Attached files
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EX-23 - U.S. CONCRETE, INC. | v177313_ex23.htm |
EX-21 - U.S. CONCRETE, INC. | v177313_ex21.htm |
EX-31.1 - U.S. CONCRETE, INC. | v177313_ex31-1.htm |
EX-32.1 - U.S. CONCRETE, INC. | v177313_ex32-1.htm |
EX-32.2 - U.S. CONCRETE, INC. | v177313_ex32-2.htm |
EX-31.2 - U.S. CONCRETE, INC. | v177313_ex31-2.htm |
EX-10.10 - U.S. CONCRETE, INC. | v177313_ex10-10.htm |
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
OF 1934
For
the fiscal year ended December 31, 2009
Commission
file number 000-26025
U.S.
CONCRETE, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
76-0586680
|
(State or other jurisdiction of
Incorporation or organization)
|
(I.R.S. Employer
Identification Number)
|
2925
Briarpark, Suite 1050, Houston, Texas 77042
(Address
of principal executive offices) (Zip code)
Registrant’s
telephone number, including area code: (713) 499-6200
Securities
registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.001
|
Nasdaq Global Select Market
|
(Title of class)
|
(Name of exchange on which registered)
|
Rights
to Purchase Series A Junior
Participating
Preferred Stock
(Title
of class)
Securities registered pursuant to
Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-K (§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes o No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or non-accelerated filer, or a smaller reporting
company. See the definition of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer ¨
|
Accelerated
filer þ
|
Non-accelerated
filer ¨
|
Smaller
reporting company ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act.) Yes o Noþ
Aggregate
market value of the voting stock held by nonaffiliates of the registrant
computed by reference to the last reported sale price of $1.98 of the
registrant’s common stock on the Nasdaq Global Market as of June 30, 2009, the
last business day of the registrant’s most recently completed second
quarter: $64,377,699.
There were 37,437,629 shares of
common stock, par value $.001 per share, of the registrant outstanding as of
March 15, 2010.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Proxy Statement related to the registrant’s 2010 Annual Meeting of
Stockholders are incorporated by reference into Part III of this
report.
U.S.
CONCRETE, INC.
FORM
10-K
For
the Year Ended December 31, 2009
TABLE
OF CONTENTS
Page
|
||
PART
I
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||
Item
1.
|
Business
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3
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Item
1A.
|
Risk
Factors
|
15
|
Item
1B.
|
Unresolved
Staff Comments
|
25
|
Item
2.
|
Properties
|
25
|
Item
3.
|
Legal
Proceedings
|
26
|
Item
4.
|
Reserved
|
26
|
PART
II
|
||
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
26
|
Item
6.
|
Selected
Financial Data
|
29
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
30
|
Item
7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
47
|
Item
8.
|
Financial
Statements and Supplementary Data
|
48
|
Item
9.
|
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
|
84
|
Item
9A.
|
Controls
and Procedures
|
84
|
Item
9B.
|
Other
Information
|
84
|
PART
III
|
||
Item
10.
|
Directors,
Executive Officers and Corporate Governance
|
85
|
Item
11.
|
Executive
Compensation
|
85
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
85
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
85
|
Item
14.
|
Principal
Accountant Fees and Services
|
85
|
PART
IV
|
||
Item
15.
|
Exhibits
and Financial Statement Schedules
|
85
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
49
|
|
CONSOLIDATED
BALANCE SHEETS
|
50
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
51
|
|
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
|
52
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
53
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
54
|
|
SIGNATURES
|
90
|
|
INDEX
TO EXHIBITS
|
91
|
2
Cautionary
Statement Concerning Forward-Looking Statements
From
time to time, our management or persons acting on our behalf make
forward-looking statements to inform existing and potential security holders
about our company. These statements may include projections and estimates
concerning our business strategies, revenues, income, cash flows and capital
requirements. Forward-looking statements generally use 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. In addition, sometimes we will specifically describe a statement as
being a forward-looking statement and refer to this cautionary
statement.
This
report contains various statements, including those that express a belief,
expectation or intention and those that are not statements of historical fact,
that are forward-looking statements under the Private Securities Litigation
Reform Act of 1995. Those forward-looking statements appear in Item
1—“Business,” Item 2— “Properties,” Item 3—“Legal Proceedings,” Item
7—“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” Item 7A—“Quantitative and Qualitative Disclosures About Market
Risk,” Item 9A—“Controls and Procedures” and elsewhere in this report, including
in the notes to our Consolidated Financial Statements in Item 8 of this report.
Those forward-looking statements speak only as of the date of this report. We
disclaim any obligation to update those statements, except as applicable law may
require us to do so, and we caution you not to rely unduly on them. We have
based those forward-looking statements on our current expectations and
assumptions about future events, which may prove to be inaccurate. While our
management considers those 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. Therefore, actual
results may differ materially and adversely from those expressed in any
forward-looking statements. Factors that might cause or contribute to
such differences include, but are not limited to, those we discuss in this
report under the section entitled “Risk Factors” in Item 1A and the section
entitled “Risks and Uncertainties” in Item 7— “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” and in other reports
we file with the Securities and Exchange Commission (the “SEC”). The
factors we discuss in this report are not necessarily all the important factors
that could affect us. Unpredictable or unknown factors we have not discussed in
this report also could have material adverse effects on actual results of
matters that are the subject of our forward-looking statements. We do not intend
to update our description of important factors each time a potential important
factor arises. We advise our existing and potential security holders that they
should (1) be aware that important factors to which we do not refer in this
report could affect the accuracy of our forward-looking statements and (2) use
caution and common sense when considering our forward-looking
statements.
PART
I
Item
1. Business
General
We are a
major producer of ready-mixed concrete, precast concrete products and
concrete-related products in select markets in the United States. We
operate our business through our ready-mixed concrete and concrete-related
products segment and our precast products concrete segment. We are a
leading producer of ready-mixed concrete or precast concrete products in
substantially all the markets in which we have
operations. Ready-mixed and precast concrete products are important
building materials that are used in a vast majority of commercial, residential
and public works construction projects.
All of
our operations are in (and all of our sales are made within) the United
States. We operate principally in Texas, California, New Jersey/New
York and Michigan, with those states representing 35%, 30%, 15% and 9%,
respectively, of our consolidated revenues from continuing operations for the
year ended December 31, 2009. According to publicly available
industry information, those states represented an aggregate of 31.4% of the
consumption of ready-mixed concrete in the United States in 2009 (Texas, 13.7%,
California, 10.4%, New Jersey/New York, 5.3% and Michigan,
2.0%). Our consolidated revenues from continuing operations for the
year ended December 31, 2009 were $534.5 million, of which we derived
approximately 89.3% from our ready-mixed concrete and concrete-related products
segment and 10.7% from our precast concrete products segment. For
more information on our consolidated revenues and results of
operations for the years ended December 31, 2009, 2008 and 2007 and our
consolidated total assets as of December 31, 2009 and 2008, see our Consolidated
Financial Statements included in this report.
As of
March 15, 2010, we had 125 fixed and 11 portable ready-mixed concrete plants,
seven precast concrete plants and seven producing aggregates facilities
(including 27 fixed ready-mixed concrete plants operated by our 60%-owned
Michigan subsidiary). During 2009, these plants and facilities
produced approximately 4.5 million cubic yards of ready-mixed concrete and 3.0 million tons of
aggregates. We also own two aggregates facilities that we lease to
third parties and retain a royalty on production from those
facilities.
3
Our
ready-mixed concrete and concrete-related products segment engages principally
in the formulation, preparation and delivery of 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 concrete sub-contractors, general contractors, governmental
agencies, property owners and developers and home builders whose focus extends
beyond the price of ready-mixed concrete to product quality, on-time delivery
and reduction of in-place costs. To a lesser extent, this segment is
also engaged in the mining and sale of aggregates and the resale of building
materials, primarily to our ready-mixed concrete customers. These
businesses are generally complementary to our ready-mixed concrete operations
and provide us opportunities to cross-sell various products in markets where we
sell both ready-mixed concrete and concrete-related products. We
provide our ready-mixed concrete and concrete-related products from our
continuing operations in north and west Texas, northern California, New Jersey,
New York, Washington, D.C., Michigan and Oklahoma.
Our
precast concrete products segment produces precast concrete products at seven
plants in three states, with five plants in California, one in Arizona and one
in Pennsylvania. Our customers choose precast technology for a
variety of architectural applications, including free-standing walls used for
landscaping, soundproofing and security walls, panels used to clad a building
façade and storm water drainage. Our operations also specialize in a
variety of finished products, among which are utility vaults, manholes, catch
basins, highway barriers, curb inlets, pre-stressed bridge girders, concrete
piles and custom-designed architectural products.
For
financial information regarding our reporting segments, including revenue and
operating income (loss) for the years ended December 31, 2009, 2008 and 2007,
see Note 14 to our Consolidated Financial Statements included in this
report.
U.S.
Concrete, Inc. is a Delaware corporation which was incorporated in
1997. We began operations in 1999, which is the year we completed our
initial public offering. In this report, 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.
Market
Trends, Liquidity and Restructuring
Since the
middle of 2006, the United States building materials construction market has
become increasingly challenging. Currently, the construction
industry, particularly the ready-mixed concrete industry, is characterized by
significant overcapacity, fierce competitive activity and rapidly declining
sales volumes. From 2007 through 2009, we have implemented cost
reduction programs, including workforce reductions, plant idling, rolling stock
dispositions and divestitures of nonperforming business units to reduce
structural costs.
Despite
these initiatives in 2007, 2008 and 2009, our business has been severely
affected by the steep decline in single-family home starts in the U.S.
residential construction markets, the turmoil in the global credit markets and
the U.S. recession. These conditions had a dramatic impact on demand
for our products in each of the last three years. During 2007, 2008
and 2009, single family home starts declined by approximately 29%, 41% and 29%,
respectively, and commercial construction activity, which has been negatively
affected by the credit crisis and U.S. recession, is expected to be weaker in
our markets in 2010. Sales volumes in our precast operations have
also been significantly affected due to its significant presence in residential
construction. We are also experiencing product pricing pressure and
expect ready-mixed concrete pricing declines in 2010 compared to 2009 in most of
our markets, which will have a negative effect on our gross
margins.
In
response to the protracted, declining sales volumes, we have expanded our cost
reduction efforts for 2010, including wage freezes, elimination of our 401(k)
company match program and reductions in other employee benefits. We
also continue to significantly scale back capital investment
expenditures.
Nonetheless,
the continued weakening economic conditions, including ongoing softness in
residential construction, further reduction of demand in the commercial sector
and delays in anticipated public works projects in many of our markets, have
placed significant distress on our liquidity position. Prior to its
amendment, the credit agreement governing our senior revolving credit facility
(the “Credit Agreement” or “our Credit Agreement”) required 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 $25 million. In
February 2010, we entered into an amendment to the Credit
Agreement. The amendment, among other things, temporarily reduces the
minimum availability trigger at which we must maintain a minimum fixed charge
coverage ratio of 1.0 to 1.0 from $25 million to (1) $22.5 million from the
effective date of the amendment through March 10, 2010 (or such earlier date on
which we elect to deliver the first weekly borrowing base certificate) and (2)
$20 million thereafter through April 30, 2010, but in each case that trigger
reverts to $25 million upon the earlier of (a) our delivery of notice to the
lenders of our intent to make payment on our 8⅜% Senior
Subordinated Notes due 2014 (the “8⅜% Notes”) or any
other subordinated debt and (b) May 1, 2010.
We also obtained (i) a permanent waiver
by the lenders of any default or event of default arising under the Credit
Agreement as a result of our delivery of our 2009 fiscal year financials with a
report from our independent registered public accounting firm containing an
explanatory paragraph with their conclusion regarding substantial doubt about
our ability to continue as a going concern and (ii) a temporary waiver by the
lenders through April 30, 2010, of any default or event of default arising under
the Credit Agreement as a result of our failure to make our regularly scheduled
interest payments under the 8⅜%
Notes. More information regarding the amendment is contained under
“Market Trends, Liquidity and Restructuring” in Item 7—“Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and in Note 1 to
our consolidated financial statements.
4
While we believe the amendment to our
Credit Agreement provides us with some additional, temporary access to
liquidity, we continue to see our business affected by the decline in
construction activity and inclement weather conditions in January and February
2010 across the regions we operate. The amount available for borrowing under our
Credit Agreement is based in part on our accounts receivable balances. The
inclement weather and decline in demand for our products has a direct effect on
the amounts we bill our customers and our accounts receivable balances. This
inclement weather along with the seasonally low production and economic downturn
has caused us to take actions to conserve cash. These actions include delaying
payments to certain vendors and suppliers. If our liquidity falls
below the availability thresholds noted above, we will not be in compliance with
the minimum fixed charge coverage ratio of 1.0 to 1.0. If this occurs and we are
unable to continue to obtain amendments from the lenders that waive compliance
with these financial covenants, the lenders could declare us to be in default
under the terms of the Credit Agreement, at which point the entire outstanding
principal balance of the revolving credit facility, together with all accrued
and unpaid interest and other amounts then owing to our lenders, would become
immediately due and payable. Because substantially all of our assets are pledged
as collateral under the Credit Agreement, if our lenders were to declare an
event of default, they would be entitled to foreclose on and take possession of
those assets.
In addition, acceleration of our
obligations under the Credit Agreement would constitute a default under the
8⅜% Notes and
would likely result in the acceleration of those obligations as
well. A default under our Credit Agreement also could result in a
cross-default or the acceleration of our payment obligations under other
financing agreements. In any such event, we may not be able to repay
the debt or refinance the debt on acceptable terms, and we may not have
sufficient assets to make the payments when due.
In addition to the restrictions we face
under our debt instruments, our stock price has declined significantly over the
past year, which makes it more difficult to obtain equity financing on
acceptable terms to address our liquidity issues. The indenture
governing the 8⅜% Notes and the
Credit Agreement also contain restrictions on our ability to incur additional
debt. Our ability to obtain cash from external sources also could be
adversely affected by volatility in the markets for corporate debt, fluctuations
in the market price of our common stock or the 8⅜% Notes and any
additional market instability, unavailability of credit or inability to access
the capital markets which may result from the continuing effects of the global
financial crisis and the U.S. recession.
We have received a letter from The
Nasdaq Stock Market indicating that the bid price of our common stock over 30
consecutive business days had closed below the minimum $1.00 per share required
for continued listing under the Nasdaq Marketplace Rules. We have been provided
an initial period of 180 calendar days, or until September 7, 2010, to regain
compliance. Compliance can be attained if at any time before September 7, 2010;
the bid price of our common stock closes at $1.00 per share or more for a
minimum of 10 consecutive business days. In the event we cannot
demonstrate compliance with the minimum bid price rule by September 7, 2010, our
securities are subject to delisting.
In light of this situation, we are
currently reviewing the strategic and financing alternatives available to us and
have retained legal and financial advisors to assist us in this regard. We are
engaged in continuing discussions with the lenders under our Credit Agreement
and others regarding a permanent restructuring of our capital structure. Such a
restructuring would likely affect the terms of the 8⅜% Notes, the Credit
Agreement, other debt obligations and our common stock and may be effected
through negotiated modifications to the agreements related to our debt
obligations or through other forms of restructurings, which we may be required
to effect under court supervision pursuant to a voluntary bankruptcy filing
under Chapter 11 of the U.S. Bankruptcy Code. There can be no
assurance that an agreement regarding any such restructuring will be obtained on
acceptable terms with the necessary parties or at all. Additionally,
if we do not maintain adequate liquidity prior to any restructuring, we may seek
protection pursuant to a voluntary bankruptcy filing under Chapter
11.
We are reporting net losses for the
year ended December 31, 2009 for the fourth consecutive year and currently
anticipate losses for 2010. These cumulative losses in addition to
our current liquidity situation raise substantial doubt as to our ability to
continue as a going concern for a period longer than the current fiscal year.
Our ability to continue as a going concern depends on the achievement of
profitable operations, the success of our financial and strategic alternatives
process, which may include the restructuring of the 8⅜% Notes and the Credit
Agreement or a recapitalization. Until the possible completion of the financial
and strategic alternatives process, our future remains uncertain, and there can
be no assurance that our efforts in this regard will be successful.
Our
consolidated financial statements have been prepared assuming that we will
continue as a going concern, which implies that we will continue to meet our
obligations and continue our operations for at least the next 12 months.
Realization values may be substantially different from carrying values as shown,
and our consolidated financial statements do not include any adjustments
relating to the recoverability or classification of recorded asset amounts or
the amount and classification of liabilities that might be necessary as a result
of this uncertainty.
5
Industry
Overview
General
Ready-mixed
concrete is a highly versatile construction material that results from combining
coarse and fine aggregates, such as gravel, crushed stone and sand, with water,
various chemical admixtures and cement. We manufacture ready-mixed
concrete in thousands of variations, which in each instance may reflect a
specific design use. We generally maintain only a few days’ inventory
of raw materials and coordinate our daily materials purchases with the
time-sensitive delivery requirements of our customers.
The
quality of ready-mixed concrete is time-sensitive as it becomes difficult to
place within 90 minutes after mixing. Consequently, the market for a
permanently installed ready-mixed concrete plant is usually limited to an area
within a 25-mile radius of its plant location. We produce ready-mixed
concrete in batches at our plants and use mixer and other trucks to distribute
and deliver the concrete to the job sites of our customers. We
generally do not provide paving or other finishing services, which construction
contractors or subcontractors typically perform.
Ready-mixed
concrete is poured-in-place in forms at a construction site and cured on
site. In contrast, our precast concrete products are made with
ready-mixed concrete (its primary raw material), but are cast in reusable molds
or “forms” and cured in a controlled environment at our plant, then either
placed in inventory or transported to the construction site. The
advantages of using precast concrete products include the higher quality of the
material, when formed in controlled conditions, and the reduced cost of reusable
forms as compared to the cost of constructing large forms used with ready-mixed
concrete placed at the construction site.
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:
§
|
high-strength
engineered concrete to compete with steel-frame
construction;
|
§
|
concrete
housing;
|
§
|
precast
modular paving stones;
|
§
|
flowable
fill for backfill applications;
|
§
|
continuous-slab
rail-support systems for rapid transit and heavy-traffic rail lines;
and
|
§
|
concrete
bridges, tunnels and other structures for rapid transit
systems.
|
Other
examples of successful innovations that have opened new markets for concrete
include:
§
|
overlaying
asphalt pavement with concrete, or “white
topping”;
|
§
|
highway
median barriers;
|
§
|
highway
sound barriers;
|
§
|
paved
shoulders to replace less permanent and increasingly costly asphalt
shoulders;
|
§
|
pervious
concrete parking lots for water drainage management, as well as providing
a long-lasting and aesthetically pleasing urban environment;
and
|
§
|
colored
pavements to mark entrance and exit ramps and lanes of
expressways.
|
We
generally obtain contracts through local sales and marketing efforts directed at
concrete sub-contractors, general contractors, property owners and developers,
governmental agencies and home builders. In many cases, local
relationships are very important.
Based on
information from the National Ready-Mixed Concrete Association (“NRMCA”) and the
National Precast Concrete Association (“NPCA”), we estimate that, in addition to
vertically integrated manufacturers of cements and aggregates, over 2,200
independent ready-mixed concrete producers currently operate approximately 5,000
plants in the United States and 3,200 precast concrete products manufacturers
operate in the United States and Canada. Larger markets generally
have several producers competing for business on the basis of product quality,
service, on-time delivery and price.
6
Annual
usage of ready-mixed concrete in the United States dropped significantly in 2009
and 2008 from its “near record” 2006 level. According to information
available from the NRMCA and McGraw-Hill Construction, total volume (measured in
cubic yards) from the production and delivery of ready-mixed concrete in the
United States over the past three years were as follows (in
millions):
2009
|
271 | |||
2008
|
349 | |||
2007
|
387 |
Ready-mixed
concrete and precast concrete products have historically benefited from
relatively stable demand and pricing. However, pricing of our
products is primarily driven by the cost of raw materials (cement, aggregates,
etc.), cost of labor and competition in our local markets. From 2006,
through most of 2007, raw materials cost and ready-mixed concrete products
average selling prices increased. For 2008 and 2009, pricing of our
raw materials, particularly cement, and our ready-mixed pricing has been put
under competitive pressure due to product demand declines resulting from the
slowdown in construction activity in all of our markets, especially in the
residential construction sector.
According
to recently published McGraw-Hill Construction 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 2009,
2008 and 2007:
2009
|
2008
|
2007
|
||||||||||
Commercial
and industrial construction
|
21 | % | 25 | % | 24 | % | ||||||
Residential
construction
|
13 | % | 16 | % | 23 | % | ||||||
Street
and highway construction and paving
|
24 | % | 21 | % | 20 | % | ||||||
Other
public works and infrastructure construction
|
42 | % | 38 | % | 33 | % |
Barriers
to the start-up of new ready-mixed concrete and precast concrete products
manufacturing operations have been increasing. During the past
decade, public concerns about dust, process water runoff, noise and heavy mixer
and other truck traffic associated with the operation of these types of plants
and their general appearance have made obtaining the permits and licenses
required for new plants more difficult. Delays in the regulatory process,
coupled with the substantial capital investment that start-up operations entail,
have raised the barriers to entry for those operations.
For a
discussion of the general seasonality of the construction industry, see Item 1A
— “Risk Factors – 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” and Item 7 — “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” of this
report.
Products
and Services
Ready-Mixed Concrete and
Concrete-Related Products Segment
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 at the job site. 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. Additionally, we believe our EF Technology initiative,
which utilizes alternative materials and mix designs that result in lower
CO2
emissions, helps differentiate us from our competitors. 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
contractor’s 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. A contractor’s 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.
7
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 customer’s placing and finishing
crews.
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We
produce ready-mixed concrete by combining the desired type of cement, other
cementitious materials (described below), 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.
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We
frequently use various mineral admixtures as supplements to cement, which we
refer to as cementitious materials, to alter the permeability, strength and
other properties of concrete. These materials include fly ash, ground granulated
blast-furnace slag, silica fume and other natural pozzolans. These
materials also reduce the amount of cement content used which results in a
reduction in CO2
emissions.
We also
use fibers, such as steel, glass, synthetic and carbon filaments, as additives
in various formulations of concrete. Fibers help control shrinkage
cracking, thus reducing permeability and improving abrasion resistance. In many
applications, fibers can replace welded steel wire and reinforcing bars.
Relative to the other components of ready-mixed concrete, these additives
generate comparatively high-margins.
Aggregates. We
produce crushed stone aggregates, sand and gravel from seven aggregates
facilities located in New Jersey and Texas. We sell these aggregates
for use in commercial, industrial and public works projects in the markets they
serve, as well as consume them internally in the production of ready-mixed
concrete in those markets. We produced approximately 3.0 million tons of
aggregates in 2009 from these facilities with Texas producing 42% and New Jersey
58% of that total production. In April 2007, we entered into an
agreement to lease our sand pit operations in Michigan to the Edward C. Levy Co.
as a component of a ready-mixed concrete business combination, which we refer to
as the 60%-owned Michigan subsidiary. We now receive a royalty based
on the volume of product produced and sold from the Michigan quarry during the
term of the lease.
At December 31, 2009, our total
estimated aggregates reserves (excluding an aggregates property leased to a
third party) were 78 million tons, assuming
loss factors of approximately 20% for unusable material. We believe
these aggregates reserves provide us with additional raw materials sourcing
flexibility and supply availability, although they will provide us with supply
for less than 5% of our annual consumption of aggregates.
Building
Materials. Our building materials operations supply concrete
masonry, various resale materials, products and tools contractors use in the
concrete construction industry. These materials include rebar concrete block,
wire mesh, color additives, curing compounds, grouts, wooden forms and numerous
other items. Our building materials operations are located near several of our
ready-mixed concrete operations in northern California, Michigan and
Texas.
Precast
Concrete Products Segment
We
produce precast concrete products at seven plants in three states, with five in
California, one in Arizona and one in Pennsylvania. Our precast
concrete products consist of ready-mixed concrete we either produce on-site or
purchase from third parties, which is then poured into reusable molds at our
plant sites. After the concrete sets, we strip the molds from the
finished products and either place them in inventory or ship them to our
customers. Our precast technology produces a wide variety of finished
products, including a variety of architectural applications, such as
free-standing walls used for landscaping, soundproofing and security walls,
signage, utility vaults, manholes, panels to clad a building façade, highway
barriers, pre-stressed bridge girders, concrete piles, catch basins and curb
inlets.
8
Because
precast concrete products are not perishable, we can place these products into
inventory and stage them at plants or other distribution sites to serve a larger
geographic market area. The cost of transportation and storage usually limits
the market area for these types of products to within approximately 150 miles of
our plant sites and, therefore, sales are generally driven by the level of
construction activity within the market area served by our
plants. Our precast concrete products are marketed by our local sales
organizations and are sold to numerous customers.
Operations
Ready-Mixed
Concrete
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 operations deploy our 11 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. We use our portable plants to
service high-volume projects or projects in remote locations. Several
factors govern the choice of plant type, including:
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production
consistency requirements;
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daily
production capacity requirements;
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job
site proximity to fixed plants; and
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capital
and financing.
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Generally,
we will construct wet batch plants to serve markets that we expect will have
consistently high demand, as opposed to dry batch plants that will serve those
markets that we expect will have a less consistent demand. A wet
batch plant generally has a higher initial cost and daily operating expenses,
but yields greater consistency with less time required for quality control in
the concrete produced and generally have greater daily production capacity than
a dry batch plant. We believe that construction of 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. As of March 15, 2010, our fixed
batch plants included 23 wet batch plants and
102 dry batch
plants.
Our batch
operator at 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 an operator loads the already mixed concrete
into a mixer truck, which leaves for the job site promptly after
loading.
Any
future decisions we make regarding the construction of additional plants will be
impacted by market factors, including:
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the
expected production demand for the
plant;
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capital
and financing;
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the
expected types of projects the plant will service;
and
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the
desired location of the plant.
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Mixer
trucks slowly rotate their loads en route to job sites in order to maintain
product consistency. Our mixer trucks typically have load capacities
of 10 cubic yards, or approximately 20 tons, and an estimated useful life of 12
years. A new truck of this size currently costs between $160,000 and
$190,000, depending on the geographic location and design
specifications. 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. As of December 31,
2009, we operated a fleet of approximately 1,226 owned and leased mixer trucks,
which had an average age of approximately eight 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 information from previous similar jobs to
formulate a variety of mixtures of cement, aggregates, water and admixtures
which meet or exceed the contractor’s 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.
9
We use
computer modeling to prepare bids for particular jobs based on the size of the
job, 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 job’s specifications in order to coordinate the multisourced
purchases of cement and other materials we will need to fill the job order and
meet the contractor’s delivery requirements. We confirm that our
customers are ready to take delivery of manufactured products throughout the
placement process. On any given day, one of our plants 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 from 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.
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Our
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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being
rinsed down; or
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en
route to a particular plant.
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The
system is updated continuously on the trucks’ status via signals received from
sensors. 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.
Our plant
managers oversee the operations of each of our plants. Our
operational 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
rolling stock;
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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.
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We
generally operate each of our plants on an extended single shift, with some
overtime operation during the year. On occasion, however, we may have projects
that require deliveries around the clock.
10
Precast
Concrete Products
Our
precast concrete products operations consist of seven fixed plant sites where
precast products are produced, staged and shipped to our customers and
distribution yards. We stage precast products at distribution
facilities to serve markets beyond the normal reach of our existing
manufacturing sites. Each of our precast manufacturing sites has as
its primary components:
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either
a concrete batch plant or local ready-mixed concrete provider for the
concrete utilized in production;
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precast
molds or “forms” for the array of products and product sizes we offer or a
custom design center to create precast forms;
and
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a
crane-way or other method to facilitate moving forms, finished product or
pouring ready-mixed concrete.
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Some of
the products we produce are designed by the customer for use in their own
systems, while other products are designed by our in-house engineers to meet the
needs of our customers through a more standardized product. Each of
our precast manufacturing sites produces a range of precast
products.
Generally,
precast structures are manufactured by placing pre-engineered ready-mixed
concrete into molds, which are then vibrated to facilitate consolidation of the
concrete within the mold and remove any voids created by air that may be trapped
during the pouring process. These molds generally utilize some form
of reinforcing which can include products ranging from (1) welded steel wire or
re-bar placed inside the mold in a pre-engineered design to support the
integrity of the finished precast product, to (2) steel fibers or other similar
additives which are blended into the ready-mixed concrete during mixing to serve
a similar purpose, or a combination of both. Once the pouring is
complete, any exposed surfaces are finished and the product is allowed to cure
in a controlled environment for a minimum of two to four hours and as long as 24
hours, depending on the product and design specification. After the
product has cured, the mold is stripped and prepared for re-use in the
manufacturing process.
Precast
concrete structures are not perishable products. This contributes to
our ability to maintain some level of standardized products in inventory at all
times, as well as service a larger market area from a plant location than a
ready-mixed concrete plant site. Our precast concrete products can be
shipped across the country, but due to the weight of the products, shipping is
generally limited to within a 150-mile radius of a plant
site. Depending on our overall costs, shipments occur either through
our existing fleet of crane-equipped trucks or through contract
haulers. In some markets, we also install our precast products and
provide our customers with the added benefit of eliminating coordination with a
third party.
Bidding
and order fulfillment processes for our precast business are similar to our
ready-mixed concrete operations, as previously described
above. Cement and aggregates are the two primary raw materials used
in precast concrete manufacturing, similar to our ready-mixed concrete
operations, while labor costs are second only to our materials
cost.
Promoting
Operational Excellence
We strive
to be an operationally excellent organization by:
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investing
in safety training solutions and technologies which enhance the safety of
our work environments;
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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 ready-mixed concrete mix designs;
and
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developing
strategic alliances with key suppliers of goods and services for new
product development.
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11
Cement
and Other Raw Materials
We obtain
most of the materials necessary to manufacture ready-mixed concrete and precast
concrete products on a daily basis. These materials include cement, other
cementitious materials (fly ash, blast furnace slag) and aggregates (stone,
gravel and sand), in addition to certain chemical admixtures. With
the exception of chemical admixtures, each plant typically maintains an
inventory level of these materials sufficient to satisfy its operating needs for
a few days. Cement represents one of the highest cost material used
in manufacturing a cubic yard of ready-mixed concrete. During 2009,
based on raw materials pricing and mix design changes requiring less cement in
the manufacturing of ready-mixed concrete, aggregates represents the highest
materials cost used followed closely by cement. Historically, we have
purchased cement from several suppliers in each of our major
markets. Due to certain industry consolidations and our decision to
have a primary and secondary supplier, in certain of our markets, we are now
purchasing cement from fewer suppliers than in past years. Based on
current economic conditions, this decision has not affected our ability to
obtain an adequate supply of cement for our operations. Chemical
admixtures are generally purchased from suppliers under national purchasing
agreements.
Generally, cement and aggregates
prices remained relatively flat to down in most of our markets in 2009, as
compared to 2008. In certain of our markets, where we did experience
cement price decreases, our ready-mixed concrete products pricing decreased in
relative proportion to our raw material price decreases. Generally,
we negotiate with suppliers on a company-wide basis and at the local market
level to obtain the most competitive pricing available for cement, aggregates
and chemical admixtures. The demand for construction sector products
was weak throughout 2007, 2008 and 2009, with sales volumes significantly below
2006 peak levels. The slowdown in our end-use markets has caused an
oversupply of cement in most of our markets, with cement producers slowing down
or shutting down domestic production and reducing imported cement to respond to
the weak demand. We do not expect to experience cement
shortages. Today, in most of our markets, we believe there is an
adequate supply of aggregates.
We recognize the value in advocating
green building and construction as part of our strategy. We initiated
Environmentally Friendly Concrete (“EF Technology”), our
commitment to environmentally friendly concrete technologies that significantly
reduce potential carbon dioxide (CO2)
emissions. Our EF
Technology ready-mixed concrete products replace a portion of traditional
raw materials with reclaimed fly ash, slag and other materials. This
results in an environmentally superior and sustainable alternative to
traditional ready-mixed concrete. We believe EF Technology reduces
greenhouse gases and landfill space consumption and produces a highly durable
product. Customers can also receive Leadership in Energy and
Environmental Design (“LEED”) credits for the use of this
technology. We are also a supporter of the NRMCA Green-Star program,
a plant-specific certification that utilizes an environmental management system
based on a model of continual improvement. In 2008, two plants in our
Dallas/Ft. Worth market were part of the first group of plants to be awarded
with Green-Star Certification.
Marketing
and Sales
General
contractors typically select their suppliers of ready-mixed concrete and precast
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 for many jobs ultimately is relationship-based. Our marketing efforts
target general contractors, developers, design engineers, architects and
homebuilders whose focus extends beyond the price of our product to quality,
consistency and reducing the in-place cost.
Our
marketing and sales strategy emphasizes the sale of value-added products and
solutions to customers more focused on reducing their in-place building material
costs than on the price per cubic yard of ready-mixed concrete or unit price of
the concrete-related product 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 and
specialty-engineered precast concrete
products.
|
We have
also formed a strategic alliance to provide alternative solutions for designers
and contractors by using value-added concrete products. Through this alliance,
we offer color-conditioned, fiber-reinforced, steel-reinforced and
high-performance concrete and utilize software technology that can be used to
design buildings constructed of reinforced concrete.
Customers
Of our
2009 revenue, we had approximately 55% from commercial and industrial
construction contractors, 19% from residential construction contractors and 26%
from street and highway construction contractors and other public works and
infrastructure contractors. In 2009, no single customer or project
accounted for more than 5% of our total revenue.
12
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, precast concrete and concrete-related products industries
are highly competitive. Our competitive position in a market depends largely on
the location and operating costs of our plants and prevailing prices in that
market. Price is the primary competitive factor among suppliers for small or
simple jobs, principally in residential construction. However,
timeliness of delivery and consistency of quality and service, along with 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 or less financial leverage than we do may be able to invest
more in new mixer trucks, ready-mixed concrete plants and other production
equipment or pay for acquisitions which could provide them a competitive
advantage over us. See Item 1A – “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
March 15, 2010, we had approximately 529 salaried employees, including executive
officers and management, sales, technical, administrative and clerical
personnel, and approximately 1,844 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
March 15, 2010, approximately 845 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 staggered basis between 2010
and 2013. 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.
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. See Note 16 to our consolidated financial
statements included in this report for a discussion of class action litigation
involving various mixer truck and transport truck drivers who have worked in our
operations in California.
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, in part, on providing a work environment that allows employees the
opportunity to develop and maximize their capabilities. 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 to participate in
training seminars. We employ a national safety director whose
responsibilities include managing and executing a unified, company-wide safety
program. Employee development and safety are criteria used in
evaluating performance in our annual incentive plan for salaried
employees.
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:
§ land
usage;
§ street
and highway usage;
§ noise
levels; and
§ health,
safety and environmental matters.
13
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 environmental site assessments, which are non-intrusive
investigations conducted to evaluate the potential for significant on-site
environmental impacts, 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
associated with those properties that 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.
We
believe 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 to environmental matters were not material in 2009. 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 concrete, precast concrete products and
other concrete formulations or 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 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 and other trucks in heavy
traffic conditions and 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 are in 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 16 to our consolidated
financial statements included in this report.
Available
Information
Our Web site address is www.us-concrete.com.
We make available on this Web site under the “investors” section,
free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q
and current reports on Form 8-K, and amendments to those reports, as soon as
reasonably practicable after we electronically file those materials with, or
furnish them to, the SEC. Alternatively, the public may read and copy
any materials we file with the SEC at the SEC’s Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549. Information on the operation of the Public
Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. The SEC also maintains a Web site that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC. The SEC’s Web site
address is www.sec.gov.
14
Item
1A. Risk Factors
Set forth
below and under “Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Risks and Uncertainties” in Item 7 of Part II of this
report are various risks and uncertainties that could adversely impact our
business, financial condition, results of operations, cash flows and common
stock price.
Bankruptcy
Risks
We
may file for bankruptcy protection, or an involuntary petition for bankruptcy
may be filed against us.
As
described below under “Liquidity Risks,” we have a substantial amount of debt
which we may not be able to extend or refinance. If we are unable to
extend or refinance our debt, or if our debt is accelerated due to a default by
us, our assets may not be sufficient to repay our debt in full, and our
available cash flow may not be adequate to maintain our current
operations. Under those circumstances, or if we believe those
circumstances are likely to occur, we may be required to seek protection under
court supervision pursuant to a voluntary bankruptcy filing under Chapter 11 of
the U.S. Bankruptcy Code. In addition, under certain
circumstances creditors may file an involuntary petition for bankruptcy against
us. Due to the possibility of these circumstances occurring, we have
begun active planning for a potential restructuring.
If we file for
bankruptcy protection, our business and operations will be subject to certain
risks.
A
bankruptcy filing under Chapter 11 of the U.S. Bankruptcy Code would subject our
business and operations to various risks, including but not limited to, the
following:
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our
suppliers may attempt to cancel our contracts or restrict ordinary credit
terms, require financial assurances of performance or refrain entirely
from shipping goods;
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our
employees may become distracted from performance of their duties or more
easily attracted to other career
opportunities;
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the
coordination of a bankruptcy filing and operating under protection of the
bankruptcy court would involve significant costs, including expenses of
legal counsel and other professional
advisors;
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we
may have difficulty continuing to obtain and maintain contracts necessary
to continue our operations and at affordable rates with competitive
terms;
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we
may have difficulty maintaining existing and building new
relationships;
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transactions
outside the ordinary course of business would be subject to the prior
approval of the Bankruptcy Court, which may limit our ability to respond
timely to certain events or take advantage of certain
opportunities;
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we
may not be able to obtain court approval or such approval may be delayed
with respect to motions made in the bankruptcy
proceedings;
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we
may be unable to retain and motivate key executives and associates through
the process of a Chapter 11 reorganization, and we may have difficulty
attracting new employees;
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there
can be no assurance as to our ability to maintain or obtain sufficient
financing sources for operations or to fund any reorganization plan and
meet future obligations;
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there
can be no assurance that we will be able to successfully develop, confirm
and consummate one or more plans of reorganization that are acceptable to
the bankruptcy court and our creditors, and other parties in interest;
and
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the
value of our common stock could be affected as a result of a bankruptcy
filing.
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As with
any judicial proceeding, a Chapter 11 proceeding (even if there is a
pre-packaged or pre-arranged plan of reorganization) involves the potential for
significant delays in reaching a final resolution. In a Chapter 11
proceeding, there are risks of delay with the confirmation of the plan of
reorganization and there are risks of objections from certain stakeholders,
including any creditors that vote to reject the plan, that could further delay
the process and potentially cause a plan of reorganization to be rejected by the
court. Any material delay in the confirmation of a Chapter 11
proceeding would compound the risks described above and add substantial expense
and uncertainty to the process.
15
Liquidity
Risks
We
may not be able to extend, refinance or repay our substantial
indebtedness.
We have a
substantial amount of indebtedness which we may not be able to extend, refinance
or repay. As of December 31, 2009, we had $272.6 million aggregate
principal amount of the 8⅜% Notes outstanding and $16.7 million outstanding
under the credit agreement relating to our senior secured credit facility (the
“Credit Agreement”), which is scheduled to mature in March 2011. Our
subsidiaries, excluding our 60%-owned Michigan subsidiary, Superior Materials
Holdings, LLC (“Superior”), and some of our minor subsidiaries without
operations or material assets, have guaranteed the repayment of all amounts
owing under the Credit Agreement. In addition, we have collateralized
our obligations under the Credit Agreement with the capital stock of our
subsidiaries (excluding Superior and those minor subsidiaries) and substantially
all the assets of our subsidiaries, excluding most of the assets of the
aggregates quarry in northern New Jersey, other real estate owned by us or our
subsidiaries and the assets of Superior. Superior has a separate
credit agreement (the “Superior Credit Agreement”), under which there was $5.6
million in outstanding revolving credit borrowing as of December 31,
2009. Borrowings under the Superior Credit Agreement are
collateralized by substantially all the assets of Superior and are scheduled to
mature on April 1, 2010. Although U.S. Concrete and its wholly owned
subsidiaries are not obligors under the Superior Credit Agreement, the agreement
provides, among other things, that an event of default beyond a 30-day grace
period under U.S. Concrete’s Credit Agreement would constitute an event of
default under the Superior Credit Agreement. Superior is in the process of
renegotiating its credit facility. If the negotiations are not
successful, the amounts outstanding under the credit facility would be due and
payable on April 1, 2010. There was $6.6 million outstanding under
this facility at March 12, 2010.
In
February 2010, we entered into an amendment to the Credit Agreement with the
lenders who are parties to the Credit Agreement. The amendment, among
other things, temporarily reduces the minimum availability trigger at which we
must maintain a minimum fixed charge coverage ratio of 1.0 to 1.0 from $25
million to (1) $22.5 million from the effective date of the amendment through
March 10, 2010 (or such earlier date on which we elect to deliver the first
weekly borrowing base certificate) and (2) $20 million thereafter through April
30, 2010, but in each case that trigger reverts to $25 million upon the earlier
of (a) our delivery of notice to the lenders of our intent to make payment on
the 8⅜% Notes
or any other subordinated debt and (b) May 1, 2010. It also reduced the size of
our revolving credit facility from $150 million to $90 million. We also obtained
(1) a permanent waiver by the lenders of any default or event of default arising
under the Credit Agreement as a result of our delivery of our 2009 fiscal year
financials with a report from our independent registered public accounting firm
containing an explanatory paragraph with their conclusion regarding substantial
doubt about our ability to continue as a going concern and (2) a temporary
waiver by the lenders through April 30, 2010, of any default or event of default
arising under the Credit Agreement as a result of our failure to make our
regularly scheduled interest payments under the 8⅜%
Notes. More information regarding the amendment is contained in Note
1 to our consolidated financial statements.
Even with
the relief provided by the February 2010 amendment to the Credit Agreement, we
have significant debt-service obligations for which we currently do not have
sufficient liquidity. On April 1, 2010, we are obligated to make
semi-annual interest payments on the 8⅜% Notes aggregating approximately $11.4
million and the debt outstanding under the Superior Credit Agreement is
scheduled to mature. Under the indenture relating to the 8⅜% Notes
(the “Indenture”), an event of default would occur if we fail to make any
payment of interest on the 8⅜% Notes when due and that failure continues for a
period of 30 days. If such an event of default occurs and is
continuing, the trustee or the holders of 25% or more in aggregate principal
amount of the 8⅜% Notes then outstanding may accelerate our obligation to repay
the 8⅜% Notes, together with accrued and unpaid interest. Under the
terms of the Credit Agreement, an event of default under the Indenture would
also constitute an event of default under the Credit Agreement, and would give
rise to the right of our lenders under the Credit Agreement to immediately
accelerate the maturity of the debt outstanding under the Credit
Facility. Those circumstances would trigger provisions in the
Indenture that would permit the lenders under the Credit Agreement to prohibit
payments with respect to the 8⅜% Notes for up to 180 days, even though our
payment obligations with respect to the 8⅜% Notes may have been
accelerated.
Given the
current negative conditions in the economy and the credit markets generally and
in our industry in particular, there is substantial uncertainty that we will be
able to restructure or refinance our indebtedness on or before April 30, 2010,
the date at which an event of default would occur for failure to make the
scheduled April 1, 2010 interest payment for the 8⅜% Notes. Additionally, there
is no assurance that a successful refinancing of the Superior Credit Agreement
will be consummated by the maturity date of April 1, 2010.
We
have a history of net losses, an accumulated stockholders’ deficit and pending
obligations for which we do not currently have sufficient
liquidity. Accordingly, we have stated in our financial statements
included herein that there is substantial doubt about our ability to continue as
a going concern.
We have a
history of net losses. In the years ended December 31, 2007, 2008 and
2009, our net losses were $69.0 million, $132.4 million and $88.2 million,
respectively. We also had an accumulated stockholders’ deficit of
$15.7 million as of December 31, 2009. Additionally, as we discuss
above, we have a substantial amount of indebtedness which we may not be able to
extend, refinance or repay. As a result of these and other factors,
including continuing adverse industry conditions, as discussed in Note 1 to the
consolidated financial statements, there is substantial doubt about our ability
to continue as a going concern. The presence of such substantial
doubt may have an adverse impact on our relationship with third parties with
whom we do business, including our customers, suppliers and employees and could
make it challenging and difficult for us to raise additional debt or equity
financing, all of which could have a material adverse impact on us.
16
We may not have
sufficient liquidity to maintain our
operations.
The amendment to our Credit
Agreement discussed above provides us with some additional access to liquidity,
but we continue to see our business affected by the decline in construction
activity and inclement weather conditions in January and February 2010 across
the regions in which we operate. The amount available for borrowing under our
Credit Agreement is based in part on our accounts receivable balances. The
inclement weather and decline in demand for our products has a direct effect on
the amounts we bill our customers and accounts receivable balances. In addition,
we face higher expenses due to payments to our financial and legal advisors
discussed below, as well as fees and other amounts payable to our lenders in
connection with our Credit Agreement amendment. If our liquidity falls
below the availability threshold of $20 million, we will not be in compliance
with the minimum fixed charge coverage ratio of 1.0 to 1.0. If this occurs and
we are unable to continue to obtain amendments or waivers from the lenders for
non-compliance with this financial covenant, the lenders could declare us to be
in default under the terms of the Credit Agreement, at which point the entire
outstanding principal balance of the revolving credit facility, together with
all accrued and unpaid interest and other amounts then owing to our lenders,
would become immediately due and payable. Because substantially all of our
assets are pledged as collateral under the Credit Agreement, if our lenders were
to declare an event of default, they would be entitled to foreclose on and take
possession of those assets.
In addition, acceleration of
our obligations under the Credit Agreement would constitute a default under the
8⅜% Notes and
would likely result in the acceleration of those obligations as
well. A default under our Credit Agreement also could result in a
cross-default or the acceleration of our payment obligations under Superior
Credit Agreement. In any such event, we may not be able to repay the
debt or refinance the debt on acceptable terms, and we may not have sufficient
assets to make the payments when due. If we are unable to maintain sufficient
liquidity prior to implementing any restructuring discussed below and are unable
to obtain waivers or amendments for non-compliance, we may be compelled to seek
protection pursuant to a voluntary petition under Chapter 11 of the U.S.
Bankruptcy Code.
We have retained
financial advisors to assist us in evaluating potential strategies which may be
available to us to reduce or restructure our significant outstanding
indebtedness.
We
are exploring a variety of possible options to reduce or restructure our
significant outstanding indebtedness. To that end, we have retained
financial advisors to assist us in evaluating potential
strategies. We believe the consummation of a successful restructuring
is critical to our continued viability. Any restructuring will likely
be subject to a number of conditions, many of which will be outside of our
control, including the agreement of our creditors and other parties, and may
limit our ability to utilize our net operating loss carry forwards if there is
an ownership change, which is likely. We may be unsuccessful in
implementing an option selected by our board of directors, and our
implementation of any particular alternative could present additional risks to
our business, financial condition and results of operations, or yield unexpected
results. The process of continuing to review, and potentially
executing, options may be costly and time-consuming and may distract our
management and otherwise disrupt our operations, which could have an adverse
effect on us. We can provide no assurance that any particular
alternative or arrangement will lead to increased stockholder
value. Moreover, certain actions we could undertake may involve the
issuance of shares of our common stock or preferred stock in a transaction or
series of transactions that could significantly dilute our existing stockholders
without requiring a stockholder vote. In addition, to the extent that
we elect to pursue a transaction or series of transactions that includes a sale
of one or more corporate assets, our ability to sell any assets may be limited
by many factors beyond our control, such as general economic conditions, and we
cannot predict whether we would be able to sell any particular asset on
favorable terms and conditions, if at all, or the length of time which we may be
involved in any asset sale transaction. In this connection, it is
important to note that the terms of the Credit Agreement and the Indenture
currently limit our ability to sell assets and generally restrict the use of
proceeds from asset sales.
We
may be compelled to seek an in-court solution in the form of a pre-packaged or
pre-arranged filing under Chapter 11 of the U.S. Bankruptcy Code if we are
unable to successfully negotiate a timely out-of-court restructuring agreement
with our creditors. Any Chapter 11 filing, even in connection with a
pre-packaged or pre-arranged plan, may have adverse effects on our business and
operations.
Even if we
are able to extend or refinance our indebtedness, our substantial level of
indebtedness would still adversely affect our financial condition and operating
flexibility.
Risks related to debt
level. Even if we are able to extend or refinance our
indebtedness, our substantial level of indebtedness could still have important
consequences to us and the value of our common stock, including:
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limiting
our ability to use operating cash flows and cash flows from asset
dispositions in other areas of our business because we must dedicate a
substantial portion of these funds to service the
debt;
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limiting
our ability to borrow additional amounts for working capital, capital
expenditures, acquisitions, research and development expenditures, general
corporate or other purposes;
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increasing
our vulnerability to general adverse economic and industry
conditions;
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limiting
our ability to capitalize on business opportunities and to react to
changes in our business and the ready-mixed concrete industry, including
changes in competitive pressures, and adverse changes in government
regulation; and
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limiting
our ability or increasing the costs to refinance
indebtedness.
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In
addition, a portion of our indebtedness bears interest at variable
rates. If market interest rates increase, the interest rate on our
variable-rate debt will increase and will create higher debt service
requirements, which would adversely affect our cash flow and could adversely
impact our results of operations. While we may enter into agreements
limiting our exposure to higher debt service requirements, any such agreements
may not offer complete protection from this risk.
Even if
we are able to extend or refinance our existing indebtedness, our ability to
later repay or to refinance that indebtedness will depend on our future
operating performance, which may 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 service our debt or fund other liquidity
needs.
Risks related to existing financial
covenants and other limitations. The Credit Agreement and the
Indenture 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. Additionally, any “material adverse change”
of our company could restrict our ability to borrow under the Credit
Agreement.
The
covenants in the Credit Agreement and the Indenture restrict, among other
things, our ability to:
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incur
additional indebtedness and issue preferred
stock;
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pay
dividends;
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make
asset sales;
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make
certain investments;
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enter
into transactions with affiliates;
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incur
liens on assets to secure other
debt;
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engage
in specified business activities;
and
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engage
in certain mergers or consolidations and transfers of
assets.
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In
addition, the Credit Agreement, as amended by the February 2010 amendment,
requires 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
$20 million. If our available credit falls below $20 million, we do
not currently expect that we would be able to meet the minimum fixed-charge
coverage ratio of 1.0 to 1.0 on a rolling 12-month basis.
Absent a
waiver or amendment from our lenders or a successful refinancing of the Credit
Agreement prior to a potential noncompliance event, our lenders would continue
to control our cash depository accounts, may limit or restrict our future
borrowings under the Credit Agreement and may, at their option, immediately
accelerate the maturity of the facility, terminate all commitments to extend
further credit to us and foreclose on any of the collateral we have granted to
secure our obligations under the Credit Agreement. If the lenders
were to accelerate our obligation to repay borrowings under the Credit
Agreement, we may not be able to repay the debt or refinance the debt on
acceptable terms, and we may not have sufficient liquidity to make the payments
when due. Our lenders may also prohibit interest payments on the 8⅜%
Notes for a period ending on the earlier of 180 days or the date the event of
default has been waived or amended.
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Under the
Indenture, an event of default under the Credit Agreement would not give rise to
an acceleration of our obligation to repay the indebtedness under the 8⅜% Notes
unless the Credit Agreement lenders accelerate maturity of the debt outstanding
under that agreement. If our obligation to repay the indebtedness
under the 8⅜% Notes was accelerated, we may not be able to repay the debt or
refinance the debt on acceptable terms, and we may not have sufficient assets to
make the payments when due. The acceleration of our indebtedness
outstanding under the Credit Agreement or the 8⅜% Notes would have a material
adverse affect on our operations and our ability to meet our obligations as they
become due.
Risks related to
extensions. In the event we obtain extensions on our existing
debt, including both short-term forbearance agreements and longer-term
extensions, such extensions will likely include operational and financial
covenants significantly more restrictive than our current debt
covenants. In addition, any such extensions will likely require us to
pay certain fees to and expenses of our lenders. These fees and cash
flow restrictions will affect our ability to fund our ongoing operations from
our operating cash flows, as discussed below.
Risks related to
refinancings. Due to the current lending environment, our
financial condition and general economic factors, it is unlikely that we will be
able to refinance our debt from new sources. In the event we are able
to refinance all or a portion of our debt, it is likely that the agreements
relating to the new debt would contain terms which are less attractive than the
terms contained in our existing debt agreements. Such terms may
include more restrictive operational and financial covenants, as well as higher
fees and interest rates.
Common
Stock Investment Risks
The
recent decline in our common stock price could have materially adverse effects
on us.
The price
of our common stock has declined significantly and rapidly since September
2008. In the event we seek bankruptcy protection, it is possible that
the value of our common stock could decline further. This reduction
in stock price could have materially adverse effects on our business, including
reducing our ability to use our common stock as compensation or to otherwise
provide incentives to employees and by reducing our ability to generate capital
through sales of shares of our common stock or otherwise use our common stock as
currency with third parties.
We have received a letter from The
Nasdaq Stock Market indicating that the bid price of our common stock over 30
consecutive business days had closed below the minimum $1.00 per share required
for continued listing under the Nasdaq Marketplace Rules. We have been provided
an initial period of 180 calendar days, or until September 7, 2010, to regain
compliance. Compliance can be attained if at any time before September 7, 2010,
the bid price of our common stock closes at $1.00 per share or more for a
minimum of 10 consecutive business days. In the event we cannot
demonstrate compliance with the minimum bid price rule by September 7, 2010, our
securities are subject to delisting.
If our
common stock were to be delisted, shares of our common stock would only be
traded in the over-the-counter market. Securities traded in the
over-the-counter market generally have significantly less liquidity than
securities traded on a national securities exchange, due to factors such as a
reduction in the number of investors that will consider investing in the
securities, the number of market makers in the securities, reduction in
securities analyst and news media coverage and lower market prices than might
otherwise be obtained. As a result, in the event of a delisting,
holders of shares of our common stock may find it difficult to resell their
shares at prices quoted in the market or at all. Furthermore, because
of the limited market and generally low volume of trading in our common stock
that could occur, the share price of our common stock could be more likely to be
affected by broad market fluctuations, general market conditions, fluctuations
in our operating results, changes in the markets perception of our business, and
announcements made by us, our competitors or parties with whom we have business
relationships. Investors may also determine to sell all their shares
of our common stock as a result of the delisting of our common stock, which
could further depress the share price. In some cases, delisting may
subject us to additional compliance requirements under applicable state
securities laws in connection with issuances of additional shares of our common
stock.
Business
Risks
Further
tightening of mortgage lending or mortgage financing requirements could
adversely affect the residential construction market and prolong the downturn
in, or further reduce, the demand for new home construction which began in 2006
and has had a negative effect on our sales volumes and revenues.
Since
2006, the mortgage lending and mortgage finance industries experienced
significant instability due to, among other things, defaults on subprime loans
and adjustable rate mortgages. In light of these developments,
lenders, investors, regulators and other third parties have questioned the
adequacy of lending standards and other credit requirements for several loan
programs made available to borrowers in recent years. This has led to
reduced investor demand for mortgage loans and mortgage-backed securities,
reduced market values for those securities, tightened credit requirements,
reduced liquidity, increased credit risk premiums and regulatory
actions. Deterioration in credit quality among subprime and other
loans has caused many lenders to eliminate subprime mortgages and other loan
products that do not conform to Fannie Mae, Freddie Mac, FHA or VA
standards. Fewer loan products and tighter loan qualifications in
turn make it more difficult for some categories of borrowers to finance the
purchase of new homes. In general, these developments have been a
significant factor in the downturn of, and have delayed any general improvement
in, the housing market.
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Approximately
19% of our 2009 revenue was from residential construction
contractors. Further tightening of mortgage lending or mortgage
financing requirements could adversely affect the availability to obtain credit
for some borrowers and prolong the downturn in, or further reduce the demand
for, new home construction, which could have a material adverse effect on our
business and results of operations in 2010. A further downturn in new
home construction could also adversely affect our customers focused in this
industry segment, possibly resulting in slower payments, higher default rates in
our accounts receivable, and an overall increase in working
capital.
The
global financial crisis may impact our business and financial condition in ways
that we currently cannot predict.
The
unprecedented and continuing credit crisis and related turmoil in the global
financial system may have an impact on our business and our financial
condition. In particular, the cost of capital has increased
substantially while the availability of funds from the capital markets has
diminished significantly. Accordingly, our ability to access the
capital markets may be restricted or be available only on unfavorable
terms. Limited access to the capital markets could adversely impact
our ability to take advantage of business opportunities or react to changing
economic and business conditions and could adversely impact our ability to
execute our long-term growth strategy. Ultimately, we may be required
to reduce our future capital expenditures substantially. Such a
reduction could have a material adverse effect on our revenues, income from
operations and cash flows.
If one or
more of the lenders under our senior secured credit facility were to become
unable or unwilling to perform their obligations under that facility, our
borrowing capacity could be reduced. Our inability to borrow
additional amounts under our senior secured credit facility could limit our
ability to fund our future operations and growth.
The
current economic situation could have an impact on our suppliers and our
customers, causing them to fail to meet their obligations to us, which could
have a material adverse effect on our revenues, income from operations and cash
flows. The uncertainty and volatility of the global financial crisis
may have further impacts on our business and financial condition that we
currently cannot predict or anticipate.
There
are risks related to our internal growth and operating strategy.
Our ability to generate internal growth
will be affected by, among other factors, our ability to:
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attract
new customers; and
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differentiate
ourselves in a competitive market by emphasizing new product development
and value added sales and marketing; hiring and retaining employees; and
reducing operating and overhead
expenses.
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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 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 and our overall profitability could be adversely
affected.
Our
inability to achieve internal growth could materially and 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 tangible assets acquired. We test
goodwill for impairment on an annual basis, or more often if events or
circumstances indicate that there may be impairment. We
generally test for goodwill impairment in the fourth quarter of each year,
because this period gives us the best visibility of the reporting units’
operating performances for the current year (seasonally, April through October
are highest revenue and production months) and outlook for the upcoming year,
since much of our customer base is finalizing operating and capital
budgets. We will record such a charge to the extent that the
book-equity value of any one of our reporting units (including goodwill) exceeds
the estimated fair value of that reporting unit. The estimated fair
values of our reporting units were based on discounted cash flow models derived
from internal earnings forecasts and other market-based valuation
techniques.
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There was
no goodwill impairment recorded as a result of the fourth quarter 2009 test.
During the third quarter of 2009, we sold our ready-mixed concrete plants in
Sacramento, California. These plants and operations were included in our
northern California ready-mixed concrete reporting unit and $3.0 million of
goodwill was allocated to these assets and included in the calculation of loss
on sale. Concurrent with this sale, we performed an impairment test
on the remaining goodwill for this reporting unit and on all other reporting
units with remaining goodwill as a result of current economic conditions. The
U.S. economic downturn and resulting impact on the U.S. construction
markets have continued to impact our revenue and expected future growth. The
cost of capital has increased while the availability of funds from capital
markets has not improved significantly. Lack of available capital has
impacted our customers by creating project delays or cancellations, thereby
impacting our revenue growth and assumptions. The downturn in residential
construction has not improved and we are now seeing the economic downturn
affect the commercial sector of our revenue base. In addition, the California
budget crisis has adversely affected public works spending in this market.
All these factors led to a more negative outlook for expected future cash flows
and during the third quarter of 2009 resulted in an impairment charge of $45.8
million, of which $42.2 million is related to our northern California reporting
unit and the remaining amount related to our Atlantic Region reporting
unit.
In 2008
we recorded an impairment charge of $135.3 million. The macro economic factors
including the unprecedented and continuing credit crisis, the U.S. recession,
the escalating unemployment rate and specifically the severe downturn in the
U.S. construction markets, had a significant impact on the valuation metrics
used in determining the long-term value of our reporting units. The
slowdown in construction activity resulted in lower sales volumes and more
competition for construction projects, thereby reducing expected future cash
flows. These specific negative factors, combined with (i) lower
enterprise values resulting from lower multiples of sales and EBITDA
comparables, and (ii) the lack of recent third party transactions due to
depressed macro economic conditions, resulted in the goodwill impairment expense
for 2008.
In 2007,
we recorded goodwill impairments of $81.9 million relating to our Michigan,
South Central and our Northern California Precast reporting
units. Our Michigan reporting unit’s economic outlook continued to
soften at greater levels throughout 2007, resulting in lower projected cash
flow. Our South Central reporting unit’s outlook deteriorated,
resulting in lower projected cash flow and continued competitive pressures and
limiting our future profitability expectations. Our Northern
California Precast reporting unit was significantly impacted by the continued
slowdown in residential housing construction, which impacted our projected
future cash flows. These specific negative factors in the above mentioned
reporting units, combined with lower enterprise values and sales transaction
values for participants in our industry, resulted in the goodwill impairment
expense.
As of
December 31, 2009, goodwill represented approximately 3.6% 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
through acquiring additional businesses.
Our
senior secured credit facility provided us with a source of liquidity for
acquisitions in prior years. The continued economic downturn, decline
in construction activity and its effect on our liquidity has adversely affected
our ability to achieve growth through acquisitions. Unless and until
we complete a restructuring of our indebtedness, we do not expect to be able to
use this credit facility to fund any business acquisitions.
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 and precast concrete businesses are seasonal. In
particular, demand for our products and services during the winter months are
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 our products is a function of the highly cyclical
construction industry. As a result, our revenues may be adversely
affected by declines in the construction industry generally and in our local
markets. Our results also may be materially affected by:
|
§
|
the
level of residential and commercial construction in our regional markets,
including reductions in the demand for new residential housing
construction below current or historical
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 and lending
standards;
|
|
§
|
the
changes in mix of our customers and business, which result in periodic
variations in the margins of jobs performed during any particular
quarter;
|
21
|
§
|
the
timing and cost of acquisitions and difficulties or costs encountered when
integrating acquisitions;
|
|
§
|
the
budgetary spending patterns of
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 a material adverse effects on 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 has been to increase our revenues and the
markets we serve and to continue selectively entering new geographic markets
through the acquisition of additional ready-mixed concrete, precast concrete
products, aggregates products and related businesses. We do not
anticipate completing any new acquisitions in the foreseeable future due to our
distressed liquidity position and our review of strategic and financing
alternatives. Even if we are able to resume acquisitions activity, 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.
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 plants and
prevailing prices in that market. Generally, our products are
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. However, 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, governmental agencies and
homebuilders. As a result, we depend on local
relationships. We generally do not have any long-term sales contracts
with our customers.
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 competitive
advantages. 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 competitive advantages 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.
22
We
depend on third parties for concrete equipment and supplies essential to operate
our business.
We rely on third parties to sell or
lease property, 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 purchase or 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.
In 2006, cement prices rose at rates
similar to those experienced in 2005 and 2004, as a result of strong domestic
consumption driven largely by historic levels of residential construction that
did not abate until the second half of 2006. During 2007, 2008 and
2009, residential construction slowed significantly, which resulted in a decline
in the demand for ready-mixed concrete. Cement prices remained
relatively flat in 2009, while cement supplies were at levels that indicated a
very low risk of cement shortages in our markets. Should demand
increase substantially beyond our current expectations, we could experience
shortages of cement in future periods, which could adversely affect our
operating results, through both decreased sales and higher cost of raw
materials.
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.
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.
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 property, 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.
23
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 might be materially and adversely
affected.
The
departure of key personnel could disrupt our business.
We depend
on the efforts of our executive officers and, in many cases, on senior
management of our businesses. Our success will depend on retaining
our senior-level managers and officers. We need to insure that key
personnel are compensated fairly and competitively to reduce the risk of
departure of key personnel to our competitors or other industries. To
the extent we 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 personnel life
insurance on any of our employees.
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.
As of
March 15, 2010, approximately 36%, or 845, of our employees were covered by
collective bargaining agreements, which expire between 2010 and
2013. Our inability to negotiate acceptable new contracts or
extensions of existing contracts with these unions could cause 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 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 impede our ability to integrate
our operations efficiently. Also, labor relations matters affecting
our suppliers of cement and aggregates could adversely impact our business from
time to time.
We
contribute to 18 multiemployer pension plans. During 2006, the
“Pension Protection Act of 2006” (the “PPA”) was signed into law. For
multiemployer defined benefit plans, the PPA establishes new funding
requirements or rehabilitation requirements, creates additional funding rules
for plans that are in endangered or critical status, and introduces enhanced
disclosure requirements to participants regarding a plan’s funding
status. The Worker, Retiree and Employer Recovery Act of 2008 (the
“WRERA”) was enacted in late 2008 and provided some funding relief to defined
benefit plan sponsors affected by recent market conditions. The WRERA
allowed multiemployer plan sponsors to elect to freeze their current fund status
at the same funding status as the preceding plan year (for example, a calendar
year plan that was not in critical or endangered status for 2008 was able to
elect to retain that status for 2009), and sponsors of multiemployer plans in
endangered or critical status in plan years beginning in 2008 or 2009 were
allowed a three-year extension of funding improvement or rehabilitation plans
(extended the timeline for these plans to accomplish their goals from 10 years
to 13 years, or from 15 years to 18 years for seriously endangered
plans). Additionally, if we were to withdraw partially or completely
from any plan that is underfunded, we would be liable for a proportionate share
of that plan’s unfunded vested benefits. Based on the information
available from plan administrators, we believe that our portion of the
contingent liability in the case of a full or partial withdrawal from or
termination of several of these plans or the inability of plan sponsors to meet
the funding or rehabilitation requirements would be material to our business
financial condition, results of operations and cash flows.
Our
overall profitability is sensitive to price changes and minor variations in
sales volumes.
Generally,
our products are 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 have had significant
claims of this kind asserted against us that we have resolved. There
currently are claims, 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 business, financial
condition, results of operations and cash flows.
24
Our
net revenue 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.
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.
Increasing
insurance claims and expenses could lower our profitability and increase our
business risk.
The
nature of our business subjects us to product liability, property damage and
personal injury claims. Over the last several years, insurance
carriers have raised premiums for many companies operating in our industry,
including us. Increased premiums may further increase our insurance
expense as coverage expires or otherwise cause us to raise our self-insured
retention. If the number or severity of claims within our
self-insured retention increases, we could suffer losses in excess of our
reserves. An unusually large liability claim or a string of claims
based on a failure repeated throughout our mass production process may exceed
our insurance coverage or result in direct damages if we were unable or elected
not to insure against certain hazards because of high premiums or other
reasons. In addition, the availability of, and our ability to collect
on, insurance coverage is often subject to factors beyond our
control.
Item
1B. Unresolved Staff Comments
None.
Item
2. Properties
Facilities
The table
below lists our concrete plants as of March 15, 2010. We believe
these plants are sufficient for our current needs. The ready-mixed concrete
volumes shown are the volumes from continuing operations each location produced
in 2009.
Ready-Mixed
Concrete Plants
|
Precast
|
Block
|
Ready-Mixed
Concrete
Volume
(in
thousands
|
|||||||||||||||||||||||||
Locations
|
Fixed
|
Portable
|
Leased
|
Total
|
Plants
|
Plants
|
of
cubic yards)
|
|||||||||||||||||||||
Ready-Mixed
Concrete and Concrete-Related Products Segment:
|
||||||||||||||||||||||||||||
Northern
California
|
14 | 2 | 2 | 18 | — | — | 998 | |||||||||||||||||||||
Atlantic
Region
|
19 | 5 | 2 | 26 | — | — | 836 | |||||||||||||||||||||
Texas
/ Oklahoma
|
61 | 3 | 1 | 65 | — | — | 2,115 | |||||||||||||||||||||
Michigan
|
25 | — | 2 | 27 | — | 1 | 568 | |||||||||||||||||||||
Precast
Concrete Products Segment:
|
||||||||||||||||||||||||||||
Northern
California
|
— | — | — | — | 3 | — | — | |||||||||||||||||||||
Southern
California/Arizona
|
— | — | — | — | 3 | — | — | |||||||||||||||||||||
Pennsylvania
|
— | — | — | — | 1 | — | — | |||||||||||||||||||||
Total
Company
|
119 | 10 | 7 | 136 | 7 | 1 | 4,517 |
The fixed
plants, precast plants, block plant and leased plants, are located on
approximately 68 sites we own and 65 sites we lease. The lease terms
extend to dates that vary from 2010 to 2025. For operating plants, we
intend to renew most of the leases expiring in the near term.
25
We produce crushed stone aggregates,
sand and gravel, from seven aggregates facilities located in Texas and New
Jersey. We sell these aggregates for use in commercial, industrial
and public works projects in the markets they serve, as well as consume them
internally in the production of ready-mixed concrete in those
markets. We produced approximately 3.0 million tons of
aggregates in 2009, with Texas producing 42% and New
Jersey 58% of that total production. In April 2007, we entered into
an agreement to lease our sand pit operations in Michigan to the Edward C. Levy
Co. as a part of the formation of our 60%-owned Michigan
subsidiary. We now receive a royalty based on the volume of product
produced and sold from the quarry during the term of the lease.
At December 31, 2009, our total
estimated aggregates reserves are 78 million tons, assuming loss factors of
approximately 20% for unusable material. We believe these aggregates
reserves provide us with additional raw materials sourcing flexibility and
supply availability, although they will provide us with supply for less than 5%
of our annual consumption of aggregates.
Equipment
As of
December 31, 2009, we had a fleet of approximately 1,226 owned and leased mixer
trucks and 1,114 other vehicles. Our own
mechanics service most of the fleet. We believe these vehicles generally are
well maintained and are adequate for our operations. The average age of our
mixer trucks is approximately eight years.
For
additional information related to our properties, see Item 1 of this
report.
Item
3. Legal
Proceedings
The information set forth under the
heading “Legal Proceedings” in Note 16, “Commitments and Contingencies,” to our
consolidated financial statements included in this report is incorporated by
reference into this Item 3.
Item
4. Reserved
PART
II
Item
5. Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our
common stock is traded on the Nasdaq Global Stock Market under the symbol
“RMIX.” As of March 15, 2010, shares of our common stock were held by
approximately 519 stockholders of record.
The number of record holders does not necessarily bear any relationship to the
number of beneficial owners of our common stock.
The
closing price for our common stock on the Nasdaq Global Select Market on March
12, 2010 was $0.46 per share. The following table sets forth, for the periods
indicated, the range of high and low sales prices for our common
stock:
2009
|
2008
|
|||||||||||||||
High
|
Low
|
High
|
Low
|
|||||||||||||
First
Quarter
|
3.53 | 1.40 | $ | 4.40 | $ | 2.14 | ||||||||||
Second
Quarter
|
2.75 | 1.76 | $ | 6.25 | $ | 3.05 | ||||||||||
Third
Quarter
|
2.01 | 1.50 | $ | 8.38 | $ | 3.86 | ||||||||||
Fourth
Quarter
|
1.86 | 0.64 | $ | 4.69 | $ | 1.83 |
We have
not paid or declared any dividends since our formation and currently do not
intend to pay dividends in 2010. Additional information concerning restrictions
on our payment of cash dividends may be found in “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Liquidity and Capital
Resources” in Item 7 of this report and Note 11 to our consolidated financial
statements in this report.
26
PERFORMANCE
GRAPH
The following graph compares, for the
period from December 31, 2004 to December 31, 2009, the cumulative
stockholder return on our common stock with the cumulative total return on the
Standard & Poor’s 500 Index and a peer group index we selected that includes
four public companies within our industry. The comparison assumes that (1) $100
was invested on December 31, 2004 in our common stock, the S&P 500
Index and the peer group index and (2) all dividends were
reinvested.
The peer group companies at December
31, 2009 for this performance graph are Texas Industries, Inc., Eagle Materials
Inc., Martin Marietta Materials, Inc. and Vulcan Materials
Company. In addition to ready-mixed concrete and concrete-related
products, the members of the peer group also have material operations in other
segments of the building products industry in which we either do not currently
operate, or do not operate at a comparable level, such as cement, aggregates and
other building products. These other business segments of peer group
members have an affect on cumulative stockholder return over the covered
period.
27
Equity
Compensation Plan Information
The
following table summarizes, as of December 31, 2009, the indicated information
regarding equity compensation to our employees, officers, directors and other
persons under our equity compensation plans. These plans use or are based on
shares of our common stock.
Plan Category
|
Number of Securities
to Be Issued Upon
Exercise of
Outstanding Stock
Options
|
Weighted Average
Exercise Price of
Outstanding Stock
Options
|
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in First
Column)
|
|||||||||
Equity compensation
plans approved by security holders(1)
|
1,618,082 | 5.19 | 2,060,672 | |||||||||
Equity compensation
plans not approved by security holders
(2)
|
294,055 | 6.53 | 227,727 | |||||||||
Total
|
1,912,137 | 5.54 |
|
(1)
|
Pursuant
to the terms of the 2008 Incentive Plan, there were 2,060,672 shares of
our common stock remaining available for awards under the plan for future
issuance as of December 31, 2009, including shares of common stock which
were the subject of awards under the 1999 Incentive Plan or the 2001
Employee Incentive Plan (the “2001 Plan”) that were forfeited or
terminated, expired unexercised, were settled in cash in lieu of common
stock or in a manner such that the shares covered thereby were not issued
or are exchanged for consideration involving common stock. The
1999 Incentive Plan terminated on December 31, 2008, but there are still
outstanding awards of stock options and restricted stock under such
plan.
|
(2)
|
Our
board adopted the 2001 Plan in February 2001. The purpose of
this plan is to attract,
retain and motivate our employees and consultants, to encourage a sense of
propriety of those persons in our company and
to stimulate an active interest of those persons in the development and
financial success of our company. Awards may be made to any of
our employees or consultants. The plan provides for grants of
incentive stock options, nonqualified stock options, stock appreciation
rights, restricted stock and other long-term incentive
awards. None of our officers or directors is eligible to
participate in the plan. Pursuant to the terms of the 2001 Plan, there
were 227,727 shares of our common stock remaining available for awards
under the plan for future issuance as of December 31, 2009. No
awards were made under the 2001 Plan in 2009. Shares of our
common stock which were the subject of awards under the 2001 Plan when the
2008 Incentive Plan was adopted that are subsequently forfeited or
terminated, expire unexercised, are settled in cash in lieu of common
stock or in a manner such that all or some of the shares covered thereby
are not issued or are exchanged for consideration that does not involve
common stock are included in the number of shares that may be issued under
the 2008 Incentive
Plan.
|
Issuer
Purchases of Equity Securities
The following table provides
information with respect to our repurchases of shares of our common stock during
the fourth quarter of 2009:
Calendar Month
|
Total Number of
Shares
Purchased(1)
|
Average Price Paid
Per Share
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
|
Maximum Number (or
Approximate Dollar
Value) of Shares That
May Yet Be Purchased
Under the Plans or
Programs
|
||||||||||||
October
2009
|
3,488 | $ | 1.65 | - | - | |||||||||||
November
2009
|
397 | $ | 1.61 | - | - | |||||||||||
December
2009
|
- | - | - | - |
(1)
|
Represents
shares of our common stock repurchased during the three-month period ended
December 31, 2009 from company employees who elected for us to make their
required tax payments upon vesting of certain restricted shares by
withholding a number of those vested shares having a value on the date of
vesting equal to their tax
obligations.
|
28
Item
6. Selected Financial Data
The
information below was derived from the audited consolidated financial statements
included in this report and in other reports we have previously filed with the
SEC, and this information should be read together with those financial
statements and the notes to those financial statements. The adoption of new
accounting pronouncements, changes in accounting policies and reclassifications
impact the comparability of the financial information presented below. These
historical results are not necessarily indicative of the results to be expected
in the future.
Year Ended December
31,(5)
|
||||||||||||||||||||
2009(1)
|
2008(2)
|
2007(3)
|
2006(4)
|
2005
|
||||||||||||||||
Statement of Operations
Data:
|
||||||||||||||||||||
Revenue
|
$ | 534,485 | $ | 754,298 | $ | 803,803 | $ | 728,510 | $ | 525,637 | ||||||||||
Income
(loss) from continuing operations, net of tax
|
$ | (94,863 | ) | $ | (135,922 | ) | $ | (65,061 | ) | $ | (7,303 | ) | $ | 14,431 | ||||||
Loss
from discontinued operations, net of tax tax
|
$ | — | $ | (149 | ) | $ | (5,241 | ) | $ | (787 | ) | $ | (1,819 | ) | ||||||
Net
income (loss)
|
$ | (94,863 | ) | $ | (136,071 | ) | $ | (70,302 | ) | $ | (8,090 | ) | $ | 12,612 | ||||||
Net
income (loss) attributable to stockholders
|
$ | (88,238 | ) | $ | (132,446 | ) | $ | (69,001 | ) | $ | (8,090 | ) | $ | 12,612 | ||||||
Earnings (Loss) Per Share
Attributable to Stockholders Data:
|
||||||||||||||||||||
Basic
income (loss) per share from continuing operations
|
$ | (2.44 | ) | $ | (3.48 | ) | $ | (1.67 | ) | $ | (0.20 | ) | $ | 0.50 | ||||||
Loss
from discontinued operations, net of tax tax
|
$ | — | $ | — | $ | (0.14 | ) | $ | $(0.02 | ) | $ | (0.06 | ) | |||||||
Basic
net income (loss) per share
|
$ | (2.44 | ) | $ | (3.48 | ) | $ | (1.81 | ) | $ | (0.22 | ) | $ | 0.44 | ||||||
Diluted
income (loss) per share from continuing operations
|
$ | (2.44 | ) | $ | (3.48 | ) | $ | (1.67 | ) | $ | (0.20 | ) | $ | 0.49 | ||||||
Loss
from discontinued operations, net of tax tax
|
$ | — | $ | — | $ | (0.14 | ) | $ | (0.02 | ) | $ | (0.06 | ) | |||||||
Diluted
net income (loss) per share
|
$ | (2.44 | ) | $ | (3.48 | ) | $ | (1.81 | ) | $ | (0.22 | ) | $ | 0.43 | ||||||
Balance Sheet Data (at end of
period):
|
||||||||||||||||||||
Total
assets
|
$ | 389,160 | $ | 507,810 | $ | 647,256 | $ | 716,646 | $ | 494,043 | ||||||||||
Total
debt (including current maturities)
|
$ | 296,542 | $ | 305,988 | $ | 298,500 | $ | 303,292 | $ | 201,571 | ||||||||||
Total
stockholders’ equity
|
$ | (15,742 | ) | $ | 69,796 | $ | 205,105 | $ | 269,577 | $ | 184,921 | |||||||||
Total
equity
|
$ | (10,191 | ) | $ | 80,363 | $ | 219,297 | $ | 269,577 | $ | 184,921 | |||||||||
Statement of Cash Flow
Data:
|
||||||||||||||||||||
Net
cash provided by operating activities
|
$ | 8,011 | $ | 29,678 | $ | 44,338 | $ | 39,537 | $ | 41,229 | ||||||||||
Net
cash used in investing activities
|
$ | (9,018 | ) | $ | (39,516 | ) | $ | (34,084 | ) | $ | (230,679 | ) | $ | (58,563 | ) | |||||
Net
cash provided by (used in) financing activities
|
$ | (87 | ) | $ | 311 | $ | (4,208 | ) | $ | 176,292 | $ | 1,281 | ||||||||
Ready-mixed
Concrete Data
|
||||||||||||||||||||
Average
selling price per cubic yard
|
$ | 95.32 | $ | 94.22 | $ | 91.70 | $ | 88.23 | $ | 86.42 | ||||||||||
Sales
volume in cubic yards from continuing operations
|
4,517 | 6,517 | 7,176 | 6,679 | 4,734 |
(1)
|
The
2009 results include a goodwill impairment charge of $45.8 million, net of
income taxes, and an asset impairment charge of $8.8 million, net of
income taxes, which we recorded in the third quarter in accordance with
authoritative accounting guidance.
|
(2)
|
The
2008 results include an impairment charge of $119.8 million, net of income
taxes, which we recorded in the fourth quarter pursuant to our annual
review of goodwill in accordance with authoritative accounting
guidance.
|
(3)
|
The
2007 results include an impairment charge of $76.4 million, net of income
taxes, which we recorded in the fourth quarter pursuant to our annual
review of goodwill in accordance with authoritative accounting
guidance. Also
in 2007, we discontinued the operations of three business units in certain
markets. The financial data for years prior to 2007 have been
restated to segregate the effects of the operations of those discontinued
units.
|
(4)
|
The
2006 results include an impairment charge of $26.8 million, net of income
taxes, primarily pursuant to our annual review of goodwill in accordance
with authoritative accounting
guidance.
|
(5)
|
All
data presented in each year has been updated to reflect the effect of our
fourth quarter of 2007 decision to dispose of certain of our
operations.
|
29
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
Statements we make in the following
discussion that express a belief, expectation or intention, as well as those
that are not historical fact are forward-looking statements that are subject to
various risks, uncertainties and assumptions. Our actual results, performance or
achievements, or market conditions 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 under the
headings “Cautionary Statement Concerning Forward-Looking Statements” preceding
Item 1 of this report, “Risk Factors” in Item 1A of this report and “—Risks and
Uncertainties” below.
Our
Business
We
operate our business in two business segments: ready-mixed concrete
and concrete-related products; and precast concrete products.
Ready-Mixed Concrete and
Concrete-Related Products. Our ready-mixed concrete and
concrete-related products segment is engaged primarily in the production, sale
and delivery of ready-mixed concrete to our customers’ job sites. To
a lesser extent, this segment is engaged in the mining and sale of aggregates;
and the resale of building materials, primarily to our ready-mixed concrete
customers. We provide these products and services from our operations
in north and west Texas, northern California, New Jersey, New York, Washington,
D.C., Michigan and Oklahoma.
Precast Concrete
Products. Our precast concrete products segment engages
principally in the production, distribution and sale of precast concrete
products from our seven precast plants located in California, Arizona and
Pennsylvania. From these facilities, we produce precast concrete
structures such as utility vaults, manholes and other wastewater management
products, specialty engineered structures, pre-stressed bridge girders, concrete
piles, curb-inlets, catch basins, retaining and other wall systems, custom
designed architectural products and other precast concrete
products.
We derive
substantially all our revenues from the sale of ready-mixed concrete, precast
concrete and concrete-related products to the construction industry in the
United States. We typically sell our products under purchase orders that require
us to formulate, prepare and deliver the product to our customers’ job sites. We
recognize revenue from these orders when we deliver the ordered products. The
principal states in which we operate are Texas (35% of 2009 revenue and 39% of
2008 revenue), California (30% of 2009 revenue and 31% of 2008 revenue), New
Jersey/New York (15% of 2009 revenue and 14% of 2008 revenue) and Michigan (9%
of 2009 and 2008 revenue). We serve substantially all segments of the
construction industry in our markets. Our customers include
contractors for commercial and industrial, residential, street and highway and
other public works construction. The approximate percentages of our concrete
product revenue by construction type activity were as follows in 2009 and
2008:
2009
|
2008
|
|||||||
Commercial
and industrial
|
55 | % | 55 | % | ||||
Residential
|
19 | % | 26 | % | ||||
Street,
highway and other public works
|
26 | % | 19 | % |
The
markets for our products are generally local, and our operating results are
subject to fluctuations in the level and 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. Commercial and industrial projects generally
provide more opportunities to sell value-added products that are designed to
meet the high-performance requirements of these types of projects.
Our
customers are generally involved in the construction industry, which is a
cyclical business and is subject to general and more localized economic
conditions, including the recessionary conditions impacting all our
markets. In addition, our business is impacted by seasonal variations
in weather conditions, which vary by regional market. Accordingly,
demand for our products and services during the winter months is typically lower
than in other months of the year because of inclement weather. Also,
sustained periods of inclement weather and other adverse weather conditions
could cause the delay of construction projects during other times of the
year.
Market
Trends, Liquidity and Restructuring
Since the
middle of 2006, the United States building materials construction market has
become increasingly challenging. Currently, the construction
industry, particularly the ready-mixed concrete industry, is characterized by
significant overcapacity, fierce competitive activity and rapidly declining
sales volumes. From 2007 through 2009, we have implemented cost
reduction programs, including workforce reductions, plant idling, rolling stock
dispositions and divestitures of nonperforming business units to reduce
structural costs.
30
Despite
these initiatives in 2007, 2008 and 2009, our business has been severely
affected by the steep decline in single family home starts in the U.S.
residential construction markets, the turmoil in the global credit markets and
the U.S. recession. These conditions had a dramatic impact on demand
for our products in each of the last three years. During 2007, 2008
and 2009, single family home starts declined by approximately 29%, 41% and 29%,
respectively, and commercial construction activity, which has been negatively
affected by the credit crisis and U.S. economic downturn, is expected to be
weaker in our markets in 2010. Sales volumes in our precast
operations have also been significantly affected due to our significant presence
in residential construction. We are also experiencing product pricing
pressure and expect ready-mixed concrete pricing declines in 2010 compared to
2009 in most of our markets, which will have a negative effect on our gross
margins.
In
response to our protracted, declining sales volumes, we have expanded our cost
reduction efforts for 2010, including wage freezes, elimination of our 401(k)
company match program and reductions in other employee benefits. We
also continue to significantly scale back capital investment
expenditures.
Nonetheless,
the continued weakening economic conditions, including ongoing softness in
residential construction, further reduction in demand in the commercial sector
and delays in anticipated public works projects in many of our markets, have
placed significant distress on our liquidity position. Prior to its
amendment described below, the credit agreement governing our senior revolving
credit facility (the “Credit Agreement” or “our Credit Agreement”) required 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 $25
million. In February 2010, we entered into an amendment
to the Credit Agreement. The amendment:
|
§
|
temporarily
reduces the minimum availability trigger at which we must maintain a
minimum fixed charge coverage ratio of 1.0 to 1.0 from $25 million to (1)
$22.5 million from the effective date of the amendment through March 10,
2010 (or such earlier date on which we elect to deliver the first weekly
borrowing base certificate) and (2) $20 million thereafter through April
30, 2010, but in each case that trigger reverts to $25 million upon the
earlier of (a) our delivery of notice to the lenders of our intent to make
payment on our 8⅜% Senior
Subordinated Notes due 2014 (the “8⅜% Notes”) or
any other subordinated debt and (b) May 1,
2010;
|
|
§
|
reduces
the size of our revolving credit facility from $150 million to $90
million;
|
|
§
|
implements
permanent cash dominion by the lenders over the deposit accounts of us and
the guarantors under the Credit Agreement, subject to exceptions for
specific accounts and threshold dollar
amounts;
|
|
§
|
modifies
the borrowing base formula to include a $20 million cap on the value of
concrete trucks and mixing drums that will be included in the borrowing
base;
|
|
§
|
increases
the pricing on drawn revolver loans from the current availability-based
pricing grid of either the Eurodollar-based rate (“LIBOR”) plus 1.75% per
annum to 2.25% per annum or the domestic rate (3.25% at December 31,
2009), plus 0.25% to 0.75% per annum to LIBOR plus 4.00% per annum,
eliminates the availability-based pricing grid, and increases our
commitment fees on the unused portion of the facility from 0.25% to
0.75%;
|
|
§
|
requires
us to report our borrowing base on a weekly, rather than monthly,
basis;
|
|
§
|
waives
our solvency representation and warranty through April 30,
2010;
|
|
§
|
permits
us to prepay or redeem the 8⅜% Notes with
the proceeds of permitted subordinated debt and/or an equity issuance, but
not cash;
|
|
§
|
modifies
certain restrictions on the operation of our business by, among other
things, (i) eliminating the general restricted payments, lien and
investment baskets; (ii) adding new restrictions on our ability to sell or
incur liens on certain assets, including owned real property of our
company and our subsidiaries; (iii) adding restrictions on our ability to
form, acquire or enter into any new joint venture or partnership or create
any new foreign subsidiary; (iv) reducing the basket for permitted debt of
our Michigan joint venture from $20 million to $17.5
million; (v) limiting investments by our company and our
subsidiaries in the Michigan joint venture to $2.25 million in any fiscal
quarter and $5 million for the remaining term of the Credit Agreement; and
(vi) limiting our ability to consummate permitted acquisitions and incur
or assume debt at the time the acquisition is consummated;
and
|
|
§
|
adds
a new event of default under the Credit Agreement if we or any of our
subsidiaries contests the enforceability of the subordination provisions
relating to the 8⅜% Notes and
any other subordinated debt, or if such debt fails to remain subordinated
to the Credit Agreement.
|
31
We also obtained (i) a permanent
waiver by the lenders of any default or event of default arising under the
Credit Agreement as a result of our delivery of our 2009 fiscal year financials
with a report from our independent registered public accounting firm containing
an explanatory paragraph with their conclusion regarding substantial doubt about
our ability to continue as a going concern and (ii) a temporary waiver by the
lenders through April 30, 2010, of any default or event of default arising under
the Credit Agreement as a result of our failure to make our regularly scheduled
interest payments under the 8⅜%
Notes.
While we believe the amendment of our
Credit Agreement provides us with some additional access to liquidity, we
continue to see our business affected by the decline in construction activity
and inclement weather conditions in January and February 2010 across the regions
we operate. The amount available for borrowing under our Credit Agreement is
based in part on our accounts receivable balances. The inclement weather and
decline in demand for our products has a direct effect on the amounts we bill
our customers and our accounts receivable balances. This inclement weather along
with the seasonally low production and economic downturn has caused us to take
actions to conserve cash. These actions include delaying payments to certain
vendors and suppliers. If our liquidity falls below the availability
thresholds noted above, we will not be in compliance with the minimum fixed
charge coverage ratio of 1.0 to 1.0. If this occurs and we are unable to
continue to obtain amendments from the lenders that waive compliance with these
financial covenants, the lenders could declare us to be in default under the
terms of the Credit Agreement, at which point the entire outstanding principal
balance of the revolving credit facility, together with all accrued and unpaid
interest and other amounts then owing to our lenders, would become immediately
due and payable. Because substantially all of our assets are pledged as
collateral under the Credit Agreement, if our lenders were to declare an event
of default, they would be entitled to foreclose on and take possession of those
assets.
In addition, acceleration of our
obligations under the Credit Agreement would constitute a default under the
8⅜% Notes and
would likely result in the acceleration of those obligations as
well. A default under our Credit Agreement also could result in a
cross-default or the acceleration of our payment obligations under other
financing agreements. In any such event, we may not be able to repay
the debt or refinance the debt on acceptable terms, and we may not have
sufficient assets to make the payments when due.
In
addition to our Credit Agreement, our 60%-owned Michigan subsidiary, Superior
Materials Holdings, LLC (“Superior”), has a separate credit agreement (the
“Superior Credit Agreement”) under which there was $5.6 million in outstanding
revolving credit borrowings as of December 31, 2009. Borrowings under
the Superior Credit Agreement are collateralized by substantially all the assets
of Superior and are scheduled to mature on April 1, 2010. Although we
and our wholly owned subsidiaries are not obligors under the Superior Credit
Agreement, an event of default beyond a 30-day grace period under our Credit
Agreement would constitute an event of default under the Superior Credit
Agreement. Superior is in the process of renegotiating the Superior Credit
Agreement, which has a maturity date of April 1, 2010. If the negotiations are
not successful, the amounts outstanding under the Superior Credit Agreement
would be due and payable as well. There was $6.6 million outstanding under the
Superior Credit Agreement at March 12, 2010.
Also, we
are obligated to make semi-annual interest payments on the 8⅜% Notes aggregating
approximately $11.4 million on April 1, 2010. Under the indenture relating to
the 8⅜% Notes, an event of default would occur if we fail to make any payment of
interest on the 8⅜% Notes when due and that failure continues for a period of 30
days. If such an event of default occurs and is continuing, the trustee or the
holders of 25% or more in aggregate principal amount of the 8⅜% Notes then
outstanding may accelerate our obligation to repay the 8⅜% Notes, together with
accrued and unpaid interest. Under the terms of our Credit Agreement, an event
of default under the 8⅜% Notes indenture would also constitute an event of
default under the Credit Agreement, and would give rise to the right of our
lenders under the Credit Agreement to immediately accelerate the maturity of the
debt outstanding under the Credit Agreement. Those circumstances would trigger
provisions in the 8⅜% Notes indenture that would permit the lenders under the
Credit Agreement to prohibit payments with respect to the 8⅜% Notes for up to
180 days, even though our payment obligations with respect to the 8⅜% Notes may
have been accelerated.
Given the
current negative conditions in the economy and the credit markets generally and
in our industry in particular, there is substantial uncertainty that we will be
able to restructure or refinance our indebtedness on or before April 30, 2010,
the date at which an event of default occurs for failure to make the scheduled
April 1, 2010 interest payment for the 8⅜% Notes. Additionally, there is no
assurance that a successful refinancing of the indebtedness outstanding under
the Superior Credit Agreement will be consummated by the maturity date of April
1, 2010.
In addition to the restrictions we
face under our debt instruments, our stock price has declined significantly over
the past year, which makes it more difficult to obtain equity financing on
acceptable terms to address our liquidity issues. The indenture
governing the 8⅜% Notes and the
Credit Agreement also contains restrictions on our ability to incur additional
debt. Our ability to obtain cash from external sources also could be
adversely affected by volatility in the markets for corporate debt, fluctuations
in the market price of our common stock or the 8⅜% Notes and any
additional market instability, unavailability of credit or inability to access
the capital markets which may result from the effect of the global financial
crisis and U.S. economic downturn.
32
We have received a letter from The
Nasdaq Stock Market indicating that the bid price of our common stock over 30
consecutive business days had closed below the minimum $1.00 per share required
for continued listing under the Nasdaq Marketplace Rules. We have been provided
an initial period of 180 calendar days, or until September 7, 2010, to regain
compliance. Compliance can be attained if at any time before September 7, 2010,
the bid price of our common stock closes at $1.00 per share or more for a
minimum of 10 consecutive business days. In the event we cannot
demonstrate compliance with the minimum bid price rule by September 7, 2010, our
securities are subject to delisting.
In light of this situation, we are
currently reviewing the strategic and financing alternatives available to us and
have retained legal and financial advisors to assist us in this regard. We are
engaged in continuing discussions with the lenders under our Credit Agreement
and others regarding a permanent restructuring of our capital structure. Such a
restructuring would likely affect the terms of the 8⅜% Notes, the Credit
Agreement, other debt obligations and our common stock and may be effected
through negotiated modifications to the agreements related to our debt
obligations or through other forms of restructurings, which we may be required
to effect under court supervision pursuant to a voluntary bankruptcy filing
under Chapter 11 of the U.S. Bankruptcy Code. There can be no assurance that an
agreement regarding any such restructuring will be obtained on acceptable terms
with the necessary parties or at all. Additionally, if we do not
maintain adequate liquidity prior to any restructuring, we may seek protection
pursuant to a voluntary bankruptcy filing under Chapter 11.
We are reporting net losses for the
year ended December 31, 2009 for the fourth consecutive year and currently
anticipate losses for 2010. These cumulative losses, in addition to our current
liquidity situation, raise substantial doubt as to our ability to continue as a
going concern for a period longer than the current fiscal year. Our ability to
continue as a going concern depends on the achievement of profitable operations,
the success of our financial and strategic alternatives process, which may
include the restructuring of the 8⅜% Notes and Credit Agreement or a
recapitalization. Until the possible completion of the financial and strategic
alternatives process, our future remains uncertain, and there can be no
assurance that our efforts in this regard will be successful.
Our consolidated financial statements
have been prepared assuming that we will continue as a going concern, which
implies that we will continue to meet our obligations and continue our
operations for at least the next 12 months. Realization values may be
substantially different from carrying values as shown, and our consolidated
financial statements do not include any adjustments relating to the
recoverability or classification of recorded asset amounts or the amount and
classification of liabilities that might be necessary as a result of this
uncertainty.
Liquidity
and Capital Resources
Our primary short-term liquidity needs
consist of financing seasonal working capital requirements, servicing
indebtedness, and purchasing property and equipment. Our working capital needs
are typically at their lowest level in the first quarter and increase in the
second and third quarters to fund the increases in accounts receivable and
inventories during those periods and the cash interest payment on the 8⅜% Notes on April 1
and October 1 of each year. Generally, in the fourth quarter of each
year, our working capital borrowings decline and are at their lowest annual
levels in the first quarter of the following year. Current market conditions
have limited the availability of new sources of financing and
capital. As a result of the challenging and prolonged economic and
industry conditions, we anticipate using net cash in our operating activities
after capital expenditures for all of 2010. In response to the protracted,
declining sales volumes, we have expanded our cost reduction efforts for 2010,
including wage freezes, elimination of our 401(k) company match program and
reductions in other employee benefits. We also continue to scale back
capital investment expenditures in order to maintain
liquidity. Nonetheless, the continued weakening economic conditions,
including ongoing softness in residential construction, further reduction of
demand in the commercial sector and delays in public works projects in many of
our markets, have placed significant distress on our liquidity
position.
We rely on our Credit Agreement to fund
short-term liquidity needs if internal funds are not available from our
operations. The recent amendment to our Credit Agreement has provided
additional access to liquidity. However, given the inclement weather in the
regions where we operate during January and February 2010 and the overall
continued decline in activity, the availability under our Credit Agreement has
declined to $26.6 million at March 12, 2010. This inclement weather
along with the seasonally low production and economic downturn has caused us to
take actions to conserve cash. These actions include delaying payments to
certain vendors and suppliers. If the available liquidity under our
Credit Agreement falls below $20 million, we will not be in compliance with the
minimum fixed charge coverage ratio of 1.0 to 1.0. If this occurs and we are
unable to continue to obtain amendments from the lenders that waive compliance
with these financial covenants, the lenders could declare us to be in default
under the terms of the Credit Agreement, at which point the entire outstanding
principal balance of the revolving credit facility, together with all accrued
and unpaid interest and other amounts then owing to our lenders, would become
immediately due and payable. There was $21.4 million outstanding at March 15,
2010 under the Credit Agreement. Because substantially all of our assets are
pledged as collateral under the Credit Agreement, if our lenders were to declare
an event of default, they would be entitled to foreclose on and take possession
of those assets. Additionally, Superior is in the process of
renegotiating the Superior Credit Agreement, which is scheduled to mature on
April 1,
2010, and we owe an interest payment of $11.4 on the 8⅜% Notes on April 1, 2010.
If the negotiations are not successful, the amounts outstanding under the
Superior credit facility would be due and payable. There was $6.6 million
outstanding under the Superior Credit Agreement at March 12. 2010. This would
put further strain on our liquidity. In any such event, we may not be able to
repay the debt or refinance the debt on acceptable terms, and we may not have
sufficient assets to make the payments when due. Our default under
one or more of our debt instruments also will accelerate our obligation to repay
that debt and our other debt instruments as well. In that event, we
may seek protection pursuant to a voluntary bankruptcy filing under Chapter 11
of the U.S. Bankruptcy Code.
33
If we are unable to maintain liquidity
above the minimum threshold established under our Credit Agreement, we will not
meet the fixed charge coverage ratio of 1.0 to 1.0 and will be in default. If
this occurs, we may seek to obtain a waiver for this default or amendment to our
Credit Agreement or we may seek to file a voluntary petition for bankruptcy
under Chapter 11 of the U.S. Bankruptcy Code.
The
principal factors that could adversely affect the amount of and availability of
our internally generated funds include:
|
§
|
further
deterioration of revenue because of weakness in the markets in which we
operate;
|
|
§
|
further
decline in gross margins due to shifts in our project mix or increases in
the cost of our raw materials;
|
|
§
|
any
deterioration in our ability to collect our accounts receivable from
customers as a result of further weakening in residential and other
construction demand or as a result of payment difficulties experienced by
our customers relating to the global financial crisis;
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
following key financial measurements reflect our financial position and capital
resources as of December 31, 2009, 2008 and 2007 (dollars in
thousands):
2009
|
2008
|
2007
|
||||||||||
Cash
and cash equivalents
|
$ | 4,229 | $ | 5,323 | $ | 14,850 | ||||||
Working
capital
|
$ | 34,481 | $ | 63,484 | $ | 88,129 | ||||||
Total
debt
|
$ | 296,542 | $ | 305,988 | $ | 298,500 | ||||||
Available
credit 1
|
$ | 45,250 | $ | 91,100 | $ | 112,600 | ||||||
Debt
as a percent of capital employed
|
103.6 | % | 79.2 | % | 57.6 | % |
1)
|
Based
on eligible borrowing base, net of outstanding letters of credit and
borrowings outstanding under our senior secured revolving credit
facility.
|
Our cash
and cash equivalents consist of highly liquid investments in deposits and money
market funds we hold at major financial institutions.
The
allowance for doubtful accounts increased to $5.3 million in 2009 from $3.1
million in 2008. As a percentage of total accounts receivable, the
allowance was 6.6% in 2009 and 3.0% in 2008. This increase is due to
the prolonged U.S. economic downturn and the expected effect on collections
from our customers. We cannot predict the impact of the
U.S. economic downturn on the ability of our customers to pay in future
periods.
The following discussion provides a
description of our arrangements relating to outstanding
indebtedness.
Senior
Secured Credit Facility
In February 2010, we entered into an
amendment to our Credit Agreement to reduce temporarily the minimum availability
trigger at which we must maintain a minimum fixed charge coverage ratio of 1.0
to 1.0 from $25 million to $20 million from March 11, 2009 through April 30,
2009, as described in more detail under “Market Trends, Liquidity and
Restructuring” above and in Note 1 to our consolidated financial
statements. While we believe the amendment of our Credit Agreement
provides us with some additional access to liquidity, ongoing inclement weather
and the decline in demand for our products has a direct effect on the amounts we
bill our customers and our accounts receivable balances, which in turn affects
the amount available for borrowing under our Credit Agreement. If our liquidity
falls below the availability thresholds noted above, we will not be in
compliance with the minimum fixed charge coverage ratio of 1.0 to 1.0. If this
occurs and we are unable to continue to obtain amendments from the lenders that
waive compliance with these financial covenants or refinance the debt on
acceptable terms, the lenders could declare us to be in default under the terms
of the Credit Agreement, at which point the entire outstanding principal balance
of the revolving credit facility, together with all accrued and unpaid interest
and other amounts then owing to our lenders, would become immediately due and
payable. Because substantially all of our assets are pledged as collateral under
the Credit Agreement, if our lenders were to declare an event of default, they
would be entitled to foreclose on and take possession of those assets. If our
assets are not sufficient to satisfy the outstanding balances when due, we may
seek protection pursuant to a voluntary bankruptcy filing under Chapter
11.
34
At
December 31, 2009, we had borrowings of $16.7 million under this facility and
outstanding letters of credit of approximately $11.6 million. The outstanding
letters of credit increased to $17.7 million in February 2010. The Credit
Agreement provides that the administrative agent may, on the bases specified,
reduce the amount of the available credit from time to time. Additionally, any
“material adverse change” of the Company could restrict our ability to borrow
under the senior secured credit facility. A material adverse change
is defined as a material adverse change in any of (a) the condition (financial
or otherwise), business, performance, prospects, operations or properties of us
and our subsidiaries, taken as a whole, (b) our ability and the ability of the
guarantors, taken as a whole, to perform the obligations under the Credit
Agreement and the other loan documents or (c) the rights and remedies of the
administrative agent, the lenders or the issuers to enforce the Credit Agreement
and the other loan documents.
Our subsidiaries, excluding Superior
and minor subsidiaries, without operations or material assets, have guaranteed
the repayment of all amounts owing under the Credit Agreement. In
addition, we collateralized our obligations under the Credit Agreement with the
capital stock of our subsidiaries, excluding Superior and minor subsidiaries
without operations or material assets, and substantially all the assets of those
subsidiaries, excluding Superior, most of the assets of the aggregates quarry in
northern New Jersey and other real estate owned by us or our
subsidiaries. The Credit Agreement contains covenants restricting,
among other things, prepayment or redemption of the 8⅜% 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 (excluding permitted acquisitions) to the greater of $45
million, or 5%, of consolidated revenues in the prior 12 months. The Credit
Agreement provides that specified change of control events would constitute
events of default. As of December 31, 2009, the maintenance of a
minimum fixed charge coverage ratio was not applicable, as the available credit
under the facility did not fall below $25.0 million.
Senior
Subordinated Notes
On March
31, 2004, we issued $200 million of 8⅜% Notes. In July 2006, we
issued $85 million of additional 8⅜% Notes. Interest on these notes
is payable semi-annually on April 1 and October 1 of each year.
During
the first quarter of 2009, we purchased $7.4 million aggregate principal amount
of the 8⅜% Notes in open market transactions for approximately $2.8 million plus
accrued interest of approximately $0.3 million through the dates of
purchase. We recorded a gain of approximately $4.5 million as a
result of these open market transactions after writing off $0.1 million of
previously deferred financing costs associated with the pro-rata amount of the
8⅜% Notes purchased. During the quarter ended June 30, 2009, we
purchased an additional $5.0 million principal amount of the 8⅜% Notes for
approximately $2.0 million. This resulted in a gain of approximately $2.9
million in April 2009, after writing off $0.1 million of previously deferred
financing costs associated with the pro-rata amount of the 8⅜% Notes purchased.
We used cash on hand and borrowings under our Credit Agreement to fund these
transactions. These purchases reduced the amount outstanding under the 8⅜% Notes
by $12.4 million, reduced our interest expense by approximately $0.7 million in
2009 and will reduce our interest expense by approximately $0.9 million on an
annual basis thereafter.
All of
our subsidiaries, excluding Superior and minor subsidiaries, have jointly and
severally and fully and unconditionally guaranteed the repayment of the 8⅜%
Notes.
The
indenture governing the 8⅜% Notes limits our ability and the ability of our
subsidiaries to pay dividends or repurchase common stock, make certain
investments, incur additional debt, sell preferred stock, create liens, merge or
transfer assets. We may redeem all or a part of the 8⅜% Notes at a
redemption price of 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 8⅜% Notes equal to the proceeds of certain
asset sales that are not reinvested in the business or used to pay senior debt,
and (2) all the 8⅜% Notes following the occurrence of a change of
control. The Credit Agreement would prohibit these
repurchases.
As a
result of restrictions contained in the indenture relating to the 8⅜% Notes, our
ability to incur additional debt is primarily limited to the greater of (1)
borrowings available under the Credit Agreement, plus the greater of $15 million
or 7.5% of our tangible assets, or (2) additional debt if, after giving effect
to the incurrence of such additional debt, our earnings before interest, taxes,
depreciation, amortization and certain noncash items equal or exceed two times
our total interest expense.
We made
interest payments of approximately $25.1 million in 2009 and $25.5 million in
2008, primarily associated with the 8⅜%
Notes.
35
On April 1, 2010, we are obligated to
make semi-annual interest payments on the 8⅜% Notes aggregating approximately
$11.4 million. Under the indenture relating to the 8⅜% Notes, an
event of default will occur if we fail to make any payment of interest on the
8⅜% Notes when due and that failure continues for a period of 30
days. If such an event of default occurs and is continuing, the
trustee or the holders of 25% or more in aggregate principal amount of the 8⅜%
Notes then outstanding may accelerate our obligation to repay the 8⅜% Notes,
together with accrued and unpaid interest. Under the terms of our
Credit Agreement, an event of default under the indenture would also constitute
an event of default under the Credit Agreement, and would give rise to the right
of our lenders under the Credit Agreement to immediately accelerate the maturity
of the debt outstanding under the related credit facility. Those
circumstances would trigger provisions in the indenture relating to the 8⅜%
Notes that would permit the lenders under the Credit Agreement to prohibit
payments with respect to the 8⅜% Notes for up to 180 days, even though our
payment obligations with respect to the 8⅜% Notes may have been
accelerated.
Given the current negative conditions
in the economy and the credit markets generally and in our industry in
particular, there is substantial uncertainty that we will be able to extend or
refinance our indebtedness on or before April 1, 2010, the next interest payment
date for the 8⅜% Notes.
Superior
Credit Facility and Subordinated Debt
Superior has a separate credit
agreement that provides for a revolving credit facility. The credit
agreement, as amended, allows for borrowings of up to $17.5 million.
Borrowings under this credit facility are collateralized by substantially all
the assets of Superior and are scheduled to mature on April 1, 2010. Based
on this maturity date, the amounts outstanding under the credit agreement are
classified as current at December 31, 2009. Given the current negative
conditions in the economy and the credit markets generally and in our industry
in particular, there is substantial uncertainty that Superior will be able to
extend or refinance the indebtedness outstanding under the Superior Credit
Agreement on or before the April 1, 2010 maturity date. In addition,
an event of default under our Credit Agreement beyond a 30-day grace period also
will constitute an event of default under the Superior Credit Agreement and
cause an acceleration of Superior’s obligation to repay the outstanding
balance.
Availability
of borrowings under the Superior Credit Agreement is subject to a borrowing base
that is determined based on the values of net receivables, certain inventories,
certain rolling stock and letters of credit. The credit agreement
provides that the lender may, on the bases specified, reduce the amount of the
available credit from time to time. As of December 31, 2009, there was
$5.6 million in outstanding borrowings under the revolving credit facility, and
the remaining amount of the available credit was approximately $3.0 million.
Letters of credit outstanding at December 31, 2009 were $2.8 million, which
reduced the amount available under the credit facility.
Currently, borrowings have an annual
interest rate at Superior’s option of either, LIBOR, plus 4.25%, or prime rate
(3.25% at December 31, 2009) plus 2.00%. Commitment fees at an annual
rate of 0.25% are payable on the unused portion of the facility.
The
credit agreement contains covenants restricting, among other things, Superior’s
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 generally limits
Superior’s capital expenditures and requires the subsidiary to maintain
compliance with specified financial covenants, including an affirmative covenant
which requires earnings before income taxes, interest and depreciation
(“EBITDA”) to meet certain minimum thresholds quarterly. During the
trailing twelve months ended December 31, 2009, Superior did not meet this
minimum threshold. As a result, Superior has obtained a waiver from the
lender for this noncompliance with the covenant.
U.S. Concrete and its 100%-owned
subsidiaries are not obligors under the terms of the Superior credit agreement.
However, as mentioned above, the Superior Credit Agreement provides that an
event of default beyond a 30-day grace period under either U.S. Concrete’s or
Edw. C. Levy Co.’s credit agreement would constitute an event of
default. Furthermore, U.S. Concrete has agreed to provide or obtain
additional equity or subordinated debt capital not to exceed $6.75 million
through the term of the revolving credit facility to fund any future cash flow
deficits, as defined in the credit agreement, of Superior. In the
first quarter of 2009, U.S. Concrete provided subordinated debt capital in the
amount of $2.4 million under this agreement in lieu of payment of related party
payables. Additionally, the minority partner, Edw. C. Levy Co., provided $1.6
million of subordinated debt capital to fund operations during the first quarter
of 2009. The subordinated debt with U.S. Concrete was eliminated in
consolidation. There was no interest due on each note, and each note
was scheduled to mature on May 1, 2011. During the third quarter of 2009, U.S.
Concrete and the minority partner, Edw. C. Levy Co., converted the subordinated
debt capital into capital contributions to Superior.
Pursuant to Superior’s credit
agreement, U.S. Concrete made an additional capital contribution of $2.6 million
in lieu of payment of related party payables and Edw. C. Levy Co. made an
additional capital contribution of $1.8 million in the first quarter of
2010. Superior is in the process of renegotiating its credit
facility. If the renegotiation process is unsuccessful, the amounts
outstanding under the credit agreement will be due and payable on April 1, 2010.
Additionally, U.S. Concrete and Edw. C. Levy Co. may have to make additional
cash equity contributions to Superior to finance its working capital
requirements and fund its cash operating losses.
36
Fair
Value of Financial Instruments
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. The estimated
aggregate fair value of the 8⅜% Notes at year-end was approximately $163.9
million in 2009 and $146.1 million in 2008.
Debt
Ratings
Our
ability to obtain external financing and the related cost of borrowing is
affected by our debt ratings, which are periodically reviewed by the major
credit rating agencies. Debt ratings and outlooks as of March 15, 2010
were as follows:
Rating
|
Outlook
|
||
Moody’s
|
|||
8⅜%
Notes
|
Caa3
|
Negative
|
|
LT
corporate family rating
|
Caa2
|
||
Standard
& Poor’s
|
|||
8⅜%
Notes
|
C
|
Negative
|
|
Corporate
credit
|
CC
|
These
debt ratings are not recommendations to buy, sell or hold our securities, and
they may be subject to revision or withdrawal at any time by the assigning
rating agency. Each rating should be evaluated independently of any
other rating.
Cash
Flow
The net
cash provided by or used in our operating, investing and financing activities is
presented below (in thousands):
Year
Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Net
cash provided by (used in):
|
||||||||||||
Operating
activities
|
$ | 8,011 | $ | 29,678 | $ | 44,338 | ||||||
Investing
activities
|
(9,018 | ) | (39,516 | ) | (34,084 | ) | ||||||
Financing
activities
|
(87 | ) | 311 | (4,208 | ) | |||||||
Net
increase (decrease) in cash
|
$ | (1,094 | ) | $ | (9,527 | ) | $ | 6,046 |
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 decreased to $8.0 million for the year
ended December 31, 2009 from $29.7 million for the year ended December 31,
2008. The change in 2009 was principally a result of lower
profitability partially offset by the receipt of a federal tax refund of $4.9
million and lower working capital requirements. Net cash provided by
operating activities of $29.7 million for the year ended December 31, 2008
decreased $14.7 million from the net cash provided in the year ended December
31, 2007. The decrease was principally due to lower profitability in
2008, partially offset by improvement in working capital.
Our net
cash used in investing activities of $9.0 million for the year ended December
31, 2009 decreased $30.5 million from the net cash used in investing activities
for the year ended December 31, 2008. The change during 2009 was primarily
attributable to lower payments related to acquisitions, lower capital
expenditures and higher proceeds from property, plant and equipment divestitures
compared to 2008. During 2008, we received $7.6 million in proceeds
from the sale of our Memphis operations and spent approximately $6.3 million for
three ready-mixed concrete operations in New York, $13.5 million for certain
ready-mixed concrete operations in west Texas and $2.5 for a precast operation
in San Diego, California. We also paid $1.4 million of contingent
purchase price consideration during 2008, related to real estate acquired in
connection with the acquisition of a ready-mixed operation in 2003. During 2009,
we received $6.0 million in proceeds from the sale of our ready-mixed concrete
plants in Sacramento, California, plus a cash payment for inventory on hand at
closing, and paid approximately $4.5 million for a concrete crushing and
recycling operation in New York. Additionally, in 2009, we made a $750,000
payment, reduced for certain uncollected pre-acquisition accounts receivable, to
the sellers of a business we acquired, related to a contingent payment
obligation.
Our net
cash used in investing activities of $39.5 million in the year ended December
31, 2008 increased $5.4 million from the net cash used in investing activities
in the year ended December 31, 2007, primarily due to lower proceeds received
from our disposition of certain business units in 2008 as compared with 2007,
offset by $3.8 million lower capital expenditures, net of disposal proceeds in
2008.
37
Our net
cash used in financing activities of $0.1 million decreased $0.4 million from
the net cash provided by financing activities of $0.3 million in
2008. While this change was negligible year over year, we purchased
$12.4 million principal amount of the 8⅜% Notes for $4.8 million during 2009 and
purchased shares under our previous common stock repurchase program for $6.6
million in 2008. Our net cash provided in financing activities of $0.3 million
increased $4.5 million from the net cash used by financing activities of $4.2
million in 2007. The change was primarily attributable to an increase
in borrowings under our revolving credit facility of $6.8 million in 2008 as
compared to a reduction of borrowings under our revolving credit facility in
2007 of $5.0 million, partially offset by our use of $6.6 million in our share
repurchase program in 2008.
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 liquidity measure not
prepared in accordance with 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 is as
follows (in thousands):
Year
Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Net
cash provided by operating activities
|
$ | 8,011 | $ | 29,678 | $ | 44,338 | ||||||
Less:
purchases of property, plant and equipment
|
(13,939 | ) | (27,783 | ) | (29,719 | ) | ||||||
Plus:
proceeds from disposals of property, plant and equipment
|
10,135 | 4,403 | 2,574 | |||||||||
Free
cash flow
|
$ | 4,207 | $ | 6,298 | $ | 17,193 |
Off-Balance
Sheet Arrangements
We do not
currently have any off-balance sheet arrangements that have or are reasonably
likely to have a material current or future effect on our financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources. From time to time, we may enter into noncancelable operating
leases that would not be reflected on our balance sheet. For
additional discussion on our operating leases, see Note 16 to our consolidated
financial statements in this report.
Commitments
The
following are our contractual commitments associated with our indebtedness and
our lease obligations as of December 31, 2009 (in millions):
Contractual
obligations
|
Total
|
Less
Than
1
year
|
1-3
years
|
4-5
years
|
After
5
years
|
|||||||||||||||
Principal
on debt
|
$ | 296.6 | $ | 7.9 | $ | 16.9 | $ | 271.8 | $ | - | ||||||||||
Interest
on debt (1)
|
102.7 | 22.8 | 45.7 | 34.2 | - | |||||||||||||||
Capital
leases
|
0.2 | 0.2 | - | - | - | |||||||||||||||
Operating
leases
|
63.6 | 12.1 | 16.0 | 12.3 | 23.2 | |||||||||||||||
Total
|
$ | 463.1 | $ | 43.0 | $ | 78.6 | $ | 318.3 | $ | 23.2 |
|
(1)
|
Interest
payments due under the 8⅜% senior subordinated
notes.
|
The
following are our commercial commitment expirations as of December 31, 2009 (in
millions):
Other
commercial commitments
|
Total
|
Less
Than
1
year
|
1-3
years
|
4-5
years
|
After
5
years
|
|||||||||||||||
Standby
letters of credit
|
$ | 14.4 | $ | 3.3 | $ | 11.1 | $ | - | $ | - | ||||||||||
Purchase
obligations
|
- | - | - | - | - | |||||||||||||||
Performance
bonds
|
42.9 | 27.4 | 15.5 | - | - | |||||||||||||||
Total
|
$ | 57.3 | $ | 30.7 | $ | 26.6 | $ | - | $ | - |
The following long-term liabilities
included on the consolidated balance sheet are excluded from the table
above: accrued employment costs, income tax contingencies, insurance
accruals and other accruals. Due to the nature of these accruals, the
estimated timing of such payments (or contributions in the case of certain
accrued employment costs) for these items is not predictable. As of
December 31, 2009, the total unrecognized tax benefit related to uncertain tax
positions was $5.3 million. We estimate that none of this will be
paid within the next 12 months.
38
Share Repurchase Plan
On
January 7, 2008, our Board of Directors approved a plan to repurchase up to an
aggregate of three million shares of our common stock. The Board
modified the repurchase plan in October 2008 to slightly increase the aggregate
number of shares authorized for repurchase. The plan permitted the
stock repurchases to be made on the open market or in privately negotiated
transactions in compliance with applicable securities and other
laws. As of December 31, 2008, we had repurchased and subsequently
cancelled 3,148,405 shares with an aggregate value of $6.6 million and completed
the repurchase program.
Acquisitions
In May
2009, we acquired substantially all the assets of a concrete crushing and
recycling business in Queens, New York for approximately $4.5
million. We do not anticipate completing any new acquisitions in the
foreseeable future due to our distressed liquidity position and our review of
strategic and financing alternatives.
Divestitures
During
the third quarter of 2009, we sold our ready-mixed concrete plants in
Sacramento, California for approximately $6.0 million, plus a payment for
certain inventory on hand at closing.
Risks
and Uncertainties
Numerous factors could affect our
future operating results, including those discussed under the heading “Risk
Factors” in Item 1A of Part I of this report. Based on our current distressed
liquidity position, the economic conditions and our outlook of continued weak
demand in 2010 for our products and product pricing pressures, we have also
included additional disclosures regarding our liquidity, covenants under our
debt agreements and restructuring alternatives under “Market Trends, Liquidity
and Restructuring” and “Liquidity and Capital Resources” above.
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 2 to our consolidated
financial statements included in this report 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’s 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
assess 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
$5.3 million as of December 31, 2009 and $3.1 million as of December 31,
2008.
Goodwill
We record as goodwill the amount by
which the total purchase price we pay in our acquisition transactions exceeds
our estimated fair value of the identifiable net assets we acquire. We test
goodwill for impairment on an annual basis, or more often if events or
circumstances indicate that there may be impairment. We generally
test for goodwill impairment in the fourth quarter of each year, because this
period gives us the best visibility of the reporting units’ operating
performances for the current year (seasonally, April through October are highest
revenue and production months) and outlook for the upcoming year, since much of
our customer base is finalizing operating and capital budgets. The
impairment test we use consists of comparing our estimates of the current fair
values of our reporting units with their carrying amounts. We currently have
seven reporting units. Reporting units are organized based on our two
product segments ((1) ready-mixed concrete and concrete related products and (2)
precast concrete products) and geographic regions.
39
There was
no impairment of goodwill as a result of our fourth quarter 2009 test. During
the third quarter of 2009, we sold our ready-mixed concrete plants in
Sacramento, California. These plants and operations were included in our
northern California ready-mixed concrete reporting unit, and $3.0 million of
goodwill was allocated to these assets and included in the calculation of loss
on sale. Concurrently with this sale, we performed an impairment test
on the remaining goodwill for this reporting unit and on all other reporting
units with remaining goodwill as a result of current economic
conditions. The U.S. economic downturn and resulting impact on the
U.S. construction markets have continued to impact our revenue and expected
future growth. The cost of capital has increased while the availability of funds
from capital markets has not improved significantly. Lack of available capital
has impacted our customers by creating project delays or cancellations, thereby
impacting our revenue growth and assumptions. The downturn in residential
construction has not improved, and we are now seeing the economic downturn
affect the commercial sector of our revenue base. In addition, the California
budget crisis has adversely affected public works spending in this market. All
these factors led to a more negative outlook for expected future cash flows and
during the third quarter 2009, resulted in an impairment charge of $45.8
million, of which $42.2 million related to our northern California reporting
unit.
In 2008 we recorded an impairment
charge of $135.3 million. The macro economic factors including the unprecedented
and continuing credit crisis, the U.S. recession, the escalating unemployment
rate and specifically the severe downturn in the U.S. construction markets, had
a significant impact on the valuation metrics used in determining the long-term
value of our reporting units. The slowdown in construction activity
resulted in lower sales volumes and more competition for construction projects,
thereby reducing expected future cash flows. These specific negative
factors, combined with (i) lower enterprise values resulting from lower
multiples of sales and EBITDA comparables, and (ii) the lack of recent third
party transactions due to depressed macro economic conditions, resulted in the
goodwill impairment expense for 2008.
In 2007, we recorded goodwill
impairments of $81.9 million relating to our Michigan, South Central and our
Northern California Precast reporting units. Our Michigan reporting
unit’s economic outlook continued to soften at greater levels throughout 2007,
resulting in lower projected cash flow. Our South Central reporting
unit’s outlook deteriorated, resulting in lower projected cash flow and
continued competitive pressures and limited our future profitability
expectations. Our Northern California Precast reporting unit was
significantly impacted by the continued slowdown in residential housing
construction, which impacted our projected future cash flows. These specific
negative factors in the above mentioned reporting units, combined with lower
enterprise values and sales transaction values for participants in our industry,
resulted in the goodwill impairment expense.
Our fair value analysis is supported by
a weighting of three generally accepted valuation approaches.
These valuation methods include the
following:
|
§
|
Income
Approach - discounted cash flows of future benefit
streams;
|
|
§
|
Market
Approach - public comparable company multiples of sales and earnings
before interest, taxes, depreciation, depletion and amortization
(“EBITDA”); and
|
|
§
|
Market
Approach - multiples generated from recent transactions comparable in
size, nature and industry.
|
These approaches include numerous
assumptions with respect to future circumstances, such as industry and/or local
market conditions that might directly impact each of the reporting units
operations in the future, and are, therefore uncertain. These
approaches are utilized to develop a range of fair values and a weighted average
of these approaches is utilized to determine the best fair value estimate within
that range.
Income Approach - Discounted Cash
Flows. This valuation approach derives a present value of the
reporting unit’s projected future annual cash flows over the next 15 years and
the present residual value of the reporting unit. We use a variety of
underlying assumptions to estimate these future cash flows, including
assumptions relating to future economic market conditions, product pricing,
sales volumes, costs and expenses and capital expenditures. These
assumptions vary by each reporting unit depending on regional market conditions,
including competitive position, degree of vertical integration, supply and
demand for raw materials and other industry conditions. The discount
rate used in the Income Approach, specifically, the weighted average cost of
capital, used in our analysis for 2009, 2008 and 2007 was 15.0%, 14.0% and 8.9%,
respectively. Our increased cost of capital assumption for 2009 and
2008 reflects the U.S. credit crisis which has negatively affected our ability
to borrow cost effectively. The revenue compounded annual growth
rates used in the Income Approach for 2009, 2008 and 2007 varied from -0.1% to
3.0%, depending on the reporting unit and the year. Our EBITDA
margins derived from these underlying assumptions varied between approximately
3% and 20% for 2007 and 3% to 22% for 2008, depending on the reporting
unit. For 2009, our EBITDA margins varied between approximately -8%
and 18%, depending on the reporting unit. The terminal growth rate used in each
year was 3.0%.
40
Market Approach - Multiples of Sales
and EBITDA. This valuation approach utilizes publicly traded
construction materials companies’ enterprise values, as compared to their recent
sales and EBITDA information. For the fourth quarter 2009 impairment
test, we used an average sales multiple of 0.62 times and an average EBITDA
multiple of 8.14 times. For the third quarter 2009 impairment test, we used an
average sales multiple of 0.60 times and an average EBITDA multiple of 6.79
times in determining this market approach metric. For 2008, we used
an average sales multiple of 0.48 times and an average EBITDA multiple of 5.29
times. For 2007, we used an average sales multiple of 0.57 times and
an average EBITDA multiple of 5.90 times. These multiples are used as
a valuation metric to our most recent financial performance. We use
sales as an indicator of demand for our products/services and EBITDA because it
is a widely used key indicator of the cash generating capacity of construction
material companies.
Market Approach - Comparisons of
Recent Transactions. This valuation approach uses publicly
available information regarding recent third-party sales transactions in our
industry to derive a valuation metric of the target’s respective enterprise
values over their EBITDA amounts. For 2009 and 2008, we did not weigh
this market approach because current economic conditions did not yield
significant recent transactions to derive an appropriate valuation
metric. For 2007, we utilized an average third-party sales
transaction multiple of 6.60 and 7.54 times EBITDA, respectively, for this
market-approach metric. We utilize this valuation metric with each of
our reporting units’ most recent financial performance to derive a “what if”
sales transaction comparable, fair-value estimate.
We selected these valuation approaches
because we believe the combination of these approaches and our best judgment
regarding underlying assumptions and estimates provides us with the best
estimate of fair value for each of our reporting units. We believe these
valuation approaches are proven valuation techniques and methodologies for the
construction materials industry and widely accepted by investors. The
estimated fair value of each reporting unit would change if our weighting
assumptions under the three valuation approaches were materially
modified. For the years ended December 31, 2009 and 2008, we weighted
the Income Approach Discounted Cash Flows 45% and the Market Approach Multiples
of Sales and EBITDA 55%. No weighting was used in 2009 and 2008 for
the Market Approach – comparison of Recent Transactions as described
above. In 2008, we placed a higher emphasis and weighting on the
Market Approach - Multiples of Sales and EBITDA approach than used in 2007 to
reflect fair value in current market conditions. This change in
weighting in our view is a better representation of fair value and reflects our
consideration of macro-economic factors affecting our industry, uncertainty of
future economic conditions and their impact on expected cash flows in each of
our reporting units. For the year ended December 31, 2007, we
weighted all three valuation approaches equally to determine an estimated fair
value of each reporting unit.
Detailed below is a table of key
underlying assumptions for all reporting units utilized in the fair value
estimate calculation for the years ended December 31, 2009, 2008 and
2007.
2009
|
2008
|
2007
|
|||
Income
Approach - Discounted Cash Flows
|
|||||
Revenue
Growth Rates
|
(0.1%)
to 4.0%
|
(0.1%)
to 3.0%
|
(0.1)%
to 2.2%
|
||
Weighted
Average Cost of Capital
|
15.0%
|
14.0%
|
8.9%
|
||
Terminal
Value Rate
|
3.0%
|
3.0%
|
3.0%
|
||
EBITDA
Margin Rate
|
(9%)
to 20%
|
3%
to 22%
|
3%
to 20%
|
||
Market
Approach - Multiples of Sales & EBITDA
|
|||||
Sales
Multiples Used
|
0.60-0.62
|
0.48
|
0.57
|
||
EBITDA
Multiples Used
|
6.79-8.14
|
5.29
|
5.90
|
||
Market
Approach - Comparison of Recent Transactions
|
|||||
EBITDA
Multiples Used
|
N/A
|
N/A
|
6.60
|
Our valuation model utilizes
assumptions which represent our best estimate of future events, but would be
sensitive to positive or negative changes in each of the underlying assumptions
as well as to an alternative weighting of valuation methods which would result
in a potentially higher or lower goodwill impairment
expense. Specifically, a continued decline in our ready-mixed
concrete volumes and corresponding revenues and lower precast product revenues
declining at rates greater than our expectations may lead to additional goodwill
impairment charges, especially to the reporting units whose carrying values
closely approximate their estimated fair values. Furthermore, a
decline in publicly traded construction materials enterprise values, including
lower operating margins and continued global-financial credit conditions may
also lead to additional goodwill impairment charges. At December 31,
2009, our goodwill balance is $14.1 million and is contained in the Atlantic
Precast Region and South Central reporting units. The remaining five
reporting units do not have goodwill reflected as an asset on their balance
sheets, as we have fully impaired previously reported goodwill during the
current and prior years. The reporting unit whose estimated fair value closely
approximates its carrying value is our Atlantic Precast Region with a goodwill
balance of $10.0 million. The carrying value is $14.8 million and the estimated
fair value is $16.4 million. We can provide no assurance that future
goodwill impairments will not occur. See Note 3 to our consolidated financial
statements included in this report for additional information about our
goodwill.
41
Insurance
Programs
We
maintain third-party insurance coverage in amounts and against the risks we
believe are reasonable. We share the risk of loss with our insurance
underwriters by maintaining high deductibles subject to aggregate annual loss
limitations. We believe our workers’ compensation, automobile and
general liability per occurrence retentions are consistent with industry
practices, although there are variations among our business units. 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 $12.8 million as of December 31, 2009,
compared to $12.6 million as of December 31, 2008, which is currently classified
in accrued liabilities.
Income
Taxes
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. In cases where the expiration date of tax carryforwards or the
projected operating results indicate that realization is not likely, we provide
for a valuation allowance.
We have
deferred tax assets, resulting from 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 were to determine 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 were to determine 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. Based on the assessment, we recorded a
valuation allowance of $18.1 million at December 31, 2009 and $0.2 million at
December 31, 2008. In determining the valuation allowance in 2009, we
used such factors as (i) cumulative federal taxable losses, (ii) the amount of
deferred tax liabilities that we generally expect to reverse in the same period
and jurisdiction and is on the same character as the temporary differences,
giving rise to our deferred tax assets and (iii) certain tax contingencies under
authoritative accounting guidance related to accounting for uncertainty in
income taxes which, should they materialize, would be offset by our net
operating loss generated in 2008 and 2009. We provided a valuation
allowance in 2009 and 2008 related to certain federal and state income tax
attributes we did not believe we could utilize within the state tax carryforward
periods.
In the
ordinary course of business there is inherent uncertainty in quantifying our
income tax positions. We assess our income tax positions and record
tax benefits for all years subject to examination based upon management’s
evaluation of the facts, circumstances and information available at the
reporting date. For those tax positions where it is more likely than
not that a tax benefit will be sustained, we have recorded the highest amount of
tax benefit with a greater than 50% likelihood of being realized upon ultimate
settlement with a taxing authority that has full knowledge of all relevant
information. For those income tax positions where it is not more
likely than not that a tax benefit will be sustained, no tax benefit has been
recognized in the financial statements. See Notes 2 and 13 to the
consolidated financial statements for further discussion.
Inventory
Obsolescence
We
provide reserves for estimated obsolescence or unmarketable inventory equal to
the difference between the cost of inventory and the estimated net realizable
values 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.
Property,
Plant and Equipment, Net
We state
our property, 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.
42
We
evaluate the recoverability of our property, plant and equipment when changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable in accordance with authoritative accounting guidance related to the
impairment or disposal of long-lived assets. We compare the carrying values of
long-lived assets to our projection of future undiscounted cash flows
attributable to those assets. If the carrying value of a long-lived
asset exceeds the future undiscounted cash flows we project to be derived from
that asset, 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.
During
the third quarter of 2009, we evaluated the recoverability of our property,
plant and equipment. The Michigan market continues to be significantly impacted
by the global economic downturn and by events specific to the region, including
the difficult operating conditions of the U.S. automotive industry
manufacturers, high unemployment rates and lack of public works
spending. The decline in construction activity in each of our end-use
markets in Michigan has negatively affected our outlook of future sales growth
and cash flow. We identified an impairment related to the property,
plant and equipment in our Michigan market and recorded expense of $8.8 million,
which represents the amount that the carrying value of these assets exceeded our
estimate of fair value.
Other
We record accruals for legal 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
Accounting Pronouncements
For a discussion of recently adopted
accounting standards, see Note 2 to our consolidated financial statements
included in this report.
43
Results
of Operations
The
following table sets forth selected historical statement of operations
information and that information as a percentage of total revenue for the years
indicated.
Year
Ended December 31,
|
||||||||||||||||||||||||
2009
|
2008
|
2007
|
||||||||||||||||||||||
(amounts
in thousands, except selling prices)
|
||||||||||||||||||||||||
Revenue:
|
||||||||||||||||||||||||
Ready-mixed
concrete and concrete-related products
|
$ | 491,755 | 92.0 | $ | 702,525 | 93.1 | $ | 745,384 | 92.7 | |||||||||||||||
Precast
concrete products
|
56,959 | 10.7 | 68,082 | 9.0 | 73,300 | 9.1 | ||||||||||||||||||
Inter-segment
revenue
|
(14,229 | ) | (2.7 | ) | (16,309 | ) | (2.1 | ) | (14,881 | ) | (1.8 | ) | ||||||||||||
Total
revenue
|
$ | 534,485 | 100 | % | $ | 754,298 | 100 | % | $ | 803,803 | 100 | % | ||||||||||||
Cost
of goods sold before depreciation, depletion and
amortization:
|
||||||||||||||||||||||||
Ready-mixed
concrete and concrete-related products
|
$ | 413,703 | 77.5 | $ | 586,088 | 77.7 | $ | 608,043 | 75.6 | |||||||||||||||
Precast
concrete products
|
45,511 | 8.5 | 53,360 | 7.1 | 55,589 | 6.9 | ||||||||||||||||||
Goodwill
and other asset impairments
|
54,745 | 10.2 | 135,631 | 18.0 | 82,242 | 10.2 | ||||||||||||||||||
Selling,
general and administrative expenses
|
66,068 | 12.4 | 79,040 | 10.5 | 69,002 | 8.6 | ||||||||||||||||||
(Gain)
loss on sale of assets
|
2,267 | 0.4 | 728 | 0.1 | 667 | 0.1 | ||||||||||||||||||
Depreciation,
depletion and amortization
|
29,621 | 5.5 | 29,902 | 3.9 | 28,882 | 3.6 | ||||||||||||||||||
Income
(loss) from operations
|
(77,430 | ) | (14.5 | ) | (130,451 | ) | (17.3 | ) | (40,622 | ) | (5.0 | ) | ||||||||||||
Interest
expense, net
|
26,450 | 5.0 | 27,056 | 3.6 | 27,978 | 3.5 | ||||||||||||||||||
Gain
on purchases of senior subordinated notes
|
7,406 | 1.4 | — | — | — | — | ||||||||||||||||||
Other
income, net
|
1,423 | 0.3 | 1,984 | 0.3 | 3,587 | 0.4 | ||||||||||||||||||
Loss
from continuing operations before income taxes
|
(95,051 | ) | (17.8 | ) | (155,523 | ) | (20.6 | ) | (65,013 | ) | (8.1 | ) | ||||||||||||
Income
tax provision (benefit)
|
(188 | ) | (0.0 | ) | (19,601 | ) | (2.6 | ) | 48 | 0.0 | ||||||||||||||
Loss
from continuing operations
|
(94,863 | ) | (17.8 | ) | (135,922 | ) | (18.0 | ) | (65,061 | ) | (8.1 | ) | ||||||||||||
Loss
from discontinued operations, net of tax
|
— | — | (149 | ) | (0.1 | ) | (5,241 | ) | (0.7 | ) | ||||||||||||||
Net
(loss)
|
(94,863 | ) | (17.8 | ) | (136,071 | ) | (18.1 | ) | (70,302 | ) | (8.8 | ) | ||||||||||||
Net
loss (income) attributable to non-controlling interest
|
6,625 | 1.2 | 3,625 | 0.5 | 1,301 | (0.2 | ) | |||||||||||||||||
Net
loss attributable to stockholders
|
$ | (88,238 | ) | (16.5 | )% | $ | (132,446 | ) | (17.6 | )% | $ | (69,001 | ) | (8.6 | )% | |||||||||
Ready-mixed
Concrete Data:
|
||||||||||||||||||||||||
Average
selling price per cubic yard
|
$ | 95.32 | $ | 94.22 | $ | 91.70 | ||||||||||||||||||
Sales
volume in cubic yards
|
4,517 | 6,517 | 7,176 | |||||||||||||||||||||
Precast
Concrete Data:
|
||||||||||||||||||||||||
Average
selling price per cubic yard of concrete used in
production
|
911.2 | $ | 842.0 | $ | 605.8 | |||||||||||||||||||
Ready-mixed
concrete used in production in cubic yards
|
62 | 81 | 121 |
Year
Ended December 31, 2009 Compared to Year Ended December 31, 2008
Revenue.
Ready-mixed concrete and
concrete-related products. Revenue
from our ready-mixed concrete and concrete-related products segment decreased
$210.8 million, or 30.0%, from $702.5 million in 2008 to $491.8 million in
2009. Our ready-mixed sales volume for 2009 was approximately 4.5
million cubic yards, down 30.7% from the 6.5 million cubic yards of concrete we
sold in 2008. Excluding ready-mixed volumes associated with acquired
operations, our 2009 ready-mixed volumes were down approximately 33.3% from
2008. The decline reflected the continuing downturn in residential
home construction activity that began in the second half of 2006 in all our
major markets and the downturn in commercial construction and public works
spending due to the ongoing economic downturn in the United
States.
44
Precast concrete
products. Revenue from our precast concrete products segment
was down $11.1 million, or 16.3%, from $68.1 million in 2008 to $57.0 million in
2009. This decrease reflected the continued downturn primarily in
residential construction in our northern California and Phoenix, Arizona markets
and lower commercial construction activity in our mid-Atlantic market. The
decrease in revenue was partially offset by higher revenue in 2009 from the
acquisition of our assets of a San Diego, California precast operation in August
2008.
Cost of goods sold before depreciation,
depletion and amortization.
Ready-mixed concrete and
concrete-related products. Cost
of goods sold before depreciation, depletion and amortization for our
ready-mixed concrete and concrete-related products segment decreased $172.4
million, or 29.4%, from $586.1 million in 2008 to $413.7 million in
2009. These decreases were primarily associated with lower sales
volumes in 2009. As a percentage of ready-mixed concrete and concrete-related
product revenue, cost of goods sold before depreciation, depletion and
amortization was 84.1% in 2009, as compared to 83.4% in 2008. The increase in
cost of goods sold as a percentage of ready-mixed concrete and concrete-related
products revenue was primarily attributable to the effect of our fixed costs
being spread over lower volumes and to higher per unit delivery costs, as
compared to 2008.
Precast concrete products. The reduction in cost of
goods sold before depreciation, depletion and amortization for our precast
concrete products segment of $7.8 million, or 14.7%, from $53.4 million in 2008
to $45.5 million in 2009, was primarily related to the declining residential
construction market that has been impacting our northern California and Phoenix,
Arizona precast markets. As a percentage of precast concrete revenue, cost of
goods sold before depreciation, depletion and amortization for precast concrete
products rose from 78.4% in 2008 to 79.9% in 2009, reflecting decreased
efficiency in our plant operations in California and Phoenix, Arizona, resulting
from lower demand for our primarily residential product offerings in these
markets.
Goodwill and other asset
impairments During the third quarter of 2009, we recorded a goodwill
impairment charge of $45.8 million related to our northern California and
Atlantic Region reporting units, and an asset impairment charge of $8.8 million
related to our Michigan operations. During the fourth quarter of 2008, we
recorded a goodwill impairment charge of $135.3 million related to five of our
reporting units. See “Critical Accounting Policies” above for more information
concerning these impairments.
Selling, general and administrative
expenses. Selling, general and
administrative expenses were $66.1 million in 2009, compared to $79.0 million in
2008. This decrease was primarily due to reduced compensation as a
result of workforce reductions in 2008 and 2009, lower incentive compensation
accruals, lower litigation accruals and other administrative cost reductions
such as in travel and entertainment costs and office expenses. This was
partially offset by an increase in our bad debt provision when compared to
2008.
Gain/loss on sale of
assets. Our loss on sale
of assets increased to $2.3 million in 2009, compared to a loss of $0.7 million
in 2008. We completed the sale of our ready-mixed concrete plants in the
Sacramento, California market for $6.0 million, plus payment for inventory on
hand at closing, during the third quarter of 2009. This sale resulted in a $3.0
million loss after the allocation of $3.0 million of related
goodwill.
Gain on purchases of senior
subordinated notes. During the first and second quarters of 2009, we
purchased $12.4 million aggregate principal amount of the 8⅜% Notes in
open-market transactions for approximately $4.8 million. This
resulted in a gain of approximately $7.4 million after writing off a total of
$0.2 million of previously deferred financing costs associated with the pro-rata
amount of the 8⅜% Notes purchased.
Interest expense, net. Net interest expense
for 2009 was down approximately $0.6 million to $26.5 million, compared to $27.1
million for 2008. This change was primarily due to the interest
savings from the repurchase of some of the 8⅜% Notes and
lower interest rates on borrowings under the Credit Agreement when compared to
2008. This was mostly offset by increased interest associated with
higher amounts outstanding under the Credit Agreement.
Non-controlling
interest. The net loss attributable to non-controlling
interest reflected in 2009 and 2008 relate to the allocable share of net loss,
including the proportionate share of the asset impairment charges in 2009 from
our Michigan joint venture, Superior, to the minority interest
owner.
Income tax provision
(benefit). We recorded an income
tax benefit from continuing operations of $0.2 million for the full year 2009,
as compared to $19.6 million in 2008. Our effective tax benefit rate
was 0.2% for 2009 and 12.6% in 2008. For 2009, we applied a valuation
allowance against certain of its deferred tax assets, including net operating
loss carryforwards, which reduced the effective benefit rate from the expected
statutory rate. In accordance with authoritative accounting guidance, a
valuation allowance is required unless it is more likely than not that future
taxable income or the reversal of deferred tax liabilities will be sufficient
to recover deferred tax assets. In addition, certain state taxes are
calculated on bases different than pre-tax loss. This results in us recording
income tax expense for these states, which also lowered the effective benefit
rate in 2009 compared to the statutory rate.
45
Year Ended December 31, 2008 Compared
to Year Ended December 31, 2007
Revenue.
Ready-mixed concrete and
concrete-related products. Revenue
from our ready-mixed concrete and concrete-related products decreased $42.9
million, or 5.8%, from $745.4 million in 2007 to $702.5 million in
2008. Our ready-mixed sales volume for 2008 was approximately 6.5
million cubic yards, down 9.2% from the 7.2 million cubic yards of concrete we
sold in 2007. Excluding the volumes associated with acquired
operations, on a same-plant-sales basis, our 2008 ready-mixed volumes were down
approximately 12.1% from 2007. The decline reflected the continuing
downturn in residential home construction activity that began in the second half
of 2006 in all our markets and the downturn in commercial construction and
public works spending due to the ongoing credit crisis and the economic
recession in the United States. Partially offsetting the effects of
lower sales volumes was the approximate 2.7% rise in the average sales price per
cubic yard of ready-mixed concrete during 2008, as compared to
2007.
Precast concrete
products. Revenue from our precast concrete products segment
were down $5.2 million, or 7.1%, from $73.3 million in 2007 to $68.1 million in
2008. This decrease reflected a $20.0 million, or 36.0%, drop in
revenue resulting from the downturn in residential construction in our
northern California and Phoenix, Arizona markets. We continued the
process of refocusing our product lines and streamlining our operations in these
markets to better serve existing demand and penetrate additional end-use
markets. Such streamlining resulted in the closure of one northern
California facility at a cost of $0.7 million. This decrease was
partially offset by higher revenue in 2008 from the acquisition of API completed
in October 2007. The mix of product sales from this unit resulted in
a higher average selling price for our precast group in 2008.
Cost of goods sold before depreciation,
depletion and amortization.
Ready-mixed concrete and
concrete-related products. Cost
of goods sold before depreciation, depletion and amortization for our
ready-mixed concrete and concrete-related products segment decreased $22.0
million, or 3.6%, from $608.0 million in 2007 to $586.1 million in
2008. The decrease was primarily associated with lower sales volume
and higher delivery costs primarily related to higher diesel fuel
prices. Cost of goods sold before depreciation, depletion and
amortization, as a percentage of ready-mixed concrete and concrete-related
product sales of 83.4% for 2008 was higher as compared to the 2007 periods,
reflecting higher raw material and fuel costs, higher per unit delivery costs,
partially offset by higher average selling prices.
Precast concrete products. The reduction in cost of
goods sold before depreciation, depletion and amortization for our precast
concrete products segment of $2.2 million, or 4.0%, from $55.6 million in 2007
to $53.4 million in 2008, was primarily related to a reduction in the volume of
ready-mixed concrete used in production, which is reflective of the declining
residential construction market that has been impacting our northern California
and Phoenix, Arizona precast markets. As a percentage of precast
concrete revenue, cost of goods sold before depreciation, depletion and
amortization for precast concrete products rose from 75.8% in 2007 to 78.4% in
2008 reflecting decreased efficiency in our plant operations in California and
Phoenix, Arizona, resulting from lower demand for our primarily residential
product offerings in these markets.
Goodwill and other asset
impairments During the fourth quarter of 2008, we recorded a
goodwill impairment charge of $135.3 million related to five of our reporting
units. During 2007, we recorded a goodwill impairment charge of $81.9 million
relating to our Michigan, South Central and our Northern California Precast
reporting units. See “Critical Accounting Policies” above for more information
concerning these impairments.
Selling, general and administrative
expenses. Selling, general and administrative expenses
increased $10.0 million, or 14.5%, from $69.0 million in 2007 to $79.0 million
in 2008. As a percentage of revenue, selling, general and
administrative expenses increased from 8.6% in 2007 to 10.5% in
2008. Selling, general and administrative expenses were higher in
2008, as compared to 2007, primarily due to higher compensation costs, including
personnel costs and other administrative expenses from acquired
businesses, increased incentive compensation costs, higher
professional fees (primarily associated with the implementation of an enterprise
resource planning system) and higher litigation accruals.
Depreciation, depletion and
amortization. Depreciation, depletion and amortization expense
increased $1.0 million, or 3.5%, from $28.9 million in 2007 to $29.9 million in
2008. The increase was attributable primarily to acquisitions and
higher depreciation expense related to our new information system technology
system, which was placed in service during 2008.
Interest expense,
net. Interest expense decreased $1.0 million, or 3.7%, from
$28.1 million in 2007 to $27.1 million in 2008. The decrease was
attributable primarily to lower borrowings during 2008 under our senior secured
credit facility.
Non-controlling
interest. Non-controlling interest of $(3.6) million and
$(1.3) million recorded in 2008 and 2007, respectively, related to the allocable
share of net loss from our Michigan joint venture to our minority
partner. The Michigan joint venture was formed on April 1,
2007. The increase in minority interest losses in 2008, as compared
to 2007, related to increased losses from our Michigan operations due to the
continued slowdown in economic construction activity, resulting in lower sales
volumes and increased losses from that business unit.
46
Income tax provision
(benefit). We recorded a benefit
for income taxes of $19.6 million in 2008 and a provision for income taxes of
$0.1 million in 2007. Our estimated annualized effective tax rate was
12.6% for the full year ended December 31, 2008 and nil for the full year ended
December 31, 2007. The effective income tax rate for 2008 and 2007
was lower than the federal statutory rate, primarily due to nondeductible
goodwill associated with our goodwill impairments in the fourth quarters of 2008
and 2007, respectively, state income tax expense, the impact of minority
interest from our consolidated subsidiary and the recording of a valuation
allowance related to certain state tax attributes we did not believe met the
realization criteria.
Loss from discontinued
operations. In the fourth quarter of 2007, we decided to
dispose of three operations. We sold two of those operations prior to
December 31, 2007. In January 2008, we sold the remaining
operation. Our 2007 results of operations reflected the unit sold in
2008, along with the two operations which were sold prior to year-end 2007, as
discontinued operations in accordance with authoritative accounting guidance
related to impairment or disposal of long-lived assets.” In 2008, we
reported a loss of $0.1 million, net of income taxes, in discontinued
operations. In 2007, the discontinued operations generated a pretax
loss of approximately $9.1 million and a corresponding tax benefit of $3.9
million.
Inflation
We
experienced minimal increases in operating costs during 2009 related to
inflation. However, in non-recessionary conditions cement prices and
certain other raw material prices, including aggregates and diesel fuel prices,
have generally risen faster than regional inflationary rates. When
these price increases have occurred, we have been able to partially mitigate our
cost increases with price increases we obtained for our products. In 2007 and
2008, prices for our products increased at a rate similar to, or greater than,
the rate of increase in our raw materials costs. During the fourth quarter of
2008, diesel fuel prices declined substantially from the historically high
levels reached in the third quarter of 2008. These prices have increased
slightly from the fourth quarter of 2008 but remain substantially lower than the
levels reached in the third quarter of 2008.
Item
7A. Quantitative and Qualitative
Disclosures About Market Risk
We do not
enter into derivatives or other financial instruments for trading or speculative
purposes, but we may utilize them to manage our fixed-to-variable-rate debt
ratio. All derivatives, whether designated as hedging relationships
or not, are required to be recorded on the balance sheet at fair
value. Because of the short duration of our investments, changes in
market interest rates would not have a significant impact on their fair
values. At December 31, 2009 and 2008, we were not a party to any
derivative financial instruments.
The
indebtedness evidenced by the 8⅜% Notes is fixed-rate debt, so we are not
exposed to cash-flow risk from market interest rate changes on these
notes. The fair value of that debt will vary as interest rates
change.
Borrowings
under the Credit Agreement and Superior’s separate credit agreement expose us to
certain market risks. Interest on amounts drawn under the credit
facilities varies based on either, the prime rate or one-, two-, three- or
six-month Eurodollar rates. Based on the $22.3 million outstanding
under these facilities as of December 31, 2009, a one percent change in the
applicable rate would change our annual interest expense by $0.2
million.
We
purchase commodities, such as cement, aggregates and diesel fuel, at market
prices and do not currently use financial instruments to hedge commodity
prices.
Our
operations are subject to factors affecting the overall strength of the U.S.
economy and economic conditions impacting financial institutions, including the
level of interest rates, availability of funds for construction, and the level
of general construction activity. A significant decrease in the level
of general construction activity in any of our market areas may have a material
adverse effect on our consolidated revenues and earnings.
47
Item
8. Financial
Statements and Supplementary Data
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
49
|
Consolidated
Balance Sheets at December 31, 2009 and 2008
|
50
|
Consolidated
Statements of Operations for the Years Ended December 31, 2009, 2008
and 2007
|
51
|
Consolidated
Statements of Changes in Equity for the Years Ended December 31, 2009,
2008 and 2007
|
52
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and
2007
|
53
|
Notes
to Consolidated Financial Statements
|
54
|
48
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders of U.S. Concrete, Inc.:
In our
opinion, the consolidated financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of U.S.
Concrete, Inc. and its subsidiaries (the "Company") at December 31, 2009 and
2008, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2009 in conformity with accounting
principles generally accepted in the United States of America. Also
in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based on
criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible
for these financial statements, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in "Management's Report on Internal
Control over Financial Reporting" appearing under Item 9A of this Form
10-K. Our responsibility is to express opinions on these financial
statements and on the Company's internal control over financial reporting based
on our integrated audits. We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the
financial statements included 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. Our audit of
internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for
our opinions.
As
discussed in Note 2 to the consolidated financial statements, the Company
changed the manner in which it accounts for non-controlling interests in 2009
and uncertainty in income taxes in 2007.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed under the heading
"Risks and Uncertainties" in Note 1 to the consolidated financial statements,
the Company has experienced severe sales volume declines and diminished
liquidity and may be unable to satisfy its obligations and fund its operations
in 2010 which raises substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
A
company’s 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 company’s 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 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 company’s 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.
/s/
PricewaterhouseCoopers LLP
Houston,
Texas
March 16,
2010
49
U.S.
CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(in
thousands, including share amounts)
December
31,
|
||||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 4,229 | $ | 5,323 | ||||
Trade
accounts receivable, net
|
74,851 | 100,269 | ||||||
Inventories
|
30,960 | 32,768 | ||||||
Deferred
income taxes
|
7,847 | 11,576 | ||||||
Prepaid
expenses
|
3,729 | 3,519 | ||||||
Other
current assets
|
6,973 | 13,801 | ||||||
Total
current assets
|
128,589 | 167,256 | ||||||
Property,
plant and equipment, net
|
239,917 | 272,769 | ||||||
Goodwill
|
14,063 | 59,197 | ||||||
Other
assets
|
6,591 | 8,588 | ||||||
Total
assets
|
$ | 389,160 | $ | 507,810 | ||||
LIABILITIES
AND EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Current
maturities of long-term debt
|
$ | 7,873 | $ | 3,371 | ||||
Accounts
payable
|
37,678 | 45,920 | ||||||
Accrued
liabilities
|
48,557 | 54,481 | ||||||
Total
current liabilities
|
94,108 | 103,772 | ||||||
Long-term
debt, net of current maturities
|
288,669 | 302,617 | ||||||
Other
long-term obligations and deferred credits
|
6,916 | 8,522 | ||||||
Deferred
income taxes
|
9,658 | 12,536 | ||||||
Total
liabilities
|
399,351 | 427,447 | ||||||
Commitments
and contingencies (Note 16)
|
||||||||
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; 37,558 and
36,793 shares issued and outstanding as of December 31, 2009 and
2008)
|
38 | 37 | ||||||
Additional
paid-in capital
|
268,306 | 265,453 | ||||||
Retained
deficit
|
(280,802 | ) | (192,564 | ) | ||||
Cost
of treasury stock, 552 common shares as of December 31, 2009 and 459
common shares as of December 31, 2008
|
(3,284 | ) | (3,130 | ) | ||||
Total
stockholders’ equity (deficit)
|
(15,742 | ) | 69,796 | |||||
Non
–controlling interest (Note 6)
|
5,551 | 10,567 | ||||||
Total
equity
|
(10,191 | ) | 80,363 | |||||
Total
liabilities and equity
|
$ | 389,160 | $ | 507,810 |
The
accompanying notes are an integral part of these consolidated financial
statements.
50
U.S.
CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands, except per share amounts)
Year Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Revenue
|
$ | 534,485 | $ | 754,298 | $ | 803,803 | ||||||
Cost
of goods sold before depreciation, depletion and
amortization
|
459,214 | 639,448 | 663,632 | |||||||||
Goodwill
and other asset impairments
|
54,745 | 135,631 | 82,242 | |||||||||
Selling,
general and administrative expenses
|
66,068 | 79,040 | 69,002 | |||||||||
Loss
on sale of assets
|
2,267 | 728 | 667 | |||||||||
Depreciation,
depletion and amortization
|
29,621 | 29,902 | 28,882 | |||||||||
Loss
from operations
|
(77,430 | ) | (130,451 | ) | (40,622 | ) | ||||||
Interest
income
|
22 | 114 | 114 | |||||||||
Interest
expense
|
26,472 | 27,170 | 28,092 | |||||||||
Gain
on purchases of senior subordinated notes
|
7,406 | — | — | |||||||||
Other
income, net
|
1,423 | 1,984 | 3,587 | |||||||||
Loss
from continuing operations before income taxes
|
(95,051 | ) | (155,523 | ) | (65,013 | ) | ||||||
Income
tax provision (benefit)
|
(188 | ) | (19,601 | ) | 48 | |||||||
Loss
from continuing operations
|
(94,863 | ) | (135,922 | ) | (65,061 | ) | ||||||
Loss
from discontinued operations (net of tax benefit of $81 in 2008
and $3,911 in 2007)
|
— | (149 | ) | (5,241 | ) | |||||||
Net
loss
|
(94,863 | ) | (136,071 | ) | (70,302 | ) | ||||||
Net
loss attributable to non-controlling interest
|
6,625 | 3,625 | 1,301 | |||||||||
Net
loss attributable to stockholders
|
$ | (88,238 | ) | $ | (132,446 | ) | $ | (69,001 | ) | |||
Loss
per share attributable to stockholders – basic and diluted
|
||||||||||||
Loss
from continuing operations
|
$ | (2.44 | ) | $ | (3.48 | ) | $ | (1.67 | ) | |||
Loss
from discontinued operations, net of income tax benefit
|
— | — | (0.14 | ) | ||||||||
Net
loss
|
$ | (2.44 | ) | $ | (3.48 | ) | $ | (1.81 | ) | |||
Weighted
average shares outstanding:
|
||||||||||||
Basic
and diluted
|
36,169 | 38,099 | 38,227 |
The
accompanying notes are an integral part of these consolidated financial
statements.
51
U.S.
CONCRETE, INC. AND SUBSIDIARIES
(in
thousands)
Common Stock
|
Additional
|
Retained
|
Non-
|
|||||||||||||||||||||||||
# of Shares
|
Par
Value
|
Paid-In
Capital
|
Earnings
(Deficit)
|
Treasury
Stock
|
Controlling
Interest
|
Total
Equity
|
||||||||||||||||||||||
BALANCE,
December 31, 2006
|
38,795 | $ | 39 | $ | 262,856 | $ | 8,541 | $ | (1,859 | ) | $ | — | $ | 269,577 | ||||||||||||||
Change
in accounting principle for FIN No. 48
|
— | — | — | 342 | — | — | 342 | |||||||||||||||||||||
Employee
purchase of ESPP shares
|
221 | — | 932 | — | — | — | 932 | |||||||||||||||||||||
Stock
options exercised
|
153 | — | 1,000 | — | — | — | 1,000 | |||||||||||||||||||||
Stock-based
compensation
|
311 | — | 3,029 | — | — | — | 3,029 | |||||||||||||||||||||
Cancellation
of shares
|
(35 | ) | — | — | — | — | — | — | ||||||||||||||||||||
Capital
contributions to Superior Materials Holdings, LLC
|
— | — | — | — | — | 15,493 | 15,493 | |||||||||||||||||||||
Purchase
of treasury shares
|
(84 | ) | — | — | — | (774 | ) | — | (774 | ) | ||||||||||||||||||
Net
loss
|
— | — | — | (69,001 | ) | — | (1,301 | ) | (70,302 | ) | ||||||||||||||||||
BALANCE,
December 31, 2007
|
39,361 | $ | 39 | $ | 267,817 | $ | (60,118 | ) | $ | (2,633 | ) | $ | 14,192 | $ | 219,297 | |||||||||||||
Employee
purchase of ESPP shares
|
213 | — | 717 | — | — | — | 717 | |||||||||||||||||||||
Stock-based
compensation
|
572 | 1 | 3,511 | — | — | — | 3,512 | |||||||||||||||||||||
Cancellation
of shares
|
(61 | ) | — | — | — | — | — | — | ||||||||||||||||||||
Repurchase
of shares
|
(3,148 | ) | (3 | ) | (6,592 | ) | — | — | — | (6,595 | ) | |||||||||||||||||
Purchase
of treasury shares
|
(144 | ) | — | — | — | (497 | ) | — | (497 | ) | ||||||||||||||||||
Net
loss
|
— | — | — | (132,446 | ) | — | (3,625 | ) | (136,071 | ) | ||||||||||||||||||
BALANCE,
December 31, 2008
|
36,793 | $ | 37 | $ | 265,453 | $ | (192,564 | ) | $ | (3,130 | ) | $ | 10,567 | $ | 80,363 | |||||||||||||
Employee
purchase of ESPP shares
|
408 | — | 472 | — | — | — | 472 | |||||||||||||||||||||
Stock-based
compensation
|
497 | 1 | 2,381 | — | — | — | 2,382 | |||||||||||||||||||||
Cancellation
of shares
|
(47 | ) | — | — | — | — | — | — | ||||||||||||||||||||
Purchase
of treasury shares
|
(93 | ) | — | — | — | (154 | ) | — | (154 | ) | ||||||||||||||||||
Capital
contribution to Superior Materials Holdings, LLC shares
|
— | — | — | — | — | 1,609 | 1,609 | |||||||||||||||||||||
Net
loss
|
— | — | — | (88,238 | ) | — | (6,625 | ) | (94,863 | ) | ||||||||||||||||||
BALANCE,
December 31, 2009
|
37,558 | $ | 38 | $ | 268,306 | $ | (280,802 | ) | $ | (3,284 | ) | $ | 5,551 | $ | (10,191 | ) |
The
accompanying notes are an integral part of these consolidated financial
statements.
52
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
Year Ended December 31
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
Net
loss
|
$ | (94,863 | ) | $ | (136,071 | ) | $ | (70,302 | ) | |||
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
||||||||||||
Goodwill
and other asset impairments
|
54,745 | 135,631 | 82,242 | |||||||||
Depreciation,
depletion and amortization
|
29,621 | 29,902 | 30,857 | |||||||||
Debt
issuance cost amortization
|
1,805 | 1,674 | 1,545 | |||||||||
Gain
on purchases of senior subordinated notes
|
(7,406 | ) | — | — | ||||||||
Net
loss on sale of assets
|
2,267 | 234 | 6,392 | |||||||||
Deferred
income taxes
|
851 | (14,866 | ) | (6,636 | ) | |||||||
Provision
for doubtful accounts
|
3,282 | 1,923 | 2,253 | |||||||||
Stock-based
compensation
|
2,382 | 3,512 | 3,029 | |||||||||
Excess
tax benefits from stock-based compensation
|
— | — | (22 | ) | ||||||||
Changes
in assets and liabilities, excluding effects of
acquisitions:
|
||||||||||||
Accounts
receivable
|
22,136 | 2,032 | 4,518 | |||||||||
Inventories
|
1,697 | 287 | 2,436 | |||||||||
Prepaid
expenses and other current assets
|
6,618 | (830 | ) | (6,151 | ) | |||||||
Other
assets and liabilities, net
|
(1,708 | ) | 265 | 98 | ||||||||
Accounts
payable and accrued liabilities
|
(13,416 | ) | 5,985 | (5,921 | ) | |||||||
Net
cash provided by operating activities
|
8,011 | 29,678 | 44,338 | |||||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
Purchases
of property, plant and equipment
|
(13,939 | ) | (27,783 | ) | (29,719 | ) | ||||||
Payments
for acquisitions, net of cash received of $0, $0 and
$1,000
|
(5,214 | ) | (23,759 | ) | (23,120 | ) | ||||||
Proceeds
from disposals of property, plant and equipment
|
10,135 | 4,403 | 2,574 | |||||||||
Disposals
of business units
|
— | 7,583 | 16,432 | |||||||||
Other
investing activities
|
— | 40 | (251 | ) | ||||||||
Net
cash used in investing activities
|
(9,018 | ) | (39,516 | ) | (34,084 | ) | ||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
Proceeds
from borrowings
|
190,293 | 151,897 | 34,227 | |||||||||
Repayments
of borrowings
|
(185,888 | ) | (145,051 | ) | (39,226 | ) | ||||||
Purchases
of senior subordinated notes
|
(4,810 | ) | — | — | ||||||||
Proceeds
from issuances of common stock
|
472 | 717 | 1,910 | |||||||||
Excess
tax benefits from stock-based compensation
|
— | — | 22 | |||||||||
Shares
purchased under common stock buyback program
|
— | (6,595 | ) | — | ||||||||
Purchase
of treasury shares
|
(154 | ) | (497 | ) | (774 | ) | ||||||
Debt
issuance costs
|
— | (160 | ) | (367 | ) | |||||||
Net
cash provided by (used in) financing activities
|
(87 | ) | 311 | (4,208 | ) | |||||||
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(1,094 | ) | (9,527 | ) | 6,046 | |||||||
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
5,323 | 14,850 | 8,804 | |||||||||
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | 4,229 | $ | 5,323 | $ | 14,850 | ||||||
Supplemental
Disclosure of Cash Flow Information:
|
||||||||||||
Cash
paid for interest
|
$ | 25,056 | $ | 25,587 | $ | 26,665 | ||||||
Cash
(refund) paid for income taxes
|
$ | (4,663 | ) | $ | (2,148 | ) | $ | 6,884 | ||||
Supplemental
Disclosure of Noncash Investing and Financing Activities:
|
||||||||||||
Assumption
of notes payable and capital leases in acquisitions of
businesses
|
$ | — | $ | — | $ | 108 |
The
accompanying notes are an integral part of these consolidated financial
statements.
53
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
|
ORGANIZATION
AND RISKS AND UNCERTAINTIES
|
Nature
of Operations
Our
Company, a Delaware corporation, provides ready-mixed concrete, precast concrete
products and concrete-related products and services to the construction industry
in several major markets in the United States. U.S. Concrete, Inc. is a holding
company and conducts its businesses through its consolidated
subsidiaries. In these Notes to consolidated financial statements, 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.
Risks
and Uncertainties
Since the
middle of 2006, the United States building materials construction market has
become increasingly challenging. Currently, the construction
industry, particularly the ready-mixed concrete industry is characterized by
significant overcapacity, fierce competitive activity and rapidly declining
sales volumes. From 2007 through 2009, we have implemented cost
reduction programs, including workforce reductions, plant idling, rolling stock
dispositions and divestitures of nonperforming business units to reduce
structural costs.
Despite
these initiatives in 2007, 2008 and 2009, our business has been severely
affected by the steep decline in single-family home starts in the U.S.
residential construction markets, the turmoil in the global credit markets and
the U.S. recession. These conditions had a dramatic impact on demand
for our products in each of the last three years. During 2007,
2008 and 2009, single family home starts declined significantly and commercial
construction activity, which has been negatively affected by the credit crisis
and U.S. economic downturn, is expected to be weaker in our markets in
2010. Sales volumes in our precast operations have also been
significantly affected due to its significant presence in residential
construction. We are also experiencing product pricing pressure and
expect ready-mixed concrete pricing declines in 2010 compared to 2009 in most of
our markets, which will have a negative effect on our gross
margins.
In
response to our protracted, declining sales volumes, we have expanded our cost
reduction efforts for 2010, including wage freezes, elimination of our 401(k)
company match program and reductions in other employee benefits. We
also continue to significantly scale back capital investment
expenditures.
Nonetheless,
the continued weakening economic conditions, including ongoing softness in
residential construction, further reduction in demand in the commercial sector
and delays in anticipated public works projects in many of our markets, have
placed significant distress on our liquidity position. Prior to its
amendment described below, the credit agreement governing our senior revolving
credit facility (the “Credit Agreement” or “our Credit Agreement”) required 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 $25
million. In February 2010, we entered into an amendment
to the Credit Agreement. The amendment:
|
§
|
temporarily
reduces the minimum availability trigger at which we must maintain a
minimum fixed charge coverage ratio of 1.0 to 1.0 from $25 million to (1)
$22.5 million from the effective date of the amendment through March 10,
2010 (or such earlier date on which we elect to deliver the first weekly
borrowing base certificate) and (2) $20 million thereafter through April
30, 2010, but in each case that trigger reverts to $25 million upon the
earlier of (a) our delivery of notice to the lenders of our intent to make
payment on our 8⅜% Senior
Subordinated Notes due 2014 (the “8⅜% Notes”) or
any other subordinated debt and (b) May 1, 2010;
|
|
§
|
reduces
the size of our revolving credit facility from $150 million to $90
million;
|
|
§
|
implements
permanent cash dominion by the lenders over the deposit accounts of us and
the guarantors under the Credit Agreement, subject to exceptions for
specific accounts and threshold dollar
amounts;
|
|
§
|
modifies
the borrowing base formula to include a $20 million cap on the value of
concrete trucks and mixing drums that will be included in the borrowing
base;
|
|
§
|
increases
the pricing on drawn revolver loans from the current availability-based
pricing grid of either the Eurodollar-based rate (“LIBOR”) plus 1.75% per
annum to 2.25% per annum or the domestic rate (3.25% at December 31,
2009), plus 0.25%
|
54
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
§
|
to
0.75% per annum to LIBOR plus 4.00% per annum, eliminates the
availability-based pricing grid, and increases our commitment fees on the
unused portion of the facility from 0.25% to
0.75%;
|
|
§
|
requires
us to report our borrowing base on a weekly, rather than monthly,
basis;
|
|
§
|
waives
our solvency representation and warranty through April 30,
2010;
|
|
§
|
permits
us to prepay or redeem the 8⅜% Notes with
the proceeds of permitted subordinated debt and/or an equity issuance, but
not cash;
|
|
§
|
modifies
certain restrictions on the operation of our business by, among other
things, (i) eliminating the general restricted payments, lien and
investment baskets; (ii) adding new restrictions on our ability to sell or
incur liens on certain assets, including owned real property of our
company and our subsidiaries; (iii) adding restrictions on our ability to
form, acquire or enter into any new joint venture or partnership or create
any new foreign subsidiary; (iv) reducing the basket for permitted debt of
our Michigan joint venture from $20 million to $17.5
million; (v) limiting investments by our company and our
subsidiaries in the Michigan joint venture to $2.25 million in any fiscal
quarter and $5 million for the remaining term of the Credit Agreement; and
(vi) limiting our ability to consummate permitted acquisitions and incur
or assume debt at the time the acquisition is consummated;
and
|
|
§
|
adds
a new event of default under the Credit Agreement if we or any of our
subsidiaries contests the enforceability of the subordination provisions
relating to the 8⅜% Notes and
any other subordinated debt, or if such debt fails to remain subordinated
to the Credit Agreement.
|
We also
obtained (i) a permanent waiver by the lenders of any default or event of
default arising under the Credit Agreement as a result of our delivery of our
2009 fiscal year financials with a report from our independent registered public
accounting firm containing an explanatory paragraph with their conclusion
regarding substantial doubt about our ability to continue as a going concern and
(ii) a temporary waiver by the lenders through April 30, 2010, of any default or
event of default arising under the Credit Agreement as a result of our failure
to make our regularly scheduled interest payments under the 8⅜%
Notes.
While we believe the amendment of our
Credit Agreement provides us with some additional access to liquidity, we
continue to see our business affected by the decline in construction activity
and inclement weather conditions across the regions we operate. The amount
available for borrowing under our Credit Agreement is based in part on our
accounts receivable balances. The inclement weather and decline in demand for
our products has a direct effect on the amounts we bill our customers and
accounts receivable balances. This inclement weather along with the seasonally
low production and economic downturn has caused us to take actions to conserve
cash. These actions include delaying payments to certain vendors and suppliers.
If our liquidity falls below the availability thresholds noted above, we will
not be in compliance with the minimum fixed charge coverage ratio of 1.0 to 1.0.
If this occurs and we are unable to continue to obtain amendments from the
lenders that waive compliance with these financial covenants, the lenders could
declare us to be in default under the terms of the Credit Agreement, at which
point the entire outstanding principal balance of the revolving credit facility,
together with all accrued and unpaid interest and other amounts then owing to
our lenders, would become immediately due and payable. Because substantially all
of our assets are pledged as collateral under the Credit Agreement, if our
lenders were to declare an event of default, they would be entitled to foreclose
on and take possession of those assets.
In
addition, acceleration of our obligations under the Credit Agreement would
constitute a default under the 8⅜% Notes and would
likely result in the acceleration of those obligations as well. A
default under our Credit Agreement also could result in a cross-default or the
acceleration of our payment obligations under other financing
agreements. In any such event, we may not be able to repay the debt
or refinance the debt on acceptable terms, and we may not have sufficient assets
to make the payments when due.
In
addition to our Credit Agreement, our 60%-owned Michigan subsidiary, Superior
Materials Holdings, LLC (“Superior”), has a separate credit agreement (the
“Superior Credit Agreement”) under which there was $5.6 million in outstanding
revolving credit borrowings as of December 31, 2009. Borrowings under
the Superior Credit Agreement are collateralized by substantially all the assets
of Superior and are scheduled to mature on April 1, 2010. Although we
and our wholly owned subsidiaries are not obligors under the Superior Credit
Agreement, an event of default beyond a 30-day grace period under our Credit
Agreement would constitute an event of default under the Superior Credit
Agreement. Superior is in the process of renegotiating the Superior Credit
Agreement, which has a maturity date of April 1, 2010. If the negotiations are
not successful, the amounts outstanding under the Superior Credit Agreement
would be due and payable as well.
55
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Also, we
are obligated to make semi-annual interest payments on the 8⅜% Notes aggregating
approximately $11.4 million on April 1, 2010. Under the indenture
relating to the 8⅜% Notes, an event of default would occur if we fail to make
any payment of interest on the 8⅜% Notes when due and that failure continues for
a period of 30 days. If such an event of default occurs and is
continuing, the trustee or the holders of 25% or more in aggregate principal
amount of the 8⅜% Notes then outstanding may accelerate our obligation to repay
the 8⅜% Notes, together with accrued and unpaid interest. Under the
terms of our Credit Agreement, an event of default under the 8⅜% Notes indenture
would also constitute an event of default under the Credit Agreement, and would
give rise to the right of our lenders under the Credit Agreement to immediately
accelerate the maturity of the debt outstanding under the Credit
Agreement. Those circumstances would trigger provisions in the 8⅜%
Notes indenture that would permit the lenders under the Credit Agreement to
prohibit payments with respect to the 8⅜% Notes for up to 180 days, even though
our payment obligations with respect to the 8⅜% Notes may have been
accelerated.
Given the
current negative conditions in the economy and the credit markets generally and
in our industry in particular, there is substantial uncertainty that we will be
able to restructure or refinance our indebtedness on or before April 30, 2010,
the date at which an event of default occurs for failure to make the scheduled
April 1, 2010 interest payment for the 8⅜% Notes. Additionally, there is no
assurance that a successful refinancing of the indebtedness outstanding under
the Superior Credit Agreement will be consummated by the maturity date of April
1, 2010.
In addition to the restrictions we face
under our debt instruments, our stock price has declined significantly over the
past year, which makes it more difficult to obtain equity financing on
acceptable terms to address our liquidity issues. The indenture
governing the 8⅜% Notes and the
Credit Agreement also contains restrictions on our ability to incur additional
debt. Our ability to obtain cash from external sources also could be
adversely affected by volatility in the markets for corporate debt, fluctuations
in the market price of our common stock or the 8⅜% Notes and any
additional market instability, unavailability of credit or inability to access
the capital markets which may result from the effect of the global financial
crisis and U.S. economic downturn.
We have received a letter from The
Nasdaq Stock Market indicating that the bid price of our common stock over 30
consecutive business days had closed below the minimum $1.00 per share required
for continued listing under the Nasdaq Marketplace Rules. We have been provided
an initial period of 180 calendar days, or until September 7, 2010, to regain
compliance. Compliance can be attained if at any time before September 7, 2010,
the bid price of our common stock closes at $1.00 per share or more for a
minimum of 10 consecutive business days. In the event we cannot
demonstrate compliance with the minimum bid price rule by September 7, 2010, our
securities are subject to delisting.
In light of this situation, we are
currently reviewing the strategic and financing alternatives available to us and
have retained legal and financial advisors to assist us in this regard. We are
engaged in continuing discussions with the lenders under our Credit Agreement
and others regarding a permanent restructuring of our capital structure. Such a
restructuring would likely affect the terms of the 8⅜% Notes, the Credit
Agreement, other debt obligations and our common stock and may be effected
through negotiated modifications to the agreements related to our debt
obligations or through other forms of restructurings, which we may be required
to effect under court supervision pursuant to a voluntary bankruptcy filing
under Chapter 11 of the U.S. Bankruptcy Code. There can be no assurance that an
agreement regarding any such restructuring will be obtained on acceptable terms
with the necessary parties or at all. Additionally, if we do not
maintain adequate liquidity prior to any restructuring, we may seek protection
pursuant to a voluntary bankruptcy filing under Chapter 11.
We are reporting net losses for the
year ended December 31, 2009 for the fourth consecutive year and currently
anticipate losses for 2010. These cumulative losses, in addition to
our current liquidity situation, raise substantial doubt as to our ability to
continue as a going concern for a period longer than the current fiscal year.
Our ability to continue as a going concern depends on the achievement of
profitable operations, the success of our financial and strategic alternatives
process, which may include the restructuring of the 8⅜% Notes and Credit
Agreement or a recapitalization. Until the possible completion of the financial
and strategic alternatives process, our future remains uncertain, and there can
be no assurance that our efforts in this regard will be successful.
Our
consolidated financial statements have been prepared assuming we will continue
as a going concern, which implies that we will continue to meet our obligations
and continue our operations for at least the next 12 months. Realization values
may be substantially different from carrying values as shown, and our
consolidated financial statements do not include any adjustments relating to the
recoverability or classification of recorded asset amounts or the amount and
classification of liabilities that might be necessary as a result of this
uncertainty.
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis
of Presentation
The
consolidated financial statements consist of the accounts of U.S. Concrete,
Inc., its wholly owned subsidiaries and its 60%-owned Michigan subsidiary,
Superior Materials Holdings, LLC (“Superior”). All significant intercompany
account balances and transactions have been eliminated. We have made
certain reclassifications to prior period amounts to conform to the current
period presentation in accordance with authoritative accounting guidance related
to non-controlling interests in consolidated financial
statements.
56
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Cash
and Cash Equivalents
We record
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
Inventories
consist primarily of cement and other raw materials, precast concrete products,
building materials and repair parts that we hold for sale or use in the ordinary
course of business. We use the first-in, first-out method to value
inventories at the lower of cost or market.
We
provide reserves for estimated obsolescence or unmarketable inventory equal to
the difference between the cost of inventory and its 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 our management, additional inventory reserves may be
required.
Prepaid
Expenses
Prepaid
expenses primarily include amounts we have paid for insurance, licenses, taxes,
rent and maintenance contracts. We expense or amortize all prepaid amounts as
used or over the period of benefit, as applicable.
Property,
Plant and Equipment, Net
We state
property, plant and equipment at cost and use 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. For some of our assets, we use an estimate of the asset’s
salvage value at the end of its useful life to reduce the cost of the asset
which is subject to depreciation. Salvage values generally
approximate 10% of the asset’s original cost. We capitalize leasehold
improvements on properties held under operating leases and amortize those costs
over the lesser of their estimated useful lives or the applicable lease
term. We compute depletion of mineral deposits as such deposits are
extracted utilizing the units-of-production method. We expense maintenance and
repair costs when incurred and capitalize and depreciate expenditures for major
renewals and betterments that extend the useful lives of our existing
assets. When we retire or dispose of property, plant or equipment, we
remove the related cost and accumulated depreciation from our accounts and
reflect any resulting gain or loss in our statements of operations.
We evaluate the recoverability of our
long-lived assets and certain identifiable intangibles for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets is measured by comparing the
carrying amount of an asset to future undiscounted net cash flows expected to be
generated by the asset. Such evaluations for impairment are significantly
impacted by estimates of future prices for our products, capital needs, economic
trends in the applicable construction sector and other factors. If we consider
such assets to be impaired, the impairment we recognize is measured by the
amount by which the carrying amount of the assets exceeds their fair value.
Assets to be disposed of by sale are reflected at the lower of their carrying
amounts, or fair values, less cost to sell. See Note 4 for further discussion of
asset impairments during 2009.
Goodwill
and Other Intangible Assets
Intangible
assets acquired in business combinations consist primarily of goodwill and
covenants not-to-compete. Goodwill represents the amount by which the
total purchase price we have paid for acquisitions exceeds our estimated fair
value of the net tangible assets acquired. We test goodwill for
impairment on an annual basis, or more often if events or circumstances indicate
that there may be impairment. We generally test for goodwill impairment in the
fourth quarter of each year, because this period gives us the best visibility of
the reporting units’ operating performances for the current year (seasonally,
April through October are highest revenue and production months) and outlook for
the upcoming year, since much of our customer base is finalizing operating and
capital budgets. We test goodwill for impairment loss under a
two-step approach, as defined by authoritative accounting
guidance. The first step of the goodwill impairment test compares the
fair value of the reporting unit with its carrying amount, including
goodwill. If the carrying amount of a reporting unit exceeds its fair
value, the second step of the goodwill impairment test is performed to measure
the amount of the impairment loss. This is determined by comparison
of the implied fair value of the reporting units’ goodwill with the carrying
amount of that goodwill. If the carrying amount of the reporting
units’ goodwill exceeds the implied fair value of that goodwill, we recognize an
impairment loss as expense.
57
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Intangible
assets with definite lives consist principally of covenants not-to-compete
established with former owners and other key management personnel in business
combinations and are amortized over the period that we believe best reflects the
period in which the economic benefits will be consumed. We evaluate
intangible assets with definite lives for recoverability when events or
circumstances indicate that these assets might be impaired. We test
those assets for impairment by comparing their respective carrying values to
estimates of the sum of the undiscounted future net cash flows expected to
result from the assets. If the carrying amount of an asset exceeds
the sum of the undiscounted net cash flows we expect from that asset, we
recognize an impairment loss based on the amount by which the carrying value
exceeds the fair value of the asset. See Note 3 for further discussion of
goodwill and other intangible assets and goodwill impairments in
2009.
Debt
Issue Costs
We
amortize debt issue costs related to our revolving credit facilities and the 8⅜%
Notes as interest expense over the scheduled maturity period of the debt.
Unamortized debt issuance costs were $4.9 million as of December 31, 2009 and
$6.8 million as of December 31, 2008. We include those unamortized
costs in other assets.
Allowance
for Doubtful Accounts
We
provide an allowance for accounts receivable we believe may not be collected in
full. A provision for bad debt expense recorded to selling, general and
administrative expenses increases the allowance. Accounts receivable
are written off when we determine the receivable will not be
collected. 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 historical loss experience, a
customer-by-customer analysis of our accounts receivable balances each period
and subjective assessments of our bad debt exposure. The allowance
for doubtful accounts balance was $5.3 million as of December 31, 2009 and $3.1
million as of December 31, 2008.
Revenue
and Expenses
We derive
substantially all of our revenue from the production and delivery of ready-mixed
concrete, precast concrete products, onsite products and related building
materials. We recognize revenue 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.
Insurance
Programs
We
maintain third-party insurance coverage against certain risks. Under our
insurance programs, we share the risk of loss with our insurance underwriters by
maintaining high deductibles subject to aggregate annual loss
limitations. In connection with these automobile, general liability
and workers’ compensation insurance programs, we have entered into standby
letters of credit agreements totaling $11.5 million at December 31,
2009. We fund our deductibles and record an expense for losses we
expect under the programs. We determine 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 claim reporting patterns, claim
settlement patterns, judicial decisions, legislation and economic
conditions. The amounts accrued for self-insured claims were $12.8
million as of December 31, 2009 and $12.6 million as of December 31,
2008. We include those accruals in accrued liabilities.
Asset
Retirement Obligations
Existing
authoritative accounting guidance requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The fair value of
the liability is added to the carrying amount of the associated asset, and this
additional carrying amount is amortized over the life of the asset. The
liability is accreted at the end of each reporting period through charges to
operating expenses. If the obligation is settled for other than the carrying
amount of the liability, we will recognize a gain or loss on settlement. Asset
retirement obligations accrued at December 31, 2009 and 2008 were not
material.
58
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Income
Taxes
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 record a valuation allowance to reduce the deferred tax
assets to the amount that is more likely than not to be realized. We
have a valuation allowance of $18.1 million and $0.2 million as of December 31,
2009 and 2008, respectively.
Effective
January 1, 2007, we adopted authoritative accounting guidance that requires the
financial statement effects of a tax position taken or expected to be taken in a
tax return be recognized in the financial statements when it is more likely than
not, based on the technical merits, that the position will be sustained upon
examination. The cumulative effect of applying this guidance was $0.3
million and was recorded as an adjustment to the January 1, 2007 balance of
retained earnings.
Fair
Value of Financial Instruments
Our
financial instruments consist primarily of cash and cash equivalents, trade
receivables, trade payables and long-term debt. Our management
considers the carrying values of cash and cash equivalents, trade receivables
and trade payables to be representative of their respective fair values because
of their short-term maturities or expected settlement dates. The
carrying value of outstanding amounts under our revolving credit facility
approximates fair value due to the floating interest rate. The fair
value of the 8 ⅜% Notes at year end was estimated at $163.9 million at December
31, 2009 and $146.1 million at December 31, 2008.
Use
of Estimates
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 as of 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 we consider significant in
the preparation of our financial statements include those related to our
allowance for doubtful accounts, goodwill, accruals for self-insurance, income
taxes, reserves for inventory obsolescence and the valuation and useful lives of
property, plant and equipment.
Stripping
Costs
We
include post-production stripping costs in the cost of inventory produced during
the period these costs are incurred. Post-production stripping costs represent
stripping costs incurred after the first saleable minerals are extracted from
the mine.
Loss
Per Share
We
computed basic loss per share attributable to stockholders using the weighted
average number of common shares outstanding during the year, excluding the
nonvested portion of restricted stock. Diluted earnings per share
attributable to stockholders is calculated using the weighted average number of
common shares outstanding during the year, but also include the effect of
stock-based incentives and option plans when dilutive (including stock options
and awards of restricted stock).
59
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CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table reconciles the
numerator and denominator of the basic and diluted loss per share attributable
to stockholders during the years ended December 31, 2009, 2008 and 2007 (in
thousands, except per share amounts).
2009
|
2008
|
2007
|
||||||||||
Numerator:
|
||||||||||||
Loss
from continuing operations
|
$ | (88,238 | ) | $ | (132,297 | ) | $ | (63,760 | ) | |||
Loss
from discontinued operations, net of income tax benefit
|
— | (149 | ) | (5,241 | ) | |||||||
Net
loss
|
$ | (88,238 | ) | $ | (132,446 | ) | $ | (69,001 | ) | |||
Denominator:
|
||||||||||||
Weighted
average common shares outstanding-basic
|
36,169 | 38,099 | 38,227 | |||||||||
Effect
of dilutive stock options and restricted stock
|
— | — | — | |||||||||
Weighted
average common shares outstanding-diluted
|
36,169 | 38,099 | 38,227 | |||||||||
Loss
per share:
|
||||||||||||
Basic
and diluted loss per share:
|
||||||||||||
From
continuing operations
|
$ | (2.44 | ) | $ | (3.48 | ) | $ | (1.67 | ) | |||
From
discontinued operations
|
— | — | (0.14 | ) | ||||||||
Net
loss
|
$ | (2.44 | ) | $ | (3.48 | ) | $ | (1.81 | ) | |||
For the
years ended December 31, stock options and awards covering 2.9 million shares in 2009
and 2.8 million shares in each of 2008 and 2007 were excluded from the
computation of diluted loss per share attributable to stockholders because their
effect would have been antidilutive.
Comprehensive
Income
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, 2009,
no differences existed between our consolidated net income and our consolidated
comprehensive income.
Stock-based
Compensation
Stock
based employee compensation cost is measured at the grant date based on the
calculated fair value of the award. We recognize expense over the employee’s
requisite service period, generally the vesting period of the award. The related
excess tax benefit received upon exercise of stock options or vesting of
restricted stock, if any, is reflected in the statement of cash flows as a
financing activity rather than an operating activity.
For
additional discussion related to stock-based compensation, see Note
7.
Recent
Accounting Pronouncements
In August
2009, the Financial Accounting Standards Board (“FASB”) issued authoritative
guidance, which provides additional guidance on measuring the fair value of
liabilities. This guidance reaffirms that the fair value measurement of a
liability assumes the transfer of a liability to a market participant as of the
measurement date. This guidance became effective October 1, 2009. This
guidance did not have a material impact on our consolidated financial
statements.
In
June 2009, the FASB issued the FASB Accounting Standard
Codification™ (the “Codification”). The Codification becomes
the single source of authoritative nongovernmental U.S. GAAP, superseding
existing authoritative literature. The codification establishes one level of
authoritative GAAP. All other literature is considered non-authoritative. This
Statement was effective beginning with our financial statements issued during
the quarter ended September 30, 2009. As a result, references to
authoritative accounting literature in our financial statement disclosures are
referenced in accordance with the Codification.
In June
2009, the FASB issued authoritative guidance on consolidation of variable
interest entities (VIEs) that changes how a reporting entity
determines a primary beneficiary that would consolidate the VIE from a
quantitative risk and rewards approach to a qualitative approach based on which
variable interest holder has the power to direct the economic performance
related activities of the VIE as well as the obligation to absorb losses or
right to receive benefits that could potentially be significant to the VIE. This
guidance requires the primary beneficiary assessment to be performed on an
ongoing basis and also requires enhanced disclosures that will provide more
transparency about a company’s involvement in a VIE. This guidance is effective
for a reporting entity’s first annual reporting period that begins after
November 15, 2009. The adoption of this guidance is not expected to have a
material impact on our consolidated financial statements.
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U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In May
2009, the FASB issued guidance under the Subsequent Events topic of the
Codification which requires entities to disclose the date through which they
have evaluated subsequent events and whether the date corresponds with the
release of their financial statements. This guidance was effective for all
interim and annual periods ending after June 15, 2009. In
February 2010, the FASB issued updated guidance which stated that SEC
filers must still evaluate subsequent events through the issuance date of their
financial statements, however, they are not required to disclose that date in
their financial statements. We adopted this guidance during the quarter ended
June 30, 2009 and it did not have an impact on our consolidated financial
statements.
In
April 2009, the FASB issued authoritative guidance related to interim
disclosures about fair value of financial instruments. The guidance requires an
entity to provide disclosures about fair value of financial instruments in
interim financial information. This guidance is to be applied prospectively and
is effective for interim and annual periods ending after June 15, 2009. We
adopted this guidance in the quarter ended June 30, 2009. There was no
impact on our consolidated financial statements, as the guidance relates only to
additional disclosures.
In
December 2007, the FASB issued authoritative guidance related to business
combinations that establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any non-controlling interest in the entity
acquired and the goodwill acquired. This guidance also establishes
disclosure requirements which will enable users to evaluate the nature and
financial effects of the business combination and was effective for fiscal years
beginning after December 15, 2008. The adoption of this guidance did not
have a material impact on our consolidated financial statements.
In
April 2009, the FASB issued authoritative guidance related to accounting
for assets acquired and liabilities assumed in a business combination that arise
from contingencies. This guidance requires that assets acquired and liabilities
assumed in a business combination that arise from contingencies be recognized at
fair value, if fair value can be reasonably estimated. If fair value cannot be
reasonably estimated, the asset or liability would generally be recognized in
accordance with existing authoritative guidance related to accounting for
contingencies and reasonable estimation of the amount of a loss. The guidance
also eliminates the requirement to disclose an estimate of the range of possible
outcomes of recognized contingencies at the acquisition date. For unrecognized
contingencies, the FASB requires that entities include only the disclosures
required by the authoritative guidance on accounting for contingencies. This was
adopted effective January 1, 2009. There was no impact on our consolidated
financial statements upon adoption, and its effects on future periods will
depend on the nature and significance of business combinations subject to this
guidance.
In June
2008, the FASB issued authoritative guidance on the treatment of participating
securities in the calculation of earnings per share (“EPS”). This
guidance addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting and, therefore, need
to be included in computing earnings per share under the two-class
method. This guidance was effective for fiscal years beginning after
December 15, 2008, and any EPS data presented after adoption is to be adjusted
retrospectively. The adoption of this guidance did not have a
material impact on our consolidated financial statements.
In March
2008, the FASB issued authoritative guidance on derivative instruments and
hedging activities. This guidance was intended to improve financial reporting
about derivative instruments and hedging activities by requiring enhanced
disclosures to enable investors to better understand their effects on an
entity’s financial position, financial performance and cash flows. This guidance
was effective in the first quarter of 2009, and the adoption did not have a
material impact on our consolidated financial statements.
In
September 2006, the FASB issued authoritative guidance on fair value
measurements and disclosures. This guidance defines fair value,
establishes a framework for measuring fair value in accordance with GAAP, and
expands disclosures about fair value measurement. The initial
application of this guidance was limited to financial assets and liabilities and
became effective on January 1, 2008. The impact of the initial
application on our consolidated financial statements was not material. In
February 2008, the FASB revised the authoritative guidance on fair value
measurements and disclosures to delay the effective date of the guidance for
nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis, to fiscal years beginning after November 15, 2008. We elected to
defer the adoption of this guidance for nonfinancial assets and nonfinancial
liabilities until January 1, 2009. Adoption of this guidance on January 1,
2009 did not have a material impact on our consolidated financial
statements.
61
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CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In
December 2007, the FASB issued authoritative guidance on non-controlling
interests. This guidance establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent, the
amount of consolidated net income attributable to the parent and to the
non-controlling interest, changes in a parent’s ownership interest and the
valuation of retained non-controlling equity investments when a subsidiary is
deconsolidated. It also establishes reporting requirements that provide
sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling owners.
The guidance was effective for fiscal years beginning after December 15,
2008. We adopted this guidance in the first quarter of 2009 and have
included the non-controlling interest in Superior as a component of equity on
the consolidated balance sheets and have included net loss attributable to
non-controlling interest in our consolidated net loss for all periods
presented.
3.
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
We record
as goodwill the amount by which the total purchase price we pay in our
acquisition transactions exceeds our estimated fair value of the identifiable
net assets we acquire. We test goodwill for impairment on an annual basis, or
more often if events or circumstances indicate that there may be
impairment. We generally test for goodwill impairment in the fourth
quarter of each year, because this period gives us the best visibility of the
reporting units’ operating performances for the current year (seasonally, April
through October are highest revenue and production months) and outlook for the
upcoming year, since much of our customer base is finalizing operating and
capital budgets. The impairment test we use consists of comparing our
estimates of the current fair values of our reporting units with their carrying
amounts. We currently have seven reporting units. Reporting units are
organized based on our two product segments ((1) ready-mix concrete and concrete
related products and (2) precast concrete products) and geographic
regions.
There was
no impairment recorded as a result of the fourth quarter 2009 test. During the
third quarter of 2009, we sold our ready-mixed concrete plants in Sacramento,
California (see Note 6). These plants and operations were included in our
northern California ready-mixed concrete reporting unit and $3.0 million of
goodwill was allocated to these assets and included in the calculation of loss
on sale. Concurrent with this sale, we performed an impairment test
on the remaining goodwill for this reporting unit and on all other reporting
units with remaining goodwill as a result of current economic conditions. The
U.S. economic downturn and resulting impact on the U.S. construction markets
have continued to impact our revenue and expected future growth. The cost of
capital has increased while the availability of funds from capital markets has
not improved significantly. Lack of available capital has impacted our customers
by creating project delays or cancellations, thereby impacting our revenue
growth and assumptions. The downturn in residential construction has not
improved and we are now seeing the economic downturn affect the commercial
sector of our revenue base. In addition, the California budget crisis
has affected public works spending in this market. All these factors led to
a more negative outlook for expected future cash flows and, during the
third quarter of 2009, resulted in an impairment charge of $45.8 million, of
which $42.2 million is related to our northern California reporting unit and the
remaining amount related to our Atlantic Region reporting unit.
In 2008
we recorded an impairment charge of $135.3 million. The macro economic factors
including the unprecedented and continuing credit crisis, the U.S. recession,
the escalating unemployment rate and specifically the severe downturn in the
U.S. construction markets, had a significant impact on the valuation metrics
used in determining the long-term value of our reporting units. The
slowdown in construction activity resulted in lower sales volumes and more
competition for construction projects, thereby reducing expected future cash
flows. These specific negative factors, combined with (i) lower
enterprise values resulting from lower multiples of sales and EBITDA
comparables, and (ii) the lack of recent third party transactions due to
depressed macro economic conditions, resulted in the goodwill impairment expense
for 2008.
In 2007,
we recorded goodwill impairments of $81.9 million relating to our Michigan,
South Central and our Northern California Precast reporting
units. Our Michigan reporting unit’s economic outlook continued to
soften at greater levels throughout 2007, resulting in lower projected cash
flow. Our South Central reporting unit’s outlook deteriorated,
resulting in lower projected cash flow and continued competitive pressures and
limiting our future profitability expectations. Our Northern
California Precast reporting unit was significantly impacted by the continued
slowdown in residential housing construction, which impacted our projected
future cash flows. These specific negative factors in the above mentioned
reporting units, combined with lower enterprise values and sales transaction
values for participants in our industry, resulted in the goodwill impairment
expense.
In the
fourth quarter of 2007, we disposed of certain business units. In
connection with the impairment or sale of the units in the fourth quarter, we
wrote off associated goodwill of $7.2 million, which is reflected as a component
of loss from discontinued operations for the year ended December 31,
2007.
As of
December 31, 2009 and 2008, U.S. Concrete had no intangible assets with
indefinite lives other than goodwill.
62
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The
change in goodwill from January 1, 2008 to December 31, 2009 is as follows (in
thousands):
Ready-Mixed
Concrete and
Concrete-Related
Products
|
Precast Concrete
Products
|
Total
|
||||||||||
Balance
at January 1, 2008:
|
||||||||||||
Goodwill
|
$ | 321,967 | $ | 45,957 | $ | 367,924 | ||||||
Accumulated
impairment
|
(173,851 | ) | (9,074 | ) | (182,925 | ) | ||||||
148,116 | 36,883 | 184,999 | ||||||||||
Acquisitions
(see Note 6)
|
8,954 | — | 8,954 | |||||||||
Impairments
|
(109,331 | ) | (25,994 | ) | (135,325 | ) | ||||||
Adjustments
|
1,431 | (862 | ) | 569 | ||||||||
Balance
at December 31, 2008
|
$ | 49,170 | $ | 10,027 | $ | 59,197 | ||||||
Balance
at December 31, 2008:
|
||||||||||||
Goodwill
|
$ | 332,352 | $ | 45,095 | $ | 377,447 | ||||||
Accumulated
impairment
|
(283,182 | ) | (35,068 | ) | (318,250 | ) | ||||||
49,170 | 10,027 | 59,197 | ||||||||||
Acquisitions
(see Note 6)
|
3,596 | — | 3,596 | |||||||||
Impairments
|
(45,776 | ) | — | (45,776 | ) | |||||||
Allocated
to assets sold
|
(2,954 | ) | — | (2,954 | ) | |||||||
Balance
at December 31, 2009
|
$ | 4,036 | $ | 10,027 | $ | 14,063 | ||||||
Balance
at December 31, 2009:
|
||||||||||||
Goodwill
|
332,994 | 45,095 | 378,089 | |||||||||
Accumulated
impairment
|
(328,958 | ) | (35,068 | ) | (364,026 | ) | ||||||
$ | 4,036 | $ | 10,027 | $ | 14,063 |
Our
intangible assets with definite lives consist of covenants not-to-compete
established in business combinations and are recorded in other noncurrent
assets. We amortize covenants not-to-compete ratably over the life of
the agreement, which is generally five years. Accumulated
amortization associated with covenants not-to-compete was $1.1 million for 2009,
$0.8 million for 2008 and $0.6 million for 2007. Amortization expense
associated with our covenants not-to-compete at December 31, 2009, is expected
to be $0.2 million in 2010, less than $0.1 million in 2011 and zero
thereafter.
The
changes in the carrying amount of our covenants not-to-compete for 2009 and 2008
were as follows (in thousands):
Balance
at January 1, 2008
|
$ | 552 | ||
Addition
of covenant not-to-compete related to API acquisition
|
220 | |||
Amortization
of covenants not-to-compete
|
(280 | ) | ||
Balance
at December 31, 2008
|
492 | |||
Amortization
of covenants not-to-compete
|
(268 | ) | ||
Balance
at December 31, 2009
|
$ | 224 |
4.
|
ASSET
IMPAIRMENTS
|
We
evaluated the recoverability of all our long-lived assets during the third
quarter of 2009 given current economic conditions. We measured recoverability by
comparing the carrying amount of the assets to future undiscounted net cash
flows expected to be generated by the assets. The Michigan market
continues to be significantly impacted by the global economic downturn and by
events specific to its region, including the difficult operating conditions of
the U.S. automotive industry, high unemployment rates and lack of public works
spending. The decline in construction activity in each of our end-use
markets has negatively affected our outlook of future sales growth and cash
flow. We identified an impairment related to the property, plant and
equipment in our Michigan market and recorded a charge of $8.8 million, which
represents the amount that the carrying value of these assets exceeded estimated
fair value.
63
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
5.
|
DISCONTINUED
OPERATIONS
|
In the
fourth quarter of 2007, we entered into definitive agreements to dispose of
three of our ready-mixed concrete business units. On November 19,
2007, we sold our Knoxville, Tennessee and Wyoming, Delaware business units.
The sale of our
third unit, headquartered in Memphis, Tennessee, occurred on January 31,
2008. All three units were part of our ready-mixed concrete and
concrete-related products segment. We presented the results of
operations, net of tax, as discontinued operations in the accompanying
consolidated statements of operations for all periods presented. The results of
discontinued operations included in the accompanying consolidated statements of
operations were as follows for the years ended December 31 (in
thousands):
2008
|
2007
|
|||||||
Revenue
|
$ | 671 | $ | 43,606 | ||||
Operating
expenses
|
1,395 | 47,241 | ||||||
(Gain)
loss on disposal of assets
|
(494 | ) | 5,517 | |||||
Loss
from discontinued operations, before income tax benefit
|
(230 | ) | (9,152 | ) | ||||
Income
tax benefits from discontinued operations
|
(81 | ) | (3,911 | ) | ||||
Loss
from discontinued operations, net of tax
|
$ | (149 | ) | $ | (5,241 | ) |
6.
|
ACQUISITIONS
AND DISPOSITIONS
|
In September 2009, we sold our
ready-mixed concrete plants in Sacramento, California for approximately $6.0
million, plus a payment for inventory on hand at closing. This sale resulted in
a pre-tax loss of approximately $3.0 million after the allocation of
approximately $3.0 million of goodwill related to these assets.
In May 2009, we acquired substantially
all the assets of a concrete recycling business in Queens, New York. We used
borrowings under our revolving credit facility to fund the cash purchase price
of approximately $4.5 million.
In November 2008, we acquired a
ready-mixed concrete plant and related inventory in Brooklyn, New
York. We used borrowings under our revolving credit facility to fund
the cash purchase price of approximately $2.5 million.
In August 2008, we acquired a
ready-mixed concrete operation in Mount Vernon, New York and a precast concrete
product operation in San Diego, California. We used cash on hand to
fund the purchase prices of $2.0 million and $2.5 million,
respectively.
In June
2008, we acquired nine ready-mixed concrete plants, together with related real
property, rolling stock and working capital, in our west Texas market from
another ready-mixed concrete producer for approximately $13.5
million. We used cash on hand and borrowings under our existing
credit facility to fund the purchase price.
In May
2008, we paid $1.4 million of contingent purchase consideration related to real
estate acquired pursuant to the acquisition of Builders’ Redi-Mix, Inc. in
January 2003.
In
January 2008, we acquired a ready-mixed concrete operation in Staten Island, New
York. We used cash on hand to fund the purchase price of
approximately $1.8 million.
The pro
forma impacts of our 2009 and 2008 acquisitions have not been included due to
the fact that they were immaterial to our financial statements individually and
in the aggregate.
In
October 2007, we acquired the operating assets, including working capital and
real property, of Architectural Precast, LLC (“API”), a leading designer and
manufacturer of premium quality architectural and structural precast concrete
products serving the mid-Atlantic region, for approximately $14.5 million plus a
$750,000 contingency payment. The contingency payment was based on earnings of
API for the twelve-month period ended September 30, 2008 and was made in the
first quarter of 2009.
In April
2007, several of our subsidiaries entered into agreements with the Edw. C. Levy
Co. relating to the formation of Superior Material Holdings, LLC, a ready-mixed
concrete company that operates in Michigan. We contributed our Michigan
ready-mixed concrete and concrete-related products assets, excluding our quarry
assets and working capital, in exchange for an aggregate 60% ownership interest,
and Levy contributed all of its ready-mixed concrete and concrete-related
products assets, a cement terminal and cash of $1.0 million for a 40% ownership
interest in the new company. Under the contribution agreement, Superior
also purchased the then carrying amount of Levy’s inventory and
prepaid assets, totaling approximately $3.0 million, which is classified as cash
used in investing activities. Superior, which operates primarily
under the trade name Superior Materials, owns 27 ready-mixed concrete plants, a
cement terminal and a fleet of ready-mixed concrete trucks. Based on
current economic conditions in Michigan, many of these ready-mixed concrete
plants have been temporarily idled.
64
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The
following table presents our allocation, based on the fair values at the
acquisition date (in thousands) of the consideration exchanged in the
transaction:
Estimated Purchase Price
|
||||
Net
assets of our Michigan operations reduced to 40%
|
$ | 8,272 | ||
Acquisition
costs
|
649 | |||
Total
estimated purchase price
|
$ | 8,921 | ||
Purchase Price Allocation
|
||||
Cash
|
$ | 1,000 | ||
Property,
plant and equipment
|
17,158 | |||
Goodwill
|
1,303 | |||
Total
assets acquired
|
19,461 | |||
Capital
lease liability.
|
108 | |||
Deferred
tax liability
|
3,211 | |||
Total
liabilities assumed
|
3,319 | |||
Non-controlling
interest
|
7,221 | |||
Net
assets acquired
|
$ | 8,921 |
For
financial reporting purposes, we are including Superior Materials Holdings, LLC
in our consolidated accounts.
The
following unaudited pro forma financial information reflects our historical
results, as adjusted on a pro forma basis to give effect to the disposition of
40% of our Michigan operations (excluding quarry assets and working capital)
through our contribution of those operations to the newly formed Michigan
subsidiary, Superior, in return for a 60% interest in that company, which
includes the Michigan ready-mixed concrete operations contributed by the Edw. C.
Levy Co., as if it occurred on January 1, 2007 (in thousands, except per share
amounts):
2007
|
||||
Revenues
|
$ | 807,035 | ||
Net
loss attributable to stockholders
|
(66,628 | ) | ||
Basic
loss per share attributable to stockholders
|
$ | (1.74 | ) | |
Diluted
loss per share attributable to stockholders
|
$ | (1.74 | ) |
The pro
forma financial information does not purport to represent what the combined
financial results of operations of our company and Superior actually would have
been if these transactions and events had in fact occurred when assumed and are
not necessarily representative of our results of operations for any future
period.
We
completed two other acquisitions, which are discussed in this footnote, during
the year ended December 31, 2007. The pro forma impact of the other
acquisitions have not been included due to the fact that they are immaterial to
our financial statements individually and in the aggregate.
In other
business acquisitions during the periods presented, we acquired two ready-mixed
concrete plants, including real property and raw material inventories, in our
west Texas market for approximately $3.6 million in June 2007.
7.
|
STOCK-BASED
COMPENSATION
|
Under
authoritative accounting guidance, share-based compensation cost is measured at
the grant date based on the calculated fair value of the award. The expense is
recognized over the employee’s requisite service period, generally the vesting
period of the award. We have elected to use the long-form method of
determining our pool of windfall tax benefits as prescribed under authoritative
accounting guidance.
65
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
For the
years ended December 31, we recognized stock-based compensation expense related
to restricted stock and stock options of approximately $2.4 million ($2.4
million, net of tax) in 2009, $3.5 million ($2.6 million, net of tax) in 2008,
and $3.0 million ($1.9 million, net of tax) in 2007. Stock-based
compensation expense is reflected in selling, general and administrative
expenses in our consolidated statements of operations.
As of
December 31, 2009 and 2008, there was approximately $2.9 million and $4.2
million, respectively, of unrecognized compensation cost related to unvested
restricted stock awards and stock options which we expect to recognize over a
weighted average period of 2.0 years and 2.3 years, respectively.
Restricted
Stock
We issue
restricted stock awards under our incentive compensation plans. These
awards vest over specified periods of time, generally four years. The
shares of restricted common stock are subject to restrictions on transfer and
certain conditions to vesting. During the restriction period, the
holders of restricted shares are entitled to vote and receive dividends, if any,
on those shares.
Restricted
stock activity for 2009 was as follows (shares in thousands):
Number
of
Shares
|
Weighted-
Average
Grant Date
Fair Value
|
|||||||
Unvested
restricted shares outstanding at December 31, 2008
|
822 | $ | 7.70 | |||||
Granted
|
497 | 1.46 | ||||||
Vested
|
(271 | ) | 6.78 | |||||
Canceled
|
(45 | ) | 5.15 | |||||
Unvested
restricted shares outstanding at December 31, 2009
|
1,003 | $ | 3.75 |
Compensation expense associated with
awards of restricted stock under our incentive compensation plans was $2.1
million in 2009, $3.4 million in 2008 and $2.7 million in 2007.
Stock
Options
Our 1999
Incentive Plan, 2001 Employee Incentive Plan and 2008 Incentive Plan enable us
to grant nonqualified and incentive options, restricted stock, stock
appreciation rights and other long-term incentive awards to our employees and
nonemployee directors (except that none of our officers or directors are
eligible to participate in our 2001 Plan), and in the case of the 1999 Incentive
Plan and 2001 Employee Incentive Plans, also to nonemployee consultants and
other independent contractors who provide services to us. Option grants under
these plans generally vest either over a four-year period or, in the case of
option grants to non-employee directors, six months from the grant date and
expire if not exercised prior to the tenth anniversary of the applicable grant
date, or in the case of non-employee directors, the fifth anniversary of the
applicable grant date. Proceeds from the exercise of stock options
are credited to common stock at par value, and the excess is credited to
additional paid-in capital. Our 1999 Incentive Plan terminated on December 31,
2008. As of December 31, 2009, there were 227,727 shares of our
common stock remaining available for awards under the 2001 Plan. No awards were
made under the 2001 Plan in 2009. The aggregate number of shares available for
awards under the 2008 Incentive Plan was approximately 2.1 million as of
December 31, 2009.
We
estimated the fair value of each of our stock option awards on the date of grant
using a Black-Scholes option pricing model. We determined the
expected volatility using our common stock’s historic volatility. For
each option awarded, the risk-free interest rate was based on the U.S. Treasury
yield in effect at the time of grant for periods corresponding with the expected
life of the option. The expected life of an option represents the
weighted average period of time that an option grant is expected to be
outstanding, giving consideration to its vesting schedule and historical
exercise patterns. The significant weighted-average assumptions
relating to the valuation of our stock options were as follows:
2009
|
2008
|
||||
Dividend
yield
|
0.0%
|
0.0%
|
|||
Volatility
rate
|
52.5%
- 61.0%
|
39.8%
- 48.9%
|
|||
Risk-free
interest rate
|
1.7%
- 2.7%
|
1.6%
- 3.3%
|
|||
Expected
option life (years)
|
5.0
|
5.0
|
66
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
We
granted 464,000 and 145,000 stock options in 2009 and 2008,
respectively. Compensation expense related to stock options was
approximately $0.2 million in 2009 (before and after tax) and approximately $0.1
million (before and after tax) in 2008. Stock option activity
information for 2009 was as follows (shares in thousands):
Number
of Shares
Underlying
Options
|
Weighted-
Average
Exercise
Price
|
|||||||
Options
outstanding at December 31, 2008
|
2,008 | $ | 7.05 | |||||
Granted
|
464 | 1.56 | ||||||
Exercised
|
- | - | ||||||
Canceled
|
(560 | ) | 7.65 | |||||
Options
outstanding at December 31, 2009
|
1,912 | $ | 5.54 | |||||
Options
exercisable at December 31, 2009
|
1,435 | $ | 6.77 |
The
aggregate intrinsic value of outstanding options and exercisable options at
December 31, 2009 was zero. The weighted average remaining
contractual term for outstanding options and exercisable options at December 31,
2009 was 3.5 years. The total fair value of shares vested was $0.1
million in both 2009 and 2008.
Stock
option information related to the nonvested options for the year ended December
31, 2009 was as follows (shares in thousands):
Number
of Shares
Underlying
Options
|
Weighted-
Average Grant
Date Fair
Value
|
|||||||
Nonvested
options outstanding at December 31, 2008
|
95 | $ | 1.56 | |||||
Granted
|
464 | 0 .73 | ||||||
Vested
|
(74 | ) | 1.31 | |||||
Canceled
|
(8 | ) | 0.68 | |||||
Nonvested
options outstanding at December 31, 2009
|
477 | $ | 0.81 |
Share
Price Performance Units
In August
2005, the compensation committee of our board of directors awarded approximately
163,000 share price performance units to certain salaried employees, other than
executive officers and senior management. Those awards vested in four
equal annual installments, beginning in May 2006 and ending in May
2009. Each share price performance unit is equal in value to one
share of our common stock. Upon vesting, a holder of share price
performance units will receive a cash payment from us equal to the number of
vested share price performance units multiplied by the closing price of a share
of our common stock on the vesting date. The value of these awards
was accrued and charged to expense over the performance period of the
units. We recognized compensation expense of $0.1 million in
2008. We recognized a reversal of compensation expense of $0.1
million in both 2009 and 2007. This is included in selling, general
and administrative expenses on the Consolidated Statements of
Operations. No share price performance units were granted in 2009,
2008 or 2007.
8.
|
INVENTORIES
|
Inventory
available for sale at December 31 consists of the following (in
thousands):
December 31,
|
||||||||
2009
|
2008
|
|||||||
Raw
materials
|
$ | 18,128 | $ | 18,100 | ||||
Precast
products
|
7,342 | 8,353 | ||||||
Building
materials for resale
|
2,555 | 2,922 | ||||||
Repair
parts
|
2,935 | 3,393 | ||||||
$ | 30,960 | $ | 32,768 |
67
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
9.
|
PROPERTY,
PLANT AND EQUIPMENT
|
A summary
of property, plant and equipment is as follows (in thousands):
December 31,
|
||||||||
2009
|
2008
|
|||||||
Land
and mineral deposits
|
$ | 77,843 | $ | 84,432 | ||||
Buildings
and improvements
|
34,101 | 34,461 | ||||||
Machinery
and equipment
|
153,214 | 133,923 | ||||||
Mixers,
trucks and other vehicles
|
95,641 | 102,403 | ||||||
Other,
including construction in progress
|
6,455 | 23,546 | ||||||
367,254 | 378,765 | |||||||
Less:
accumulated depreciation and depletion
|
(127,337 | ) | (105,996 | ) | ||||
$ | 239,917 | $ | 272,769 |
As of December 31, the carrying amounts
of mineral deposits were $25.0 million in 2009 and $27.1 million in
2008.
10.
|
DETAIL
OF CERTAIN BALANCE SHEET ACCOUNTS
|
Activity
in our allowance for doubtful accounts receivable consists of the following (in
thousands):
December 31
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Balance,
beginning of period
|
$ | 3,088 | $ | 3,102 | $ | 2,551 | ||||||
Provision
for doubtful accounts
|
3,282 | 1,923 | 2,057 | |||||||||
Uncollectible
receivables written off, net of recoveries
|
(1,106 | ) | (1,937 | ) | (1,506 | ) | ||||||
Balance,
end of period
|
$ | 5,264 | $ | 3,088 | $ | 3,102 |
Accrued
liabilities consist of the following (in thousands):
December 31
|
||||||||
2009
|
2008
|
|||||||
Accrued
compensation and benefits
|
$ | 3,479 | $ | 8,693 | ||||
Accrued
interest
|
5,826 | 6,049 | ||||||
Accrued
insurance
|
13,699 | 13,611 | ||||||
Other
|
25,553 | 26,128 | ||||||
$ | 48,557 | $ | 54,481 |
11.
|
DEBT
|
A summary
of our debt and capital leases is as follows (in thousands):
December 31,
|
||||||||
2009
|
2008
|
|||||||
Senior
secured credit facility due 2011
|
$ | 16,700 | $ | 11,000 | ||||
8⅜%
senior subordinated notes due 2014
|
271,756 | 283,998 | ||||||
Capital
leases
|
163 | 430 | ||||||
Superior
secured credit facility due 2010
|
5,604 | 5,149 | ||||||
Notes
payable
|
2,319 | 5,411 | ||||||
296,542 | 305,988 | |||||||
Less: current
maturities
|
7,873 | 3,371 | ||||||
288,669 | $ | 302,617 |
The
estimated fair value of our debt at December 31, 2009 and 2008 was $188.7
million and $168.1 million, respectively.
The
principal amounts due under our debt and capital leases as of December 31, 2009,
for the next five years is as follows (in thousands):
68
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Year
ending December 31:
|
||||
2010
|
$ | 7,873 | ||
2011
|
16,913 | |||
2012
|
– | |||
2013
|
– | |||
Later
years
|
271,756 | |||
$ | 296,542 |
Senior
Secured Credit Facility
In
February 2010, we entered into an amendment to our Credit Agreement to reduce
temporarily the minimum availability trigger at which we must maintain a minimum
fixed charge coverage ratio of 1.0 to 1.0 from $25 million to $20 million from
March 11, 2009 through April 30, 2009, as described in more detail under Note 1
to our consolidated financial statements. While we believe the
amendment of our Credit Agreement provides us with some additional access to
liquidity, ongoing inclement weather and the decline in demand for our products
has a direct effect on the amounts we bill our customers and our accounts
receivable balances, which in turn affects the amount available for borrowing
under our Credit Agreement. If our liquidity falls below the availability
thresholds noted above, we will not be in compliance with the minimum fixed
charge coverage ratio of 1.0 to 1.0. If this occurs and we are unable to
continue to obtain amendments from the lenders that waive compliance with these
financial covenants or refinance the debt on acceptable terms, the lenders could
declare us to be in default under the terms of the Credit Agreement, at which
point the entire outstanding principal balance of the revolving credit facility,
together with all accrued and unpaid interest and other amounts then owing to
our lenders, would become immediately due and payable. Because substantially all
of our assets are pledged as collateral under the Credit Agreement, if our
lenders were to declare an event of default, they would be entitled to foreclose
on and take possession of those assets. If our assets are not sufficient to
satisfy the outstanding balances when due, we may seek protection pursuant to a
voluntary bankruptcy filing under Chapter 11 of the U.S. Bankruptcy
Code.
At
December 31, 2009, we had borrowings of $16.7 million under this facility and
outstanding letters of credit of approximately $11.6 million. The outstanding
letters of credit increased to $17.7 million in February 2010. The Credit
Agreement provides that the administrative agent may, on the bases specified,
reduce the amount of the available credit from time to time. Additionally, any
“material adverse change” of the Company could restrict our ability to borrow
under the senior secured credit facility. A material adverse change
is defined as a material adverse change in any of (a) the condition (financial
or otherwise), business, performance, prospects, operations or properties of us
and our subsidiaries, taken as a whole, (b) our ability and the ability of the
guarantors, taken as a whole, to perform the obligations under the Credit
Agreement and the other loan documents or (c) the rights and remedies of the
administrative agent, the lenders or the issuers to enforce the Credit Agreement
and the other loan documents.
Our
subsidiaries, excluding Superior and minor subsidiaries, without operations or
material assets, have guaranteed the repayment of all amounts owing under the
Credit Agreement. In addition, we collateralized our obligations
under the Credit Agreement with the capital stock of our subsidiaries, excluding
Superior and minor subsidiaries without operations or material assets, and
substantially all the assets of those subsidiaries, excluding Superior, most of
the assets of the aggregates quarry in northern New Jersey and other real estate
owned by us or our subsidiaries. The Credit Agreement contains
covenants restricting, among other things, prepayment or redemption of the
8⅜% 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 (excluding permitted acquisitions) to the greater of $45
million, or 5%, of consolidated revenues in the prior 12 months. The Credit
Agreement provides that specified change of control events would constitute
events of default. As of December 31, 2009, the maintenance of a
minimum fixed charge coverage ratio was not applicable, as the available credit
under the facility did not fall below $25.0 million.
Senior
Subordinated Notes
On March
31, 2004, we issued $200 million of 8⅜% Notes. In July 2006, we
issued $85 million of additional 8⅜% Notes. Interest on these notes
is payable semi-annually on April 1 and October 1 of each year.
During
the first quarter of 2009, we purchased $7.4 million aggregate principal amount
of the 8⅜% Notes in open market transactions for approximately $2.8 million plus
accrued interest of approximately $0.3 million through the dates of
purchase. We recorded a gain of approximately $4.5 million as a
result of these open market transactions after writing off $0.1 million of
previously deferred financing costs associated with the pro-rata amount of the
8⅜% Notes purchased. During the quarter ended June 30, 2009, we
purchased an additional $5.0 million principal amount of the 8⅜% Notes for
approximately $2.0 million. This resulted in a gain of approximately $2.9
million in April 2009, after writing off $0.1 million of previously deferred
financing costs associated with the pro-rata amount of the 8⅜% Notes purchased.
We used cash on hand and borrowings under our Credit Agreement to fund these
transactions. These purchases reduced the amount outstanding under the 8⅜% Notes
by $12.4 million, reduced our interest expense by approximately $0.7 million in
2009 and will reduce our interest expense by approximately $0.9 million on an
annual basis thereafter.
69
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
All of
our subsidiaries, excluding Superior and minor subsidiaries, have jointly and
severally and fully and unconditionally guaranteed the repayment of the 8⅜%
Notes.
The
indenture governing the 8⅜% Notes limits our ability and the ability of our
subsidiaries to pay dividends or repurchase common stock, make certain
investments, incur additional debt, sell preferred stock, create liens, merge or
transfer assets. We may redeem all or a part of the 8⅜% Notes at a
redemption price of 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 8⅜% Notes equal to the proceeds of certain
asset sales that are not reinvested in the business or used to pay senior debt,
and (2) all the 8⅜% Notes following the occurrence of a change of
control. The Credit Agreement would prohibit these
repurchases.
As a
result of restrictions contained in the indenture relating to the 8⅜% Notes, our
ability to incur additional debt is primarily limited to the greater of (1)
borrowings available under the Credit Agreement, plus the greater of $15 million
or 7.5% of our tangible assets, or (2) additional debt if, after giving effect
to the incurrence of such additional debt, our earnings before interest, taxes,
depreciation, amortization and certain noncash items equal or exceed two times
our total interest expense.
We made
interest payments of approximately $25.1 million in 2009 and $25.5 million in
2008, primarily associated with the 8⅜%
Notes.
On April
1, 2010, we are obligated to make semi-annual interest payments on the 8⅜% Notes
aggregating approximately $11.4 million. Under the indenture relating
to the 8⅜% Notes, an event of default will occur if we fail to make any payment
of interest on the 8⅜% Notes when due and that failure continues for a period of
30 days. If such an event of default occurs and is continuing, the
trustee or the holders of 25% or more in aggregate principal amount of the 8⅜%
Notes then outstanding may accelerate our obligation to repay the 8⅜% Notes,
together with accrued and unpaid interest. Under the terms of our
Credit Agreement, an event of default under the indenture would also constitute
an event of default under the Credit Agreement, and would give rise to the right
of our lenders under the Credit Agreement to immediately accelerate the maturity
of the debt outstanding under the related credit facility. Those
circumstances would trigger provisions in the indenture relating to the 8⅜%
Notes that would permit the lenders under the Credit Agreement to prohibit
payments with respect to the 8⅜% Notes for up to 180 days, even though our
payment obligations with respect to the 8⅜% Notes may have been
accelerated.
Given the
current negative conditions in the economy and the credit markets generally and
in our industry in particular, there is substantial uncertainty that we will be
able to extend or refinance our indebtedness on or before April 1, 2010, the
next interest payment date for the 8⅜% Notes.
Superior
Credit Facility and Subordinated Debt
Superior
has a separate credit agreement that provides for a revolving credit
facility. The credit agreement, as amended, allows for borrowings of
up to $17.5 million. Borrowings under this credit facility are
collateralized by substantially all the assets of Superior and are scheduled to
mature on April 1, 2010. Based on this maturity date, the amounts
outstanding under the credit agreement are classified as current at December 31,
2009. Given the current negative conditions in the economy and the credit
markets generally and in our industry in particular, there is substantial
uncertainty that Superior will be able to extend or refinance the indebtedness
outstanding under the Superior Credit Agreement on or before the April 1, 2010
maturity date. In addition, an event of default under our Credit
Agreement beyond a 30-day grace period also will constitute an event of default
under the Superior Credit Agreement and cause an acceleration of Superior’s
obligation to repay the outstanding balance.
Availability
of borrowings under the Superior Credit Agreement is subject to a borrowing base
that is determined based on the values of net receivables, certain inventories,
certain rolling stock and letters of credit. The credit agreement
provides that the lender may, on the bases specified, reduce the amount of the
available credit from time to time. As of December 31, 2009, there was
$5.6 million in outstanding borrowings under the revolving credit facility, and
the remaining amount of the available credit was approximately $3.0 million.
Letters of credit outstanding at December 31, 2009 were $2.8 million, which
reduced the amount available under the credit facility.
Currently, borrowings have an annual
interest rate at Superior’s option of either, LIBOR, plus 4.25%, or prime rate
(3.25% at December 31, 2009) plus 2.00%. Commitment fees at an annual
rate of 0.25% are payable on the unused portion of the
facility.
70
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The
credit agreement contains covenants restricting, among other things, Superior’s
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 generally limits
Superior’s capital expenditures and requires the subsidiary to maintain
compliance with specified financial covenants, including an affirmative covenant
which requires earnings before income taxes, interest and depreciation
(“EBITDA”) to meet certain minimum thresholds quarterly. During the
trailing twelve months ended December 31, 2009, Superior did not meet this
minimum threshold. As a result, Superior has obtained a waiver from the
lender for this noncompliance with the covenant.
U.S. Concrete and its 100%-owned
subsidiaries are not obligors under the terms of the Superior credit agreement.
However, as mentioned above, the Superior Credit Agreement provides that an
event of default beyond a 30-day grace period under either U.S. Concrete’s or
Edw. C. Levy Co.’s credit agreement would constitute an event of
default. Furthermore, U.S. Concrete has agreed to provide or obtain
additional equity or subordinated debt capital not to exceed $6.75 million
through the term of the revolving credit facility to fund any future cash flow
deficits, as defined in the credit agreement, of Superior. In the
first quarter of 2009, U.S. Concrete provided subordinated debt capital in the
amount of $2.4 million under this agreement in lieu of payment of related party
payables. Additionally, the minority partner, Edw. C. Levy Co., provided $1.6
million of subordinated debt capital to fund operations during the first quarter
of 2009. The subordinated debt with U.S. Concrete was eliminated in
consolidation. There was no interest due on each note, and each note
was scheduled to mature on May 1, 2011. During the third quarter of 2009, U.S.
Concrete and the minority partner, Edw. C. Levy Co., converted the subordinated
debt capital into capital contributions to Superior.
Pursuant to Superior’s credit
agreement, U.S. Concrete made an additional capital contribution of $2.6 million
in lieu of payment of related party payables and Edw. C. Levy Co. made an
additional capital contribution of $1.8 million in the first quarter of
2010. Superior is in the process of renegotiating its credit
facility. If the renegotiation process is unsuccessful, the amounts
outstanding under the credit agreement will be due and payable on April 1, 2010.
Additionally, U.S. Concrete and Edw. C. Levy Co. may have to make additional
cash equity contributions to Superior to finance its working capital
requirements and fund its cash operating losses.
12.
|
STOCKHOLDERS’
EQUITY
|
Common
Stock and Preferred Stock
The
following table presents information regarding our common stock (in
thousands):
December 31,
|
||||||||
2009
|
2008
|
|||||||
Shares
authorized
|
60,000 | 60,000 | ||||||
Shares
outstanding at end of period
|
37,558 | 36,793 | ||||||
Shares
held in treasury
|
552 | 459 |
Under our
restated certificate of incorporation, we are authorized to issue 10,000,000
shares of preferred stock, $0.001 par value, of which none were issued or
outstanding as of December 31, 2009 and 2008.
Restricted
Stock
Shares of
restricted common stock issued under our 1999 Incentive Plan, 2001 Employee
Incentive Plan and 2008 Incentive Plan are subject to restrictions on transfer
and certain other conditions (See Note 7 regarding stock-based
compensation). 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.
Treasury
Stock
Employees may elect to satisfy their
tax obligations on the vesting of their restricted stock by having us 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, during the years ended December 31, we withheld
approximately 93,000 shares at a total value of $0.2 million in 2009,
approximately 144,000 shares at a total value of $0.5 million in 2008 and
approximately 84,000 shares at a total value of $0.8 million in 2007. We
accounted for the withholding of these shares as treasury
stock.
71
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Employee
Stock Purchase Plan
In
January 2000, our board of directors adopted and our stockholders approved the
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 personnel employed by us for at
least 20 hours per week and five months per calendar year are eligible to
participate in the ESPP. For any offering period ending on or prior
to December 31, 2006, eligible employees electing to participate were granted
the right to purchase shares of our common stock at a price generally equal to
85% of the lower of the fair market value of a share of our common stock on the
first or last day of the offering period. For any offering period
beginning on or after January 1, 2007, eligible employees electing to
participate will be granted the right to purchase shares of our common stock at
a price equal to 85% of the fair market value of a share of our common stock on
the last day of the offering period. We issued approximately 408,000
shares in 2009, 213,000 shares in 2008 and 221,000 shares in 2007. We
recognized stock-based compensation expense of $0.1 million in both 2009 and
2008 and $0.2 million in 2007 pursuant to the plan.
Share
Repurchase Plan
On
January 7, 2008, our Board of Directors approved a plan to repurchase up to an
aggregate of three million shares of our common stock. The Board
modified the repurchase plan in October 2008 to slightly increase the aggregate
number of shares authorized for repurchase. The plan permitted the
stock repurchases to be made on the open market or in privately negotiated
transactions in compliance with applicable securities and other
laws. As of December 31, 2008, we had repurchased and subsequently
cancelled 3,148,405 shares with an aggregate value of $6.6 million and completed
the repurchase program.
13.
|
INCOME
TAXES
|
Our
consolidated federal and state tax returns include the results of operations of
acquired businesses from their dates of acquisition.
A
reconciliation of our effective income tax rate to the amounts calculated by
applying the federal statutory corporate tax rate of 35% during the years ended
December 31, 2009, 2008 and 2007 is as follows (in thousands):
2009
|
2008
|
2007
|
||||||||||
Tax
benefit at statutory rate
|
$ | (33,268 | ) | $ | (54,433 | ) | $ | (22,300 | ) | |||
Add
(deduct):
|
||||||||||||
State
income taxes
|
(597 | ) | (1,467 | ) | 867 | |||||||
Manufacturing
deduction
|
— | 563 | (270 | ) | ||||||||
Settlement
income
|
— | (83 | ) | (291 | ) | |||||||
Tax
audit settlement
|
— | — | (1,611 | ) | ||||||||
Goodwill
impairment
|
14,649 | 33,913 | 23,751 | |||||||||
Valuation
Allowance
|
17,918 | 227 | 0 | |||||||||
Other
|
1,109 | 1,679 | (98 | ) | ||||||||
Income
tax provision (benefit)
|
$ | (188 | ) | $ | (19,601 | ) | $ | 48 | ||||
Effective
income tax rate
|
0.2 | % | 12.6 | % | (0.1 | )% |
The
amounts of our consolidated federal and state income tax provision (benefit)
from continuing operations during the years ended December 31, 2009, 2008 and
2007 are as follows (in thousands):
2009
|
2008
|
2007
|
||||||||||
Current:
|
||||||||||||
Federal
|
$ | (1,324 | ) | $ | (5,254 | ) | $ | 4,446 | ||||
State
|
285 | 439 | 1,042 | |||||||||
(1,039 | ) | (4,815 | ) | 5,488 | ||||||||
Deferred:
|
||||||||||||
Federal
|
$ | (1,671 | ) | $ | (13,277 | ) | $ | (4,799 | ) | |||
State
|
2,522 | (1,509 | ) | (641 | ) | |||||||
851 | (14,786 | ) | (5,440 | ) | ||||||||
Income
tax provision (benefit) from continuing operations
|
$ | (188 | ) | $ | (19,601 | ) | $ | 48 |
72
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Deferred
income tax provisions result from temporary differences in the recognition of
expenses for financial reporting purposes and for tax reporting
purposes. We present the effects of those differences as deferred
income tax liabilities and assets, as follows (in thousands):
December 31,
|
||||||||
2009
|
2008
|
|||||||
Deferred
income tax liabilities:
|
||||||||
Property,
plant and equipment, net
|
$ | 45,860 | $ | 46,940 | ||||
Other
|
318 | 318 | ||||||
Total
deferred tax liabilities
|
$ | 46,178 | $ | 47,258 | ||||
Deferred
income tax assets:
|
||||||||
Goodwill
and other intangibles
|
$ | 26,445 | $ | 24,880 | ||||
Receivables
|
1,785 | 1,120 | ||||||
Inventory
|
1,724 | 1,599 | ||||||
Accrued
insurance
|
4,269 | 4,269 | ||||||
Other
accrued expenses
|
6,261 | 6,872 | ||||||
Net
operating loss carryforwards
|
20,937 | 6,710 | ||||||
Other
|
1,091 | 1,075 | ||||||
Total
deferred tax assets
|
$ | 62,512 | $ | 46,525 | ||||
Less: Valuation
allowance
|
(18,145 | ) | (227 | ) | ||||
Net
deferred tax assets
|
44,367 | 46,298 | ||||||
Net
deferred tax liabilities
|
1,811 | 960 | ||||||
Current
deferred tax assets
|
7,847 | 11,576 | ||||||
Long-term
deferred tax liabilities
|
$ | 9,658 | $ | 12,536 |
In
assessing the value of deferred tax assets at December 31, 2009 and 2008,
we 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. We consider
the scheduled reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in making this assessment. Based on these
considerations, we established valuation allowances as of December 31, 2009
and 2008 in the amount of $18.1 million and $0.2 million, respectively, for
deferred tax assets relating to certain federal and state net operating loss and
tax credit carryforwards because of uncertainty regarding their ultimate
realization.
As of
December 31, 2009, we had deferred tax assets related to federal NOL and tax
credit carryforwards of $56.1 million. We have federal NOLs of
approximately $55.3 million that are available to offset federal taxable income
and will expire in the years 2026 through 2029. In addition, we have
federal alternative minimum tax credit carryforwards of approximately $0.8
million that are available to reduce future regular federal income taxes over an
indefinite period.
As
disclosed in Note 2, we adopted the provisions of authoritative accounting
guidance related to uncertain tax positions as of January 1, 2007. At
December 31, 2009, we had unrecognized tax benefits of $5.3 million of
which $2.3 million, if recognized, would impact the effective tax rate. It is
reasonably possible that a reduction of $2.4 million of unrecognized tax
benefits may occur within 12 months. The unrecognized tax benefits are included
as a component of other long-term obligations. During the years ended
December 31, 2009 and 2008, we recorded interest and penalties related to
unrecognized tax benefits of approximately ($0.1) million and $0.4
million. Total accrued penalties and interest at December 31,
2009 and 2008 was approximately $0.8 million and $0.9 million, respectively. A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows (in thousands):
2009
|
2008
|
|||||||
Balance
as of January 1
|
$ | 6,836 | $ | 6,421 | ||||
Additions
for tax positions related to the current year
|
106 | 138 | ||||||
Additions
for tax positions related to prior years
|
— | 284 | ||||||
Reductions
for tax positions of prior years
|
(1,602 | ) | (7 | ) | ||||
Balance
as of December 31
|
$ | 5,340 | $ | 6,836 |
We
recognize interest and penalties related to uncertain tax positions in income
tax expense.
We
conduct business domestically and, as a result, U.S. Concrete, Inc. or one or
more of our subsidiaries file income tax returns in the U.S. federal
jurisdiction and various state and local jurisdictions. In the normal course of
business, we are subject to examination in U.S. federal jurisdiction, and
generally in state jurisdictions. With few exceptions, we are no longer
subject to U.S. federal, state and local tax examinations for years before
2004.
73
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
14.
|
BUSINESS
SEGMENTS
|
We have
two segments that serve our principal markets in the United
States. Our ready-mixed concrete and concrete-related products
segment produces and sells ready-mixed concrete, aggregates (crushed stone, sand
and gravel), concrete masonry and building materials. This segment serves
the following principal markets: north and west Texas, northern California, New
Jersey, New York, Washington, D.C., Michigan and Oklahoma. Our precast
concrete products segment produces and sells precast concrete products in select
markets in the western United States and the mid-Atlantic region.
We
account for inter-segment sales at market prices. Segment operating loss
consists of net revenue less operating expense, including certain operating
overhead directly related to the operation of the specific segment.
Corporate includes executive, administrative, financial, legal, human resources,
business development and risk management activities which are not allocated to
operations and are excluded from segment operating loss.
The
following table sets forth certain financial information relating to our
continuing operations by reportable segment (in thousands):
2009
|
2008
|
2007
|
||||||||||
Revenue:
|
||||||||||||
Ready-mixed
concrete and concrete-related products
|
$ | 491,755 | $ | 702,525 | $ | 745,384 | ||||||
Precast
concrete products
|
56,959 | 68,082 | 73,300 | |||||||||
Inter-segment
revenue
|
(14,229 | ) | (16,309 | ) | (14,881 | ) | ||||||
Total
revenue
|
$ | 534,485 | $ | 754,298 | $ | 803,803 | ||||||
Segment Operating
Loss:
|
||||||||||||
Ready-mixed
concrete and concrete-related products
|
$ | (62,366 | ) | $ | (85,334 | ) | $ | (32,129 | ) | |||
Precast
concrete products
|
298 | (22,629 | ) | (1,454 | ) | |||||||
Gain
on purchases of senior subordinated notes
|
7,406 | — | — | |||||||||
Unallocated
overhead and other income
|
4,108 | 2,820 | 12,503 | |||||||||
Corporate:
|
||||||||||||
Selling,
general and administrative expense
|
(18,044 | ) | (23,541 | ) | (15,955 | ) | ||||||
Loss
on sale of assets
|
(3 | ) | 217 | — | ||||||||
Interest
income
|
22 | 114 | 114 | |||||||||
Interest
expense
|
(26,472 | ) | (27,170 | ) | (28,092 | ) | ||||||
Loss
from continuing operations before income taxes and non-controlling
interest
|
$ | (95,051 | ) | $ | (155,523 | ) | $ | (65,013 | ) | |||
Depreciation,
Depletion and Amortization:
|
||||||||||||
Ready-mixed
concrete and concrete-related products
|
$ | 24,539 | $ | 26,138 | $ | 26,539 | ||||||
Precast
concrete products
|
2,870 | 2,683 | 1,940 | |||||||||
Corporate
|
2,212 | 1,081 | 403 | |||||||||
Total depreciation,
depletion and amortization
|
$ | 29,621 | $ | 29,902 | $ | 28,882 | ||||||
Capital
Expenditures:
|
||||||||||||
Ready-mixed
concrete and concrete-related products
|
$ | 13,562 | $ | 26,178 | $ | 21,060 | ||||||
Precast
concrete products
|
377 | 2,247 | 7,786 | |||||||||
Total
capital expenditures
|
$ | 13,939 | $ | 28,425 | $ | 28,846 | ||||||
Revenue
by Product:
|
||||||||||||
Ready-mixed
concrete
|
$ | 430,521 | $ | 614,070 | $ | 658,128 | ||||||
Precast
concrete products
|
57,495 | 69,162 | 75,153 | |||||||||
Building
materials
|
10,002 | 16,623 | 19,427 | |||||||||
Aggregates
|
21,857 | 26,029 | 26,490 | |||||||||
Other
|
14,610 | 28,414 | 24,605 | |||||||||
Total
revenue
|
$ | 534,485 | $ | 754,298 | $ | 803,803 |
74
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
2009
|
2008
|
|||||||
Identifiable
Assets (as of December 31):
|
||||||||
Ready-mixed
concrete and concrete-related products
|
$ | 203,681 | $ | 234,588 | ||||
Precast
concrete products
|
23,496 | 26,060 | ||||||
Corporate
|
12,740 | 12,121 | ||||||
Total
identifiable assets
|
$ | 239,917 | $ | 272,769 |
15.
|
RISK
CONCENTRATION
|
We grant
credit, generally without collateral, to our customers, which include general
contractors, municipalities and commercial companies located primarily in Texas,
California, New Jersey, New York, Michigan and Oklahoma. Consequently, we are
subject to potential credit risk related to changes in business and economic
factors in those states. We generally have lien rights in the work we
perform, and concentrations of credit risk are limited because of the diversity
of our customer base. Further, our management believes that our contract
acceptance, billing and collection policies are adequate to limit any potential
credit risk.
Our cash
deposits are distributed among various banks in areas where we have operations
in various regions of the United States as of December 31, 2009. As a
result, we believe that credit risk in such instruments is minimal.
16.
|
COMMITMENTS
AND CONTINGENCIES
|
Legal
Proceedings
From time to time, and currently, we
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 our operations. As a result of these
types of claims and litigation, we must periodically evaluate the probability of
damages being assessed against us and the range of possible
outcomes. In each reporting period, if we determine that the
likelihood of damages being assessed against us is probable, and, if we believe
we can estimate a range of possible outcomes, then we record a liability
reflecting either the low end of our range or a specific estimate, if we believe
a specific estimate to be likely based on current information. At
December 31, 2009, we have accrued $2.6 million for potential damages associated
with three separate class actions pending against us in Alameda Superior Court
(California). Four class actions were filed between April 6, 2007 and
September 27, 2007 on behalf of various Central Concrete Supply Co., Inc.
(“Central”) ready-mixed concrete and transport drivers, alleging primarily that
Central, which is one of our subsidiaries, failed to provide meal and rest
breaks as required under California law. We have settled with the class
consisting of the transport drivers and have entered into settlements with more
than half of the individual ready-mix drivers for approximately $2.5 million.
The remaining three classes have been consolidated and a single class was
certified on July 24, 2009. Our accrual is based on prior settlement
values. While there can be no assurance that we will be able to fully
resolve the remaining class actions without exceeding this existing accrual,
based on information available to us as of December 31, 2009, we believe our
existing accrual for these matters is reasonable.
In May
2008, we received a letter from a multi-employer pension plan to which one of
our subsidiaries is a contributing employer, providing notice that the Internal
Revenue Service had denied applications by the plan for waivers of the minimum
funding deficiency from prior years, and requesting payment of approximately
$1.3 million as our allocable share of the minimum funding
deficiency. We continue to evaluate several options to minimize our
exposure. We may receive future funding deficiency demands from this
particular multi-employer pension plan, or other multi-employer plans to which
we contribute. We are unable to estimate the amount of any potential
future funding deficiency demands, because the actions of each of the other
contributing employers in the plans has an effect on each of the other
contributing employers, the development of a rehabilitation plan by the trustees
and subsequent submittal to and approval by the Internal Revenue Service is not
predictable, and the allocation of fund assets and return assumptions by
trustees are variable, as are actual investment returns relative to the plan
assumptions.
Currently, there are no material
product defects claims pending against us. Accordingly, our existing
accruals for claims against us do not reflect any material amounts relating to
products defects claims. While our management is not aware of any
facts that would reasonably be expected to lead to material product defects
claims against us that would have a material adverse effect on our business,
financial condition or results of operations, it is possible that claims could
be asserted against us in the future. We do not maintain insurance
that would cover all damages resulting from product defects
claims. In particular, we generally do not maintain insurance
coverage for the cost of removing and rebuilding structures, or so-called “rip
and tear” coverage. In addition, our indemnification arrangements
with contractors or others, when obtained, generally provide only limited
protection against product defects claims. Due to inherent
uncertainties associated with estimating unasserted claims in our business, we
cannot estimate the amount of any future loss that may be attributable to
unasserted product defects claims related to ready-mixed concrete we have
delivered prior to December 31, 2009.
75
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
We believe that the resolution of all
litigation currently pending or threatened against us or any of our subsidiaries
will not materially exceed our existing accruals for those
matters. However, because of the inherent uncertainty of litigation,
there is a risk that we may have to increase our accruals for one or more claims
or proceedings to which we or any of our subsidiaries is a party as more
information becomes available or proceedings progress, and any such increase in
accruals could have a material adverse effect on our consolidated financial
condition or results of operations. We expect in the future that we
and our operating subsidiaries will from time to time be a party to litigation
or administrative proceedings that arise in the normal course of our
business.
We are
subject to federal, state and local environmental laws and regulations
concerning, among other matters, air emissions and wastewater discharge. Our
management believes we are in substantial compliance with applicable
environmental laws and regulations. From time to time, we receive claims from
federal and state environmental regulatory agencies and entities asserting that
we may be in violation of environmental laws and regulations. Based on
experience and the information currently available, our management believes the
possibility that these claims could materially exceed our related accrual is
remote. Despite compliance and experience, it is possible that we
could be held liable for future charges, which might be material, but are not
currently known to us or cannot be estimated by us. 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, we have agreements that provide indemnification of
officers and directors for certain events or occurrences while the officer or
director is or was serving at our request in such capacity. The maximum
potential amount of future payments that we could be required to make under
these indemnification agreements is not limited; however, we have a director and
officer insurance policy that potentially limits our exposure and enables us to
recover a portion of future amounts that may be paid. As a result of
the insurance policy coverage, we believe the estimated fair value of these
indemnification agreements is minimal. Accordingly, we have not recorded any
liabilities for these agreements as of December 31, 2009.
We and
our subsidiaries are parties to agreements that require us to provide
indemnification in certain instances when we acquire businesses and real estate
and in the ordinary course of business with our customers, suppliers, lessors
and service providers.
Lease
Payments
We lease
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 $16.4 million in 2009, $14.7
million in 2008, and $17.8 million in 2007.
Future
minimum rental payments with respect to our lease obligations as of December 31,
2009, are as follows:
Capital
Leases
|
Operating
Leases
|
|||||||
(in
millions)
|
||||||||
Year
ending December 31:
|
||||||||
2010
|
$ | 0.2 | $ | 12.1 | ||||
2011
|
— | 9.3 | ||||||
2012
|
— | 6.7 | ||||||
2013
|
— | 6.4 | ||||||
Later years
|
— | 29.1 | ||||||
$ | 0.2 | $ | 63.6 | |||||
Total
future minimum rental payments
|
$ | 0.3 | ||||||
Less
amounts representing imputed interest
|
0.1 | |||||||
Present
value of future minimum rental payments under capital
leases
|
0.2 | |||||||
Less
current portion
|
0.2 | |||||||
Long-term
capital lease obligations
|
$ | — |
76
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Insurance Programs
We
maintain third-party insurance coverage against certain risks. Under
certain components of our insurance program, we share the risk of loss with our
insurance underwriters by maintaining high deductibles subject to aggregate
annual loss limitations. Generally, our deductible retentions per
occurrence for auto, workers’ compensation and general liability insurance
programs are $1.0 million, although certain of our operations are self-insured
for workers’ compensation. We fund these deductibles and record an
expense for expected losses under the programs. The expected losses
are determined 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 patterns, claims settlement patterns, judicial decisions, legislation
and economic conditions. Although we believe that the estimated
losses we have recorded are reasonable, significant differences related to the
items noted above could materially affect our insurance obligations and future
expense.
In March
2007, we settled a lawsuit with a third-party claims administrator responsible
for handling workers’ compensation claims related to 2002 and
2003. The settlement relieves us of any future responsibility
relating to certain workers’ compensation claims and required the payment of
$225,000 in cash to us by the third-party administrator. As a result,
we recorded additional income of approximately $1.4 million resulting from the
reversal of accrued liabilities relating to workers’ compensation claims
associated with 2002 and 2003 and the cash settlement amount. The
additional income is reported in our financial statements primarily as an offset
to cost of sales in 2007.
Performance Bonds
In the
normal course of business, we and our subsidiaries are contingently liable for
performance under $42.9 million in performance bonds that various contractors,
states and municipalities have required. The bonds principally relate to
construction contracts, reclamation obligations and mining
permits. We and our subsidiaries have indemnified the underwriting
insurance company against any exposure under the performance bonds. No material
claims have been made against these bonds.
17.
|
SIGNIFICANT
CUSTOMERS AND SUPPLIERS
|
We did
not have any customers that accounted for more than 10% of our revenues or any
suppliers that accounted for more than 10% of our cost of goods sold in 2009,
2008 or 2007.
18.
|
EMPLOYEE
BENEFIT PLANS
|
We
maintain 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. Through December 31, 2009, we matched 100% of
employee contributions up to a maximum of 5% of their
compensation. Effective January 1, 2010, we have suspended matching
contributions. We paid matching contributions of $2.5 million in 2009, $3.1
million in 2008, and $3.5 million in 2007.
Several of our subsidiaries are
parties to various collective bargaining agreements with labor unions having
multi-year terms that expire on a staggered basis. Under these
agreements, our applicable subsidiaries pay specified wages to covered
employees, observe designated workplace rules and make payments to
multi-employer pension plans and employee benefit trusts rather than
administering the funds on behalf of these employees. During 2006,
the “Pension Protection Act of 2006” (the “PPA”) was signed into law. For
multiemployer defined benefit plans, the PPA establishes new funding
requirements or rehabilitation requirements, creates additional funding rules
for plans that are in endangered or critical status, and introduces enhanced
disclosure requirements to participants regarding a plan’s funding status. The
Worker, Retiree and Employer Recovery Act of 2008 (the “WRERA”) was enacted on
December 23, 2008 and provides some funding relief to defined benefit plan
sponsors affected by recent market conditions. The WRERA allows
multiemployer plan sponsors to elect to freeze their current fund status at the
same funding status as the preceding plan year (for example, a calendar year
plan that is not in critical or endangered status for 2008 may elect to retain
that status for 2009), and sponsors of multiemployer plans in endangered or
critical status in plan years beginning in 2008 or 2009 are allowed a three-year
extension of funding improvement or rehabilitation plans (extends timeline for
these plans to accomplish their goals from 10 years to 13 years, or from 15
years to 18 years for seriously endangered plans).
77
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In
connection with our collective bargaining agreements, we participate with other
companies in the unions’ multi-employer pension plans. These plans cover
substantially all of U.S. Concrete’s 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
employer’s withdrawal from, or on termination of, that plan. In 2001,
a subsidiary of one of our subsidiaries withdrew from the multi-employer pension
plan of the union that represented several of its employees. That union
disclaimed interest in representing those employees. There are no
plans to withdraw from any other multi-employer plans. Our
contributions to these plans were $5.6 million in 2009, $6.9 million in 2008,
and $6.4 million in 2007.
See Note
12 for discussions of U.S. Concrete’s incentive plans and employee stock
purchase plan.
19.
|
STOCKHOLDER
RIGHTS PLAN
|
In
November 2009, our Board of Directors adopted a Stockholder Rights Plan designed
to protect stockholder value by preserving the value of certain of our deferred
tax assets primarily associated with net operating loss carryforwards under
Section 382 of the Internal Revenue Code. Our ability to use net
operating losses carryforwards and other tax benefits could be substantially
reduced if an "ownership change" under Section 382 were to occur. The
Stockholder Rights Plan was adopted to reduce the likelihood of an unintended
"ownership change" occurring as a result of ordinary buying and selling of
shares of our common stock. The Stockholder Rights Plan entails a dividend
of one right for each outstanding share of our common stock. Each right
will entitle the holder to buy one one-hundredth of a share of a new Series A
Junior Participating Preferred Stock, for an exercise price of $10.00. Each one
one-hundredth of a share of such preferred stock would be essentially the
economic equivalent of one share of our common stock.
The
rights will trade with our common stock until exercisable. The rights
will not be exercisable until ten days following a public announcement that a
person or group has acquired 4.9% of our common stock or until ten business
days after a person or group begins a tender offer that would result in
ownership of 4.9% of our common stock, subject to certain extensions by the
Board of Directors. In the event that an acquiror becomes a 4.9% beneficial
owner of our common stock, the rights "flip in" and become rights to
buy our common stock at a 50% discount, and rights owned by that acquiror
become void.
In the
event that our company is merged and our common stock is exchanged or
converted, or if 50% or more of our assets or earning power is sold or
transferred, the rights "flip over" and entitle the holders to buy shares of the
acquiror's common stock at a 50% discount. A tender or exchange offer for all
outstanding shares of our common stock at a price and on terms
determined to be fair and otherwise in the best interests of our company and our
stockholders by a majority of our independent directors will not trigger either
the flip-in or flip-over provisions.
We may
redeem the rights for $0.001 per right at any time until ten days following the
first public announcement that an acquiror has acquired the level of ownership
that "triggers" the Stockholder Rights Plan. The rights extend for ten years and
will expire on October 31, 2019. The distribution of the rights will be made to
stockholders of record on November 16, 2009.
78
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
20.
|
FINANCIAL
STATEMENTS OF SUBSIDIARY GUARANTORS
|
All of
our subsidiaries, excluding Superior (see Note 6) and minor subsidiaries, have
jointly and severally and fully and unconditionally guaranteed the repayment of
our long-term debt. We directly or indirectly own 100% of each
subsidiary guarantor. The following supplemental financial
information sets forth, on a condensed consolidating basis, the financial
statements for U.S. Concrete, Inc., the parent company and its subsidiary
guarantors (including minor subsidiaries), Superior and our consolidated company
as of and for the years ended December 31, 2009 and 2008.
Condensed
Consolidating Balance Sheet
As
of December 31, 2009:
|
U.S.
Concrete
Parent
|
Subsidiary
Guarantors1 |
Superior
|
Eliminations
|
Consolidated
|
|||||||||||||||
|
(in
thousands)
|
|||||||||||||||||||
ASSETS
|
||||||||||||||||||||
Current
assets:
|
||||||||||||||||||||
Cash
and cash equivalents
|
$ | — | $ | 3,970 | $ | 259 | $ | — | $ | 4,229 | ||||||||||
Trade
accounts receivable, net.
|
— | 67,021 | 7,830 | — | 74,851 | |||||||||||||||
Inventories
|
— | 27,459 | 3,501 | — | 30,960 | |||||||||||||||
Deferred
income taxes
|
— | 7,847 | — | — | 7,847 | |||||||||||||||
Prepaid
expenses
|
— | 3,361 | 368 | — | 3,729 | |||||||||||||||
Other
current assets
|
— | 5,876 | 1,097 | — | 6,973 | |||||||||||||||
Total
current assets
|
— | 115,534 | 13,055 | — | 128,589 | |||||||||||||||
Property,
plant and equipment, net
|
— | 220,082 | 19,835 | — | 239,917 | |||||||||||||||
Goodwill
|
— | 14,063 | — | — | 14,063 | |||||||||||||||
Investment
in Subsidiaries
|
281,664 | 13,824 | — | (295,488 | ) | — | ||||||||||||||
Other
assets
|
4,867 | 1,672 | 52 | — | 6,591 | |||||||||||||||
Total
assets
|
$ | 286,531 | $ | 365,175 | $ | 32,942 | $ | (295,488 | ) | $ | 389,160 | |||||||||
LIABILITIES
AND EQUITY
|
||||||||||||||||||||
Current
liabilities:
|
||||||||||||||||||||
Current maturities of long-term debt
|
$ | 860 | $ | 1,245 | $ | 5,768 | $ | — | $ | 7,873 | ||||||||||
Accounts payable
|
— | 30,768 | 6,910 | — | 37,678 | |||||||||||||||
Accrued liabilities
|
6,584 | 35,533 | 6,440 | — | 48,557 | |||||||||||||||
Total
current liabilities
|
7,444 | 67,546 | 19,118 | — | 94,108 | |||||||||||||||
Long-term
debt, net of current maturities
|
288,529 | 140 | — | — | 288,669 | |||||||||||||||
Other
long-term obligations and deferred credits
|
6,300 | 616 | — | — | 6,916 | |||||||||||||||
Deferred
income taxes
|
— | 9,658 | — | — | 9,658 | |||||||||||||||
Total
liabilities
|
302,273 | 77,960 | 19,118 | — | 399,351 | |||||||||||||||
Equity:
|
||||||||||||||||||||
Common
stock
|
38 | — | — | — | 38 | |||||||||||||||
Additional
paid-in capital
|
268,306 | 530,284 | 42,757 | (573,041 | ) | 268,306 | ||||||||||||||
Retained
deficit
|
(280,802 | ) | (248,620 | ) | (28,933 | ) | 277,553 | (280,802 | ) | |||||||||||
Treasury
stock, at cost
|
(3,284 | ) | — | — | — | (3,284 | ) | |||||||||||||
Total
stockholders’ equity
|
(15,742 | ) | 281,664 | 13,824 | (295,488 | ) | (15,742 | ) | ||||||||||||
Non-controlling
interest
|
— | 5,551 | — | — | 5,551 | |||||||||||||||
Total
equity
|
(15,742 | ) | 287,215 | 13,824 | (295,488 | ) | (10,191 | ) | ||||||||||||
Total
liabilities and equity
|
$ | 286,531 | $ | 365,175 | $ | 32,942 | $ | (295,488 | ) | $ | 389,160 |
1
Including minor subsidiaries without operations or material
assets.
79
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Condensed Consolidating Statement of
Operations
Year
ended December 31, 2009:
|
U.S. Concrete
Parent
|
Subsidiary
Guarantors1
|
Superior
|
Eliminations
|
Consolidated
|
|||||||||||||||
(in
thousands)
|
||||||||||||||||||||
Revenue
|
$ | — | $ | 485,393 | $ | 49,092 | $ | — | $ | 534,485 | ||||||||||
Cost
of goods sold before depreciation, depletion and
amortization
|
— | 410,444 | 48,770 | — | 459,214 | |||||||||||||||
Selling,
general and administrative expenses
|
— | 60,075 | 5,993 | — | 66,068 | |||||||||||||||
Goodwill
and other asset impairments
|
— | 47,595 | 7,150 | — | 54,745 | |||||||||||||||
Depreciation,
depletion and amortization
|
— | 26,325 | 3,296 | — | 29,621 | |||||||||||||||
(Gain)
loss on sale of assets
|
— | 2,396 | (129 | ) | — | 2,267 | ||||||||||||||
Loss
from operations
|
— | (61,442 | ) | (15,988 | ) | — | (77,430 | ) | ||||||||||||
Interest
expense, net
|
25,804 | 137 | 509 | — | 26,450 | |||||||||||||||
Gain
on purchases of senior subordinated notes
|
7,406 | — | — | — | 7,406 | |||||||||||||||
Other
income, net
|
— | 1,309 | 114 | — | 1,423 | |||||||||||||||
Income
(loss) before income tax provision
|
(18,398 | ) | (60,270 | ) | (16,383 | ) | — | (95,051 | ) | |||||||||||
Income
tax expense (benefit)
|
(6,439 | ) | 6,103 | 148 | — | (188 | ) | |||||||||||||
Equity
losses in subsidiary
|
(76,279 | ) | (16,531 | ) | — | 92,810 | — | |||||||||||||
Income
(loss) from continuing operations
|
(88,238 | ) | (82,904 | ) | (16,531 | ) | 92,810 | (94,863 | ) | |||||||||||
Loss
from discontinued operations, net of tax
|
— | — | — | — | — | |||||||||||||||
Net
loss
|
(88,238 | ) | (82,904 | ) | (16,531 | ) | 92,810 | (94,863 | ) | |||||||||||
Net
loss attributable to non-controlling interest
|
— | 6,625 | — | — | 6,625 | |||||||||||||||
Net
loss attributable to stockholders
|
$ | (88,238 | ) | $ | (76,279 | ) | $ | (16,531 | ) | $ | 92,810 | $ | (88,238 | ) |
Condensed Consolidating Statement of
Cash Flows
Year
ended December 31, 2009:
|
U.S. Concrete
Parent
|
Subsidiary
Guarantors1
|
Superior
|
Eliminations
|
Consolidated
|
|||||||||||||||
(in
thousands)
|
||||||||||||||||||||
Net
cash provided by (used in) operating activities
|
$ | 7,043 | $ | 5,804 | $ | (4,836 | ) | $ | — | $ | 8,011 | |||||||||
Net
cash provided by (used in) investing activities
|
— | (9,264 | ) | 246 | — | (9,018 | ) | |||||||||||||
Net
cash provided by (used in) financing activities
|
(7,043 | ) | 2,745 | 4,211 | — | (87 | ) | |||||||||||||
Net
decrease in cash and cash equivalents
|
— | (715 | ) | (379 | ) | — | (1,094 | ) | ||||||||||||
Cash
and cash equivalents at the beginning of the period
|
— | 4,685 | 638 | — | 5,323 | |||||||||||||||
Cash
and cash equivalents at the end of the period
|
$ | — | $ | 3,970 | $ | 259 | $ | — | $ | 4,229 |
1
Including minor subsidiaries without operations or material
assets.
80
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Condensed
Consolidating Balance Sheet
As
of December 31, 2008:
|
U.S.
Concrete
Parent
|
Subsidiary
Guarantors1
|
Superior
|
Eliminations
|
Consolidated
|
|||||||||||||||
|
(in
thousands)
|
|||||||||||||||||||
ASSETS
|
||||||||||||||||||||
Current
assets:
|
||||||||||||||||||||
Cash and cash
equivalents
|
$ | — | $ | 4,685 | $ | 638 | $ | — | $ | 5,323 | ||||||||||
Trade accounts receivable,
net.
|
— | 89,483 | 10,786 | — | 100,269 | |||||||||||||||
Inventories
|
— | 28,438 | 4,330 | — | 32,768 | |||||||||||||||
Deferred income
taxes
|
— | 11,576 | — | — | 11,576 | |||||||||||||||
Prepaid expenses
|
— | 3,178 | 341 | — | 3,519 | |||||||||||||||
Other current
assets
|
4,886 | 7,977 | 938 | — | 13,801 | |||||||||||||||
Total current
assets
|
4,886 | 145,337 | 17,033 | — | 167,256 | |||||||||||||||
Property,
plant and equipment, net
|
— | 242,371 | 30,398 | — | 272,769 | |||||||||||||||
Goodwill
|
— | 59,197 | — | — | 59,197 | |||||||||||||||
Investment
in Subsidiaries
|
369,853 | 26,334 | — | (396,187 | ) | — | ||||||||||||||
Other
assets
|
6,751 | 1,747 | 90 | — | 8,588 | |||||||||||||||
Total assets
|
$ | 381,490 | $ | 474,986 | $ | 47,521 | $ | (396,187 | ) | $ | 507,810 | |||||||||
LIABILITIES
AND EQUITY
|
||||||||||||||||||||
Current
liabilities:
|
||||||||||||||||||||
Current maturities of long-term
debt
|
$ | 819 | $ | 2,291 | $ | 261 | $ | — | $ | 3,371 | ||||||||||
Accounts payable
|
— | 32,870 | 13,050 | — | 45,920 | |||||||||||||||
Accrued
liabilities
|
7,000 | 44,922 | 2,559 | — | 54,481 | |||||||||||||||
Total current
liabilities
|
7,819 | 80,083 | 15,870 | — | 103,772 | |||||||||||||||
Long-term
debt, net of current maturities
|
295,931 | 1,369 | 5,317 | — | 302,617 | |||||||||||||||
Other
long-term obligations and deferred credits
|
7,944 | 578 | — | — | 8,522 | |||||||||||||||
Deferred
income taxes
|
— | 12,536 | — | — | 12,536 | |||||||||||||||
Total
liabilities
|
311,694 | 94,566 | 21,187 | — | 427,447 | |||||||||||||||
Equity:
|
||||||||||||||||||||
Common stock
|
37 | — | — | — | 37 | |||||||||||||||
Additional paid-in
capital
|
265,453 | 542,194 | 38,736 | (580,930 | ) | 265,453 | ||||||||||||||
Retained
deficit
|
(192,564 | ) | (172,341 | ) | (12,402 | ) | 184,743 | (192,564 | ) | |||||||||||
Treasury stock, at
cost
|
(3,130 | ) | — | — | — | (3,130 | ) | |||||||||||||
Total stockholders’
equity
|
69,796 | 369,853 | 26,334 | (396,187 | ) | 69,796 | ||||||||||||||
Non-controlling
interest
|
— | 10,567 | — | — | 10,567 | |||||||||||||||
Total equity
|
69,796 | 380,420 | 26,334 | (396,187 | ) | 80,363 | ||||||||||||||
Total liabilities and
stockholders’ equity
|
$ | 381,490 | $ | 474,986 | $ | 47,521 | $ | (396,187 | ) | $ | 507,810 |
1
Including minor subsidiaries without operations or material
assets.
81
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Condensed
Consolidating Statement of Operations
Year
ended December 31, 2008:
|
U.S.
Concrete
Parent
|
Subsidiary
Guarantors1
|
Superior
|
Eliminations
|
Consolidated
|
|||||||||||||||
(in
thousands)
|
||||||||||||||||||||
Revenue
|
$ | — | $ | 685,421 | $ | 68,877 | $ | — | $ | 754,298 | ||||||||||
Cost
of goods sold before depreciation, depletion and
amortization
|
— | 572,518 | 66,930 | — | 639,448 | |||||||||||||||
Selling,
general and administrative expenses
|
— | 72,892 | 6,148 | — | 79,040 | |||||||||||||||
Goodwill
and other asset impairments
|
— | 135,612 | 19 | — | 135,631 | |||||||||||||||
Depreciation,
depletion and amortization
|
— | 25,447 | 4,455 | — | 29,902 | |||||||||||||||
(Gain)
loss on sale of assets
|
— | 767 | (39 | ) | — | 728 | ||||||||||||||
Loss
from operations
|
— | (121,815 | ) | (8,636 | ) | — | (130,451 | ) | ||||||||||||
Interest
expense, net
|
26,109 | 361 | 586 | — | 27,056 | |||||||||||||||
Other
income, net
|
— | 1,836 | 148 | — | 1,984 | |||||||||||||||
Income
(loss) before income tax provision
|
(26,109 | ) | (120,340 | ) | (9,074 | ) | — | (155,523 | ) | |||||||||||
Income
tax expense (benefit)
|
(9,138 | ) | (10,539 | ) | 76 | — | (19,601 | ) | ||||||||||||
Equity
losses in subsidiary
|
(115,475 | ) | (9,150 | ) | — | 124,625 | — | |||||||||||||
Income
(loss) from continuing operations
|
(132,446 | ) | (118,951 | ) | (9,150 | ) | 124,625 | (135,922 | ) | |||||||||||
Loss
from discontinued operations, net of tax
|
— | (149 | ) | — | — | (149 | ) | |||||||||||||
Net
loss
|
(132,446 | ) | (119,100 | ) | (9,150 | ) | 124,625 | (136,071 | ) | |||||||||||
Net
loss attributable to non-controlling interest
|
— | 3,625 | — | — | 3,625 | |||||||||||||||
Net
loss attributable to stockholders
|
$ | (132,446 | ) | $ | (115,475 | ) | $ | (9,150 | ) | $ | 124,625 | $ | (132,446 | ) |
Condensed Consolidating Statement of
Cash Flows
Year
ended December 31, 2008:
|
U.S.
Concrete
Parent
|
Subsidiary
Guarantors1
|
Superior
|
Eliminations
|
Consolidated
|
|||||||||||||||
(in
thousands)
|
||||||||||||||||||||
Net
cash provided by (used in) operating activities
|
$ | (10,080 | ) | $ | 37,794 | $ | 1,964 | $ | — | $ | 29,678 | |||||||||
Net
cash provided by (used in) investing activities
|
— | (39,708 | ) | 192 | — | (39,516 | ) | |||||||||||||
Net
cash provided by (used in) financing activities
|
10,080 | (6,769 | ) | (3,000 | ) | — | 311 | |||||||||||||
Net
decrease in cash and cash equivalents
|
— | (8,683 | ) | (844 | ) | — | (9,527 | ) | ||||||||||||
Cash
and cash equivalents at the beginning of the period
|
— | 13,368 | 1,482 | — | 14,850 | |||||||||||||||
Cash
and cash equivalents at the end of the period
|
$ | — | $ | 4,685 | $ | 638 | $ | — | $ | 5,323 |
1
Including minor subsidiaries without operations or material
assets.
82
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
21. QUARTERLY
SUMMARY (unaudited)
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||
(in
thousands, except per share data)
|
||||||||||||||||
2009
|
||||||||||||||||
Revenue
|
$ | 117,300 | $ | 143,726 | $ | 153,608 | $ | 119,851 | ||||||||
Loss
from continuing operations(1)
|
(11,045 | ) | (4,797 | ) | (61,298 | ) | (17,723 | ) | ||||||||
Net
loss
|
(11,045 | ) | (4,797 | ) | (61,298 | ) | (17,723 | ) | ||||||||
Net
loss attributable to stockholders
|
(9,454 | ) | (3,994 | ) | (58,060 | ) | (16,730 | ) | ||||||||
Basic
and diluted loss per share attributable to stockholders(3)
:
|
||||||||||||||||
From
continuing operations
|
$ | (0.26 | ) | $ | (0.11 | ) | $ | (1.60 | ) | $ | (0.46 | ) | ||||
From
discontinued operations
|
— | — | — | — | ||||||||||||
Net
loss
|
$ | (0.26 | ) | $ | (0.11 | ) | $ | (1.60 | ) | $ | (0.46 | ) | ||||
2008
|
||||||||||||||||
Revenue
|
$ | 162,107 | $ | 206,047 | $ | 212,819 | $ | 173,325 | ||||||||
Income
(loss) from continuing operations(1)
|
(7,173 | ) | 2,518 | 1,906 | (133,173 | ) | ||||||||||
Loss
from discontinued operations(2)
|
(149 | ) | — | — | — | |||||||||||
Net
income (loss)
|
(7,322 | ) | 2,518 | 1,906 | (133,173 | ) | ||||||||||
Net
income (loss)attributable to stockholders
|
(5,278 | ) | 3,303 | 1,722 | (132,193 | ) | ||||||||||
Basic
earnings (loss) per share attributable to stockholders(3)
:
|
||||||||||||||||
From
continuing operations
|
$ | (0.13 | ) | $ | 0.09 | $ | 0.04 | $ | (3.63 | ) | ||||||
From
discontinued operations
|
(0.01 | ) | — | — | — | |||||||||||
Net
income (loss)
|
$ | (0.14 | ) | $ | 0.09 | $ | 0.04 | $ | (3.63 | ) | ||||||
Diluted
earnings (loss) per share attributable to
stockholders (3)
:
|
||||||||||||||||
From
continuing operations
|
$ | (0.13 | ) | $ | 0.08 | $ | 0.04 | $ | (3.63 | ) | ||||||
From
discontinued operations
|
(0.01 | ) | — | — | — | |||||||||||
Net
income (loss)
|
$ | (0.14 | ) | $ | 0.08 | $ | 0.04 | $ | (3.63 | ) | ||||||
2007
|
||||||||||||||||
Revenue
|
$ | 157,494 | $ | 209,507 | $ | 238,086 | $ | 198,716 | ||||||||
Income
(loss) from continuing operations(1)
|
(5,224 | ) | 7,403 | 9,841 | (77,081 | ) | ||||||||||
Loss
from discontinued operations(2)
|
(505 | ) | (220 | ) | (83 | ) | (4,433 | ) | ||||||||
Net
income (loss)
|
(5,729 | ) | 7,183 | 9,758 | (81,514 | ) | ||||||||||
Net
income (loss) attributable to stockholders
|
(5,729 | ) | 6,824 | 10,044 | (80,140 | ) | ||||||||||
Basic
and diluted earnings (loss) per share attributable
to stockholders(3)
:
|
||||||||||||||||
From
continuing operations
|
$ | (0.14 | ) | $ | 0.18 | $ | 0.26 | $ | (1.97 | ) | ||||||
From
discontinued operations
|
(0.01 | ) | — | — | (0.12 | ) | ||||||||||
Net
income (loss)
|
$ | (0.15 | ) | $ | 0.18 | $ | 0.26 | $ | (2.09 | ) |
|
(1)
|
The
third quarter 2009 results include a goodwill impairment charge of $45.8
million and an asset impairment charge of $8.8 million. The fourth quarter
results include an impairment charge of $119.8 million, net of income
taxes in 2008 and $76.4 million, net of income taxes, in 2007, pursuant to
our annual review of goodwill in accordance with authoritative accounting
literature.
|
|
(2)
|
In
the fourth quarter of 2007, we discontinued the operations of three
business units in certain markets. The financial data for prior
quarters of 2007 have been restated to segregate the effects of the
operations of those discontinued
units.
|
|
(3)
|
We
computed earnings (loss) per share (“EPS”) for each quarter 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.
|
83
Item
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not
applicable.
Item
9A. Controls and
Procedures
Disclosure
Controls and Procedures
In
accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of
1934, as amended (the “Exchange Act”), we carried out an evaluation, under the
supervision and with the participation of management, including our chief
executive officer and chief financial officer, of the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act) as of December 31, 2009. Based on that evaluation,
our chief executive officer and chief financial officer concluded that our
disclosure controls and procedures were effective as of December 31, 2009 to
provide reasonable assurance that information required to be disclosed in our
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by an issuer in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the issuer’s management,
including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure. During the three months ended December 31, 2009,
there were no
changes in our internal control over financial reporting or in other factors
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as that term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal
control over financial reporting is a process designed to provide reasonable,
but not absolute, assurance regarding the reliability of financial reporting and
the preparation of financial statements for external reporting purposes in
accordance with generally accepted accounting principles. Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements or acts of fraud. 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 and procedures may
deteriorate.
Under the
supervision and with the participation of our management, including our
principal executive, financial and accounting officers, we have conducted an
evaluation of the effectiveness of our internal control over financial reporting
based on the framework in “Internal Control – Integrated Framework” issued by
the Committee of Sponsoring Organizations of the Treadway Commission. This
evaluation included a review of the documentation surrounding our internal
control over financial reporting, an evaluation of the design effectiveness of
those controls and testing of the operating effectiveness of those controls.
Based on that evaluation, our management has concluded that our internal control
over financial reporting was effective at a reasonable assurance level as of
December 31, 2009.
The
effectiveness of our control over financial reporting as of December 31, 2009
has been audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which is included
herein.
Item
9B. Other
Information
Not
applicable.
84
PART
III
In Items
10, 11, 12, 13 and 14 below, we are incorporating by reference the information
we refer to in those Items from the definitive proxy statement for our 2010
Annual Meeting of Stockholders (the “2010 Annual Proxy Statement”). We intend to
file that definitive proxy statement with the SEC by April 30,
2010.
Item
10. Directors, Executive Officers and
Corporate Governance
For the
information this Item requires, please see the information under the headings
“Proposal No. 1—Election of Directors,” “Executive Officers,” “Information
Concerning the Board of Directors and Committees” and “Section 16(a) Beneficial
Ownership Reporting Compliance” in the 2010 Annual Proxy Statement, which is
incorporated in this Item by this reference.
We have a
code of ethics applicable to all our employees and directors. In addition, our
principal executive, financial and accounting officers are subject to the
provisions of the Code of Ethics of U.S. Concrete, Inc. for chief executive
officer and senior financial officers, a copy of which is available on our Web
site at www.us-concrete.com.
In the event that we amend or waive any of the provisions of these codes of
ethics applicable to our principal executive, financial and accounting officers,
we intend to disclose that action on our website.
Item
11. Executive
Compensation
For the information this Item requires,
please see the information under the headings “Compensation Discussion and
Analysis,” “Director Compensation,” “Executive Compensation,” “Compensation
Program and Risk Management,” “Compensation Committee Interlocks and Insider
Participation” and “Report of the Compensation Committee” in the 2010 Annual
Proxy Statement, which is incorporated in this Item by this
reference.
Item
12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters
For the
information this Item requires, please see the information (1) under the heading
“Equity Compensation Plan Information” in Item 5 of this report and (2) under
the heading “Security Ownership of Certain Beneficial Owners and Management” in
the 2010 Annual Proxy Statement, which is incorporated in this Item by this
reference.
All
shares of common stock issuable under our compensation plans are subject to
adjustment to reflect any increase or decrease in the number of shares
outstanding as a result of stock splits, combination of shares,
recapitalizations, mergers or consolidations.
Item
13. Certain
Relationships and Related Transactions, and Director
Independence
For the
information this Item requires, please see the information under the heading
“Certain Relationships and Related Transactions” in the 2010 Annual Proxy
Statement, which is incorporated in this Item by this reference.
Item
14. Principal Accountant Fees and
Services
For the
information this Item requires, please see the information appearing under the
heading “Fees Incurred by U.S. Concrete to Independent Registered Public
Accounting Firm” in the 2010 Annual Proxy Statement, which is incorporated in
this Item by this reference.
PART
IV
Item
15. Exhibits and Financial Statement
Schedules
(a)(1)
Financial Statements.
For the
information this item requires, please see Index to Consolidated Financial
Statements on page 48 of this report.
(2)
Financial Statement Schedules.
All
financial statement schedules are omitted because they are not required or the
required information is shown in our consolidated financial statements or the
notes thereto.
85
(3)
Exhibits.
Exhibit
Number
|
Description
|
|||
3.1
|
*
|
—
|
Restated
Certificate of Incorporation of U.S. Concrete dated May 9, 2006 (Form 8-K
dated May 9, 2006(File No. 000-26025),
Exhibit 3.1).
|
|
3.2
|
*
|
—
|
Amended
and Restated Bylaws of U.S. Concrete, as amended (Post Effective Amendment
No. 1 to Form S-3 (Reg. No. 333-42860), Exhibit 4.2).
|
|
4.1
|
*
|
—
|
Form
of certificate representing common stock (Form S-1 (Reg. No. 333-74855),
Exhibit 4.3).
|
|
4.2
|
*
|
—
|
Certificate
of Designation of Series A Junior Participating Preferred Stock of U.S.
Concrete, Inc. (Form 8-K filed on November 6, 2009 (File No. 000-26025),
Exhibit 3.1).
|
|
4.3
|
*
|
—
|
Rights
Agreement dated as of November 5, 2009 between U.S. Concrete, Inc. and
American Stock Transfer & Trust Company, LLC (Form 8-K filed on
November 6, 2009 (File No. 000-26025), Exhibit 4.1).
|
|
4.4
|
*
|
—
|
Indenture
among U.S. Concrete, the Subsidiary Guarantors party thereto and Wells
Fargo Bank, National Association,
as Trustee, dated as of March 31, 2004, for the 8⅜% Senior Subordinated
Notes due 2014(Form 10-Q for the quarter ended March 31, 2004 (File No.
000-26025), Exhibit 4.5).
|
|
4.5
|
*
|
—
|
Form
of Note (Form 10-Q for the quarter ended March 31, 2004 (File No.
000-26025), included as Exhibit A to Exhibit
4.7).
|
|
4.6
|
*
|
—
|
Notation
of Guarantee by the Subsidiary Guarantors dated March 31, 2004 (Form 10-Q
for the quarter ended March31,
2004 (File No. 000-26025), Exhibit 4.7).
|
|
4.7
|
*
|
—
|
First
Supplemental Indenture among U.S. Concrete, the Existing Guarantors party
thereto, the Additional Guarantors party thereto and Wells Fargo Bank,
National Association, as Trustee, dated as of July 5, 2006, for the 8⅜%
Senior Subordinated Notes due 2014 (Form 8-K dated June 29, 2006 (File No.
000-26025), Exhibit 4.1).
|
|
4.8
|
*
|
—
|
Amended
and Restated Credit Agreement dated as of June 30, 2006 among U.S.
Concrete, the Lenders and Issuers named therein and Citicorp North
America, Inc. as administrative agent (Form 8-K dated June 29, 2006 (File
No. 000-26025), Exhibit 4.3).
|
|
4.9
|
*
|
—
|
Amendment
No. 1 to Amended and Restated Credit Agreement, effective as of March 2,
2007, among U.S. Concrete, Inc.,
Citicorp North America, Inc., Bank of America, N.A., JP Morgan Chase Bank
and the Lenders and Issuers named therein (Form 10-Q for the quarter ended
March 31, 2007 (file No. 000-20025), Exhibit 4.1).
|
|
4.10
|
*
|
—
|
Amendment
No. 2 to Amended and Restated Credit Agreement, effective as of November
9, 2007, among U.S. Concrete, Inc., Citicorp North America Inc., Bank of
America, N.A., JP Morgan Chase Bank and the Lenders and Issuers named
therein (Form 8-K dated November 9, 2007 (File No. 000-26025), Exhibit
4.1).
|
|
4.11
|
*
|
—
|
Amendment
No. 3 to Amended and Restated Credit Agreement, dated as of July 11, 2008,
among U.S. Concrete, Inc., Citicorp North America Inc., Bank of America,
N.A., JP Morgan Chase Bank and the Lenders and Issuers named therein (Form
8-K dated July 11, 2008 (File No. 000-26025), Exhibit
4.1).
|
|
4.12
|
*
|
—
|
Amendment
No. 4 and Waiver to Amended and Restated Credit Agreement, dated as of
February 19, 2010, among U.S. Concrete, Inc., Citicorp North America Inc.,
Bank of America, N.A., JPMorgan Chase Bank, N.A. and the Lenders and
Issuers named therein (Form 8-K dated February 19, 2010 (File No.
000-26025), Exhibit 10.1).
|
|
4.13
|
*
|
—
|
Credit
Agreement, dated as of April 6, 2007, by and between Superior Materials,
LLC, BWB, LLC and Comerica Bank (Form 10-Q for the quarter ended
March 31, 2007 (File No. 000-26025),
Exhibit 4.2).
|
|
4.14
|
*
|
—
|
First
Amendment to Credit Agreement, dated as of February 29, 2008, by and
between Superior Materials, LLC,
BWB,LLC
and Comerica Bank.
|
|
4.15
|
*
|
—
|
Second
Amendment to Credit Agreement, dated as of March 3, 2008, by and among
Superior Materials, LLC, BWB, LLC and Comerica Bank (Form 10-Q
for the quarter ended March 31, 2008 (File No. 000-26025), Exhibit
4.1).
|
|
4.16
|
*
|
—
|
Third
Amendment to Credit Agreement, dated as of March 31, 2008, by and among
Superior Materials, LLC, BWB, LLC and Comerica Bank (Form 10-Q for the
quarter ended March 31, 2008 (File No. 000-26025), Exhibit
4.2).
|
|
4.17
|
*
|
|
—
|
Fourth
Amendment to Credit Agreement, dated as of May 31, 2008, by and among
Superior Materials, LLC, BWB, LLC and Comerica Bank (Form 10-Q for the
quarter ended June 30, 2008 (File No. 000-26025), Exhibit
4.2).
|
|
||||
4.18
|
*
|
—
|
Fifth
Amendment to Credit Agreement, dated as of August 6, 2008, by and among
Superior Materials, LLC, BWB, LLC and Comerica Bank, and Comfort Letter in
support of Superior Materials, LLC and BWB, LLC (Form 10-Q for the quarter
ended June 30, 2008 (File No. 000-26025), Exhibit
4.3).
|
86
Exhibit
Number
|
Description
|
|||
10.1
|
*†
|
—
|
1999
Incentive Plan of U.S. Concrete (Form S-1 (Reg. No. 333-74855), Exhibit
10.1).
|
|
10.2
|
*†
|
—
|
Amendment
No. 1 to 1999 Incentive Plan of U.S. Concrete, Inc. dated January 9, 2003
(Form S-8 dated December 20, 2004 (Reg. No. 333-121458), Exhibit
10.2).
|
|
10.3
|
*†
|
—
|
Amendment
No. 2 to 1999 Incentive Plan of U.S. Concrete, Inc. dated December 17,
2004 (Form S-8 dated December 20, 2004 (Reg. No. 333-121458), Exhibit
10.3).
|
|
10.4
|
*†
|
—
|
Amendment
No. 3 to 1999 Incentive Plan of U.S. Concrete, Inc. effective May 17, 2005
(Proxy Statement relating to 2005 annual meeting of stockholders, Appendix
B).
|
|
10.5
|
*†
|
—
|
Amendment
No. 4 to 1999 Incentive Plan of U.S. Concrete, Inc. dated February 13,
2006 (Form 10-K dated March 16, 2006 (File No. 000-26025), Exhibit
10.5).
|
|
10.6
|
*†
|
—
|
Amendment
No. 5 to 1999 Incentive Plan of U.S. Concrete, Inc. dated March 7, 2007;
effective January 1, 1999 (Form 10-K dated March 13, 2007 (File No.
000-26025), Exhibit 10.8)).
|
|
10.7
|
*†
|
—
|
Amendment
No. 6 to 1999 Incentive Plan of U.S. Concrete, Inc. dated as of April 11,
2008 (Form 8-K dated April 11, 2008 (File No. 000-26025), Exhibit
10.1).
|
|
10.8
|
*
|
—
|
U.S.
Concrete 2000 Employee Stock Purchase Plan effective May 16, 2000 (Proxy
Statement relating to 2000 annual meeting of stockholders, Appendix
A).
|
|
10.9
|
*
|
—
|
Amendment
No. 1 to 2000 Employee Stock Purchase Plan of U.S. Concrete, Inc.
effective December 16, 2005 (Form 8-K dated December 16, 2005 (File No.
000-26025), Exhibit 10.1).
|
|
10.10
|
—
|
Amendment
No. 2 to 2000 Employee Stock Purchase Plan of U.S. Concrete, Inc.
effective January 1, 2010.
|
||
10.11
|
*
|
—
|
2001
Employee Incentive Plan of U.S. Concrete, Inc. (Form S-8 dated May 11,
2001 (Reg. No. 333-60710), Exhibit 4.6).
|
|
10.12
|
*
|
—
|
Amendment
No. 1 to 2001 Employee Incentive Plan of U.S. Concrete, Inc. dated
December 17, 2004 (Form S-8 dated December 20, 2004 (Reg. No. 333-121458),
Exhibit 10.6).
|
|
10.13
|
*†
|
—
|
Consulting
Agreement dated February 23, 2007 by and between U.S. Concrete and Eugene
P. Martineau (Form 8-K dated February 23, 2007 (File No. 000-26025),
Exhibit 10.1).
|
|
10.14
|
*
|
—
|
Contribution
Agreement, dated as of March 26, 2007, by and among, BWB, Inc. of Michigan
Builders’, Redi-Mix, LLC, Kurtz Gravel Company, Superior Materials, Inc.
USC Michigan, Inc., Edw. C. Levy Co. and Superior Joint Venture LLC (Form
8-K dated March 26, 2007 (File No. 000-26025), Exhibit
10.1).
|
|
10.15
|
*
|
—
|
Operating
Agreement of Superior Materials, LLC dated effective as of April 1, 2007,
by and between Kurtz Gravel Company, Superior Materials, Inc. and Edw. C.
Levy Co., together with related Joinder Agreement dated effective April 2,
2007 by BWB, Inc. of Michigan Builders’, Redi-Mix, LLC, USC Michigan, Inc.
and Superior Material Holdings LLC (Form 8-K dated April 1, 2007 (File No.
000-26025), Exhibit 10.1).
|
|
10.16
|
*
|
—
|
Guaranty
dated as of April 1, 2007 by U.S. Concrete, Inc. in favor of Edw. C. Levy
Co. and Superior Materials Holdings, LLC (Form 8-K dated April 1, 2007
(File No. 000-26025), Exhibit 10.2).
|
|
10.17
|
*†
|
—
|
Form
of Indemnification Agreement between U.S. Concrete and each of its
directors and officers (Form 10-K dated March 16, 2006 (File No.
000-26025) Exhibit 10.22).
|
|
10.18
|
*†
|
—
|
Form
of U.S. Concrete, Inc. Restricted Stock Award Agreement for employees
(Form 10-K for the year ended December 31, 2004 (File No. 000-26025),
Exhibit 10.21).
|
|
10.19
|
*†
|
—
|
Form
of U.S. Concrete, Inc. Non-Qualified Stock Option Award Agreement for
nonemployee directors (Form 10-K for the year ended December 31, 2004
(File No. 000-26025), Exhibit 10.22).
|
|
10.20
|
*†
|
—
|
Form
of U.S. Concrete, Inc. Non-Qualified Stock Option Award Agreement for
employees (Form 10-K for the year ended December 31, 2004 (File No.
000-26025), Exhibit 10.23).
|
|
10.21
|
*†
|
—
|
U.S.
Concrete, Inc. and Subsidiaries 2005 Annual Salaried Team Member Incentive
Plan, effective April 8, 2005 (Form 8-K dated April 8, 2005 (File No.
000-26025), Exhibit 10.1).
|
|
10.22
|
*†
|
—
|
U.S.
Concrete, Inc. and Subsidiaries 2009 Annual Team Member Incentive Plan
(Form 10-K dated march 13, 2009 (File No. 000-26025), Exhibit
10.22).
|
87
Exhibit
Number
|
Description
|
|||
10.23
|
*†
|
— |
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete, Inc.
and Michael W. Harlan (Form 8-K dated July 31, 2007 (File No.
000-26025), Exhibit 10.1).
|
|
10.24
|
†
|
— |
First
Amendment to Severance Agreement, effective as of December 31, 2008, by
and between U.S. Concrete, Inc. and Michael W. Harlan.
|
|
10.25
|
*†
|
— |
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete, Inc.
and Robert D. Hardy (Form 8-K dated July 31, 2007 (File No.
000-26025), Exhibit 10.2).
|
|
10.26
|
†
|
— |
First
Amendment to Severance Agreement, effective as of December 31, 2008, by
and between U.S. Concrete, Inc. and Robert D. Hardy.
|
|
10.27
|
*†
|
— |
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete, Inc.
and Thomas J. Albanese (Form 8-K dated July 31, 2007 (File No. 000-26025),
Exhibit 10.3).
|
|
10.28
|
†
|
— |
First
Amendment to Severance Agreement, effective as of December 31, 2008, by
and between U.S. Concrete, Inc. and Thomas J. Albanese.
|
|
10.29
|
*†
|
— |
Severance
Agreement, dated as of January 18, 2008, by and between U.S. Concrete,
Inc. and William T. Albanese (Form 8-K dated January 18, 2008
(File No. 000-26025), Exhibit 10.1).
|
|
10.30
|
†
|
— |
First
Amendment to Severance Agreement, effective as of December 31, 2008, by
and between U.S. Concrete, Inc. and William T.
Albanese.
|
|
10.31
|
†
|
— |
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete, Inc.
and Terry Green.
|
|
10.32
|
†
|
— |
First
Amendment to Severance Agreement, effective as of December 31, 2008, by
and between U.S. Concrete, Inc. and Terry Green.
|
|
10.33
|
*
|
— |
Second
Amendment to Severance Agreement dated as of August 31, 2009, by and
between U.S. Concrete, Inc. and Terry Green (Form 8-K filed on September
1, 2009 (File No. 000-26025), Exhibit 10.1).
|
|
10.34
|
*
|
— |
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete, Inc.
and Curt M. Lindeman (Form 10- Q
for the quarter ended March 31, 2009 (File No. 000-26025), Exhibit
10.1).
|
|
10.35
|
*
|
— |
First
Amendment to Severance Agreement, effective as of December 31, 2008, by
and between U.S. Concrete, Inc.and
Curt M. Lindeman (Form 10-Q for the quarter ended March 31, 2009 (File No.
000-26025), Exhibit 10.2).
|
|
10.36
|
*
|
— |
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete, Inc.
and Gary J. Konnie (Form 10-Q for
the quarter ended March 31, 2009 (File No. 000-26025), Exhibit
10.3).
|
|
10.37
|
*
|
— |
First
Amendment to Severance Agreement, effective as of December 31, 2008, by
and between U.S. Concrete, Inc. and
Gary J. Konnie (Form 10-Q for the quarter ended March 31, 2009 (File
No.000-26025), Exhibit 10.4).
|
|
10.38
|
*
|
— |
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete, Inc.
and Michael L. Gentoso (Form 10-Q
for the quarter ended March 31, 2009 (File No. 000-26025), Exhibit
10.5).
|
|
10.39
|
*
|
— |
First
Amendment to Severance Agreement, effective as of December 31, 2008, by
and between U.S. Concrete, Inc. and
Michael L. Gentoso (Form 10-Q for the quarter ended March 31, 2009
(File No. 000-26025), Exhibit 10.6).
|
|
10.40
|
*†
|
— |
U.S.
Concrete, Inc. 2008 Stock Incentive Plan (Form S-8 dated May 22, 2008
(Reg. No. 333-151338), Exhibit 4.6).
|
|
10.41
|
*†
|
— |
Form
of Non-qualified Stock Option Award Agreement for Employees (Form S-8
(Reg. No. 333-151338), Exhibit 4.7).
|
|
10.42
|
*†
|
— |
Form
of Non-Qualified Stock Option Award Agreement for Directors (Form S-8
(Reg. No. 333-151338), Exhibit 4.8).
|
|
10.43
|
*†
|
— |
Form
of Restricted Stock Award Agreement for Officers and Key Employees (Form
S-8 (Reg. No. 333- 151338), Exhibit 4.9).
|
|
10.44
|
*†
|
— |
Form
of Restricted Stock Award Agreement for Employess (Form S-8 (Reg.
333-151338), Exhibit 4.10).
|
|
12
|
*
|
— |
Statement
regarding computation of ratios (Form 10-K dated March 13, 2007 (File No.
000-26025), Exhibit 10.8).
|
|
14
|
*
|
— |
U.S.
Concrete, Inc. Code of Ethics for Chief Executive and Senior Financial
Officers (Form 10-K for the year ended December 31, 2003 (File No.
000-26025), Exhibit
14).
|
88
Exhibit
Number
|
Description
|
||
21
|
—Subsidiaries.
|
||
23
|
—Consent
of independent registered public accounting firm.
|
||
31.1
|
—Rule
13a-14(a)/15d-14(a) Certification of Michael W. Harlan.
|
||
31.2
|
—Rule
13a-14(a)/15d-14(a) Certification of Robert D. Hardy.
|
||
32.1
|
—Section
1350 Certification of Michael W. Harlan.
|
||
32.2
|
—Section
1350 Certification of Robert D.
Hardy.
|
*
|
Incorporated
by reference to the filing
indicated.
|
†
|
Management
contract or compensatory plan or
arrangement.
|
89
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
U.S.
CONCRETE, INC.
|
|||
Date:
March 16, 2010
|
By:
|
/s/
Michael W. Harlan
|
|
Michael
W. Harlan
President
and Chief Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated on March 16, 2010.
Signature
|
Title
|
|
/s/
Michael W. Harlan
|
President
and Chief Executive Officer and Director (Principal
|
|
Michael
W. Harlan
|
Executive
Officer)
|
|
/s/
Robert D. Hardy
|
Executive
Vice President and Chief Financial Officer (Principal
|
|
Robert
D. Hardy
|
Financial
and Accounting Officer)
|
|
/s/
William T. Albanese
|
Regional
Vice President – Northern California Region and
|
|
William
T. Albanese
|
Director
|
|
/s/
John M. Piecuch
|
Director
|
|
John
M. Piecuch
|
||
/s/
Vincent D. Foster
|
Director
|
|
Vincent
D. Foster
|
||
/s/
T. William Porter
|
Director
|
|
T.
William Porter
|
||
/s/
Mary P. Ricciardello
|
Director
|
|
Mary
P. Ricciardello
|
||
/s/
Ray C. Dillon
|
Director
|
|
Ray
C. Dillon
|
90
INDEX
TO EXHIBITS
Exhibit
Number
|
Description
|
|||
3.1
|
*
|
— |
Restated
Certificate of Incorporation of U.S. Concrete dated May 9, 2006 (Form 8-K
dated May 9, 2006 (File No. 000-26025),
Exhibit 3.1).
|
|
3.2
|
*
|
— |
Amended
and Restated Bylaws of U.S. Concrete, as amended (Post Effective Amendment
No. 1 to Form S-3 (Reg. No. 333-42860), Exhibit 4.2).
|
|
4.1
|
*
|
— |
Form
of certificate representing common stock (Form S-1 (Reg. No. 333-74855),
Exhibit 4.3).
|
|
4.2
|
*
|
— |
Certificate
of Designation of Series A Junior Participating Preferred Stock of U.S.
Concrete, Inc. (Form 8-K filed on November 6, 2009 (File No. 000-26025),
Exhibit 3.1).
|
|
4.3
|
*
|
— |
Rights
Agreement dated as of November 5, 2009 between U.S. Concrete, Inc. and
American Stock Transfer & Trust Company, LLC (Form 8-K filed on
November 6, 2009 (File No. 000-26025), Exhibit 4.1).
|
|
4.4
|
*
|
— |
Indenture
among U.S. Concrete, the Subsidiary Guarantors party thereto and Wells
Fargo Bank, National Association,
as Trustee, dated as of March 31, 2004, for the 8⅜% Senior Subordinated
Notes due 2014 (Form 10-Q for the quarter ended March 31, 2004 (File No.
000-26025), Exhibit 4.5).
|
|
4.5
|
*
|
— |
Form
of Note (Form 10-Q for the quarter ended March 31, 2004 (File No.
000-26025), included as Exhibit A to Exhibit
4.7).
|
|
4.6
|
*
|
— |
Notation
of Guarantee by the Subsidiary Guarantors dated March 31, 2004 (Form 10-Q
for the quarter ended March 31,
2004 (File No. 000-26025), Exhibit 4.7).
|
|
4.7
|
*
|
— |
First
Supplemental Indenture among U.S. Concrete, the Existing Guarantors party
thereto, the Additional Guarantors party thereto and Wells Fargo Bank,
National Association, as Trustee, dated as of July 5, 2006, for the 8⅜%
Senior Subordinated Notes due 2014 (Form 8-K dated June 29, 2006 (File No.
000-26025), Exhibit 4.1).
|
|
4.8
|
*
|
— |
Amended
and Restated Credit Agreement dated as of June 30, 2006 among U.S.
Concrete, the Lenders and Issuers named therein and Citicorp North
America, Inc. as administrative agent (Form 8-K dated June 29, 2006 (File
No. 000-26025), Exhibit 4.3).
|
|
4.9
|
*
|
— |
Amendment
No. 1 to Amended and Restated Credit Agreement, effective as of March 2,
2007, among U.S. Concrete, Inc.,
Citicorp North America, Inc., Bank of America, N.A., JP Morgan Chase Bank
and the Lenders and Issuers named therein (Form 10-Q for the quarter ended
March 31, 2007 (file No. 000-20025), Exhibit 4.1).
|
|
4.10
|
*
|
—
|
Amendment
No. 2 to Amended and Restated Credit Agreement, effective as of November
9, 2007, among U.S. Concrete, Inc., Citicorp North America Inc., Bank of
America, N.A., JP Morgan Chase Bank and the Lenders and Issuers named
therein (Form 8-K dated November 9, 2007 (File No. 000-26025), Exhibit
4.1).
|
|
4.11
|
*
|
— |
Amendment
No. 3 to Amended and Restated Credit Agreement, dated as of July 11, 2008,
among U.S. Concrete, Inc., Citicorp North America Inc., Bank of America,
N.A., JP Morgan Chase Bank and the Lenders and Issuers named therein (Form
8-K dated July 11, 2008 (File No. 000-26025), Exhibit
4.1).
|
|
4.12
|
*
|
— |
Amendment
No. 4 and Waiver to Amended and Restated Credit Agreement, dated as of
February 19, 2010, among U.S. Concrete, Inc., Citicorp North America Inc.,
Bank of America, N.A., JPMorgan Chase Bank, N.A. and the Lenders and
Issuers named therein (Form 8-K dated February 19, 2010 (File No.
000-26025), Exhibit 10.1).
|
|
4.13
|
*
|
— |
Credit
Agreement, dated as of April 6, 2007, by and between Superior Materials,
LLC, BWB, LLC and Comerica Bank (Form 10-Q for the quarter ended
March 31, 2007 (File No. 000-26025),
Exhibit 4.2).
|
|
4.14
|
*
|
—
|
First
Amendment to Credit Agreement, dated as of February 29, 2008, by and
between Superior Materials, LLC, BWB,
LLC and Comerica Bank.
|
|
4.15
|
*
|
— |
Second
Amendment to Credit Agreement, dated as of March 3, 2008, by and among
Superior Materials, LLC, BWB, LLC and Comerica Bank (Form 10-Q
for the quarter ended March 31, 2008 (File No. 000-26025), Exhibit
4.1).
|
|
4.16
|
*
|
— |
Third
Amendment to Credit Agreement, dated as of March 31, 2008, by and among
Superior Materials, LLC, BWB, LLC and Comerica Bank (Form 10-Q for the
quarter ended March 31, 2008 (File No. 000-26025), Exhibit
4.2).
|
|
4.17
|
*
|
— |
Fourth
Amendment to Credit Agreement, dated as of May 31, 2008, by and among
Superior Materials, LLC, BWB, LLC and Comerica Bank (Form 10-Q for the
quarter ended June 30, 2008 (File No. 000-26025), Exhibit
4.2).
|
|
4.18
|
*
|
— |
Fifth
Amendment to Credit Agreement, dated as of August 6, 2008, by and among
Superior Materials, LLC, BWB, LLC and Comerica Bank, and Comfort Letter in
support of Superior Materials, LLC and BWB, LLC (Form 10-Q for the quarter
ended June 30, 2008 (File No. 000-26025), Exhibit
4.3).
|
91
Exhibit
Number
|
Description
|
|||
10.1
|
*†
|
— |
1999
Incentive Plan of U.S. Concrete (Form S-1 (Reg. No. 333-74855), Exhibit
10.1).
|
|
10.2
|
*†
|
— |
Amendment
No. 1 to 1999 Incentive Plan of U.S. Concrete, Inc. dated January 9, 2003
(Form S-8 dated December 20, 2004 (Reg. No. 333-121458), Exhibit
10.2).
|
|
10.3
|
*†
|
— |
Amendment
No. 2 to 1999 Incentive Plan of U.S. Concrete, Inc. dated December 17,
2004 (Form S-8 dated December 20, 2004 (Reg. No. 333-121458), Exhibit
10.3).
|
|
10.4
|
*†
|
— |
Amendment
No. 3 to 1999 Incentive Plan of U.S. Concrete, Inc. effective May 17, 2005
(Proxy Statement relating to 2005 annual meeting of stockholders, Appendix
B).
|
|
10.5
|
*†
|
— |
Amendment
No. 4 to 1999 Incentive Plan of U.S. Concrete, Inc. dated February 13,
2006 (Form 10-K dated March 16, 2006 (File No. 000-26025), Exhibit
10.5).
|
|
10.6
|
*†
|
— |
Amendment
No. 5 to 1999 Incentive Plan of U.S. Concrete, Inc. dated March 7, 2007;
effective January 1, 1999 (Form 10-K dated March 13, 2007 (File No.
000-26025), Exhibit 10.8)).
|
|
10.7
|
*†
|
— |
Amendment
No. 6 to 1999 Incentive Plan of U.S. Concrete, Inc. dated as of April 11,
2008 (Form 8-K dated April 11, 2008 (File No. 000-26025), Exhibit
10.1).
|
|
10.8
|
*
|
— |
U.S.
Concrete 2000 Employee Stock Purchase Plan effective May 16, 2000 (Proxy
Statement relating to 2000 annual meeting of stockholders, Appendix
A).
|
|
10.9
|
*
|
— |
Amendment
No. 1 to 2000 Employee Stock Purchase Plan of U.S. Concrete, Inc.
effective December 16, 2005 (Form 8-K dated December 16, 2005 (File No.
000-26025), Exhibit 10.1).
|
|
10.10
|
— |
Amendment
No. 2 to 2000 Employee Stock Purchase Plan of U.S. Concrete, Inc.
effective January 1, 2010.
|
||
10.11
|
*
|
— |
2001
Employee Incentive Plan of U.S. Concrete, Inc. (Form S-8 dated May 11,
2001 (Reg. No. 333-60710), Exhibit 4.6).
|
|
10.12
|
*
|
— |
Amendment
No. 1 to 2001 Employee Incentive Plan of U.S. Concrete, Inc. dated
December 17, 2004 (Form S-8 dated December 20, 2004 (Reg. No. 333-121458),
Exhibit 10.6).
|
|
10.13
|
*†
|
— |
Consulting
Agreement dated February 23, 2007 by and between U.S. Concrete and Eugene
P. Martineau (Form 8-K dated February 23, 2007 (File No. 000-26025),
Exhibit 10.1).
|
|
10.14
|
*
|
— |
Contribution
Agreement, dated as of March 26, 2007, by and among, BWB, Inc. of Michigan
Builders’, Redi-Mix, LLC, Kurtz Gravel Company, Superior Materials, Inc.
USC Michigan, Inc., Edw. C. Levy Co. and Superior Joint Venture LLC (Form
8-K dated March 26, 2007 (File No. 000-26025), Exhibit
10.1).
|
|
10.15
|
*
|
— |
Operating
Agreement of Superior Materials, LLC dated effective as of April 1, 2007,
by and between Kurtz Gravel Company, Superior Materials, Inc. and Edw. C.
Levy Co., together with related Joinder Agreement dated effective April 2,
2007 by BWB, Inc. of Michigan Builders’, Redi-Mix, LLC, USC Michigan, Inc.
and Superior Material Holdings LLC (Form 8-K dated April 1, 2007 (File No.
000-26025), Exhibit 10.1).
|
|
10.16
|
*
|
— |
Guaranty
dated as of April 1, 2007 by U.S. Concrete, Inc. in favor of Edw. C. Levy
Co. and Superior Materials Holdings, LLC (Form 8-K dated April 1, 2007
(File No. 000-26025), Exhibit 10.2).
|
|
10.17
|
*†
|
— |
Form
of Indemnification Agreement between U.S. Concrete and each of its
directors and officers (Form 10-K dated March 16, 2006 (File No.
000-26025) Exhibit 10.22).
|
|
10.18
|
*†
|
— |
Form
of U.S. Concrete, Inc. Restricted Stock Award Agreement for employees
(Form 10-K for the year ended December 31, 2004 (File No. 000-26025),
Exhibit 10.21).
|
|
10.19
|
*†
|
— |
Form
of U.S. Concrete, Inc. Non-Qualified Stock Option Award Agreement for
nonemployee directors (Form 10-K for the year ended December 31, 2004
(File No. 000-26025), Exhibit 10.22).
|
|
10.20
|
*†
|
— |
Form
of U.S. Concrete, Inc. Non-Qualified Stock Option Award Agreement for
employees (Form 10-K for the year ended December 31, 2004 (File No.
000-26025), Exhibit 10.23).
|
|
10.21
|
*†
|
— |
U.S.
Concrete, Inc. and Subsidiaries 2005 Annual Salaried Team Member Incentive
Plan, effective April 8, 2005 (Form 8-K dated April 8, 2005 (File No.
000-26025), Exhibit 10.1).
|
|
10.22
|
*†
|
— |
U.S.
Concrete, Inc. and Subsidiaries 2009 Annual Team Member Incentive Plan
(Form 10-K dated March 13, 2009 (File No. 000-26025), Exhibit
10.22).
|
|
10.23
|
*†
|
— |
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete, Inc.
and Michael W. Harlan (Form 8-K dated July 31, 2007 (File No.
000-26025), Exhibit
10.1).
|
92
Exhibit
Number
|
Description
|
|||
10.24
|
†
|
— |
First
Amendment to Severance Agreement, effective as of December 31, 2008, by
and between U.S. Concrete, Inc. and Michael W. Harlan.
|
|
10.25
|
*†
|
— |
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete, Inc.
and Robert D. Hardy (Form 8-K dated July 31, 2007 (File No.
000-26025), Exhibit 10.2).
|
|
10.26
|
†
|
— |
First
Amendment to Severance Agreement, effective as of December 31, 2008, by
and between U.S. Concrete, Inc. and Robert D. Hardy.
|
|
10.27
|
*†
|
— |
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete, Inc.
and Thomas J. Albanese (Form 8-K dated July 31, 2007 (File No. 000-26025),
Exhibit 10.3).
|
|
10.28
|
†
|
— |
First
Amendment to Severance Agreement, effective as of December 31, 2008, by
and between U.S. Concrete, Inc. and Thomas J. Albanese.
|
|
10.29
|
*†
|
— |
Severance
Agreement, dated as of January 18, 2008, by and between U.S. Concrete,
Inc. and William T. Albanese (Form 8-K dated January 18, 2008
(File No. 000-26025), Exhibit 10.1).
|
|
10.30
|
†
|
— |
First
Amendment to Severance Agreement, effective as of December 31, 2008, by
and between U.S. Concrete, Inc. and William T.
Albanese.
|
|
10.31
|
†
|
— |
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete, Inc.
and Terry Green.
|
|
10.32
|
†
|
— |
First
Amendment to Severance Agreement, effective as of December 31, 2008, by
and between U.S. Concrete, Inc. and Terry Green.
|
|
10.33
|
*
|
— |
Second
Amendment to Severance Agreement dated as of August 31, 2009, by and
between U.S. Concrete, Inc. and Terry Green (Form 8-K filed on September
1, 2009 (File No. 000-26025), Exhibit 10.1).
|
|
10.34
|
*
|
— |
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete, Inc.
and Curt M. Lindeman (Form 10- Q
for the quarter ended March 31, 2009 (File No. 000-26025), Exhibit
10.1).
|
|
10.35
|
*
|
— |
First
Amendment to Severance Agreement, effective as of December 31, 2008, by
and between U.S. Concrete, Inc.and
Curt M. Lindeman (Form 10-Q for the quarter ended March 31, 2009 (File No.
000-26025), Exhibit 10.2).
|
|
10.36
|
*
|
— |
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete, Inc.
and Gary J. Konnie (Form 10-Q for
the quarter ended March 31, 2009 (File No. 000-26025), Exhibit
10.3).
|
|
10.37
|
*
|
— |
First
Amendment to Severance Agreement, effective as of December 31, 2008, by
and between U.S. Concrete, Inc. and
Gary J. Konnie (Form 10-Q for the quarter ended March 31, 2009 (File No.
000-26025), Exhibit 10.4).
|
|
10.38
|
*
|
— |
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete, Inc.
and Michael L. Gentoso (Form 10-Q
for the quarter ended March 31, 2009 (File No. 000-26025), Exhibit
10.5).
|
|
10.39
|
*
|
— |
First
Amendment to Severance Agreement, effective as of December 31, 2008, by
and between U.S. Concrete, Inc. and
Michael L. Gentoso (Form 10-Q for the quarter ended March 31, 2009 (File
No. 000-26025), Exhibit 10.6).
|
|
10.40
|
*†
|
— |
U.S.
Concrete, Inc. 2008 Stock Incentive Plan (Form S-8 dated May 22, 2008
(Reg. No. 333-151338), Exhibit 4.6).
|
|
10.41
|
*†
|
— |
Form
of Non-qualified Stock Option Award Agreement for Employees (Form S-8
(Reg. No. 333-151338), Exhibit 4.7).
|
|
10.42
|
*†
|
— |
Form
of Non-Qualified Stock Option Award Agreement for Directors (Form S-8
(Reg. No. 333-151338), Exhibit 4.8).
|
|
10.43
|
*†
|
— |
Form
of Restricted Stock Award Agreement for Officers and Key Employees (Form
S-8 (Reg. No. 333- 151338), Exhibit 4.9).
|
|
10.44
|
*†
|
— |
Form
of Restricted Stock Award Agreement for Employess (Form S-8 (Reg.
333-151338), Exhibit 4.10).
|
|
12
|
*
|
— |
Statement
regarding computation of ratios (Form 10-K dated March 13, 2007 (File No.
000-26025), Exhibit 10.8).
|
|
14
|
*
|
— |
U.S.
Concrete, Inc. Code of Ethics for Chief Executive and Senior Financial
Officers (Form 10-K for the year ended December 31, 2003 (File No.
000-26025), Exhibit
14).
|
93
Exhibit
Number
|
Description
|
||
21
|
—Subsidiaries.
|
||
23
|
—Consent
of independent registered public accounting firm.
|
||
31.1
|
—Rule
13a-14(a)/15d-14(a) Certification of Michael W. Harlan.
|
||
31.2
|
—Rule
13a-14(a)/15d-14(a) Certification of Robert D. Hardy.
|
||
32.1
|
—Section
1350 Certification of Michael W. Harlan.
|
||
32.2
|
—Section
1350 Certification of Robert D.
Hardy.
|
*
|
Incorporated
by reference to the filing
indicated.
|
†
|
Management
contract or compensatory plan or
arrangement.
|
94