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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-K
(Mark one) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 000-26025
U. S. CONCRETE, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 76-0586680
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
2925 Briarpark, Suite 500 77042
Houston, Texas (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (713) 499-6200
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None Not applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of class)
Rights to Purchase Series A Junior
Participating Preferred Stock
(Title of class)
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 [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
As of March 15, 2001, there were 22,640,419 shares of common stock, par
value $.001 per share, of the Registrant issued and outstanding, 16,361,670 of
which, having an aggregate market value of $114.5 million, based on the closing
price per share of the common stock of the Registrant reported on The Nasdaq
Stock Market on that date, were held by non-affiliates of the Registrant. For
purposes of the above statement only, all directors and executive officers of
the Registrant are assumed to be affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement related to the Registrant's 2001 Annual
Stockholders Meeting are incorporated by reference into Part III of this report.
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TABLE OF CONTENTS
Page
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PART I
Items 1 and 2. Business and Properties................................................................... 1
Cautionary Statement Concerning Forward-Looking Statements................................ 11
Item 3. Legal Proceedings......................................................................... 12
Item 4. Submission of Matters to a Vote of Security Holders....................................... 12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................... 13
Item 6. Selected Financial Data................................................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................................ 19
Item 8. Financial Statements and Supplementary Data............................................... 20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure............................................................................. 38
PART III
Item 10. Directors and Executive Officers of the Registrant........................................ 38
Item 11. Executive Compensation.................................................................... 38
Item 12. Security Ownership of Certain Beneficial Owners and Management............................ 38
Item 13. Certain Relationships and Related Transactions............................................ 38
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................... 38
Statements we make in this Annual Report on Form 10-K which express a belief,
expectation or intention, as well as those that are not historical fact, are
forward-looking statements under the Private Securities Litigation Reform Act of
1995. These forward-looking statements are subject to various risks,
uncertainties and assumptions, including those to which we refer under the
heading "Cautionary Statement Concerning Forward-Looking Statements" following
Items 1 and 2 of Part I of this report.
PART I
Items 1 and 2. Business and Properties
General
U.S. Concrete provides ready-mixed concrete and related products and
services to the construction industry in several major markets in the United
States. As of March 15, 2001, we have 73 operating plants producing over 5.6
million cubic yards of ready-mixed concrete annually. Our operations consist
principally of formulating, preparing, delivering and placing ready-mixed
concrete at the job sites of our customers. We provide services intended to
reduce our customers' overall construction costs by lowering the installed, or
"in-place," cost of concrete. These services include the formulation of new
mixtures for specific design uses, on-site and lab-based product quality control
and delivery programs we configure to meet our customers' needs.
We completed our initial public offering in May 1999. At the same time, we
acquired six ready-mixed concrete and related businesses and began operating 26
concrete plants in three major markets in the United States. Since our IPO and
through March 15, 2001, we have acquired an additional 16 ready-mixed concrete
and related businesses, and are operating an additional 47 concrete plants, in
five additional major markets in the United States.
To increase our geographic diversification and expand the scope of our
operations, we seek to acquire businesses operating under quality management
teams in growing markets. Our acquisition strategy has two primary objectives.
In a new market, we target one or more companies that can serve as platform
businesses into which we can integrate other concrete operations. In markets
where we have existing operations and seek to increase our market penetration,
we pursue tuck-in acquisitions.
Industry Overview
Annual usage of ready-mixed concrete in the United States remains at record
levels. According to information available from the National Ready Mixed
Concrete Association and F.W. Dodge, total sales from production and delivery of
ready-mixed concrete in the United States grew over the past three years as
follows:
Year Sales
---- ---------
($ in millions)
1998................................................. $ 23,672
1999................................................. $ 25,812
2000................................................. $ 26,835
According to National Ready Mixed Concrete Association data, the four major
segments of the construction industry accounted for the following approximate
percentages of total sales of ready-mixed concrete in the United States in 2000:
Residential construction ............................... 27%
Commercial and industrial construction ................. 23%
Street and highway construction and paving ............. 31%
Other public works and infrastructure construction ..... 19%
----
Total ......................................... 100%
1
Ready-mixed concrete is a versatile, low-cost manufactured material the
construction industry uses in substantially all its projects. It is a stone-like
compound that results from combining coarse and fine aggregates, such as gravel,
crushed stone and sand, with water, various admixtures and cement. Ready-mixed
concrete can be manufactured in thousands of variations which in each instance
may reflect a specific design use. Manufacturers of ready-mixed concrete
generally maintain less than one day's requirements of raw materials and must
coordinate their daily material purchases with the time-sensitive delivery
requirements of their customers.
Ready-mixed concrete begins a chemical reaction when mixed and begins to
harden and generally becomes difficult to place within 90 minutes after mixing.
This characteristic generally limits the market for a permanently installed
plant to an area within a 25-mile radius of its location. Concrete manufacturers
produce ready-mixed concrete in batches at their plants and use mixer and other
trucks to distribute and place it at the job sites of their customers. These
manufacturers generally do not provide paving or other finishing services
construction contractors or subcontractors typically perform.
Concrete manufacturers generally obtain contracts through local sales and
marketing efforts they direct at general contractors, developers and home
builders. As a result, local relationships are very important.
On the basis of information the National Ready-Mixed Concrete Association
has provided to us, we estimate that, in addition to vertically integrated
manufacturers of cement and ready-mixed concrete, more than 3,500 independent
concrete producers currently operate a total of approximately 5,300 plants in
the United States. Larger markets generally have numerous producers competing
for business on the basis of price, timing of delivery and reputation for
quality and service. We believe, on the basis of available market information,
that the typical ready-mixed concrete company is family-owned and has limited
access to capital, limited financial and technical expertise and limited exit
strategies for its owners. Given these operating constraints, we believe many
ready-mixed concrete companies are finding it difficult to both grow their
businesses and compete effectively against larger, more cost-efficient and
technically capable competitors. We believe these characteristics in our highly
fragmented industry present growth opportunities for a company with a focused
acquisition program and access to capital.
Barriers to the start-up of a new ready-mixed concrete manufacturing
operation historically have been low. In recent years, however, public concerns
about the dust, noise and heavy mixer and other truck traffic associated with
the operation of ready-mixed concrete plants and their general appearance have
made obtaining the permits and licenses required for new plants more difficult.
Delays in the regulatory process, coupled with the substantial capital
investment start-up operations entail, have raised the barriers to entry for
those operations.
Significant Factors Impacting the Market for Ready-Mixed Concrete
On the basis of available industry information, we believe that between
1996 and 2000, ready-mixed concrete sales as a percentage of total construction
expenditures in the United States increased 6.1%. In addition to favorable
trends in the overall economy of the United States during much of this period,
we believe three significant factors have contributed to expansion of the market
for ready-mixed concrete in particular:
. the increased level of industry-wide promotional and marketing
activities;
. the development of new and innovative uses for ready-mixed concrete;
and
. the enactment of the federal legislation commonly called TEA-21.
Industry-wide Promotional and Marketing Activities. We believe industry
participants have only in recent years focused on and benefited from promotional
activities to increase the industry's share of street and highway and
residential construction expenditures. Many of these promotional efforts
resulted from an industry-wide initiative called RMC 2000, a program established
in 1993 under the leadership of our chief executive officer, Eugene P.
Martineau. The National Ready Mixed Concrete Association, the industry's largest
trade organization, has adopted this program. Its principal goals have been to
(1) promote ready-mixed concrete as a building and paving material and (2)
improve the overall image of the ready-mixed concrete industry. We believe RMC
2000 has been a catalyst for increased investment in the promotion of concrete.
2
Development of New and Innovative Ready-mixed Concrete Products.
Ready-mixed concrete has many attributes that make it a highly versatile
construction material. In recent years, industry participants have developed
various product innovations, including:
. concrete housing;
. pre-cast modular paving stones;
. pre-stressed concrete railroad ties to replace wood ties;
. continuous-slab rail-support systems for rapid transit and heavy-
traffic intricate rail lines; and
. concrete bridges, tunnels and other structures for rapid transit
systems.
Other examples of successful innovations that have opened new markets for
ready-mixed concrete include:
. highway median barriers;
. highway sound barriers;
. paved shoulders to replace less permanent and increasingly costly
asphalt shoulders;
. parking lots providing a long-lasting and aesthetically pleasing urban
environment; and
. colored pavements to mark entrance and exit ramps and lanes of
expressways.
Impact of TEA-21. The Federal Transportation Equity Act for the 21st
Century, commonly called TEA-21, is the largest public works funding bill in the
history of the United States. It became effective in June 1998 and provides a
$218 billion budget for federal highway, transit and safety spending for the
six-year period from 1998 through 2003. This represents a 43% increase over the
funding levels similar federal funding programs authorized for the 1992-1997
period. Although road and highway construction and paving accounted for only 12%
of our 2000 sales, we believe we should benefit from the impact we expect TEA-21
will have on the overall demand for ready-mixed concrete in the United States.
Our Business Strategy
Our objective is to continue expanding the geographic scope of our
operations and become the leading value-added provider of ready-mixed concrete
and related products and services in each of our markets. We plan to achieve
this objective by (1) continuing to make acquisitions and (2) continuing to
implement our national operating strategy aimed at increasing revenue growth and
market share, achieving cost efficiencies and enhancing profitability.
Growth Through Acquisitions. The significant costs and regulatory
requirements involved in building new plants make acquisitions an important
element of our growth strategy. Our acquisition program targets opportunities
for (1) expansion in our existing markets and (2) entering new geographic
markets in the United States.
. Expanding in Existing Markets. We seek to continue acquiring other
well-established companies operating in our existing markets in order
to expand our market penetration. We have acquired operating companies
in Northern California, Michigan, North Texas, Memphis/Northern
Mississippi, Northern New Jersey/Southern New York and the Washington,
D.C. area following our initial entry into these markets. By expanding
in existing markets through acquisitions, we expect to continue
realizing various operating synergies, including:
. increased market coverage;
. improved utilization and range of mixer trucks because of access
to additional plants;
. customer cross-selling opportunities; and
. reduced operating and overhead costs.
3
. Entering New Geographic Markets. We seek to continue entering new
geographic markets that have a balanced mix of residential,
commercial, industrial and public sector concrete consumption and have
demonstrated adequate sustainable demand and prospects for growth. In
each new market we enter, we target for acquisition one or more
leading local or regional ready-mixed concrete companies that can
serve as platform businesses into which we can consolidate other
ready-mixed concrete operations. Important criteria for these
acquisition candidates include historically successful operating
results, established customer relationships and superior operational
management personnel, whom we generally will seek to retain. Since our
formation in May 1999 and through March 15, 2001, we have entered into
new geographic markets in San Diego, North Texas/Southwest Oklahoma,
Memphis/Northern Mississippi, Knoxville and Michigan.
Implementation of National Operating Strategy. We designed our national
operating strategy (1) to increase revenues and market share through improved
marketing and sales initiatives and enhanced operations and (2) to achieve cost
efficiencies.
. Improving Marketing and Sales Initiatives and Enhancing Operations.
Our basic operating strategy emphasizes the sale of value-added
product to customers who are more focused on reducing their installed,
or in-place, concrete costs than on the price per cubic yard of the
ready-mixed concrete they purchase. Key elements of our service-
oriented strategy include:
. providing corporate-level marketing and sales expertise;
. establishing and implementing company-wide quality control
improvements;
. continuing to develop and implement training programs that
emphasize successful marketing, sales and training techniques and
the sale of high-margin concrete mix designs; and
. investing in computer and communications technology at each of
our locations to improve communications, purchasing, accounting,
load dispatch, delivery efficiency, reliability, truck tracking
and customer relations.
. Achieving Cost Efficiencies. We strive over time to reduce the total
operating expenses of the businesses we acquire by eliminating or
consolidating some of the functions each business performed separately
prior to its acquisition. In addition, we believe that, as we continue
to increase in size on both a local market and national level, we
should experience reduced costs as a percentage of net sales compared
to those of the individual businesses we acquire in such areas as:
. materials procurement;
. purchases of mixer trucks and other equipment, spare parts and tools;
. vehicle and equipment maintenance;
. employee benefit plans; and
. insurance and other risk management programs.
Products and Services
Ready-Mixed Concrete. Our ready-mixed concrete products consist of
proportioned mixes we prepare and deliver in unhardened plastic states for
placement and shaping into their designed forms. Selecting the optimum mix for a
job entails determining not only the ingredients that will produce the desired
permeability, strength, appearance and other properties of the concrete after it
has hardened and cured, but also the ingredients necessary to achieve a workable
consistency considering the weather and other conditions at the job site. We
believe we can achieve product differentiation for the mixes we offer because of
the variety of mixes we can produce, our volume production capacity and our
scheduling, delivery and placement reliability. We also believe we distinguish
ourselves with our value-added service approach that emphasizes reducing our
customers' overall construction costs by lowering the installed, or in-place,
cost of concrete and the time required for construction.
4
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 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 and labor they will require in various applications.
We provide a variety of services in connection with our sale of ready-mixed
concrete which can help reduce our customers' in-place cost of concrete. These
services include:
. production of new formulations and alternative product recommendations
that reduce labor and materials costs;
. quality control, through automated production and laboratory testing,
that ensures consistent results and minimizes the need to correct
completed work; and
. automated scheduling and tracking systems that ensure timely delivery
and reduce the downtime incurred by the customer's finishing crew.
We produce ready-mixed concrete by combining the desired type of cement,
sand, gravel and crushed stone with water and typically one or more admixtures.
These admixtures, such as chemicals, minerals and fibers, determine the
usefulness of the product for particular applications.
We use a variety of chemical admixtures to achieve one or more of five
basic purposes:
. relieve internal pressure and increase resistance to cracking in
subfreezing weather;
. retard the hardening process to make concrete more workable in hot
weather;
. strengthen concrete by reducing its water content;
. accelerate the hardening process and reduce the time required for
curing; and
. facilitate the placement of concrete having a low water content.
We frequently use various mineral admixtures as supplementary cementing
materials to alter the permeability, strength and other properties of concrete.
These materials include fly ash, ground granulated blast-furnace slag and silica
fume.
We also use fibers, such as steel, glass and synthetic and carbon
filaments, as an additive in various formulations of concrete. Fibers help to
control shrinkage cracking, thus reducing permeability and improving abrasion
resistance. In many applications, fibers replace welded steel wire and
reinforcing bars. Relative to the other components of ready-mixed concrete,
these additives generate comparatively high margins.
Our ready-mixed concrete operations comprised 89.2% of our pro forma 2000
revenues.
Pre-Cast Concrete. We produce pre-cast concrete products at six of our
Northern California plants and at our San Diego California plant. Our pre-cast
concrete products consist of ready-mixed concrete we produce and then pour into
molds at our plant sites. These operations produce a wide variety of specialized
finished products, including specialty engineered structures, custom signage and
curb inlets. After the concrete sets, we strip the molds from the products and
ship the finished product to our customers. Because these products are not
perishable, pre-cast concrete plants can serve a much larger market than
ready-mixed concrete plants.
Our pre-cast operations comprised 7.8% of our pro forma 2000 revenues.
5
Building Materials (Including Concrete Masonry). Our building materials
operations supply various materials, products and tools contractors use in the
concrete construction industry. These materials include rebar, wire mesh, color
additives, curing compounds, grouts, wooden forms, hard hats, rubber boots,
gloves, trowels, lime slurry used to stabilize foundations and numerous other
items. We also produce concrete masonry at our Auburn Hills, Michigan plant. Our
building materials operations are generally located near our ready-mixed
concrete operations.
Our building materials operations comprised 3.0% of our pro forma 2000
revenues.
Operations
The businesses we have acquired have made substantial capital investments
in equipment, systems and personnel at their respective plants to facilitate
continuous multi-customer deliveries of highly perishable products. In any given
market, we may maintain a number of plants whose production we centrally
coordinate to meet customer production requirements. We must be able to adapt
constantly to continually changing delivery schedules.
Our ready-mixed concrete plants consist of permanent and mobile facilities
that produce ready-mixed concrete in wet or dry batches. Our 73 fixed-plant
facilities produce ready-mixed concrete that we transport to job sites by mixer
trucks. Our on-site mobile plant operations deploy our nine mobile-plant
facilities to produce ready-mixed concrete at the job site that we direct into
place using a series of conveyor belts or a mixer truck. Several factors govern
the choice of plant type, including:
. capital availability;
. production consistency requirements;
. daily production capacity requirements; and
. job-site location.
A wet batch plant generally costs more, but yields greater consistency in
the concrete produced and has greater daily production capacity, than a dry
batch plant. We believe that a wet batch plant having an hourly capacity of 250
cubic yards currently would cost approximately $1.5 million, while a dry batch
plant having the same capacity currently would cost approximately $0.7 million.
At March 15, 2001, we operated 13 wet batch plants and 60 dry batch plants.
The market primarily will drive our future plant decisions. The relevant
market factors include:
. the expected production demand for the plant;
. the expected types of projects the plant will service; and
. the desired location of the plant.
Generally, plants intended primarily to serve high-volume, commercial or
public works projects will be wet batch plants, while plants intended primarily
to serve low-volume, residential construction projects will be dry batch plants.
From time to time, we also may use portable plants, which include both wet batch
and dry batch facilities, to service large, long-term jobs and jobs in remote
locations.
The batch operator in a dry batch plant simultaneously loads the dry
components of stone, sand and cement with water and admixtures in a mixer truck
that begins the mixing process during loading and completes that process while
driving to the job site. In a wet batch plant, the batch operator blends the dry
components and water in a plant mixer from which he loads the already mixed
concrete into the mixer truck, which leaves for the job site promptly after
loading.
Mixer trucks slowly rotate their loads on route to job sites in order to
maintain product consistency. A mixer truck typically has a load capacity of
nine cubic yards, or approximately 18 tons, and a useful life of 12 years.
Depending on the type of batch plant from which the mixer trucks generally are
loaded, some components of the mixer trucks will require refurbishment after
three to nine years. A new truck of this size currently costs approximately
$125,000. At March 15, 2001, we operated a fleet of approximately 960 mixer
trucks.
6
In our manufacture and delivery of ready-mixed concrete, 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 to a job site. A typical order contains various
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.
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, 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 multi-sourced
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 product throughout the placement process.
On any given day, a particular plant may have production orders for dozens of
customers at various locations throughout its area of operation. To fill an
order:
. the customer service office coordinates the timing and delivery of the
concrete to the job site;
. 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;
. 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 already-mixed concrete in a wet batch plant; and
. the driver of the mixer truck delivers the load to the job site,
discharges the load and, after washing the truck, departs at the
direction of the dispatch office.
The central dispatch system tracks the status of each mixer truck as to
whether a particular truck is:
. loading concrete;
. in route to a particular job site;
. on the job site;
. discharging concrete;
. being washed; or
. in route to a particular plant.
The system is updated continuously via signals received from the individual
truck operators as to their status. In this manner, the dispatcher can determine
the optimal routing and timing of subsequent deliveries by each mixer truck and
monitor the performance of each driver.
7
A plant manager oversees the operation of each plant. Our employees also
include:
. maintenance personnel who perform routine maintenance work throughout
our plants;
. a full-time staff of mechanics who perform substantially all the
maintenance and repair work on our vehicles;
. testing center staff who prepare mixtures for particular job
specifications and maintain quality control;
. various clerical personnel who perform administrative tasks; and
. sales personnel who are responsible for identifying potential
customers and maintaining existing customer relationships.
We generally operate on a single shift with some overtime operation during the
construction season. On occasion, however, we may have projects that require
deliveries around the clock.
Cement and Raw Materials
We obtain most of the materials necessary to manufacture ready-mixed
concrete at each of our facilities on a daily basis. These raw materials include
cement, which is a manufactured product, stone, gravel and sand. Each plant
typically maintains an inventory level of these materials sufficient to satisfy
its operating needs for one day or less. Cement represents the highest cost
material used in manufacturing a cubic yard of ready-mixed concrete, while the
combined cost of the stone, gravel and sand used is slightly less than the
cement cost. In each of our markets, we purchase each of these materials from
several suppliers.
Sales and Marketing
General contractors typically select their suppliers of ready-mixed
concrete. In large, complex projects, an engineering firm or division within a
state transportation or public works department may influence the purchasing
decision, particularly if the concrete has complicated design specifications. In
those projects and in government-funded projects generally, the general
contractor or project engineer usually awards supply orders on the basis of
either direct negotiation or competitive bidding. We believe the purchasing
decision in many cases ultimately is relationship-based. Our marketing efforts
target general contractors, design engineers and architects whose focus extends
beyond the price of ready-mixed concrete to product quality and consistency and
reducing their in-place cost of concrete.
Customers
Of our 2000 sales, we made approximately 51% to commercial and industrial
construction contractors, approximately 32% to residential construction
contractors, approximately 12% to street and highway construction contractors
and approximately 5% to other public works and infrastructure contractors. In
2000, no single customer or project accounted for more than 5% of our total
sales.
We rely heavily on repeat customers. Our management and dedicated sales
personnel are responsible for developing and maintaining successful long-term
relationships with key customers. We believe that by expanding our operations
into more geographic markets, we will be in a better position to market to and
service large nationwide and regional contractors.
Training and Safety
Our future success will depend, in part, on the extent to which we can
attract, retain and motivate qualified employees. We believe that our ability to
do so will depend on the quality of our recruiting, training, compensation and
benefits, the opportunities we afford for advancement and our safety record.
Historically, we have supported and funded continuing education 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 followed by certification testing. The
responsibilities of our national safety director include managing and executing
a unified, company-wide safety program.
8
Competition
The ready-mixed concrete industry is highly competitive. Our competitive
position in a market depends largely on the location and operating costs of our
ready-mixed concrete plants and prevailing prices in that market. Price is the
primary competitive factor among suppliers for small or simple jobs, principally
in residential construction, while timeliness of delivery and consistency of
quality and service as well as price are the principal competitive factors among
suppliers for large or complex jobs. Our competitors range from small,
owner-operated private companies to subsidiaries or operating units of large,
vertically integrated cement manufacturing and concrete products companies.
Competitors having lower operating costs than we do or having the financial
resources to enable them to accept lower margins than we do have a competitive
advantage over us for jobs that are particularly price-sensitive. Competitors
having greater financial resources to build plants in new areas or pay for
acquisitions also have competitive advantages over us.
Employees
At March 15, 2001, we had approximately 375 salaried employees, including
executive officers, management personnel, sales personnel, technical personnel,
administrative staff and clerical personnel, and approximately 1,522 hourly
personnel generally employed on an as-needed basis, including 1,032 truck
drivers. 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.
At March 15, 2001, approximately 996 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. Under these
agreements, we 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.
None of the businesses we have acquired has experienced any strikes or
significant work stoppages in the past five years. We believe our relationships
with our employees and union representatives are satisfactory.
Facilities and Equipment
At March 15, 2001, we operated a fleet of approximately 960 owned and
leased mixer trucks and 509 other vehicles. Our own mechanics service most of
the fleet. We believe these vehicles generally are well maintained and adequate
for our operations. The average age of the mixer trucks is approximately 5.3
years.
We operated 73 fixed-plant facilities and nine onsite mobile-plant
facilities that produce ready-mixed concrete at March 15, 2001. We believe that
these facilities are sufficient for our immediate needs. The table below
summarizes operations at our fixed-plant facilities at March 15, 2001. The
ready-mixed volumes in the table represent the pro forma 2000 volumes produced
by each location.
Building Ready-Mixed
Materials/ Volume
Concrete (in thousands
Location Ready-Mixed Pre-Cast Masonry of cubic yards)
- --------------------------------------------------------------------- ----------- -------- --------- ---------------
Northern California.................................................. 20 6 3 2,266
Northern New Jersey/Southern New York................................ 15 -- -- 880
North Texas/Southwest Oklahoma....................................... 14 -- 2 753
Michigan............................................................. 11 -- 1 742
Washington, D.C. area................................................ 3 -- -- 463
Memphis/Northern Mississippi......................................... 7 -- -- 327
Knoxville............................................................ 3 -- -- 203
San Diego............................................................ -- 1 -- --
----- ----- ----- -----
73 7 6 5,634
===== ===== ===== =====
9
The information above includes the following locations we purchased between
January 1 and March 15, 2001:
Building Ready-Mixed
Materials/ Volume
Concrete (in thousands
Location Ready-Mixed Pre-Cast Masonry of cubic yards)
- --------------------------------------------------------------------- ----------- -------- --------- ---------------
Northern New Jersey/Southern New York................................ 12 -- -- 678
Northern California.................................................. -- 1 -- --
----- ----- ----- -----
12 1 -- 678
===== ===== ===== =====
Governmental Regulation and Environmental Matters
A wide range of federal, state and local laws apply to our operations,
including such matters as:
. land usage;
. street and highway usage;
. noise levels; and
. health, safety and environmental matters.
In many instances, we must have certificates, permits or licenses to
conduct our business. Failure to maintain required certificates, permits or
licenses or to comply with applicable laws 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 failures to obtain new certificates, permits or licenses, could
impede the implementation of our acquisition program.
Environmental laws that impact our operations include those relating to air
quality, solid waste management and water quality. Environmental laws are
complex and subject to frequent change. These laws 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
which complied with all applicable laws when performed. We have conducted Phase
I investigations to assess environmental conditions on substantially all the
real properties we own or lease and have engaged independent environmental
consulting firms in that connection. We have not identified any environmental
concerns we believe are likely to have a material adverse effect on our
business, financial condition or results of operations, but you have no
assurance material liabilities will not occur. You also have no assurance our
compliance with amended, new or more stringent laws, stricter interpretations of
existing laws or the future discovery of environmental conditions will not
require additional, material expenditures. OSHA regulations establish
requirements our training programs must meet.
We have all material permits and licenses we need to conduct our operations
and are in substantial compliance with applicable regulatory requirements
relating to our operations. Our capital expenditures relating to environmental
matters were not material on a pro forma combined basis in 2000. We currently do
not anticipate any material adverse effect on our business or financial position
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 formulations that
must meet building code or other regulatory requirements and contractual
specifications for durability, stress-level capacity, weight-bearing capacity
and other characteristics. If we fail or are unable to provide product meeting
these requirements and specifications, material claims may arise against us and
our reputation could be damaged.
10
We are currently in discussions with a customer and developer regarding a
product warranty claim. The claim relates to a large, single-family home
tract-construction project in Northern California for which we produced and
supplied a different batch mix for a short period of time that was used in 72
foundation slabs on grade. The developer asserts that it is entitled to be made
whole for all expenses it incurred in demolishing the homes on those slabs, for
all costs of rebuilding the homes to their state prior to demolition and for all
related costs. While we believe we have valid defenses to this claim based on,
among other things, failure to mitigate damages, we are unable to quantify a
range of loss or predict with certainty the outcome of this matter at this time.
Insurance
Our employees perform a significant portion of their work moving and
storing large quantities of heavy raw materials, driving large mixer trucks in
heavy traffic conditions or placing 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 property and equipment and
environmental damage. We maintain insurance coverage in amounts and against the
risks we believe accord with industry practice, but this insurance may not be
adequate to cover all losses or liabilities we may incur in our operations, and
we may be unable to maintain insurance of the types or at levels we deem
necessary or adequate or at rates we consider reasonable.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We are including the following discussion to inform our existing and
potential security holders generally of some of the risks and uncertainties that
can affect our company and to take advantage of the "safe harbor" protection for
forward-looking statements that applicable federal securities law affords.
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 the timing of pending acquisitions and the success of our acquisition
program, revenues, income and capital spending. Forward-looking statements
generally use words such as "estimate," "project," "predict," "believe,"
"expect," "anticipate," "plan," "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.
In addition, various statements this report contains, including those that
express a belief, expectation or intention, as well as those that are not
statements of historical fact, are forward-looking statements. Those
forward-looking statements appear in Items 1 and 2--"Business and Properties"
and Item 3--"Legal Proceedings" in Part I of this report and in Item
7--"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and in the notes to our consolidated financial statements in Item 8
of Part II of this report and elsewhere in this report. These forward-looking
statements speak only as of the date of this report, we disclaim any obligation
to update these statements and we caution you not to rely unduly on them. We
have based these forward-looking statements on our current expectations and
assumptions about future events. While our management considers these
expectations and assumptions to be reasonable, they are inherently subject to
significant business, economic, competitive, regulatory and other risks,
contingencies and uncertainties, most of which are difficult to predict and many
of which are beyond our control. These risks, contingencies and uncertainties
relate to, among other matters, the following:
. our acquisition and national operating strategies;
. our ability to integrate the businesses we acquire;
. our ability to obtain the capital necessary to finance our growth
strategies;
. the availability of qualified personnel;
. the trends we anticipate in the ready-mixed concrete industry;
. the level of activity in the construction industry generally and in our
local markets for ready-mixed concrete;
11
. the highly competitive nature of our business;
. changes in, or our ability to comply with, governmental regulations,
including those relating to the environment;
. our labor relations and those of our suppliers of cement and aggregates;
. the level of funding allocated by the United States Government for
federal highway, transit and safety spending;
. power outages and other unexpected events that delay or adversely affect
our ability to deliver concrete according to our customers'
requirements;
. our ability to control costs and maintain quality; and
. our exposure to warranty claims from developers and other customers.
We believe the items we have outlined above are important factors that
could cause our actual results to differ materially from those expressed in a
forward-looking statement made in this report or elsewhere by us or on our
behalf. We have discussed most of these factors in more detail elsewhere in this
report. These factors are not necessarily all the important factors that could
affect us. Unpredictable or unknown factors we have not discussed in this report
could also 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 above could affect the
accuracy of our forward-looking statements and (2) use caution and common sense
when considering our forward-looking statements.
Item 3. Legal Proceedings
Bay-Crete Transportation & Materials, LLC alleges in a lawsuit it filed on
July 11, 2000 in California Superior Court in San Mateo County, against our
subsidiary, Central, and us that it possesses beneficiary rights under a 1983
contract to purchase annually up to 200,000 cubic yards of ready-mixed concrete
from Central until March 30, 2082. Under that contract, the purchase price would
consist of Central's direct materials costs and an overhead fee. Bay-Crete
alleges that we breached that contract by refusing to acknowledge Bay-Crete's
rights as a beneficiary of that contract. It is seeking damages of $500 million
of lost profits spread over the next 82 years. Central and we each filed an
answer and cross-complaint in August 2000 which seeks declaratory relief for a
determination that Bay-Crete is not entitled to use the contract. In addition,
the cross-complaints seek damages for improper conduct by Bay-Crete, the general
manager of Bay-Crete and a member of Bay-Crete for making demands under the
contract in violation of an order of the United States Bankruptcy Court for the
Northern District of California, San Francisco Division. A predecessor to
Central previously prevailed in the defense of a similar action brought by the
general manager of Bay-Crete under a related agreement, and Central and we
believe we have meritorious defenses to Bay-Crete's claim and intend to
vigorously defend this suit.
From time to time, and currently, we are subject to various other 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.
We believe that the resolution of all litigation currently pending or
threatened against us or any of our subsidiaries (including the dispute with
Bay-Crete we describe above) will not have a material adverse effect on our
business or financial condition; however, because of the inherent uncertainty of
litigation, we cannot assure you that the resolution of any particular claim or
proceeding to which we are a party will not have a material adverse effect on
our results of operations for the fiscal period in which that resolution occurs.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the our security holders during the
fourth quarter of 2000.
12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Our common stock began trading on The Nasdaq Stock Market in May 1999 under
the symbol "RMIX." As of March 15, 2001, 22.6 million shares of our common stock
were outstanding, held by approximately 721 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 following table sets forth the range of high and low bid prices for our
common stock on The Nasdaq Stock Market for the periods indicated:
2000 1999
------------------------ ---------------------
High Low High Low
---------- ---------- ----------- ----------
First Quarter....................................... $ 7 7/8 $ 6 $ -- $ --
Second Quarter ..................................... 8 1/8 6 10 1/32 7 7/8
Third Quarter....................................... 8 3/16 6 11 1/8 6 1/2
Fourth Quarter...................................... 7 5/16 5 11/16 8 5/32 5 7/8
The last reported bid price for our common stock on The Nasdaq Stock Market
on March 15, 2001 was $6 15/16 per share.
We have not paid or declared any dividends since our formation and
currently intend to retain earnings to fund our working capital. Any future
dividends will be at the discretion of our board of directors after taking into
account various factors it deems relevant, including our financial condition and
performance, cash needs, income tax consequences and the restrictions Delaware
and other applicable laws and our credit facilities then impose. Our credit
facility prohibits the payment of cash dividends on our common stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" in Item 7 of this Report and Note 6
of our Notes to Consolidated Financial Statements in Item 8 of this Report.
Recent Sales of Unregistered Securities
On November 10, 2000, we issued and sold for cash $95 million aggregate
principal amount of our 12.00% senior subordinated notes due November 10, 2010.
We used the net proceeds from this sale to reduce amounts outstanding under our
secured revolving credit facility. We sold the notes to a small number of
accredited institutional investors without registration under the Securities Act
in reliance on the exemption Section 4(2) of the Securities Act provides for
transactions not involving any public offering.
13
Item 6. Selected Financial Data
We acquired six businesses in 2000 and 14 in 1999 (including our initial
six acquisitions), all of which we have accounted for under the purchase method
of accounting (see Note 3 "Business Combinations" under Item 8). Our financial
statements present Central Concrete Supply Co., Inc., one of our initial six
acquisitions, as the acquirer of the other 19 businesses and U.S. Concrete. The
following historical financial information is of Central prior to June 1, 1999
and of U.S. Concrete and its consolidated subsidiaries after that date. The
historical financial information for Central as of December 31, 1998 and 1997,
and for the years ended December 31, 1998, 1997 and 1996, derives from the
audited financial statements of Central. See the historical financial statements
and related notes this document contains.
Year Ended December 31
----------------------------------------------------------
2000 1999 1998 1997 1996
---------- --------- --------- --------- ----------
(in thousands)
Statement of Operations Information:
Sales.................................................... $ 394,636 $ 167,912 $ 66,499 $ 53,631 $ 39,204
Cost of goods sold....................................... 314,297 135,195 53,974 43,794 33,402
--------- --------- -------- -------- --------
Gross profit........................................... 80,339 32,717 12,525 9,837 5,802
Selling, general and administrative expenses............. 27,741 9,491 4,712 4,265 3,644
Stock compensation charge................................ -- 2,880 -- -- --
Depreciation and amortization............................ 11,212 3,453 930 1,330 1,203
--------- --------- -------- -------- --------
Income from operations................................. 41,386 16,893 6,883 4,242 955
Interest expense, net.................................... 14,095 1,708 165 226 188
Other income, net ....................................... 1,319 663 36 26 --
--------- --------- -------- -------- --------
Income before income tax provision..................... 28,610 15,848 6,754 4,042 767
Income tax provision (benefit)........................... 11,750 7,658 100 (457) 303
--------- --------- -------- -------- --------
Net income............................................. $ 16,860 $ 8,190 $ 6,654 $ 4,499 $ 464
========= ========= ======== ======== ========
----------------------------------------------------------
2000 1999 1998 1997 1996
---------- --------- --------- --------- ----------
(in thousands)
Balance Sheet Information:
Working capital........................................ $41,532 $14,578 $ 7,431 $4,899 $1,363
Total assets........................................... 355,837 212,734 26,640 19,837 13,603
Long-term debt, including current maturities........... 157,134 57,375 3,530 2,660 1,730
Total stockholders' equity............................. 150,555 110,793 15,154 10,731 6,472
Item 7. Management's Discussion and Analysis of Financial Condition and Results
Of Operations
Statements we make in the following discussion which express a belief,
expectation or intention, as well as those that are not historical fact, are
forward-looking statements that are subject to risks, uncertainties and
assumptions. Our actual results, performance or achievements, or industry
results, could differ materially from those we express in the following
discussion as a result of a variety of factors, including the risks and
uncertainties we have referred to under the heading "Cautionary Statement
Concerning Forward-Looking Statements" following Items 1 and 2 of Part I of this
report and under the heading "Factors That May Affect Our Future Operating
Results" below.
Overview
We derive substantially all our revenues from the sale of ready-mixed
concrete, other concrete products and related construction materials to the
construction industry in the United States. We serve substantially all segments
of the construction industry, and our customers include contractors for
commercial, industrial, residential and public works and infrastructure
construction. We typically sell ready-mixed concrete under daily purchase orders
that require us to formulate, prepare and deliver ready-mixed concrete to the
job sites of our customers. We recognize our sales from these orders when we
deliver the ordered products.
14
Our cost of goods sold consists principally of the costs we incur in
obtaining the cement, aggregates and admixtures we combine to produce
ready-mixed concrete and other concrete products in various formulations. We
obtain all these materials from third parties and generally have only one day's
supply at each of our concrete plants. Our cost of goods sold also includes
labor costs and the operating, maintenance and rental expenses we incur in
operating our concrete plants and mixer trucks and other vehicles.
Our selling expenses include the salary and incentive compensation we pay
our sales force, the salaries and incentive compensation of our sales managers
and travel, entertainment and other promotional expenses. Our general and
administrative expenses include the salaries and benefits we pay to our
executive officers, the senior managers of our local and regional operations,
plant managers and administrative staff. These expenses also include office rent
and utilities, communications expenses and professional fees.
We purchased six operating businesses in 2000 and 14 operating businesses
in 1999, all of which we have accounted for in accordance with the purchase
method of accounting. Our financial statements present Central Concrete Supply
Co., Inc., one of our initial six acquisitions, as the acquirer of the other 19
businesses and U.S. Concrete. These financial statements are those of Central
prior to June 1, 1999 and of U.S. Concrete and its consolidated subsidiaries
after that date.
Factors That May Affect Our Future Operating Results
Reflecting the levels of construction activity, the demand for ready-mixed
concrete is highly seasonal. We believe that this demand may be as much as three
times greater in a prime summer month than in a slow winter month and that the
six-month period of May through October is the peak demand period. Consequently,
we expect that our sales generally will be materially lower in the first and
fourth calendar quarters. Because we incur fixed costs, such as wages, rent,
depreciation and other selling, general and administrative expenses, throughout
the year, we expect our gross profit margins will be disproportionately lower
than our sales in these quarters. Even during traditional peak periods,
sustained periods of inclement weather and other extreme weather conditions can
slow or delay construction and thus slow or delay our sales.
You should not rely on (1) quarterly comparisons of our revenues and
operating results as indicators of our future performance or (2) the results of
any quarterly period during a year as an indicator of results you may expect for
that entire year.
Demand for ready-mixed concrete and other concrete products depends on the
level of activity in the construction industry. That industry is cyclical in
nature, and the general condition of the economy and a variety of other factors
beyond our control affect its level of activity. These factors include, among
others:
. the availability of funds for public or infrastructure construction;
. commercial and residential vacancy levels;
. changes in interest rates;
. the availability of short- and long-term financing;
. inflation;
. consumer spending habits; and
. employment levels.
We may incur material costs and losses as a result of claims that our
products do not meet regulatory requirements or contractual specifications.
The construction industry can exhibit substantial variations in activity
across the country as a result of these factors impacting regional and local
economies differently.
Markets for ready-mixed concrete generally are local. Our results of
operations are susceptible to swings in the level of construction activity which
may occur in our markets.
15
Ready-mixed concrete is highly 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.
Competitive conditions in our industry also may affect our future operating
results.
When we acquire a business, we record an asset called "goodwill" equal to
the excess amount we pay for the business, including liabilities we assume, over
the fair value of the assets of the business we acquire. Under generally
accepted accounting principles, we amortize goodwill over periods up to 40 years
following the acquisition, which directly affects our earnings in those years.
Should we be required to accelerate the amortization of goodwill or write it off
completely because of impairments or changes in generally accepted accounting
principles, our results of operations may be materially and adversely affected.
As we acquire additional businesses in the future for which we will account
in accordance with the purchase method of accounting, we will include the
operating results of those businesses in our consolidated operating results from
their respective acquisition dates and begin writing off any purchased goodwill
resulting from those acquisitions on those same dates. Consequently, the
magnitude and timing of our future acquisitions will affect our operating
results.
Results of Operations
The following table sets forth for us selected historical statement of
operations information and that information as a percentage of sales for the
years indicated. These financial statements are those of Central prior to June
1, 1999 and of U.S. Concrete and its consolidated subsidiaries after that date.
Except as we note below, our acquisitions in 2000 primarily account for the
changes in 2000 from 1999. Similarly, except as we note below, the consolidation
of operating results beginning on June 1, 1999 and our subsequent acquisitions
in 1999 principally account for the changes in 1999 from 1998.
Year Ended December 31
--------------------------------------------------------------------
2000 1999 1998
----------------------- -------------------- -----------------
(dollars in thousands)
Sales.............................................. $394,636 100.0% $167,912 100.0% $66,499 100.0%
Cost of goods sold................................. 314,297 79.6 135,195 80.5 53,974 81.2
-------- ----- -------- ----- ------- -----
Gross profit.................................. 80,339 20.4 32,717 19.5 12,525 18.8
Selling, general and administrative expenses....... 27,741 7.0 9,491 5.7 4,712 7.1
Stock compensation charge.......................... -- -- 2,880 1.7 -- --
Depreciation and amortization...................... 11,212 2.9 3,453 2.1 930 1.4
-------- ----- -------- ----- ------- -----
Income from operations........................ 41,386 10.5 16,893 10.0 6,883 10.3
Interest expense, net.............................. 14,095 3.6 1,708 1.0 165 0.2
Other income, net.................................. 1,319 0.4 663 0.4 36 0.1
-------- ----- -------- ----- ------- -----
Income before income tax provision............ 28,610 7.3 15,848 9.4 6,754 10.2
Income tax provision............................... 11,750 3.0 7,658 4.5 100 0.2
-------- ----- -------- ----- ------- -----
Net income.................................... $ 16,860 4.3% $ 8,190 4.9% $6,654 10.0%
======== ===== ======= ===== ======= =====
2000 Compared to 1999
Sales. Sales increased $226.7 million, or 135.0%, from $167.9 million in 1999 to
$394.6 million in 2000.
Gross profit. Gross profit increased $47.6 million, or 145.6%, from $32.7
million in 1999 to $80.3 million in 2000. Gross margins increased from 19.5% in
1999 to 20.4% in 2000, primarily due to improved pricing terms we have
negotiated with key materials suppliers in our major ready-mixed markets.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $18.3 million, or 192.3%, from $9.5 million in
1999 to $27.7 million in 2000. The increase in selling, general and
administrative expenses as a percentage of sales is attributable to additions to
the corporate overhead infrastructure to accommodate our growth strategy, as
well as management additions in certain of our markets.
16
Stock compensation charge. The 1999 stock compensation charge represents a
noncash charge for the 400,000 shares of common stock we issued in December 1998
and March 1999 to management and nonemployee directors at a nominal cost. The
amount of this charge reflected a fair value of $7.20 per share, which
represented a 10% discount from the initial offering price to the public of
$8.00 per share in our IPO.
Depreciation and amortization. Depreciation and amortization expense increased
$7.8 million, or 224.7%, from $3.5 million in 1999 to $11.2 million in 2000.
This increase includes amortization of the goodwill attributable to our
acquisition activity. We are amortizing this goodwill over 40 years for each
acquisition. At December 31, 2000, the annualized amount of this noncash expense
was $4.9 million.
Interest expense, net. Interest expense, net, increased $12.4 million from $1.7
million in 1999 to $14.1 million in 2000. This increase was attributable
principally to borrowings we made to pay the cash portion of the purchase prices
for our acquisitions. At December 31, 2000, we had outstanding borrowings
totaling $157.1 million, at a weighted average interest cost of 10.7% per annum.
Other income, net. Other income, net increased $656,000, or 98.9%, from $663,000
in 1999 to $1.3 million in 2000. This increase is attributable to the sale of a
customer contract, a gain from the involuntary conversion of property and
numerous other items of income and expense.
Income tax provision. We provided for income taxes of $11.8 million in 2000, an
increase of $4.1 million from our provision in 1999. The increase is principally
attributable to an overall increase in taxable earnings for 2000 resulting from
our operating activities. Additionally, in the first five months of 1999,
Central operated as an S corporation and thus made no provision for income taxes
during that period. The increase in our overall income tax provision is
partially offset by a decrease in our effective income tax rate from 48.3% in
1999 to 41.1% in 2000. The higher rate in 1999 primarily resulted from the
income tax expense we recognized as a result of the conversion of Central from
an S corporation to a C corporation and a nondeductible stock compensation
charge which we recognized during that year.
1999 Compared to 1998
Sales. Sales increased $101.4 million, or 152.5%, from $66.5 million in 1998 to
$167.9 million in 1999.
Gross profit. Gross profit increased $20.2 million, or 161.2%, from $12.5
million in 1998 to $32.7 million in 1999. Gross margins increased from 18.8% in
1998 to 19.5% in 1999, primarily because increases in our product prices more
than offset increases in labor rates, additional technical personnel and
increases in our costs of raw materials.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $4.8 million, or 101.4%, from $4.7 million in
1998 to $9.5 million in 1999. The 1999 expenses include the salaries of our
executive officers and expenses we incurred in building our corporate
infrastructure.
Stock compensation charge. The 1999 stock compensation charge represents a
noncash charge for the 400,000 shares of our common stock we issued in December
1998 and March 1999 to management and nonemployee directors at a nominal cost.
Depreciation and amortization. Depreciation and amortization expense increased
$2.6 million, or 271.3%, from $0.9 million in 1998 to $3.5 million in 1999. This
increase reflects our initial amortization of the goodwill attributable to our
1999 acquisition activity. We are amortizing this goodwill over 40 years for
each acquisition. At December 31, 1999, the annualized amount of this noncash
expense was $2.7 million.
Interest expense, net. Interest expense, net, increased $1.5 million from $0.2
million in 1998 to $1.7 million in 1999. This increase was attributable
principally to borrowings we made to finance our post-IPO acquisitions in 1999
and to refinance indebtedness of our acquired businesses. At December 31, 1999,
we had borrowings totaling $57.1 million outstanding under our credit facility
at a weighted average interest cost of 7.9% per annum.
Income tax provision. We provided for income taxes of $7.7 million in 1999, an
increase of $7.6 million from our provision in 1998. This increase is
attributable to the fact that Central was an S corporation during 1998 and the
first five months of 1999 and thus made no provision for federal income taxes
during those periods.
17
Liquidity and Capital Resources
Our acquisitions since December 31, 1999 principally account for the
changes in our working capital accounts and our property, plant and equipment
account from December 31, 1999 to December 31, 2000.
During 2000, we purchased six businesses that we have accounted for in
accordance with the purchase method of accounting. The aggregate consideration
we paid in these transactions consisted of $98.9 million in cash and 3.7 million
shares of common stock.
In February 2000, we increased the size of our secured revolving credit
facility from $100 million to $200 million. We had $62.0 million of outstanding
borrowings under the facility at December 31, 2000. The facility has a term
expiring in May 2002 and a $5.0 million sublimit for letters of credit issued on
our behalf. Our borrowing availability under the facility will vary from time to
time depending on our satisfaction of several financial tests. We may use the
facility for the following purposes:
. financing acquisitions;
. funding the internal expansion of our operations;
. working capital; and
. general corporate purposes.
Our subsidiaries have guaranteed the repayment of all amounts owing under
the facility, and we secured the facility with the capital stock and assets of
our subsidiaries. The facility:
. requires the consent of the lenders for certain acquisitions;
. prohibits the payment of cash dividends on our common stock;
. limits our ability to incur additional indebtedness; and
. requires us to comply with financial covenants.
The failure to comply with these covenants and restrictions would
constitute an event of default under the facility.
On November 10, 2000, we issued and sold to institutional investors in a
private placement $95 million aggregate principal amount of our 12.00% senior
subordinated notes due November 10, 2010 for $95 million in cash. The terms of
these notes will require us to repay them in equal annual installments of
approximately $13.6 million on November 10 in each of the years 2004 through
2010. We used the net proceeds from our sale of the notes to repay borrowings
under our secured revolving credit facility. We intend to keep that facility in
place and may borrow under that facility to fund future growth opportunities and
for general corporate purposes. Our borrowing availability under that facility
will vary from time to time depending on our satisfaction of several financial
tests.
We anticipate that our consolidated cash flow from our operations will
exceed our normal working capital needs, debt service requirements and the
amount of our planned capital expenditures, excluding acquisitions, for at least
the next 12 months.
We may use funds during the next 12 months to resolve the product warranty
claim we describe under the heading "Product Warranties" in Items 1 and 2 -
"Business and Properties." We anticipate the cash flows from our operations will
provide sufficient funds for any such resolution.
The continuation of our growth strategy will require substantial capital.
We currently intend to finance future acquisitions through issuances of our
common stock or debt securities, including convertible debt securities, and
borrowings under our credit facility. Using debt to complete acquisitions could
substantially limit our operational and financial flexibility. The extent to
which we will be able or willing to use our common stock to make acquisitions
will depend on its market value from time to time and the willingness of
potential sellers to accept it as full or partial payment. Using our common
stock for this purpose may result in dilution to our then existing stockholders.
To the extent we are unable to use our common stock to make future acquisitions,
our ability to grow will be limited by the extent to which we are able to raise
capital for this purpose, as well as to expand existing operations, through debt
or additional equity financings. If we are unable to obtain additional capital
on acceptable terms, we may be required to reduce the scope of our presently
anticipated expansion, which could materially adversely affect our business and
the value of our common stock.
18
We cannot accurately predict the timing, size and success of our
acquisition efforts or our associated potential capital commitments.
Inflation
As a result of the relatively low levels of inflation during the past three
years, inflation did not significantly affect our results of operations in any
of those years.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Borrowings under our revolving credit facility expose us to certain market
risks. Outstanding borrowings under our credit facility were $62.0 million at
December 31, 2000. A change of one percent in the interest rate would cause a
change in interest expense of approximately $620,000, or $0.02 per share, on an
annual basis. We did not enter into our credit facility for trading purposes.
The credit facility carries interest at a pre-agreed percentage point spread
from either the prime interest rate, or a one, two, three or six month
Eurodollar interest rate.
19
Item 8. Financial Statements and Supplementary Data
U.S. CONCRETE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
U.S. Concrete, Inc. and Subsidiaries
Report of Independent Public Accountants................................................................. 21
Consolidated Balance Sheets at December 31, 2000 and 1999................................................ 22
Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998............... 23
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2000,
1999 and 1998......................................................................................... 24
Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998............... 25
Notes to Consolidated Financial Statements............................................................... 26
20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To U.S. Concrete, Inc.:
We have audited the accompanying consolidated balance sheets of U.S. Concrete,
Inc., a Delaware corporation, and subsidiaries as of December 31, 2000 and 1999,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 2000.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of U.S.
Concrete, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
/s/ Arthur Andersen LLP
- ------------------------------
ARTHUR ANDERSEN LLP
Houston, Texas
March 15, 2001
21
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
December 31
-----------------------------
ASSETS 2000 1999
------ ---------- ----------
Current assets:
Cash and cash equivalents................................................................. $ 711 $ 627
Trade accounts receivable, net ........................................................... 62,641 44,085
Inventories ............................................................................. 9,494 4,351
Prepaid expenses and other current assets ................................................ 5,106 3,254
---------- ----------
Total current assets ........................................................... 77,952 52,317
---------- ----------
Property, plant and equipment, net ............................................................ 82,993 53,949
Goodwill, net ................................................................................ 188,921 105,492
Other assets .................................................................................. 5,971 976
---------- ----------
Total assets.................................................................... $ 355,837 $ 212,734
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................................................... $ 107 $ 140
Accounts payable and accrued liabilities.................................................. 36,313 37,599
---------- ----------
Total current liabilities....................................................... 36,420 37,739
---------- ----------
Long-term debt, net of current maturities...................................................... 157,027 57,235
Deferred income taxes.......................................................................... 11,835 6,967
---------- ----------
Total liabilities............................................................... 205,282 101,941
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued and
outstanding............................................................................ -- --
Common stock, $0.001 par value; 60,000,000 shares authorized; 22,452,036 and
18,639,228 shares issued and outstanding in 2000 and 1999, respectively................ 22 19
Additional paid-in capital................................................................ 127,170 104,271
Retained earnings......................................................................... 23,363 6,503
---------- ----------
Total stockholders' equity...................................................... 150,555 110,793
---------- ----------
Total liabilities and stockholders' equity...................................... $ 355,837 $ 212,734
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
22
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year Ended December 31
----------------------------------------
2000 1999 1998
---------- ---------- ----------
Sales.............................................................................. $ 394,636 $ 167,912 $ 66,499
Cost of goods sold.................................................................. 314,297 135,195 53,974
---------- ---------- ----------
Gross profit................................................................... 80,339 32,717 12,525
Selling, general and administrative expenses........................................ 27,741 9,491 4,712
Stock compensation charge........................................................... -- 2,880 --
Depreciation and amortization....................................................... 11,212 3,453 930
---------- ---------- ----------
Income from operations......................................................... 41,386 16,893 6,883
Interest expense, net............................................................... 14,095 1,708 165
Other income, net................................................................... 1,319 663 36
---------- ---------- ----------
Income before income tax provision ............................................ 28,610 15,848 6,754
Income tax provision ............................................................... 11,750 7,658 100
---------- ---------- ----------
Net income..................................................................... $ 16,860 $ 8,190 $ 6,654
========== ========== ==========
Earnings per share:
Basic.......................................................................... $ 0.78 $ 0.70 $ 2.13
========== ========== ==========
Diluted........................................................................ $ 0.78 $ 0.70 $ 2.13
========== ========== ==========
Number of shares used in calculating earnings per share:
Basic.......................................................................... 21,573 11,770 3,120
========== ========== ==========
Diluted........................................................................ 21,592 11,783 3,120
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
23
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
Common Stock Additional
---------------------
Paid-In Retained Stockholders'
Shares Amount Capital Earnings Equity
----------- -------- ----------- ----------- ------------
BALANCE, December 31, 1997............................. 3,120 $ 3 $ 621 $ 10,107 $ 10,731
Distributions to stockholders..................... -- -- -- (2,231) (2,231)
Net income........................................ -- -- -- 6,654 6,654
----------- -------- ----------- ----------- -----------
BALANCE, December 31, 1998............................. 3,120 3 621 14,530 15,154
Initial public offering, net of offering costs.... 4,370 4 27,668 -- 27,672
Acquisitions of founding companies................ 8,319 10 57,904 (6,064) 51,850
Acquisitions of purchased companies............... 2,430 2 15,198 -- 15,200
Distributions to stockholders..................... -- -- -- (10,153) (10,153)
Stock compensation charge......................... 400 -- 2,880 -- 2,880
Net income........................................ -- -- -- 8,190 8,190
----------- -------- ----------- ----------- -----------
BALANCE, December 31, 1999............................. 18,639 19 104,271 6,503 110,793
Acquisitions of purchased companies............... 3,710 2 22,355 -- 22,357
Stock issued pursuant to employee stock
purchase plan.................................. 103 1 544 -- 545
Net income........................................ -- -- -- 16,860 16,860
----------- -------- ----------- ----------- -----------
BALANCE, December 31, 2000............................. 22,452 $ 22 $ 127,170 $ 23,363 $ 150,555
=========== ======== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
24
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31
-----------------------------------
2000 1999 1998
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................... $ 16,860 $ 8,190 $ 6,654
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization .................................. 11,212 3,453 930
Debt issuance cost amortization ................................ 1,099 123 --
Net gain on sale of property, plant and equipment .............. (435) (218) (36)
Deferred income tax provision .................................. 3,011 762 11
Provision for doubtful accounts ................................ 220 118 17
Stock compensation charge ...................................... -- 2,880 --
Changes in assets and liabilities, excluding effects of acquisitions:
Receivables .................................................... (4,194) (5,372) (1,697)
Prepaid expenses and other current assets ...................... (2,623) 69 (519)
Accounts payable and accrued liabilities ....................... (15,567) (959) 1,499
--------- --------- ---------
Net cash provided by operating activities ................. 9,583 9,046 6,859
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment .......................... (8,205) (7,547) (3,300)
Payments for acquisitions, net of cash received of
$3,961, $10,070, and $0 .......................................... (94,957) (68,495) --
Payment of direct costs in connection with acquisitions ............. (3,261) (8,406) --
Proceeds from disposals of property, plant and equipment ............ 2,156 1,031 52
Increase in cash surrender value of life insurance .................. -- -- (189)
--------- --------- ---------
Net cash used in investing activities ..................... (104,267) (83,417) (3,437)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings ............................................ 192,900 57,266 2,006
Repayments of borrowings ............................................ (93,141) (3,607) (1,136)
Proceeds from issuances of common stock ............................. 545 32,512 --
Cash paid related to common stock issuance costs .................... (242) (4,373) --
Debt issuance costs ................................................. (5,294) (860) --
Distributions to stockholders ....................................... -- (10,153) (2,024)
--------- --------- ---------
Net cash provided by (used in) financing activities ....... 94,768 70,785 (1,154)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..................... 84 (3,586) 2,268
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ......................... 627 4,213 1,945
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................... $ 711 $ 627 $ 4,213
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest .............................................. $ 12,377 $ 1,412 $ 344
Cash paid for income taxes .......................................... $ 12,340 $ 4,973 $ 78
NONCASH FINANCING ACTIVITY:
Distribution of cash surrender value of life insurance to
stockholder......................................................... $ -- $ 1,155 $ --
Distribution of note receivable to stockholder ...................... $ -- $ -- $ 207
The accompanying notes are an integral part of these consolidated financial
statements.
25
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
U.S. Concrete, Inc., a Delaware corporation, was founded in July 1997 to
create a leading provider of ready-mixed concrete and related products and
services to the construction industry in major markets in the United States. It
did not conduct any operations prior to May 1999. On May 28, 1999, it completed
an initial public offering of its common stock and concurrently acquired six
businesses. From the date of its IPO through December 31, 2000, U.S. Concrete
acquired 14 additional businesses.
For financial statement presentation purposes, (1) Central Concrete Supply
Co., Inc., one of the acquired businesses, is presented as the acquirer of the
other acquired businesses and U.S. Concrete, (2) all acquisitions are accounted
for in accordance with the purchase method of accounting and (3) the effective
date of the initial acquisitions is May 31, 1999. These consolidated financial
statements are those of Central prior to June 1, 1999 and of U.S. Concrete and
its consolidated subsidiaries after that date. These consolidated financial
statements reflect the operations of the businesses U.S. Concrete acquired after
May 31, 1999 from their respective dates of acquisition.
U.S. Concrete's future success depends on a number of factors which include
integrating operations successfully, identifying and integrating satisfactory
acquisition candidates, obtaining acquisition financing, managing growth,
attracting and retaining qualified management and employees, complying with
government regulations and other regulatory requirements or contract
specifications, and addressing risks associated with competition, seasonality
and quarterly fluctuations.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements consist of the accounts of U.S.
Concrete and its wholly-owned subsidiaries. All significant intercompany account
balances and transactions have been eliminated.
Cash and Cash Equivalents
U.S. Concrete records as cash equivalents all highly liquid investments
having maturities of three months or less at the date of purchase.
Inventories
Inventories consist primarily of raw materials, pre-cast products, building
materials and repair parts that U.S. Concrete holds for use or sale in the
ordinary course of business. It uses the first-in, first-out method to value
inventories at the lower of cost or market. For each of the three years ended
December 31, 2000, management believes U.S. Concrete incurred no material
impairments in the carrying value of its inventories.
Prepaid Expenses
Prepaid expenses primarily include amounts U.S. Concrete has paid for
insurance, licenses, property taxes, rent and maintenance contracts. It expenses
or amortizes all prepaid amounts as used or over the period of benefit, as
applicable.
Property, Plant and Equipment, Net
U.S. Concrete states property, plant and equipment at cost, unless
impaired, and uses the straight-line method to compute depreciation of these
assets over their estimated useful lives. It capitalizes leasehold improvements
on properties it holds under operating leases and amortizes them over the lesser
of their estimated useful lives or the applicable lease term. It states
equipment it holds under capital leases at the net present value of the future
minimum lease payments at the inception of the applicable leases and amortizes
that equipment over the lesser of the life of the lease or the estimated useful
life of the asset.
26
U.S. Concrete expenses maintenance and repair costs when incurred and
capitalizes and depreciates expenditures for major renewals and betterments that
extend the useful lives of its existing assets. When U.S. Concrete retires or
disposes of property, plant or equipment, it removes the related cost and
accumulated depreciation from its accounts and reflects any resulting gain or
loss in its statements of operations.
Goodwill
Goodwill represents the amount by which the total purchase price U.S.
Concrete has paid to acquire businesses accounted for as purchases exceeds the
estimated fair value of the net assets acquired. It amortizes goodwill on a
straight-line basis over 40 years. Goodwill and other intangible assets are
evaluated for impairment based on the estimated undiscounted future cash flows
of the business unit to which these assets relate. As of December 31, 2000 and
1999, accumulated amortization was $5.4 and $1.1 million, respectively.
Debt Issue Costs
Other long-term assets include debt issue costs related to U.S. Concrete's
credit facility and subordinated debentures (see Note 6 for discussion). U.S.
Concrete amortizes these costs as interest expense over the scheduled maturity
period of the debt. As of December 31, 2000 and 1999, accumulated amortization
of debt issue costs was $1.2 million and $123,000, respectively.
Allowance for Doubtful Accounts
U.S. Concrete provides an allowance for accounts receivable it believes it
may not collect in full.
Sales and Expenses
U.S. Concrete derives its sales primarily from the production and delivery
of ready-mixed concrete and related products and materials. It recognizes sales
when products are delivered. Cost of goods sold consists primarily of product
costs and operating expenses. Operating expenses consist primarily of wages,
benefits 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 and professional fees.
Income Taxes
U.S. Concrete uses the liability method of accounting for income taxes.
Under this method, it records deferred income taxes based on temporary
differences between the financial reporting and tax bases of assets and
liabilities and uses enacted tax rates and laws that will be in effect when it
recovers those assets or settles those liabilities, as the case may be, to
measure those taxes.
U.S. Concrete files a consolidated federal income tax return, which
includes the operations of all acquired businesses for periods subsequent to
their respective acquisition dates. The acquired businesses file "short period"
federal income tax returns for the period from their last fiscal year through
their respective acquisition dates.
Fair Value of Financial Instruments
The financial instruments of U.S. Concrete consist primarily of cash and
cash equivalents, trade receivables, trade payables and long-term debt.
Management considers the book values of these items to be representative of
their respective fair values.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
27
Valuation of Long-Lived Assets
U.S. Concrete reviews its long-lived assets for impairment whenever events
or changes in circumstances indicate that their carrying amounts may not be
recoverable. If the expected future undiscounted cash flows of an asset it
intends to hold for use is less than the carrying amount of the asset, it will
recognize a loss equal to the difference between the fair value (calculated by
discounting the estimated future operating cash flows) and the carrying amount
of the asset. If it intends to dispose of an asset that is impaired, it will
recognize a loss equal to the difference between the estimated fair value of the
asset, less estimated costs to sell, and its carrying amount.
Reclassifications
Certain reclassifications have been made to amounts in prior period
financial statements to conform with current period presentation.
Earnings per Share
Since Central is presented as the acquirer of the other acquired businesses
and U.S. Concrete, U.S. Concrete uses the shares of its common stock
beneficially owned by the former owners of Central in the calculation of its
earnings per share for all periods prior to the IPO.
The following table reconciles the numerators and denominators of the basic
and diluted earnings per share for the periods shown (in thousands, except per
share amounts). Basic earnings represent earnings per weighted average
outstanding share, while diluted earnings represent those earnings as diluted by
potentially dilutive securities such as outstanding options.
Year Ended December 31
--------------------------------------
2000 1999 1998
Numerator:
Net income...................................................................... $ 16,860 $ 8,190 $ 6,654
Denominator:
Weighted average common shares outstanding-basic................................ 21,573 11,770 3,120
Effect of dilutive stock options................................................ 19 13 --
--------- --------- ---------
Weighted average common shares outstanding-diluted.............................. 21,592 11,783 3,120
========= ========= =========
Earnings per share:
Basic........................................................................... $ 0.78 $ 0.70 $ 2.13
Diluted......................................................................... $ 0.78 $ 0.70 $ 2.13
For the years ended December 31, 2000 and 1999, 2.1 million and 1.3 million
stock options, respectively, were excluded from the computation of diluted
earnings per share because their exercise prices were greater than the average
market price of the common stock.
Comprehensive Income
In the first quarter of 1999, U.S. Concrete adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," which
requires the display of comprehensive income and its components in the financial
statements. 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 ended December 31,
2000, no material differences exist between the historical net income and
comprehensive income of U.S. Concrete.
Segment Information
U.S. Concrete has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which establishes standards for the manner
public enterprises are to report information about operating segments in annual
financial statements and requires the reporting of selected information about
operating segments in interim financial reports issued to stockholders. All
segments that meet a threshold of 10% of revenues, reported profit or loss or
combined assets are defined as significant segments. U.S. Concrete currently
operates as one segment comprised of its ready-mixed concrete and related
products. All of its operations, sales and long-lived assets are in the United
States.
28
New Accounting Pronouncements
Beginning January 1, 2001, U.S. Concrete will apply SFAS No. 133,
"Accounting for Derivative Securities and Hedging Activities." SFAS No. 133 will
require it to recognize all derivative instruments (including some derivative
instruments embedded in other contracts) as assets or liabilities on its balance
sheet and measure them at fair value. The statement requires that changes in the
fair value of derivatives be recognized currently in earnings unless specific
hedge accounting criteria are met. U.S. Concrete is evaluating SFAS No. 133 and
its impact on existing accounting policies and financial reporting disclosures.
U.S. Concrete has not, to date, engaged in activities or entered into
arrangements associated with derivative instruments.
3. BUSINESS COMBINATIONS
U.S. Concrete completed a total of six acquisitions in 2000 and 14 in 1999
including its initial six acquisitions at the time of its IPO, all of which were
accounted for as purchases. The accompanying balance sheet at December 31, 2000
includes the preliminary allocations of the purchase prices of the 2000
acquisitions and is subject to final adjustment. The following table summarizes
the aggregate consideration U.S. Concrete paid in these transactions:
Acquisitions completed: 2000 1999
----------- -----------
Ready-mixed businesses ................................................................ 5 11
Pre-cast businesses ................................................................... 1 3
- -
Total ............................................................................... 6 14
= ==
Consideration: 2000 1999
----------- -----------
Cash .................................................................................. $ 98,918 $ 78,565
Fair value of common stock issued ..................................................... 22,357 67,050
--------- ---------
Total ............................................................................... $ 121,275 $ 145,615
========= =========
The following summarized unaudited pro forma financial information adjusts
the historical financial information by assuming that all 20 of the 1999 and
2000 acquisitions occurred on January 1, 1999:
Year Ended December 31
-------------------------
2000 1999
----------- ----------
(unaudited)
Revenues.................................................................................. $ 416,374 $ 413,193
Net income................................................................................ $ 16,460 $ 18,178
Basic earnings per share.................................................................. $ 0.74 $ 0.81
Diluted earnings per share................................................................ $ 0.74 $ 0.81
Pro forma adjustments these amounts include primarily relate to:
. contractual reductions in salaries, bonuses and benefits to former
owners of the businesses;
. elimination of legal, accounting and other professional fees incurred in
connection with the acquisitions;
. amortization of goodwill resulting from the acquisitions;
. reduction in interest expense, net of interest expense on borrowings to
fund acquisitions; and
. adjustments to the federal and state income tax provision based on pro
forma operating results.
The pro forma financial information does not purport to represent what the
combined financial results of operations of U.S. Concrete actually would have
been if these transactions and events had in fact occurred when assumed and are
not necessarily representative of its financial results of operations for any
future period.
29
In connection with the acquisitions, U.S. Concrete has determined the
resulting goodwill as follows (in thousands):
2000 1999
---------- ----------
Cash consideration........................................................................ $ 98,918 $ 78,565
Less: Cash received from acquired companies.............................................. (3,961) (10,070)
---------- ----------
Cash paid, net of cash acquired........................................................... 94,957 68,495
Fair value of common stock issued......................................................... 22,357 67,050
Direct acquisition costs incurred......................................................... 3,261 8,406
---------- ----------
Total purchase costs incurred, net of cash acquired................................... 120,575 143,951
---------- ----------
Fair value of assets acquired, net of cash................................................ 48,546 75,067
Less: Fair value of assumed liabilities.................................................. (15,700) (37,699)
---------- ----------
Fair value of net assets acquired, net of cash............................................ 32,846 37,368
---------- ----------
Costs incurred in excess of net assets acquired....................................... $ 87,729 $ 106,583
========== ==========
The amounts relating to the 2000 acquisitions are preliminary and subject
to final adjustment.
4. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is as follows (dollars in
thousands):
Useful
Lives December 31
in --------------------
Years 2000 1999
------- --------- ---------
Land.................................................................................. -- $ 12,657 $ 12,381
Buildings and improvements............................................................ 10-40 5,395 7,225
Machinery and equipment............................................................... 10-30 35,880 14,191
Mixers, trucks and other vehicles..................................................... 6-12 45,496 29,211
Furniture and fixtures................................................................ 3-10 1,075 527
Construction in progress.............................................................. -- 1,010 2,322
-------- -------
101,513 65,857
Less: accumulated depreciation........................................................ (18,520) (11,908)
-------- -------
$ 82,993 $ 53,949
========= =========
5. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Activity in U.S. Concrete's allowance for doubtful accounts receivable
consists of the following (in thousands):
December 31
------------------------
2000 1999 1998
----- ----- ----
Balance, beginning of period.................................................................. $ 730 $ 97 $ 80
Additions from acquisitions................................................................... 1,085 686 --
Provision for uncollectible accounts.......................................................... 220 118 17
Uncollectible receivables written off, net of recoveries...................................... (408) (171) --
------ ----- ----
Balance, end of period........................................................................ $1,627 $ 730 $ 97
====== ===== =====
Inventory consists of the following (in thousands):
December 31
-------------------------
2000 1999
-------- -------
Raw materials................................................................................ $ 3,768 $ 1,905
Pre-cast products............................................................................ 3,210 993
Building materials for resale................................................................ 1,500 844
Repair parts................................................................................. 1,016 609
-------- -------
$ 9,494 $ 4,351
======== =======
30
Accounts payable and accrued liabilities consist of the following (in
thousands):
December 31
------------------------
2000 1999
--------- ---------
Accounts payable............................................................................. $ 25,283 $ 27,473
Accrued compensation and benefits............................................................ 3,895 2,764
Accrued interest............................................................................. 1,890 172
Accrued income taxes......................................................................... -- 3,827
Other........................................................................................ 5,245 3,363
--------- ---------
$ 36,313 $ 37,599
========= =========
6. LONG-TERM DEBT
A summary of long-term debt is as follows (in thousands):
December 31
--------------------------
2000 1999
--------- ----------
Secured revolving credit facility................................................................. $ 62,000 $ 57,100
12.00% Senior Subordinated Notes.................................................................. 95,000 --
Other ............................................................................................ 134 275
--------- ---------
157,134 57,375
Less: current maturities..................................................................... (107) (140)
---------- ----------
Long-term debt, net of current maturities......................................................... $ 157,027 $ 57,235
=========- =========
U.S. Concrete has a $200 million secured revolving credit facility that
expires in May 2002. It may use this facility for working capital, to finance
acquisitions and for other general corporate purposes. Availability under the
facility is tied to various affirmative and negative financial covenants,
including a leverage ratio, an asset coverage ratio, a minimum net worth
calculation, a limitation on additional indebtedness and prohibition of
dividends on its common stock. Subsidiary guarantees and pledges of
substantially all U.S. Concrete's fixed assets and subsidiary capital stock
secure the payment of all obligations owing under the facility. Advances bear
interest at the prime rate or LIBOR, at U.S. Concrete's option, in each case
plus a margin keyed to the ratio of consolidated indebtedness to cash flow. A
commitment fee, based on the ratio of consolidated indebtedness to cash flow, is
paid on any unused borrowing capacity. At December 31, 2000 and 1999, U.S.
Concrete had borrowings totaling $62.0 million and $57.1 million, respectively,
outstanding under this facility at weighted average interest costs of 8.6% and
7.9%. At December 31, 2000, U.S. Concrete had $138 million of remaining capacity
under this facility, of which it could borrow $24.8 million based on its
leverage ratio at that date. Its ability to borrow additional amounts would
increase to the extent that the facility was utilized to fund the acquisition of
additional businesses with positive cash flow.
On November 10, 2000, U.S. Concrete issued and sold to institutional
investors in a private placement $95 million aggregate principal amount of its
12.00% senior subordinated notes due November 10, 2010 for $95 million in cash.
The terms of these notes requires repayment in equal annual installments of
approximately $13.6 million on November 10 in each of the years 2004 through
2010. These notes are subordinated in right of payment to the credit facility
and are guaranteed by the subsidiaries of U.S. Concrete. The notes require U.S.
Concrete to comply with affirmative and financial covenants generally consistent
with those required under the credit facility. U.S. Concrete used the net
proceeds from the sale of these notes to repay borrowings under the secured
revolving credit facility.
Aggregate maturities are as follows (in thousands):
Year Ending December 31
- -----------------------
2001............................................................ $ 107
2002............................................................ 62,027
2003............................................................ --
2004............................................................ 13,571
2005............................................................ 13,571
Thereafter ..................................................... 67,858
--------
Total $157,134
========
31
7. STOCKHOLDERS' EQUITY
Initial Public Offering
In May 1999, U.S. Concrete completed its IPO, issuing 3.8 million shares of
its common stock to the public at a price of $8.00 per share, resulting in net
proceeds to U.S. Concrete of $23.5 million, after deducting offering costs. In
June 1999, it sold an additional 570,000 shares of common stock on the exercise
of the underwriters' over-allotment option. It realized net proceeds from this
sale of $4.2 million.
Warrants
In connection with the IPO, U.S. Concrete issued warrants to the
underwriters to purchase 200,000 shares of common stock at an exercise price of
$8.00 per share. These warrants expire in May 2002. U.S. Concrete issued
warrants to purchase an additional 100,000 shares of common stock to such
parties in May 2000 at an exercise price of $8.00 per share for advisory
services performed by them in connection with an acquisition. These warrants
expire in May 2003. At December 31, 2000 and 1999, all these warrants remained
outstanding.
Stock Options
U.S. Concrete's 1999 incentive plan enables U.S. Concrete to grant
non-qualified options, restricted stock, deferred stock, incentive stock
options, stock appreciation rights and other long-term incentive awards. Options
granted under the plan generally vest over a four year period and expire if not
exercised prior to the 10th anniversary following the grant date. The number of
shares available for issuance under the plan is limited to the greater of 2.0
million shares of common stock or 15% of the number of shares of common stock
outstanding on the last day of the preceding calendar quarter, although the
board of directors of U.S. Concrete may, in its discretion, grant additional
awards or establish other compensation plans. The number of shares available for
awards under the plan was 1.0 million and 1.3 million as of December 31, 2000
and 1999, respectively.
The following table summarizes stock option activity (in thousands, except
prices):
Weighted
Average
Exercise
Options Price
-------------------------
Options outstanding at December 31, 1998...................................................... -- $ --
Granted.................................................................................. 1,425 7.93
Exercised................................................................................ -- --
Forfeited................................................................................ (32) 8.13
---------
Options outstanding at December 31, 1999...................................................... 1,393 7.93
Granted.................................................................................. 1,205 7.52
Exercised................................................................................ -- --
Forfeited................................................................................ (198) 7.68
---------
Options outstanding at December 31, 2000...................................................... 2,400 $ 7.74
=========
Options exercisable at December 31, 2000...................................................... 389 $ 7.94
=========
Option exercise price range at December 31, 2000.............................................. $6.13-$8.75
The weighted average remaining contractual life of the options at December
31, 2000 was 8.63 years.
As allowed by SFAS No. 123, "Accounting for Stock-Based Compensation," U.S.
Concrete accounts for stock option awards in accordance with Accounting
Principles Board (APB) Opinion No. 25. The exercise prices of all options U.S.
Concrete awarded during 2000 and 1999 were at least equal to the fair market
values of the common stock on the dates of grant. As a result, under APB No. 25,
it did not recognize any compensation expense attributable to these options. Had
it determined compensation expense under the SFAS No. 123 method, its net income
and earnings per share during 2000 and 1999 would have been the following pro
forma amounts (in thousands, except per share amounts):
32
Year Ended December 31
-----------------------
Net income 2000 1999
-----------------------
As reported............................. $ 16,860 $ 8,190
======== =======
Pro forma............................... $ 16,076 $ 7,699
======== =======
Diluted earnings per share
As reported............................. $ 0.78 $ 0.70
======== =======
Pro forma............................... $ 0.74 $ 0.65
======== =======
The effects of applying SFAS No. 123 in the pro forma disclosure may not be
indicative of future amounts because U.S. Concrete expects to make additional
awards. For purposes of this disclosure, U.S. Concrete estimated the fair value
of each option grant on the date of grant using the Black-Scholes option pricing
model with the following assumptions:
Year Ended December 31
----------------------
2000 1999
----------------------
Expected dividend yield........................... 0.0 % 0.0 %
Expected stock price volatility................... 48.2 % 54.7 %
Risk-free interest rate........................... 5.0 % 6.0 %
Expected life of options.......................... 10 years 10 years
Employee Stock Purchase Plan
In May 2000, U.S. Concrete's Board of Directors adopted, and its
stockholders approved, the U.S. Concrete 2000 Employee Stock Purchase Plan (the
"ESPP"). The ESPP is intended to qualify as an "employee stock purchase plan"
under Section 423 of the Internal Revenue Code of 1986. All U.S. Concrete
personnel that are customarily employed for at least 20 hours per week and five
months per calendar year are eligible to participate in the ESPP. Under the
ESPP, employees electing to participate are granted the right to purchase shares
of U.S. Concrete common stock at a price generally equal to 85% of the lower of
the fair market value of a share of U.S. Concrete common stock on the first or
last day of the offering period.
8. INCOME TAXES
U.S. Concrete's consolidated federal and state tax returns include the
results of operations of acquired businesses from their dates of acquisition.
The amounts of consolidated federal and state income tax provision are as
follows (in thousands):
Year Ended December 31
----------------------------
2000 1999 1998
----------------------------
Current:
Federal.................................. $ 7,617 $6,398 $ --
State.................................... 1,122 498 89
------- ------ ----
8,739 6,896 89
------- ------ ----
Deferred:
Federal.................................. 2,646 700 --
State.................................... 365 62 11
------- ------ ----
3,011 762 11
------- ------ ----
$11,750 $7,658 $100
======= ====== ====
33
A reconciliation of U.S. Concrete's effective income tax rate to the
amounts calculated by applying the federal statutory corporate tax rate of 35%
is as follows (in thousands):
Year Ended December 31
----------------------------------
2000 1999 1998
----------------------------------
Tax at statutory rate................................................................... $ 10,013 $ 5,547 $ --
Add (deduct):
State income taxes................................................................. 967 364 100
Nondeductible expenses............................................................. 960 405 --
Nondeductible compensation charge.................................................. -- 1,008 --
Income taxed to Central shareholders............................................... -- (590) --
Deferred tax charge for S corporation taxes........................................ -- 924
Other ............................................................................. (190) -- --
-------- -------- --------
Income tax provision.................................................................... $ 11,750 $ 7,658 $ 100
======== ======== ========
Effective income tax rate............................................................... 41.1% 48.3% 1.5%
======== ======== ========
Deferred income tax provisions result from temporary differences in the
recognition of expenses for financial reporting purposes and for tax reporting
purposes. U.S. Concrete presents the effects of those differences as deferred
income tax liabilities and assets, as follows (in thousands):
December 31
--------------------
2000 1999
-------- ------
Deferred income tax liabilities:
Property and equipment, net....................................................................... $ 10,407 $7,838
Goodwill ......................................................................................... 1,689 --
Other............................................................................................. 1,816 476
-------- -------
Total deferred income tax liabilities........................................................ 13,912 8,314
-------- -------
Deferred income tax assets:
Allowance for doubtful accounts................................................................... 433 197
Accrued expenses.................................................................................. 1,220 1,062
Other............................................................................................. 424 88
-------- --------
Total deferred income tax assets............................................................. 2,077 1,347
-------- -- -----
Net deferred income tax liabilities..................................................... $ 11,835 $6,967
======== ======
Prior to their respective acquisitions, Central and other acquired
businesses were S corporations and were not subject to federal income taxes.
Effective with their acquisition they became subject to those taxes, and U.S.
Concrete has recorded an estimated deferred tax liability to provide for its
estimated future income tax liability as a result of the difference between the
book and tax bases of the net assets of these corporations as of the dates of
their acquisitions. These consolidated financial statements reflect the federal
and state income taxes of these corporations since their dates of acquisition.
9. RELATED-PARTY TRANSACTIONS
U.S. Concrete has transactions in the normal course of business with
related parties. These transactions consist principally of operating leases
under which U.S. Concrete leases facilities from former owners of its acquired
businesses or their affiliates. These leases are for periods generally ranging
from three to five years and are on terms management believes are comparable to
unrelated party leases. Lease payments under these leases were approximately
$978,000 in 2000, $597,000 in 1999, and $144,000 in 1998. The schedule of
minimum lease payments in Note 11 includes U.S. Concrete's future commitments
under these leases.
U.S. Concrete provides advances to employees in the normal course of
business that are repaid directly or through deductions from payroll. During
2000, U.S. Concrete made non-interest bearing loans totalling $300,000 to two of
its officers. The loans to these officers are payable in full by March 1, 2005.
34
U.S. Concrete's venture capital partner, Main Street Equity Ventures II,
L.P., of which Vincent D. Foster, U.S. Concrete's chairman, is a senior managing
director, advanced funds to U.S. Concrete from August 1998 until May 1999
totaling $1.7 million to enable it to pay its expenses in connection with the
completion of its IPO and concurrent acquisitions of six operating businesses.
U.S. Concrete repaid these advances, including interest accrued at the rate of
6% per year, from the gross proceeds of its IPO. U.S. Concrete paid Main Street
$403,000 in 2000 and $180,000 in 1999 for services related to U.S. Concrete's
acquisition program.
In March 2000, U.S. Concrete modified the non-compete provisions pertaining
to Neil J. Vannucci, one of its directors, that are contained in the acquisition
agreement for the company he formerly owned. The modifications further limit Mr.
Vannucci's right to compete in exchange for three annual cash payments of
$138,000 each.
10. RISK CONCENTRATION
U.S. Concrete grants credit, generally without collateral, to its
customers, which include general contractors, municipalities and commercial
companies located solely in the United States. Consequently, it is subject to
potential credit risk related to changes in business and economic factors
throughout the United States. U.S. Concrete generally has lien rights in the
work it performs, and concentrations of credit risk are limited because of the
diversity of its customer base. Further, management believes that its contract
acceptance, billing and collection policies are adequate to minimize any
potential credit risk.
U.S. Concrete maintains cash balances at financial institutions, which may
at times be in excess of federally insured levels. It has not incurred losses
related to these balances during the three-year period ended December 31, 2000.
11. COMMITMENTS AND CONTINGENCIES
Litigation and Other Claims
Bay-Crete Transportation & Materials, LLC alleges in a lawsuit it filed on
July 11, 2000 in a California state court, against U.S. Concrete and its
subsidiary, Central, that it possesses beneficiary rights under a 1983 contract
to purchase annually up to 200,000 cubic yards of ready-mixed concrete from
Central until March 30, 2082. Under that contract, the purchase price would
consist of Central's direct materials costs and an overhead fee. Bay-Crete
alleges that U.S. Concrete breached that contract by refusing to acknowledge
Bay-Crete's rights as a beneficiary of that contract. It is seeking damages of
$500 million of lost profits spread over the next 82 years. U.S. Concrete and
Central each filed an answer and cross-complaint in August 2000 which seeks
declaratory relief for a determination that Bay-Crete is not entitled to use the
contract. In addition, the cross-complaints seek damages for improper conduct by
Bay-Crete, the general manager of Bay-Crete and a member of Bay-Crete for making
demands under the contract in violation of an order of a United States
bankruptcy court. A predecessor to Central previously prevailed in the defense
of a similar action brought by the general manager of Bay-Crete under a related
agreement, and U.S. Concrete and Central believe they have meritorious defenses
to Bay-Crete's claim and intend to vigorously defend this suit.
From time to time, and currently, U.S. Concrete is subject to various other
claims and litigation brought by employees, customers and other third parties
for, among other matters, personal injuries, property damages, product defects
and delay damages that have, or allegedly have, resulted from the conduct of its
operations.
U.S. Concrete is currently in discussions with a customer and developer
regarding a product warranty claim. The claim relates to a large, single-family
home tract-construction project in Northern California for which U.S. Concrete
produced and supplied a different batch mix for a short period of time that was
used in 72 foundation slabs on grade. The developer asserts that it is entitled
to be made whole for all expenses it incurred in demolishing the homes on those
slabs, for all costs of rebuilding the homes to their state prior to demolition
and for all related costs. Although management believes U.S. Concrete has valid
defenses to this claim based on, among other things, failure to mitigate
damages, management is unable to quantify a range of loss or to predict with
certainty the outcome of this matter at this time.
U.S. Concrete believes that the resolution of all claims or litigation
currently pending or threatened against U.S. Concrete or any of its subsidiaries
(including the dispute with Bay-Crete and the product warranty claim described
above) will not have a material adverse effect on its business or financial
condition; however, because of the inherent uncertainty of resolving claims and
litigation, U.S. Concrete cannot assure that the resolution of any particular
claim or proceeding to which it is a party will not have a material adverse
effect on its results of operations for the fiscal period in which that
resolution occurs.
35
Lease Payments
U.S. Concrete leases tracts of land, facilities and equipment it uses in
its operations. Rental expense under operating leases was $4.4 million, $2.0
million, and $322,000 in 2000, 1999 and 1998, respectively. Minimum future
annual lease payments under these leases are as follows (in thousands):
Year Ending
December 31
-----------
2001...................................... $ 5,004
2002...................................... 4,345
2003...................................... 3,269
2004...................................... 2,752
2005...................................... 2,253
Thereafter................................ 3,247
--------
$ 20,870
========
Insurance Programs
U.S. Concrete maintains third-party insurance coverage in amounts and
against the risks it believes accord with industry practice. Under certain
components of its insurance program, U.S. Concrete shares the risk of loss with
its insurance underwriters by maintaining high deductibles subject to aggregate
annual loss limitations. U.S. Concrete funds these deductibles and records an
expense for expected losses under the programs. The expected losses are
determined using actuarial assumptions followed by the insurance industry and
U.S. Concrete's historical loss experience.
12. SIGNIFICANT CUSTOMERS
Significant customers represented sales (as a percentage of total sales) as
follows:
Year Ended
December 31
---------------------
2000 1999 1998
---------------------
Customer A................................. 5 % 8 % 16 %
Customer B (related party)................. 4 8 22
13. SIGNIFICANT SUPPLIERS
Significant suppliers represented purchases (as a percentage of total
purchases) as follows:
Year Ended
December 31
-----------------------
2000 1999 1998
-----------------------
Supplier A................................ 11 % 23 % 41 %
Supplier B................................ 5 17 18
14. EMPLOYEE BENEFIT PLANS
In February 2000, U.S. Concrete established a defined contribution 401(k)
profit sharing plan for employees meeting various employment requirements.
Eligible employees may contribute amounts up to the lesser of 15% of their
annual compensation or the maximum amount permitted under IRS regulations. U.S.
Concrete matches 100% of employee contributions up to a maximum of 5% of their
compensation. U.S. Concrete paid matching contributions of $865,000 during 2000.
U.S. Concrete maintains defined contribution profit-sharing and money
purchase pension plans for its non-union employees. Contributions were not made
to these plans in 2000, but were approximately $816,000 in 1999, and $404,000 in
1998.
36
U.S. Concrete's subsidiaries are parties to various collective bargaining
agreements with labor unions having multi-year terms that expire on a staggered
basis. Under these agreements, U.S. Concrete pays specified wages to covered
employees, observes designated workplace rules and makes payments to
multi-employer pension plans and employee benefit trusts rather than
administering the funds on behalf of these employees.
In connection with its collective bargaining agreements U.S. Concrete
participates with other companies in the unions' multi-employer pension plans.
These plans cover substantially all of U.S. 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. U.S. Concrete has no
plans to withdraw from these plans. These plans do not maintain information on
net assets and actuarial present value of the accumulated share of the plans'
unfunded vested benefits allocable to U.S. Concrete, and amounts, if any, for
which U.S. Concrete may be contingently liable are not ascertainable at this
time. U.S. Concrete made contributions to these plans of $9.0 million in 2000,
$4.2 million in 1999 and $2.3 million in 1998.
15. SELECTED QUARTERLY FINANCIAL INFORMATION (unaudited; in thousands, except
per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- --------- ---------
2000
Sales................................................................ $ 67,990 $106,486 $116,590 $103,570
Income from operations............................................... 4,553 13,991 15,203 7,639
Net income........................................................... 1,516 6,666 6,732 1,946
Basic earnings per share............................................. 0.08 0.31 0.31 0.09
Diluted earnings per share........................................... 0.08 0.31 0.31 0.09
1999
Sales................................................................ $ 12,956 $ 27,648 $ 59,803 $ 67,505
Income (loss) from operations........................................ 716 (182) 8,296 8,063
Net income (loss).................................................... 926 (1,979) 4,913 4,330
Basic earnings (loss) per share...................................... 0.30 (0.23) 0.30 0.24
Diluted earnings (loss) per share.................................... 0.30 (0.23) 0.30 0.24
In the second quarter of 1999, in connection with the IPO, U.S. Concrete
recorded a noncash compensation charge of $2.9 million for 400,000 shares of
common stock issued to management at a nominal cost. The compensation charge was
calculated using a fair value of $7.20 per share, which reflects a 10% discount
from the IPO price of $8.00 per share because of restrictions on the sale and
transferability of the shares issued.
Also in the second quarter of 1999, an additional tax provision of $924,000
was recorded with the conversion of Central from S-corporation status to
C-corporation status. Central had made no provision for federal income taxes for
the first five months of 1999.
16. SUBSEQUENT EVENTS
Acquisitions
From January 1 through March 15, 2001, U.S. Concrete acquired two
businesses. The aggregate consideration it paid in these transactions, both of
which it accounted for as purchases, consisted of $23.5 million in cash and 0.2
million shares of common stock. The cash component of consideration paid was
funded by U.S. Concrete's senior revolving credit facility.
37
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
In Items 10, 11, 12 and 13 below, we are incorporating by reference the
information we refer to in those Items from the definitive proxy statement for
our 2001 Annual Meeting of Stockholders. We intend to file that definitive proxy
statement with the SEC by April 30, 2001.
Item 10. Directors and Executive Officers of the Registrant
Please see the information appearing under the headings "Proposal No.
1--Election of Directors" and "Executive Officers" in the definitive proxy
statement for our 2001 Annual Meeting of Stockholders for the information this
Item 10 requires.
Item 11. Executive Compensation
Please see the information appearing under the heading "Executive
Compensation and Other Matters" in the definitive proxy statement for our 2001
Annual Meeting of Stockholders for the information this Item 11 requires.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Please see the information appearing under the heading "Security Ownership
of Certain Beneficial Owners and Management" in the definitive proxy statement
for our 2001 Annual Meeting of Stockholders for the information this Item 12
requires.
Item 13. Certain Relationships and Related Transactions
Please see the information appearing under the heading "Certain
Transactions" in the definitive proxy statement for our 2001 Annual Meeting of
Stockholders for the information this Item 13 requires.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements.
See Index to Consolidated Financial Statements on page19.
(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.
(3) Exhibits.
Exhibit
Number Description
- ---------- -----------
2.1*--Agreement and Plan of Reorganization dated as of March 22, 1999 by
and among U.S. Concrete, OCC Acquisition Inc., Opportunity Concrete
Corporation and the stockholders named therein (Form S-1 (Reg. No.
333-74855), Exhibit 2.1).
2.2*--Agreement and Plan of Reorganization dated as of March 22, 1999 by
and among U.S. Concrete, Walker's Acquisition Inc., Walker's
Concrete, Inc. and the stockholders named therein (Form S-1 (Reg.
No. 333-74855), Exhibit 2.2).
38
Exhibit
Number Description
-------- -----------
2.3*--Agreement and Plan of Reorganization dated as of March 22, 1999 by
and among U.S. Concrete, Central Concrete Acquisitions Inc., Central
Concrete Supply Co., Inc. and the stockholders named therein (Form
S-1 (Reg. No. 333-74855), Exhibit 2.3).
2.4*--Agreement and Plan of Reorganization dated as of March 22, 1999 by
and among U.S. Concrete, Bay Cities Acquisition Inc., Bay Cities
Building Materials Co., Inc. and the stockholders named therein (Form
S-1 (Reg. No. 333-74855), Exhibit 2.4).
2.5*--Agreement and Plan of Reorganization dated as of March 22, 1999 by
and among U.S. Concrete, Baer Acquisition Inc., Baer Concrete,
Incorporated and the stockholders named therein (Form S-1 (Reg. No.
333-74855), Exhibit 2.5).
2.6*--Agreement and Plan of Reorganization dated as of March 22, 1999 by
and among U.S. Concrete, Santa Rosa Acquisition, Inc., R.G.
Evans/Associates d/b/a Santa Rosa Cast Products Co.) and the
stockholders named therein (Form S-1 (Reg. No. 333-74855), Exhibit
2.6).
2.7*--Uniform Provisions for the Acquisitions (incorporated into the
agreements filed as Exhibits 2.1 through 2.6 hereto) (Form S-1 (Reg.
No. 333-74855), Exhibit 2.7).
2.8*--Acquisition Agreement and Plan of Reorganization dated as of
September 14, 1999 by and among U.S. Concrete, Inc., Concrete XI
Acquisition, Inc., Carrier Excavation and Foundation Company, John F.
Carrier, William Henry Carrier, Michael K. Carrier, Mary G. Carrier,
Trustee for Anne Carrier (TN UGMA), William Henry Carrier, Trustee
for William Henry Carrier, Jr. (TN UGMA), and Mary G. Carrier (Form
10-K for the year ended December 31, 1999 (File No. 000-26025),
Exhibit 2.8).
2.9*--Stock Purchase Agreement dated as of November 5, 1999 by and among U.
S. Concrete, Inc., B. Thomas Stover, as Trustee under Trust Agreement
dated February 20, 1986 for B. Thomas Stover, Sarah M. Stover, as
Trustee under Trust Agreement dated February 27, 1990 for Sarah M.
Stover, B. Andrew Stover, B. Thomas Stover, Custodian under Michigan
Uniform Gifts to Minors Act for the benefit of Carolyn A. Stover,
Jeffery D. Spahr, Jeffrey T. Stover, and Bradley C. Stover (Form 10-K
for the year ended December 31, 1999 (File No. 000-26025), Exhibit
2.9).
2.10*--Stock Purchase Agreement dated as of January 20, 2000 by and among
Robert S. Beall, Chase Bank of Texas, National Association, in its
capacity as Trustee for Allison Beall 1999 Trust, Logan Beall 1999
Trust, Allison Beall Descendants' Trust and Logan Beall Descendants'
Trust and U.S. Concrete, Inc. (Form 8-K dated February 23, 2000,
(File No. 000-26025), Exhibit 2.1).
2.11*--Amendment No. 1 to Stock Purchase Agreement dated January 28, 2000
by and among Robert S. Beall, Chase Bank of Texas, National
Association, in its capacity as Trustee for Allison Beall 1999 Trust,
Logan Beall 1999 Trust, Allison Beall Descendants' Trust and Logan
Beall Descendants' Trust and U.S. Concrete, Inc. (Form 8-K dated
February 23, 2000, (File No. 000-26025), Exhibit 2.2).
2.12*--Stock Purchase Agreement dated as of January 24, 2000 by and among
Fallis Arch Beall, Nola Sue Beall, Robert S. Beall, Leigh Ann
Gathright, Doris W. Stokes and Fallis Arch Beall, in his capacity as
Trustee for the R. E. Stokes Trust and U. S. Concrete, Inc. (Form 8-K
dated February 23, 2000, (File No. 000-26025), Exhibit 2.3).
2.13*--Acquisition Agreement and Plan of Reorganization dated as of
February 8, 2000 by and among U. S. Concrete, Inc., Concrete XIX
Acquisition, Inc., Cornillie Fuel & Supply, Inc., Richard A. Deneweth
and Joseph C. Cornillie, Trustee URTA of Joseph C. Cornillie (Form
10-K for the year ended December 31, 1999 (File No. 000-26025),
Exhibit 2.13).
2.14*--Stock Purchase Agreement dated as of February 8, 2000 by and among
U. S. Concrete, Inc., Cornillie Fuel & Supply, Inc., Dencor, Inc.
Richard A. Deneweth and Joseph C. Cornillie, Trustee URTA of Joseph
C. Cornillie (Form 10-K for the year ended December 31, 1999 (File
No. 000-26025), Exhibit 2.14).
2.15*--Acquisition Agreement and Plan of Reorganization dated as of
February 8, 2000 by and among U. S. Concrete, Inc., Concrete XVIII
Acquisition, Inc., Cornillie Leasing, Inc., Richard A. Deneweth, and
Joseph C. Cornillie, Trustee URTA of Joseph C. Cornillie(Form 10-K
for the year ended December 31, 1999 (File No. 000-26025), Exhibit
2.15).
2.16*--Acquisition Agreement and Plan of Reorganization dated as of March
2, 2000 by and among U. S. Concrete, Inc., Concrete XXIV Acquisition,
Inc., Stancon Inc. and Donald S. Butler and John Grace (Form 10-K for
the year ended December 31, 1999 (File No. 000-26025), Exhibit 2.16).
3.1*--Restated Certificate of Incorporation of U.S. Concrete (Form S-1
(Reg. No. 333-74855), Exhibit 3.1).
3.2*--Bylaws of U.S. Concrete (Form 10-Q for the quarter ended September
30, 2000 (File No. 000-26025), Exhibit 3.2).
39
Exhibit
Number Description
-------- -----------
3.3*--Certificate of Designation of Junior Participating Preferred Stock
(Form 10-Q for the quarter ended June 30, 2000 (File No. 000-26025,
Exhibit 3.3).
4.1*--Amended and Restated Credit Agreement dated as of February 9, 2000,
among U.S. Concrete, the Guarantors named therein, the Lenders named
therein, Bankers Trust Company, as syndication agent, First Union
National Bank, as documentation agent, Bank One, Texas, NA, Branch
Banking & Trust Company, Credit Lyonnais New York Branch and The Bank
of Nova Scotia, as co-managing agents and Chase Bank of Texas, N.A.,
as the Administrative Agent, and Chase Securities, Inc., as sole book
manager and lead arranger (Form 10-K for the year ended December 31,
1999 (File No. 000-26025), Exhibit 4.6).
4.2--First Amendment to Amended and Restated Credit Agreement, dated July
7, 2000, among U.S. Concrete, the Guarantors named therein, the
Lenders named therein, Bankers Trust Company, as syndication agent,
First Union National Bank, as documentation agent, Bank One, Texas,
NA, Branch Banking & Trust Company, Credit Lyonnais New York Branch
and The Bank of Nova Scotia, as co-managing agents and Chase Bank of
Texas, N.A., as the Administrative Agent, and Chase Securities, Inc.,
as sole book manager and lead arranger.
4.3--Second Amendment to Amended and Restated Credit Agreement, dated
September 30, 2000, among U.S. Concrete, the Guarantors named
therein, the Lenders named therein, Bankers Trust Company, as
syndication agent, First Union National Bank, as documentation agent,
Bank One, Texas, NA, Branch Banking & Trust Company, Credit Lyonnais
New York Branch and The Bank of Nova Scotia, as co-managing agents
and Chase Bank of Texas, N.A., as the Administrative Agent, and Chase
Securities, Inc., as sole book manager and lead arranger.
4.4--Note Purchase Agreement, dated November 10, 2000, among U.S.
Concrete, Inc., The Prudential Insurance Company of America,
Metropolitan Life Insurance Company, Teachers Insurance & Annuity
Association, Connecticutt General Life Insurance Company, Allstate
Life Insurance Company, Allstate Life Insurance Company of New York
and Southern Farm Bureau Life Insurance Company.
U.S. Concrete and some of its subsidiaries are parties to debt
instruments under which the total amount of securities authorized
does not exceed 10% of the total assets of U.S. Concrete and its
subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii)
(A) of Item 601(b) of Regulation S-K, U.S. Concrete agrees to
furnish a copy of those instruments to the SEC on request.
10.1*+--1999 Incentive Plan of U.S. Concrete (Form S-1 (Reg. No. 333-74855),
Exhibit 10.1).
10.2*+--Employment Agreement between U.S. Concrete and William T. Albanese
(Form S-1 (Reg. No. 333-74855), Exhibit 10.2).
10.3*+--Form of Employment Agreement between U.S. Concrete and Michael W.
Harlan (Form S-1 (Reg. No. 333-74855), Exhibit 10.3).
10.4*+--Form of Employment Agreement between U.S. Concrete and Eugene P.
Martineau (Form S-1 (Reg. No. 333-74855), Exhibit 10.4).
10.5*+--Employment Agreement between U.S. Concrete and Michael D. Mitschele
(Form S-1 (Reg. No. 333-74855), Exhibit 10.5).
10.6*+--Employment Agreement between U.S. Concrete and Charles W. Sommer
(Form S-1 (Reg. No. 333-74855), Exhibit 10.6).
10.7*+--Employment Agreement between U.S. Concrete and Neil J. Vannucci
(Form S-1 (Reg. No. 333-74855), Exhibit 10.7).
10.8*+--Employment Agreement between U.S. Concrete and Robert S. Walker
(Form S-1 (Reg. No. 333-74855), Exhibit 10.8).
10.9*+--Form of Indemnification Agreement between U.S. Concrete and each of
its directors and officers (Form S-1 (Reg. No. 333-74855), Exhibit
10.9).
10.10*+--Form of Employment Agreement between U.S. Concrete and Terry Green
(Form S-1 (Reg. No. 333-74855), Exhibit 10.10).
10.11*+--Employment Agreement between U.S. Concrete and Donald C. Wayne
(Form 10-K for the year ended December 31, 1999 (File No. 000-
26025), Exhibit 10.11).
10.12*+--Amended and Restated Indemnification Agreements dated August 17,
2000 between U.S. Concrete and each of its directors and officers
(Form 10-Q for the quarter ended September 30, 2000 (File No.
000-26025, Exhibit 10.1).
10.13*+--Indemnification Agreement dated August 17, 2000 between U.S.
Concrete and Raymond C. Turpin (Form 10-Q for the quarter ended
September 30, 2000 (File No. 000-26025, Exhibit 10.2).
40
Exhibit
Number Description
-------- -----------
10.14--Promissory Note, dated March 2, 2000, issued by Michael W. Harlan to
U.S. Concrete, Inc.
10.15--Promissory Note, dated March 2, 2000, issued by Eugene P. Martineau
to U.S. Concrete, Inc.
10.16--Agreement, dated March 15, 2000, between U.S. Concrete, Inc. and
Neil J. Vannucci.
21--Subsidiaries
23--Consent of independent public accountants.
___________
* Incorporated by reference to the filing indicated.
+ Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
None
41
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 15, 2001
By: /s/ Eugene P. Martineau
-------------------------------------
Eugene P. Martineau
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 15, 2001.
Signature Title
--------------------- -------------------------------
/s/ Eugene P. Martineau President and Chief Executive Officer and
----------------------------- Director (Principal Executive Officer)
Eugene P. Martineau
/s/ Michael W. Harlan Chief Financial Officer and Director
----------------------------- (Principal Financial Officer)
Michael W. Harlan
/s/ Charles W. Sommer Vice President and Controller
----------------------------- (Principal Accounting Officer)
Charles W. Sommer
/s/ Vincent D. Foster Director
-----------------------------
Vincent D. Foster
/s/ John R. Colson Director
-----------------------------
John R. Colson
/s/ Peter T. Dameris Director
--------------------------------
Peter T. Dameris
/s/ William T. Albanese Director
--------------------------------
William T. Albanese
/s/ Michael D. Mitschele Director
-----------------------------
Michael D. Mitschele
/s/ Murray S. Simpson Director
-----------------------------
Murray S. Simpson
/s/ Neil J. Vannucci Director
-----------------------------
Neil J. Vannucci
/s/ Robert S. Walker Director
-------------------------------
Robert S. Walker
42