand notice, up to
a maximum of $8,000 per quarter. We have also agreed that:
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if we do not raise an aggregate of at least $1 million
within one year of the date of the underwriting agreement, we
will pay the underwriter a stand-by fee of 5% of the difference
between $1 million and the amount raised during that
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if we do not raise an aggregate of at least $2 million
within two years of the date of the underwriting agreement, we
will pay the underwriter a
stand-by fee equal to
5% of the difference between the $2 million and the amount
raised during that two-year period; provided, however, that the
total of the aggregate standby-fees we pay will not exceed
$100,000. |
If we raise at least $2 million within two years of the
date of the underwriting agreement, the underwriter will refund
to us any previously paid stand-by fees. At our option, we may
pay the stand-by fees
in cash or in shares of our common stock, valued at the then
current market price, to the extent permitted by the applicable
rules of the National Association of Securities Dealers, Inc.
We have entered into a letter agreement with Credit Lyonnais
Securities (USA) Inc. (CLS), which acted as a
finder in connection with the underwriting agreement. You should
read that letter agreement for more details regarding the
provisions we describe below and for other provisions that may
be important to you. We have filed a copy of that letter
agreement with the SEC as an exhibit to the registration
statement.
Under the terms of our letter agreement with CLS, we have agreed
to pay CLS a finders fee of either 2.75% or 3.00%
(depending on our market capitalization on the day we provide
the related capital demand notice to the underwriter) of the
aggregate price the underwriter pays us for those shares. We
have also paid CLS an expense allowance of $50,000, which is to
be refunded to us if and to the extent CLS does not incur up to
$50,000 of costs and expenses in connection with these
arrangements. CLS introduced us to the underwriter, but CLS is
not a party to, and is not obligated to purchase any shares of
our common stock under, the underwriting agreement.
The total compensation we pay to the underwriter and CLS will
depend on the amount of net proceeds, if any, we seek to obtain
under the underwriting agreement and the aggregate sales
proceeds from any shares of common stock the underwriter sells
on our behalf under the underwriting agreement. However, in no
event will the total commissions and finders fees we pay
to the underwriter and CLS during any capital raising period
exceed 7% of the aggregate gross proceeds attributable to sales
of common stock under the underwriting agreement during that
capital raising period.
We have agreed to indemnify the underwriter and CLS against
certain civil liabilities, including liabilities under the
Securities Act of 1933.
Delayed Delivery Contracts
If we so indicate in the prospectus supplement, we may authorize
agents, underwriters or dealers to solicit offers from various
types of institutions to purchase securities from us at the
public offering price under delayed delivery contracts. These
contracts would provide for payment and delivery on a specified
date in the future. The
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contracts would be subject only to those conditions the
prospectus supplement describes. The prospectus supplement will
describe the commission payable for solicitation of those
contracts.
General Information
We may have agreements with the agents, dealers and underwriters
to indemnify them against civil liabilities, including
liabilities under the Securities Act of 1933, or to contribute
with respect to payments that the agents, dealers or
underwriters may be required to make. Agents, dealers and
underwriters may be customers of, engage in transactions with or
perform services for us in the ordinary course of their
businesses.
LEGAL MATTERS
Baker Botts L.L.P., Houston, Texas, our outside counsel, will
issue an opinion about the legality of the offered securities
for us. Any underwriters will be advised about other issues
relating to any offering by their own legal counsel.
EXPERTS
The audited financial statements incorporated by reference in
this prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report
with respect thereto, and are incorporated herein in reliance
upon the authority of said firm as experts in accounting and
auditing in giving said report.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other information with the SEC. You can read and copy any
materials we file with the SEC at the SECs public
reference room at 100 F Street, N.E., Washington, D.C.
20549. You can obtain information about the operation of the
SECs public reference room by calling the SEC at
1-800-SEC-0330. The SEC
also maintains a Web site that contains information we file
electronically with the SEC, which you can access over the
Internet at http://www.sec.gov.
This prospectus is part of a registration statement we have
filed with the SEC relating to the securities. This prospectus
does not contain all the information the registration statement
sets forth or includes in its exhibits, in accordance with the
rules and regulations of the SEC, and we refer you to that
omitted information. The statements this prospectus makes
respecting the content of any contract, agreement or other
document that is an exhibit to the registration statement
necessarily are summaries of their material provisions, and we
qualify them in their entirety by reference to those exhibits
for complete statements of their provisions. The registration
statement and its exhibits are available at the SECs
public reference room or through its Web site.
The SEC allows us to incorporate by reference the
information we file with it, which means we can disclose
important information to you by referring you to those
documents. The information we incorporate by reference is an
important part of this prospectus, and later information we file
with the SEC will automatically update and supersede that
information. We incorporate by reference the documents listed
below, and any future filings we make with the SEC under
Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until we sell all the offered securities.
The documents we incorporate by reference are:
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our annual report on
Form 10-K for the
year ended December 31, 2000; |
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our quarterly reports on
Form 10-Q for the
quarters ended March 31, 2001, June 30, 2001 and
September 30, 2001; |
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our current reports on
Form 8-K dated
April 10, 2001 and July 12, 2001; and |
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the description of the common stock and the description of the
rights to purchase preferred stock in our registration
statements on
Form 8-A filed on
May 10, 1999. |
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We will provide without charge to each person, including any
beneficial owner, to whom a copy of this prospectus has been
delivered, upon written or oral request, a copy of any or all
the documents we incorporate by reference in this prospectus,
other than any exhibit to any of those documents, unless we have
specifically incorporated that exhibit by reference into the
information this prospectus incorporates. You may request copies
by writing or telephoning us at the following address:
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U.S. Concrete, Inc. |
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2925 Briarpark Suite 1050 |
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Houston, Texas 77042 |
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Attention: Corporate Secretary |
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Telephone: (713) 499-6200 |
You should rely only on the information we have provided or
incorporated by reference in this prospectus or any prospectus
supplement. We have not authorized any person (including any
salesman or broker) to provide information other than that this
prospectus or any prospectus supplement provides. We have not
authorized anyone to provide you with different information. We
are not making an offer of these securities in any jurisdiction
where the offer is not permitted. You should not assume that the
information in this prospectus or any prospectus supplement is
accurate as of any date other than the date on its cover page or
that any information in any document we have incorporated by
reference is accurate as of any date other than the date of the
document incorporated by reference. Accordingly, we urge you to
review each document we subsequently file with the SEC and
incorporate by reference as we describe above for updated
information.
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6,500,000 Shares
U.S. Concrete, Inc.
Common Stock
PROSPECTUS SUPPLEMENT
February , 2006
Citigroup
BB&T Capital Markets
Sanders Morris Harris
Davenport & Company LLC