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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 2001
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, 2002, there were 26,768,018 shares of common stock, par
value $.001 per share, of the Registrant issued and outstanding, 20,672,077 of
which, having an aggregate market value of $145.3 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 2002 Annual
Stockholders Meeting are incorporated by reference into Part III of this report.
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TABLE OF CONTENTS
Page
----
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......................................... 21
Item 8. Financial Statements and Supplementary Data.......... 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. 43
PART III
Item 10. Directors and Executive Officers of the Registrant... 43
Item 11. Executive Compensation............................... 43
Item 12. Security Ownership of Certain Beneficial Owners and
Management.......................................... 43
Item 13. Certain Relationships and Related Transactions....... 43
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K......................................... 43
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 concrete products
and services to the construction industry in several major markets in the United
States. As of March 15, 2002, we have 85 fixed and nine portable ready-mixed
concrete plants, eight pre-cast concrete plants, three concrete block plants and
one aggregates quarry. During 2001, these facilities produced 5.6 million cubic
yards of ready-mixed concrete, 7.1 million eight-inch equivalent block units and
1.0 million tons of aggregates.
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 concrete businesses and began
operating 26 fixed concrete plants in three major markets in the United States.
Since our IPO and through March 15, 2002, we have acquired an additional 22
ready-mixed concrete and related concrete businesses, and are operating an
additional 59 fixed concrete plants, in seven additional major markets in the
United States.
To increase our geographic diversification and expand the scope of our
operations, we seek to acquire businesses operating under quality management
teams in growing markets. Our acquisition strategy has two primary objectives.
In a new market, we target one or more companies that can serve as platform
businesses into which we can integrate other 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 the production and
delivery of ready-mixed concrete in the United States grew over the past three
years as follows:
Year Sales
---- ----------
($ in
millions)
1999....................................................$ 25,538
2000....................................................$ 26,629
2001....................................................$ 27,137
According to F.W. Dodge data, the four major segments of the construction
industry accounted for the following approximate percentages of the total volume
of ready-mixed concrete produced in the United States in 2001:
Residential construction.................................... 26%
Commercial and industrialconstruction....................... 25%
Street and highway construction and paving.................. 21%
Other public works and infrastructure construction.......... 28%
----
Total................................................. 100%
----
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
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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 national
strategy, 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 dust, process water runoff, noise and heavy mixer and other truck traffic
associated with the operation of ready-mixed concrete plants and their general
appearance have made obtaining the permits and licenses required for new plants
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
Annual usage of ready-mixed concrete in the United States remains at record
levels. 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.
During 2001, Mr. Martineau participated in a campaign to raise funds for
the RMC Research Foundation, a nonprofit organization of which he is a member of
the Board of Trustees. The RMC Research Foundation is dedicated to continuous
research and enhancing the educational opportunities of the ready-mixed concrete
industry. Through March 15, 2002, the RMC Research Foundation had received
pledges totaling over $13 million.
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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 2001 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, Knoxville 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.
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. 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 companies that can serve as platform businesses into which we
can consolidate other 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, 2002, we have entered into
new geographic markets in San Diego, North Texas/Southwest Oklahoma,
Memphis/Northern Mississippi, Knoxville, Phoenix, Delaware 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;
. providing technical services expertise to optimize mix designs
and develop innovative new products;
. 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,
dispatch, truck tracking, delivery efficiency, reliability of
equipment and customer service.
. 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;
. providing technical services expertise to optimize mix designs
and achieve raw materials cost savings;
. 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,
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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.
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 placing and
finishing crews.
We produce ready-mixed concrete by combining the desired type of cement,
sand, gravel and crushed stone with water and typically one or more admixtures.
These admixtures, such as chemicals, minerals and fibers, determine the
usefulness of the product for particular applications.
We use a variety of chemical admixtures to achieve one or more of five
basic purposes:
. 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 86% of our 2001 revenues.
Pre-Cast Concrete. We produce pre-cast concrete products at five of our
Northern California plants, at one of our New Jersey plants, at our San Diego,
California plant and at our Phoenix, Arizona 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, manholes,
catch basins, highway barriers and curb inlets. After the concrete sets, we
strip the molds from the products and ship the finished product to our
customers. Because these products are not perishable, pre-cast concrete plants
can serve a much larger market than ready-mixed concrete plants.
5
Our pre-cast operations comprised 10% of our 2001 revenues.
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 plants in Michigan, Delaware and New
Jersey. Our building materials operations are generally located near our ready-
mixed concrete operations.
Our building materials operations comprised 4% of our 2001 revenues.
Aggregates. We produce crushed stone aggregates from our granite quarry
site located in Hamburg, New Jersey. We sell these aggregates for use in
commercial, residential and public works projects primarily in Northern New
Jersey and Orange County, New York. Annual production at this site is
approximately one million tons of aggregates, and we estimate the quarry has
approximately 46 million tons of remaining mineral reserves. We acquired this
quarry in early 2002 to serve its growing market and to provide a stable supply
of crushed stone aggregates to our existing ready-mixed concrete operations in
the Northern New Jersey market. We intend to explore additional opportunities to
integrate aggregates businesses into our existing operations.
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 portable
facilities that produce ready-mixed concrete in wet or dry batches. Our
fixed-plant facilities produce ready-mixed concrete that we transport to job
sites by mixer trucks. Our 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, 2002, we operated 13 wet batch plants and 72 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.
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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, 2002, we operated a fleet of approximately 960 mixer
trucks.
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
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. 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.
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 the in-place cost of concrete.
Customers
Of our 2001 sales, we made approximately 51% to commercial and industrial
construction contractors, approximately 31% to residential construction
contractors, approximately 12% to street and highway construction contractors
and approximately 6% to other public works and infrastructure contractors. In
2001, no single customer or project accounted for more than 4% 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
8
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.
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, 2002, we had approximately 414 salaried employees, including
executive officers, management personnel, sales personnel, technical personnel,
administrative staff and clerical personnel, and approximately 1,695 hourly
personnel generally employed on an as-needed basis, including 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, 2002, approximately 940 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, 2002, we operated a fleet of approximately 960 owned and
leased mixer trucks and 550 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 6.5
years.
The table below summarizes the operations at our facilities at March 15,
2002. We believe that these facilities are sufficient for our immediate needs.
The ready-mixed volumes in the table represent the pro forma 2001 volumes
produced by each location.
Ready-Mixed
Volume
Ready-Mixed (in thousands
-------------------------- of cubic
Location Fixed Portable Total Pre-Cast Block Aggregates yards)
- --------------------------------------- ----- -------- ----- -------- ----- ---------- ------
Northern California .................... 20 -- 20 5 -- -- 2,108
Atlantic Region ........................ 27 6 33 1 2 1 1,557
North Texas/Southwest Oklahoma ......... 16 2 18 -- -- -- 787
Michigan ............................... 11 -- 11 -- 1 -- 647
Tennessee/Northern Mississippi ......... 11 1 12 -- -- -- 469
Southern California/Arizona ............ -- -- -- 2 -- -- --
----- ----- ---- ------ ---- ----- ------
85 9 94 8 3 1 5,568
----- ----- ---- ------ ---- ----- ------
9
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
that complied with all applicable laws when performed. We have conducted Phase I
investigations to assess environmental conditions on substantially all the real
properties we own or lease and have engaged independent environmental consulting
firms 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 in 2001. 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 and other concrete
formulations that must meet building code or other regulatory requirements and
contractual specifications for durability, stress-level capacity, weight-bearing
capacity and other characteristics. If we fail or are unable to provide product
meeting these requirements and specifications, material claims may arise against
us and our reputation could be damaged.
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.
10
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 national
operating strategy, 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 and in
our business;
. the level of activity in the construction industry generally and in our
local markets for ready-mixed concrete;
. the highly competitive nature of our business;
. the cost of capital, including the interest expense associated with our
outstanding borrowings, which is tied in part to market interest rates;
. 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.
11
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 81 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.
In September 2001, we entered into a settlement agreement relating to a
complaint that Del Webb California Corp. filed on June 29, 2001 in the Superior
Court of the State of California for the County of Sacramento against one of our
subsidiaries, Central, and two other companies. The complaint related to
concrete produced by Central and delivered for use in a large, single-family
home tract-construction project in northern California. The complaint (1)
alleged various causes of action relating to concrete that Central manufactured
using a batch mix that did not meet Del Webb's specifications and (2) sought
relief including damages of at least $7 million. Under the settlement agreement
entered into among the plaintiff and its parent company, Central, U.S. Concrete
and one of the other defendants in the case, Central agreed to accept a back
charge in the amount of $608,000 from Del Webb, effectively eliminating a
receivable from Del Webb in that amount, and pay an additional $2.2 million to
Del Webb. In connection with the settlement, Central, U.S. Concrete and the
other settling defendant also entered into a two-year supply agreement with Del
Webb to continue to provide concrete for use in Del Webb's project in northern
California at an agreed-to selling price adjustment from the price charged by
Central (which we believe approximates the discount we would provide for a
contract with similar volume). In December 2001, the Superior Court determined
that the parties entered into the settlement in good faith and the matter was
concluded. We recorded the $608,000 and $2.2 million charges as selling, general
and administrative expenses in the second and third quarters, respectively, of
2001.
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.
We expect in the future we will from time to time be a party to litigation or
administrative proceedings which arise in the normal course of our business.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of our security holders during the fourth
quarter of 2001.
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, 2002, 26.7 million shares of our common stock
were outstanding, held by approximately 880 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:
2001 2000
------------ ------------
High Low High Low
---- --- ---- ---
First Quarter................... $ 9.13 $ 6.13 $ 7.88 $ 6.00
Second Quarter .................. 9.25 7.17 8.13 6.00
Third Quarter ................... 8.51 6.65 8.19 6.00
Fourth Quarter .................. 7.45 5.73 7.31 5.69
The last reported bid price for our common stock on The Nasdaq Stock Market
on March 15, 2002 was $7.03 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 7
of our Notes to Consolidated Financial Statements in Item 8 of this report.
Recent Sales of Unregistered Securities
Between October 1, 2001 and December 31, 2001, we issued 742,448 shares of
common stock as part of the consideration we paid to two former owners of a
business we acquired in that period. We issued those shares 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 seven businesses in 2001, 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" in
Item 8). Our financial statements present Central Concrete Supply Co., Inc., one
of our initial six acquisitions, as the acquirer of the other 26 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 and 1997, derives
from the audited financial statements of Central. See the historical financial
statements and related notes this document contains.
Year Ended December 31
----------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(in thousands)
Statement of Operations Information:
Sales ....................................................... $493,591 $394,636 $167,912 $ 66,499 $ 53,631
Cost of goods sold .......................................... 396,769 314,297 135,195 53,974 43,794
-------- -------- -------- -------- --------
Gross profit ............................................... 96,822 80,339 32,717 12,525 9,837
Selling, general and administrative expenses ................ 44,933 27,741 9,491 4,712 4,265
Stock compensation charge ................................... 2,124 -- 2,880 -- --
Depreciation and amortization ............................... 13,828 11,212 3,453 930 1,330
-------- -------- -------- -------- --------
Income from operations ..................................... 35,937 41,386 16,893 6,883 4,242
Interest expense, net ....................................... 19,386 14,095 1,708 165 226
Other income, net ........................................... 652 1,319 663 36 26
-------- -------- -------- -------- --------
Income before income tax provision ......................... 17,203 28,610 15,848 6,754 4,042
Income tax provision (benefit) .............................. 7,658 11,750 7,658 100 (457)
-------- -------- -------- -------- --------
Net income ................................................. $ 9,545 $ 16,860 $ 8,190 $ 6,654 $ 4,499
======== ======== ======== ======== ========
December 31
----------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(in thousands)
Balance Sheet Information:
Working capital ............................................. $ 46,941 $ 43,185 $ 14,578 $ 7,431 $ 4,899
Total assets ................................................ 430,836 357,490 212,734 26,640 19,837
Long-term debt, including current maturities ................ 163,775 157,134 57,375 3,530 2,660
Total stockholders' equity .................................. 188,315 150,555 110,793 15,154 10,731
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.
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 substantially
14
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 seven operating businesses in 2001, 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 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.
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.
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
15
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.
As we acquire additional businesses in the future, we will include the
operating results of those businesses in our consolidated operating results from
their respective acquisition dates. Consequently, the magnitude and timing of
our future acquisitions will affect our operating results.
We may incur material costs and losses as a result of claims that our
products do not meet regulatory requirements or contractual specifications.
Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." Under this
new standard, which we discuss under "New Accounting Pronouncements" below, the
new requirements for assessing whether goodwill assets have been impaired
involve analyses of fair value. This information, and its use in assessing
goodwill, will entail some degree of subjective assessments.
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 2001 primarily account for the
changes in 2001 from 2000, and our acquisitions in 2000 primarily account for
the changes in 2000 from 1999.
Year Ended December 31
------------------------------------------------------------
2001 2000 1999
------------------- ------------------- -----------------
(dollars in thousands)
Sales ............................................... $493,591 100.0% $394,636 100.0% $167,912 100.0%
Cost of goods sold .................................. 396,769 80.4 314,297 79.6 135,195 80.5
-------- ----- -------- ----- -------- -----
Gross profit ..................................... 96,822 19.6 80,339 20.4 32,717 19.5
Selling, general and administrative expenses ........ 44,933 9.1 27,741 7.0 9,491 5.7
Special compensation charge ......................... 2,124 0.4 -- -- 2,880 1.7
Depreciation and amortization ....................... 13,828 2.8 11,212 2.9 3,453 2.1
-------- ----- -------- ----- -------- -----
Income from operations ........................... 35,937 7.3 41,386 10.5 16,893 10.0
Interest expense, net ............................... 19,386 3.9 14,095 3.6 1,708 1.0
Other income, net ................................... 652 0.1 1,319 0.4 663 0.4
-------- ----- -------- ----- -------- -----
Income before income tax provision ............... 17,203 3.5 28,610 7.3 15,848 9.4
Income tax provision ................................ 7,658 1.6 11,750 3.0 7,658 4.5
-------- ----- -------- ----- -------- -----
Net income ....................................... $ 9,545 1.9% $ 16,860 4.3% $ 8,190 4.9%
======== ===== ======== ===== ======== =====
2001 Compared to 2000
Sales. Sales increased $99.0 million, or 25.1%, from $394.6 million in 2000 to
$493.6 million in 2001.
Gross profit. Gross profit increased $16.5 million, or 20.5%, from $80.3 million
in 2000 to $96.8 million in 2001. Gross margins decreased from 20.4% in 2000 to
19.6% in 2001, primarily because of decreases in sales volume in several of our
primary markets resulting principally from a slowdown in construction activity
attributable to general and local economic conditions and weather conditions in
some of our markets.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $17.2 million, or 62.0%, from $27.7 million in
2000 to $44.9 million in 2001. The increase in selling, general and
administrative expenses as a percentage of sales is primarily attributable to
management additions in some of our markets and a pretax charge of $2.2 million
we recorded in the third quarter of 2001 to settle the Del Webb litigation and a
$608,000 pretax charge in the second quarter of 2001 to reserve a portion of our
accounts receivable related to the Del Webb project. Final effectiveness and
payment of the settlement occurred in December 2001.
16
Special compensation charge. We granted additional compensation to members of
our management team and some of our key employees in recognition of the overall
contribution made by those employees to our various 2001 capital-raising
initiatives. This one-time award is in addition to our recurring annual
incentive compensation program.
Depreciation and amortization. Depreciation and amortization expense increased
$2.6 million, or 23.3%, from $11.2 million in 2000 to $13.8 million in 2001.
This increase includes amortization of the goodwill attributable to our
acquisition activity. At December 31, 2001, the annualized amount of this
noncash expense was $5.8 million. For additional information, see the discussion
below of new accounting standards relating to goodwill under "New Accounting
Pronouncements."
Interest expense, net. Interest expense, net, increased $5.3 million from $14.1
million in 2000 to $19.4 million in 2001. This increase was attributable to
borrowings we made to pay the cash portion of the purchase prices for our
acquisitions and the issuance of $95 million of 12.00% senior subordinated notes
in November 2000. At December 31, 2001, we had outstanding borrowings totaling
$163.8 million, at a weighted average interest cost of 9.1% per annum. Based on
this weighted average interest rate, the impact of the senior subordinated notes
on interest expense is an increase of $6.6 million, or $0.15 per share, on an
annualized after-tax basis.
Other income, net. Other income, net, decreased $667,000, or 50.6%, from $1.3
million in 2000 to $0.6 million in 2001. This decrease is attributable to gains
realized in 2000 on the sale of a customer contract, a gain from the involuntary
conversion of property and other items of income that were not replicated in
2001.
Income tax provision. We provided for income taxes of $7.7 million in 2001, a
decrease of $4.1 million from our provision in 2000. The decrease in income
taxes is principally the result of lower taxable income our operations generated
during 2001. Additionally, the effective tax rate increased from 41.1% to 44.5%
due to the effect of the non-deductible portion of our goodwill amortization on
our lower taxable income.
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 because of improved pricing terms we negotiated
with key materials suppliers in our major ready-mixed concrete 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 and
management additions in certain of our markets.
Special 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. At December 31, 2000, the annualized amount of this
noncash expense was $4.9 million. For additional information, see the discussion
below of new accounting standards relating to goodwill under "New Accounting
Pronouncements."
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 other items of income.
17
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. In addition, 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 we
recognized during that year.
Liquidity and Capital Resources
Free Cash Flow
Free cash flow is defined as cash provided by operating activities less net
capital expenditures (that is, purchases of property, plant and equipment less
proceeds from disposals of property, plant and equipment). If free cash flow is
positive, it represents funds available to invest in acquisitions or to reduce
outstanding debt or equity. If free cash flow is negative, it represents a
requirement to utilize additional debt or equity capital resources.
Our historical free cash flow is presented as follows (in thousands):
Year Ended December 31
--------------------------------
2001 2000 1999
-------- -------- --------
Net cash provided by operating activities ....................... $ 44,874 $ 9,583 $ 9,046
Less: purchases of property, plant and equipment ................ (10,859) (8,205) (7,547)
Add: proceeds from disposals of property, plant and equipment ... 2,214 2,156 1,031
-------- -------- --------
Free cash flow ................................................ $ 36,229 $ 3,534 $ 2,530
======== ======== ========
The increase in free cash flow from 2000 to 2001 was primarily attributable
to improvements in working capital changes. These working capital change
improvements resulted from a more disciplined focus on various aspects of cash
management, including accelerated customer billings and collections at many of
our operating subsidiaries and more effective management of vendor payables. The
increase in free cash flow from 1999 to 2000 was primarily attributable to
higher net earnings and noncash charges, partially offset by unfavorable working
capital changes.
Acquisitions
The following table summarizes the amount we paid for acquisitions during
the indicated periods (in thousands):
Year Ended December 31
--------------------------------
2001 2000 1999
-------- -------- --------
Cash consideration ......................................... $ 49,303 $ 98,918 $ 78,565
Less: Cash received from acquired companies ............... (2,174) (3,961) (10,070)
-------- -------- --------
Cash paid, net of cash acquired ............................ 47,129 94,957 68,495
Fair value of common stock issued .......................... 12,375 22,357 67,050
Direct acquisition costs incurred .......................... 2,613 3,261 8,406
-------- -------- --------
Total purchase costs incurred, net of cash acquired .... $ 62,117 $120,575 $143,951
======== ======== ========
Capital Resources
On July 18, 2001, we issued in a public offering 1.8 million shares of our
common stock at a price to the public of $8.00 per share. We used the net
proceeds of $13.6 million to repay borrowings under our credit facility.
On August 31, 2001, we amended and restated our secured revolving credit
facility. The terms of the facility are substantially unchanged, except that we
extended the maturity of the facility from May 2002 to May 2004 and reduced the
size of the facility from $200 million to $188 million. We had $68.6 million of
outstanding borrowings under our credit facility at December 31, 2001. Our
borrowing capacity under the facility varies from time to time depending on our
satisfaction of several financial tests. We may use the facility for the
following purposes:
. financing acquisitions;
18
. 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 all 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.
Our failure to comply with these covenants and restrictions would
constitute an event of default under the facility.
At December 31, 2001, we had $119.4 million of remaining capacity under
this facility, of which we could borrow $16.1 million based on our leverage
ratio at that date. Our ability to borrow additional amounts would increase to
the extent that we use the facility to fund the acquisition of additional
businesses with positive cash flow.
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 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 reduce amounts
outstanding under our credit facility.
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.
The continuation of our growth strategy will require substantial capital.
We currently intend to finance future acquisitions through issuances of our
equity or debt securities, including convertible 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 or convertible securities 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.
We cannot accurately predict the timing, size and success of our
acquisition efforts or our associated potential capital commitments.
Other Commitments
As is common in our industry, we have entered into certain off-balance
sheet arrangements in the ordinary course of business that result in risks our
balance sheets do not directly reflect. Our significant off-balance sheet
transactions are liabilities associated with noncancelable operating leases and
letter of credit obligations.
We enter into noncancelable operating leases for many of our facility,
vehicle and equipment needs. These leases allow us to conserve cash by paying a
monthly lease rental fee for use of the facilities, vehicles and equipment
rather than purchasing them. At the end of the lease, we have no further
obligation to the lessor. We may decide to cancel or terminate a lease before
the end of its term, in which event we typically would be liable to the lessor
for the remaining lease payments under the term of the lease.
We did not have any letters of credit outstanding under our facility at
December 31, 2001. In March 2002, we issued a $50,000 letter of credit to a
municipality in New Jersey in connection with our obligation to perform
reclamation services on the closure of an aggregates quarry operation that we
purchased in January 2002. The cost of this reclamation is being accrued over
the life of the quarry, which is currently estimated to be in excess of 40
years.
19
Our future contractual obligations are as follows (in thousands):
2002 2003 2004 2005 2006 Thereafter Total
-------- ------- ------- ------- ------- ---------- --------
Debt obligations...........................$ 77 $ 61 $82,209 $13,571 $13,571 $54,286 $163,775
Operating lease obligations................ 10,509 7,956 6,419 4,453 3,962 9,038 42,337
In January 2002, we entered into an underwriting agreement that allows us
to issue a limited number of shares of our common stock through an underwriter
over a two-year period. To the extent that we do not raise a minimum amount
through the issuance of equity under this agreement over its two-year term, we
would be required to pay the underwriter up to $100,000 in stand-by fees.
Related-Party Transactions
We enter into transactions in the normal course of business with related
parties. These transactions consist principally of operating leases under which
we lease facilities from former owners of our acquired businesses or their
affiliates and include transactions with some of our officers and directors or
their affiliates. See note 10 (Related-Party Transactions) to our consolidated
financial statements included in Item 8 to this report for a description of
these transactions.
Critical Accounting Policies
In response to the SEC's Release No. 33-8040, "Cautionary Advice Regarding
Disclosure About Critical Accounting Policies," we have identified our critical
accounting policies based on the significance of the accounting policy to our
overall financial statement presentation, as well as the complexity of the
accounting policy and its use of estimates and subjective assessments. We have
concluded that our critical accounting policies are the use of estimates in the
recording of allowance for doubtful accounts, realization of goodwill, accruals
for self-insurance, accruals for income tax provision and the valuation and
useful lives of property, plant and equipment. See note 2 (Significant
Accounting Policies) to our consolidated financial statements included in Item 8
to this report for a complete discussion of these accounting policies.
New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. SFAS No. 141 also specifies criteria
for recording intangible assets other than goodwill in connection with business
combinations. SFAS No. 142 requires companies to assess goodwill assets for
impairment each year, and more frequently if circumstances suggest an impairment
may have occurred. SFAS No. 142 also introduces a more stringent framework for
assessing goodwill impairment than the approach previously required. In
addition, SFAS No. 142 discontinues the regular charge, or amortization, of
goodwill assets against income.
SFAS No. 141 was effective immediately. SFAS No. 142 became effective for
us beginning January 1, 2002. We will show any impairment loss we recognize in
accordance with SFAS No. 142 as the cumulative effect of a change in accounting
principle in our income statement. Under this treatment, our income statement
would show after-tax results of operations both with and without the cumulative
effect of the change in accounting principle recognizing an impairment.
We are currently reviewing these new accounting standards. Under the prior
standards, we recognized a non-cash charge of approximately $1.4 million per
quarter in our consolidated income statement to amortize our goodwill assets
over 40-year lives. We ended this amortization on January 1, 2002, under the new
standards.
On the basis of a preliminary review of the new standards and currently
available information, we believe we will record a non-cash, after-tax goodwill
impairment charge, reflected as the cumulative effect of a change in accounting
principle, of between $20 million and $25 million in the first quarter of 2002.
We have specifically provided for the possibility of a non-cash charge in
the terms of our credit facility and accordingly expect no impact from such an
impairment charge on our compliance with that facility.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 covers all legally enforceable obligations
associated with the retirement of tangible long-lived assets. SFAS No. 143
20
requires recording the fair value of a liability for an asset retirement
obligation in the period incurred. SFAS 143 is effective for us beginning
January 1, 2003. Upon adoption of SFAS 143, we would be required to use a
cumulative effect approach to recognize transition amounts for any existing
retirement obligation liabilities, asset retirement costs and accumulated
depreciation. We have yet to determine the impact that the adoption of SFAS No.
143 will have on our consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement supersedes SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and the accounting and reporting provisions of APB 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." The new standard went into effect beginning January 1,
2002, and we are currently reviewing and evaluating the effects this standard
will have on our reported financial condition, results of operations and
accounting policies and practices.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard requires entities to
recognize all derivative instruments, including certain derivative instruments
embedded in other contracts, as assets or liabilities in their balance sheets
and measure them at fair value. It also requires that changes in the
derivatives' fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. We adopted this standard effective January 1,
2001. Because we did not engage in holding or trading derivative instruments,
this standard has had no impact through 2001.
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 $68.6 million at
December 31, 2001. A change of one percent in the interest rate would cause a
pretax change in interest expense of approximately $686,000 or $0.01 per diluted
share, on an annual after-tax 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.
21
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.......................... 23
Consolidated Balance Sheets at December 31, 2001 and 2000......... 24
Consolidated Statements of Operations for the Years Ended
December 31, 2001, 2000 and 1999................................. 25
Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended December 31, 2001, 2000 and 1999................. 26
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999................................. 27
Notes to Consolidated Financial Statements........................ 28
22
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, 2001 and 2000,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 2001.
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, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
February 26, 2002
23
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
ASSETS December 31
------ -------------------
2001 2000
-------- --------
Current assets:
Cash and cash equivalents .................................................. $ 7,127 $ 711
Trade accounts receivable, net ............................................. 72,326 62,641
Inventories ................................................................ 16,499 9,494
Deferred income taxes ...................................................... 1,851 1,653
Prepaid expenses and other current assets .................................. 7,444 5,106
-------- --------
Total current assets .............................................. 105,247 79,605
-------- --------
Property, plant and equipment, net ............................................. 100,309 82,993
Goodwill, net .................................................................. 219,868 188,921
Other assets ................................................................... 5,412 5,971
-------- --------
Total assets ...................................................... $430,836 $357,490
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt ....................................... $ 77 $ 107
Accounts payable and accrued liabilities ................................... 58,229 36,313
-------- --------
Total current liabilities ......................................... 58,306 36,420
-------- --------
Long-term debt, net of current maturities ...................................... 163,698 157,027
Deferred income taxes .......................................................... 20,517 13,488
-------- --------
Total liabilities ................................................. 242,521 206,935
-------- --------
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; 26,711,094 and
22,452,036 shares issued and outstanding in 2001 and 2000, respectively .. 27 22
Additional paid-in capital ................................................. 155,380 127,170
Retained earnings .......................................................... 32,908 23,363
-------- --------
Total stockholders' equity ........................................ 188,315 150,555
-------- --------
Total liabilities and stockholders' equity ........................ $430,836 $357,490
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
24
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year Ended December 31
------------------------------
2001 2000 1999
-------- -------- --------
Sales .................................................. $493,591 $394,636 $167,912
Cost of goods sold ..................................... 396,769 314,297 135,195
-------- -------- --------
Gross profit ........................................ 96,822 80,339 32,717
Selling, general and administrative expenses ........... 44,933 27,741 9,491
Special compensation charge ............................ 2,124 -- 2,880
Depreciation and amortization .......................... 13,828 11,212 3,453
-------- -------- --------
Income from operations .............................. 35,937 41,386 16,893
Interest expense, net .................................. 19,386 14,095 1,708
Other income, net ...................................... 652 1,319 663
-------- -------- --------
Income before income tax provision .................. 17,203 28,610 15,848
Income tax provision ................................... 7,658 11,750 7,658
-------- -------- --------
Net income .......................................... $ 9,545 $ 16,860 $ 8,190
======== ======== ========
Earnings per share:
Basic ............................................... $ 0.39 $ 0.78 $ 0.70
======== ======== ========
Diluted ............................................. $ 0.39 $ 0.78 $ 0.70
======== ======== ========
Number of shares used in calculating earnings per share:
Basic ............................................... 24,551 21,573 11,770
======== ======== ========
Diluted ............................................. 24,621 21,592 11,783
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
25
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
Common Stock Additional
------------------- Paid-In Retained Stockholders'
Shares Amount Capital Earnings Equity
------ --------- ---------- --------- -----------
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 under 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
Public offering, net of offering costs ......... 1,820 2 13,600 -- 13,602
Acquisitions of purchased companies ............ 2,076 3 12,372 -- 12,375
Stock issued under employee stock
purchase plan ................................. 226 -- 1,242 -- 1,242
Stock option exercises ......................... 17 -- 125 -- 125
Stock issued to board member ................... 12 -- 95 -- 95
Stock issued in connection with special
compensation charge ........................... 108 -- 776 -- 776
Net income ..................................... -- -- -- 9,545 9,545
------ --------- --------- --------- ---------
BALANCE, December 31, 2001 ....................... 26,711 $ 27 $ 155,380 $ 32,908 $ 188,315
====== ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
26
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31
-----------------------------------
2001 2000 1999
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................................. $ 9,545 $ 16,860 $ 8,190
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ............................................ 13,828 11,212 3,453
Debt issuance cost amortization .......................................... 1,719 1,099 123
Net loss (gain) on sale of property, plant and equipment ................. 77 (435) (218)
Deferred income tax provision ............................................ 4,881 3,011 762
Provision for doubtful accounts .......................................... 2,507 220 118
Stock compensation ....................................................... 871 -- 2,880
Changes in assets and liabilities, excluding effects of acquisitions:
Receivables .............................................................. 3,953 (4,194) (5,372)
Prepaid expenses and other current assets ................................ (1,801) (2,623) 69
Accounts payable and accrued liabilities ................................. 9,294 (15,567) (959)
--------- --------- ---------
Net cash provided by operating activities ............................. 44,874 9,583 9,046
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment .................................. (10,859) (8,205) (7,547)
Payments for acquisitions, net of cash received of $2,174, $3,961 and $10,070 (47,129) (94,957) (68,495)
Payment of direct costs in connection with acquisitions ..................... (2,613) (3,261) (8,406)
Proceeds from disposals of property, plant and equipment .................... 2,214 2,156 1,031
--------- --------- ---------
Net cash used in investing activities ................................. (58,387) (104,267) (83,417)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings .................................................... 6,620 192,900 57,266
Repayments of borrowings .................................................... (113) (93,141) (3,607)
Proceeds from issuances of common stock ..................................... 15,200 545 32,512
Cash paid related to common stock issuance costs ............................ (180) (242) (4,373)
Debt issuance costs ......................................................... (1,598) (5,294) (860)
Distributions to stockholders ............................................... -- -- (10,153)
--------- --------- ---------
Net cash provided by financing activities ............................. 19,929 94,768 70,785
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......................... 6,416 84 (3,586)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .............................. 711 627 4,213
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................... $ 7,127 $ 711 $ 627
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ...................................................... $ 17,865 $ 12,377 $ 1,412
Cash paid for income taxes .................................................. $ 336 $ 12,340 $ 4,973
NONCASH FINANCING ACTIVITY:
Distribution of cash surrender value of life insurance to stockholder ....... $ -- $ -- $ 1,155
The accompanying notes are an integral part of these consolidated financial
statements.
27
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
the initial public offering of its common stock and concurrently acquired six
operating businesses. From the date of its IPO through December 31, 2001, U.S.
Concrete acquired 21 additional operating businesses. Its financial statements
reflect the operations of the businesses it 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 acquiring
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, 2001, 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.
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.
28
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. As of December 31, 2001 and 2000, accumulated
amortization was $10.8 million and $5.4 million, respectively. For additional
information, see the discussion of new accounting standards related to goodwill
below in this note under New Accounting Pronouncements.
Debt Issue Costs
Other long-term assets include debt issue costs related to U.S. Concrete's
credit facility and subordinated notes (see Note 7 for discussion). U.S.
Concrete amortizes these costs as interest expense over the scheduled maturity
period of the debt. As of December 31, 2001 and 2000, accumulated amortization
of debt issue costs was $2.9 million and $1.2 million, respectively.
Allowance for Doubtful Accounts
U.S. Concrete provides an allowance for accounts receivable it believes it
may not collect in full. A provision for bad debt expense recorded to selling,
general and administrative expenses increases the allowance. Accounts receivable
which are written off U.S. Concrete's books decrease the allowance. The amount
of bad debt expense recorded each period and the resulting adequacy of the
allowance at the end of each period are determined using a combination of
historical results reported by the concrete industry, U.S. Concrete's historical
loss experience, customer-by-customer analyses of U.S. Concrete's accounts
receivable balances each period and subjective assessments of U.S. Concrete's
future bad debt exposure.
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.
Insurance Programs
U.S. Concrete maintains third-party insurance coverage in amounts and
against the risks it believes are reasonable. Under certain components of its
insurance program, U.S. Concrete shares the risk of loss with its insurance
underwriters by maintaining high deductibles subject to aggregate annual loss
limitations. U.S. Concrete funds these deductibles and records an expense for
expected losses under the programs. The expected losses are determined using a
combination of U.S. Concrete's historical loss experience and subjective
assessments of U.S. Concrete's future loss exposure.
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.
29
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. Estimates
and assumptions that U.S. Concrete considers significant in the preparation of
its financial statements include those related to its allowance for doubtful
accounts, realization of goodwill, accruals for self-insurance, accruals for
income tax provision and the valuation and useful lives of property, plant and
equipment.
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
U.S. Concrete has made various reclassifications to amounts in prior period
financial statements to conform with its current period presentation.
Earnings per Share
Since U.S. Concrete's consolidated financial statements present Central,
one of its initial acquisitions, as the acquirer as of June 1, 1999 of U.S.
Concrete and its other acquired businesses, 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 that date.
The following table reconciles the numerator and denominator of the basic
and diluted earnings per share for each of 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
-----------------------------------
2001 2000 1999
--------- --------- ---------
Numerator:
Net income...................................................................... $ 9,545 $ 16,860 $ 8,190
======== ======== ========
Denominator:
Weighted average common shares outstanding-basic................................ 24,551 21,573 11,770
Effect of dilutive stock options................................................ 70 19 13
--------- --------- ---------
Weighted average common shares outstanding-diluted.............................. 24,621 21,592 11,783
========= ========= =========
Earnings per share:
Basic........................................................................... $ 0.39 $ 0.78 $ 0.70
Diluted......................................................................... $ 0.39 $ 0.78 $ 0.70
For the years ended December 31, 2001, 2000 and 1999, options to purchase
1.9 million, 2.1 million and 1.3 million shares of common stock, 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.
30
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 in the period ended
December 31, 2001, no material differences exist between the historical
consolidated net income and consolidated 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
by which public enterprises are to report information about operating segments
in annual financial statements and requires the reporting of selected
information about operating segments in interim financial reports issued to
stockholders. All segments that meet a threshold of 10% of revenues, reported
profit or loss or combined assets are defined as significant segments. U.S.
Concrete currently 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.
New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001. SFAS No.
141 also specifies criteria for recording intangible assets other than goodwill
in connection with business combinations. SFAS No. 142 requires companies to
assess goodwill assets for impairment each year, and more frequently if
circumstances suggest an impairment may have occurred. SFAS No. 142 also
introduces a more stringent framework for assessing goodwill impairment than the
approach previously required. In addition, SFAS No. 142 discontinues the regular
charge, or amortization, of goodwill assets against income.
SFAS No. 141 was effective immediately. SFAS No. 142 became effective for
U.S. Concrete beginning January 1, 2002. U.S. Concrete will show any impairment
loss it recognizes in accordance with SFAS No. 142 as the cumulative effect of a
change in accounting principle in its income statement. Under this treatment,
its income statement would show after-tax results of operations both with and
without the cumulative effect of the change in accounting principle recognizing
an impairment.
U.S. Concrete is currently reviewing these new accounting standards. Under
the prior standards, it recognized a non-cash charge of approximately $1.4
million per quarter in its consolidated income statement to amortize its
goodwill assets over 40-year lives. U.S. Concrete ended this amortization on
January 1, 2002, under the new standards.
On the basis of a preliminary review of the new standards and currently
available information, U.S. Concrete believes it will record a non-cash,
after-tax goodwill impairment charge, reflected as the cumulative effect of a
change in accounting principle, of between $20 million and $25 million in the
first quarter of 2002.
U.S. Concrete has specifically provided for the possibility of a non-cash
charge in the terms of its credit facility and accordingly expects no impact
from such an impairment charge on its compliance with that facility.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 covers all legally enforceable obligations
associated with the retirement of tangible long-lived assets. SFAS No. 143
requires recording the fair value of a liability for an asset retirement
obligation in the period incurred. SFAS 143 is effective for U.S. Concrete
beginning January 1, 2003. Upon adoption of SFAS 143, U.S. Concrete would be
required to use a cumulative effect approach to recognize transition amounts for
any existing retirement obligation liabilities, asset retirement costs and
accumulated depreciation. U.S. Concrete has yet to determine the impact that the
adoption of SFAS No. 143 will have on its consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement supersedes SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and the accounting and reporting provisions of Accounting
Principles Board (APB) 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary,
31
Unusual and Infrequently Occurring Events and Transactions." The new standard
went into effect beginning January 1, 2002, and U.S. Concrete is currently
reviewing and evaluating the effects this standard will have on its reported
financial condition, results of operations and accounting policies and
practices.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard requires entities to
recognize all derivative instruments, including certain derivative instruments
embedded in other contracts, as assets or liabilities in their balance sheets
and measure them at fair value. It also requires that changes in the
derivatives' fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. U.S. Concrete adopted this standard effective
January 1, 2001. Because it did not engage in holding or trading derivative
instruments, this standard has had no impact through 2001.
3. BUSINESS COMBINATIONS
U.S. Concrete effected seven acquisitions in 2001, six 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, 2001 includes the preliminary allocations of the purchase prices of
the 2001 acquisitions and is subject to final adjustment. The following tables
summarize the number of acquisitions completed and aggregate consideration U.S.
Concrete paid in these transactions:
Acquisitions completed: 2001 2000 1999
---------- --------- ---------
Ready-mixed businesses ............................................................ 5 5 11
Pre-cast businesses ............................................................... 2 1 3
- - --
Total ........................................................................... 7 6 14
= = ==
Consideration (in thousands):
2001 2000 1999
---------- --------- ---------
Cash .............................................................................. $ 49,303 $ 98,918 $ 78,565
Fair value of common stock issued ................................................. 12,375 22,357 67,050
---------- --------- ---------
Total ........................................................................... $ 61,678 $ 121,275 $ 145,615
========== ========= =========
The following summarized unaudited pro forma consolidated financial
information adjusts the historical consolidated financial information by
assuming that all 2000 and 2001 acquisitions occurred on January 1, 2000 (in
thousands, except per share data):
Year Ended December 31
2001 2000
---------- ---------
(unaudited)
Revenues......................................................................... $ 519,222 $ 511,781
Net income....................................................................... $ 10,082 $ 17,770
Basic earnings per share......................................................... $ 0.38 $ 0.73
Diluted earnings per share....................................................... $ 0.38 $ 0.73
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.
32
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.
In connection with the acquisitions, U.S. Concrete has determined the
resulting goodwill as follows (in thousands):
2001 2000 1999
---------- ---------- ----------
Cash consideration ...............................................................$ 49,303 $ 98,918 $ 78,565
Less: cash received from acquired companies ..................................... (2,174) (3,961) (10,070)
---------- ---------- ----------
Cash paid, net of cash acquired .................................................. 47,129 94,957 68,495
Fair value of common stock issued................................................. 12,375 22,357 67,050
Direct acquisition costs incurred................................................. 2,613 3,261 8,406
---------- ---------- ----------
Total purchase costs incurred, net of cash acquired .......................... 62,117 120,575 143,951
---------- ---------- ----------
Fair value of assets acquired, net of cash acquired............................... 40,056 48,546 75,067
Less: fair value of assumed liabilities ......................................... (14,257) (15,700) (37,699)
---------- ---------- ----------
Fair value of net assets acquired, net of cash acquired........................... 25,799 32,846 37,368
---------- ---------- ----------
Costs incurred in excess of net assets acquired...............................$ 36,318 $ 87,729 $ 106,583
========== ========== ==========
The amounts relating to the 2001 acquisitions are preliminary and subject
to final adjustment.
4. SPECIAL COMPENSATION AND LITIGATION CHARGES
Special Compensation Charges
Effective April 10, 2001, U.S. Concrete granted incentive compensation to
members of its management team and some of its key employees in recognition of
the overall contribution those employees made to its various 2001 capital
raising initiatives. This one-time capital raising incentive compensation award
is in addition to U.S. Concrete's recurring annual incentive compensation
program. The total incentive compensation for all recipients is summarized as
follows (in thousands):
Stock Awards Cash Awards
(Senior (Field
Management) Personnel) Total
------------- ------------- -------------
Shares of common stock granted 108 -- 108
Value of common stock granted $ 776 $ -- $ 776
Cash payments 631 717 1,348
------------- ------------- -------------
Charge before income tax benefit 1,407 717 2,124
Income tax benefit (633) (323) (956)
------------- ------------- -------------
Charge after benefit from income taxes $ 774 $ 394 $ 1,168
============= ============= =============
Cash charge after benefit from income taxes $ (2) $ 394 $ 392
============= ============= =============
The shares of common stock issued as incentive compensation to the stock
award recipients are not subject to any vesting requirements or transfer
restrictions, other than any applicable transfer restrictions under federal or
state securities laws.
The fair market value of U.S. Concrete's common stock on the incentive
compensation grant date was $7.19 per share. The one-time capital raising
incentive compensation charge was $2.1 million on a pretax basis, $1.2 million
on an after-tax basis and $392,000 on an after-tax cash basis. U.S. Concrete
recognized this charge as an expense in the second quarter of 2001.
In the second quarter of 1999, U.S. Concrete recorded a $2.9 million
noncash charge for 400,000 shares of its common stock issued in December 1998
and March 1999 to management and nonemployee directors at a nominal cost.
33
Litigation Charges
In September 2001, U.S. Concrete and Central entered into a settlement
agreement with Del Webb relating to litigation initiated against U.S. Concrete
and others involving claims of defective concrete provided by Central for use in
a large, single-family home tract-construction project in Northern California.
Under the settlement agreement, U.S. Concrete agreed to accept a back charge in
the amount of $608,000 from Del Webb and pay an additional $2.2 million to Del
Webb. U.S. Concrete recorded the $608,000 and $2.2 million charges as selling,
general and administrative expenses in the second and third quarters,
respectively, of 2001. See Note 12 for additional information.
5. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is as follows (dollars in
thousands):
Useful December 31
Lives in ------------------------
Years 2001 2000
--------- ---------- ---------
Land ................................... -- $ 15,182 $ 12,657
Buildings and improvements ............. 10-40 11,773 5,395
Machinery and equipment ................ 10-30 40,822 35,880
Mixers, trucks and other vehicles ...... 6-12 53,785 45,496
Furniture and fixtures ................. 3-10 1,397 1,075
Construction in progress ............... -- 3,194 1,010
---------- ---------
126,153 101,513
Less: accumulated depreciation ......... (25,844) (18,520)
---------- ---------
$ 100,309 $ 82,993
========== =========
6. 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
---------------------------------------
2001 2000 1999
--------- --------- ---------
Balance, beginning of period ........... $ 1,627 $ 730 $ 97
Additions from acquisitions ............ 1,031 1,085 686
Provision for doubtful accounts ........ 2,507 220 118
Uncollectible receivables written off, net
of recoveries ......................... (1,498) (408) (171)
--------- --------- ---------
Balance, end of period ................. $ 3,667 $ 1,627 $ 730
========= ========= =========
Inventory consists of the following (in thousands):
December 31
------------------------
2001 2000
--------- ---------
Raw materials ......................................... $ 5,699 $ 3,768
Pre-cast products ..................................... 6,530 3,210
Building materials for resale ......................... 3,157 1,500
Repair parts .......................................... 1,113 1,016
--------- ---------
$ 16,499 $ 9,494
========= =========
Accounts payable and accrued liabilities consist of the following (in
thousands):
December 31
------------------------
2001 2000
--------- ---------
Accounts payable ...................................... $ 37,568 $ 25,283
Accrued compensation and benefits ..................... 6,449 3,895
Accrued interest ...................................... 1,729 1,890
Accrued income taxes .................................. 2,467 --
Other ................................................. 10,016 5,245
--------- ---------
$ 58,229 $ 36,313
========= =========
34
7. LONG-TERM DEBT
A summary of long-term debt is as follows (in thousands):
December 31
------------------------
2001 2000
--------- ---------
Secured revolving credit facility ............................... $ 68,620 $ 62,000
12.00% senior subordinated notes ................................ 95,000 95,000
Other ........................................................... 155 134
--------- ---------
163,775 157,134
Less: current maturities ................................... (77) (107)
--------- ---------
Long-term debt, net of current maturities ....................... $ 163,698 $ 157,027
========= =========
On August 31, 2001, U.S. Concrete amended and restated its secured
revolving credit facility. The terms of the facility are substantially
unchanged, except that the parties extended the maturity of the facility from
May 2002 to May 2004 and reduced the size of the facility from $200 million to
$188 million. U.S. Concrete 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 leverage ratios, an asset coverage ratio, a minimum net
worth calculation, a limitation on additional indebtedness, lender consent for
acquisitions and a prohibition of cash dividends on U.S. Concrete's 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, 2001, U.S. Concrete had borrowings totaling $68.6
million outstanding under this facility at a weighted average interest cost of
5.1%. At December 31, 2001, U.S. Concrete had $119.4 million of remaining
capacity under this facility, of which it could borrow $16.1 million based on
its leverage ratio at that date; however, its ability to borrow additional
amounts would increase to the extent that it uses the facility 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 require 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 of long-term debt are as follows (in thousands):
Year Ending December 31
- -----------------------
2002............................................................. $ 77
2003............................................................. 61
2004............................................................. 82,209
2005............................................................. 13,571
2006............................................................. 13,571
Thereafter ...................................................... 54,286
--------
Total $163,775
========
8. 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.
35
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, 2001 and 2000, all these warrants remained
outstanding.
Stock Options
U.S. Concrete's 1999 and 2001 incentive plans enable U.S. Concrete to grant
non-qualified options, restricted stock, deferred stock, incentive stock
options, stock appreciation rights and other long-term incentive awards to
employees and nonemployee directors of U.S. Concrete and nonemployee consultants
and other independent contractors who provide services to U.S. Concrete. Options
granted under these plans 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 awards under these plans was 1.8 million (including
594,000 under the 2001 plan) as of December 31, 2001 and 1.0 million as of
December 31, 2000. The board of directors of U.S. Concrete may, in its
discretion, grant additional awards or establish other compensation plans.
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
Granted .............................. 1,179 7.07
Exercised ............................ (17) 6.81
Forfeited ............................ (148) 7.52
-----------
Options outstanding at December 31, 2001 3,414 $ 7.53
===========
Options exercisable at December 31, 2001 955 $ 7.84
===========
Option exercise price range at
December 31, 2001. $6.13 - $8.75
The weighted average remaining contractual life of the options at December
31, 2001 was 8.1 years.
As allowed by SFAS No. 123, "Accounting for Stock-Based Compensation," U.S.
Concrete accounts for stock option awards in accordance with APB Opinion No. 25.
The exercise prices of all options U.S. Concrete awarded during 2001 and 2000
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 2001
and 2000 would have been the following pro forma amounts (in thousands, except
per share amounts):
Year Ended December 31
--------------------------------------
Net income 2001 2000 1999
-------- -------- --------
As reported.................... $ 9,545 $ 16,860 $ 8,190
======== ======== ========
Pro forma...................... $ 8,117 $ 16,076 $ 7,699
======== ======== ========
Diluted earnings per share
As reported.................... $ 0.39 $ 0.78 $ 0.70
======== ======== ========
Pro forma...................... $ 0.33 $ 0.74 $ 0.65
======== ======== ========
36
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
-----------------------------------
2001 2000 1999
------- -------- --------
Expected dividend yield............... 0.0 % 0.0 % 0.0 %
Expected stock price volatility....... 54.2 % 48.2 % 54.7 %
Risk-free interest rate............... 5.0 % 5.0 % 6.0 %
Expected life of options.............. 10 years 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.
9. 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 provisions are as
follows (in thousands):
Year Ended December 31
--------------------------------
2001 2000 1999
-------- -------- --------
Current:
Federal ............................. $ 2,346 $ 7,617 $ 6,398
State ............................... 431 1,122 498
-------- -------- --------
2,777 8,739 6,896
-------- -------- --------
Deferred:
Federal ............................. 4,532 2,646 700
State ............................... 349 365 62
-------- -------- --------
4,881 3,011 762
-------- -------- --------
$ 7,658 $ 11,750 $ 7,658
======== ======== ========
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
--------------------------------
2001 2000 1999
-------- -------- --------
Tax at statutory rate .................. $ 6,021 $ 10,013 $ 5,547
Add (deduct):
State income taxes .................. 507 967 364
Nondeductible expenses .............. 1,068 960 405
Nondeductible compensation charge ... -- -- 1,008
Income taxed to former Central
owners ............................. -- -- (590)
Deferred tax charge for S
Corporation taxes .................. -- -- 924
Other ............................... 62 (190) --
-------- -------- --------
Income tax provision ................... $ 7,658 $ 11,750 $ 7,658
======== ======== ========
Effective income tax rate .............. 44.5% 41.1% 48.3%
======== ======== ========
37
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
--------------------
2001 2000
-------- --------
Deferred income tax liabilities:
Property and equipment, net ..................... $ 14,149 $ 10,407
Goodwill ........................................ 4,206 1,689
Other ........................................... 2,568 1,816
Total deferred income tax liabilities ....... 20,923 13,912
-------- --------
Deferred income tax assets:
Allowance for doubtful accounts ................. 752 433
Accrued expenses ................................ 1,099 1,220
Other ........................................... 406 424
-------- --------
Total deferred income tax assets ............ 2,257 2,077
-------- --------
Net deferred income tax liabilities ..... $ 18,666 $ 11,835
======== ========
December 31
--------------------
2001 2000
-------- --------
Allowance for doubtful accounts .................... $ 752 $ 433
Accrued expenses ................................... 1,099 1,220
-------- --------
Current portion of deferred income tax
assets ......................................... 1,851 1,653
Net deferred income tax liabilities ............. 18,666 11,835
-------- --------
Long-term portion of net deferred income
tax liabilities ............................ $ 20,517 $ 13,488
======== ========
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.
10. RELATED-PARTY TRANSACTIONS
U.S. Concrete enters into 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.
On completion of its acquisition of Beall Industries, Inc. and four related
companies in February 2000, U.S. Concrete entered into eight new facilities
leases with their former stockholders or affiliates of those stockholders. The
leases generally provide for initial lease terms of five years, with three
five-year renewal options U.S. Concrete may exercise. U.S. Concrete must pay an
aggregate of $250,800 in current annual rent during the initial terms of these
leases. Robert S. Beall, a former owner of these companies, beneficially owns
more than 5% of the outstanding shares of U.S. Concrete's common stock.
On completion of its IPO, U.S. Concrete entered into new facilities leases,
or extended existing leases, with former stockholders or affiliates of former
stockholders of Central and Eastern Concrete Materials, Inc. (formerly known as
Baer Concrete, Incorporated). Those leases generally provide for initial lease
terms of 15 to 20 years, with one or more extension options U.S. Concrete may
exercise. The following summarizes the current annual rentals U.S. Concrete must
pay during the initial lease terms:
Number of Aggregate
Facilities Annual Rentals
---------- --------------
Central......................................... 2 $300,000
Eastern......................................... 2 285,000
38
William T. Albanese, a former owner of Central, and Michael D. Mitschele,
the former owner of Eastern, are members of U.S. Concrete's board of directors.
U.S. Concrete's related party leases are for periods generally ranging from
three to 20 years. Aggregate lease payments under these leases were
approximately $2.8 million in 2001, $2.0 million in 2000, and $607,000 in 1999.
The schedule of minimum lease payments in Note 12 includes U.S. Concrete's
future commitments under these leases.
Central purchased building materials from a company owned by two trusts of
which William T. Albanese and Thomas J. Albanese are co-trustees. Central's
purchases from this company totaled $310,000, $122,000 and $233,000 in 2001,
2000 and 1999, respectively. U.S. Concrete believes the amounts it paid for
these building materials were fair and substantially equivalent to amounts it
would have paid to an unaffiliated third party. Both trusts sold their interest
in this company in early 2002.
Central sold ready-mixed concrete to a company owned by a cousin of Messrs.
Albanese and Albanese. Central's sales to this company totaled $15.8 million,
$15.4 million and $13.5 million in 2001, 2000 and 1999, respectively. U.S.
Concrete believes the amounts it received for this ready-mixed concrete were
fair and substantially equivalent to amounts it would have received from an
unaffiliated third party.
Beall Concrete Enterprises, Ltd., one of U.S. Concrete's subsidiaries,
purchases aggregates from time to time from a company that Robert S. Beall has
controlled since June 2001. Beall Concrete Enterprise's purchases from this
company totaled $119,327 in 2001. U.S. Concrete believes the amount it paid for
these purchases was fair and substantially equivalent to amounts it would have
paid to an unaffiliated third party.
Robert S. Beall purchased ready-mixed concrete from Beall Concrete
Enterprises during 2001 in the amount of $118,792 in connection with the
development of a real estate project. U.S. Concrete believes the amounts it
received for this ready-mixed concrete were fair and substantially equivalent to
amounts it would have received from an unaffiliated third party.
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 extended loans of $175,000 to Mr. Martineau, its chief
executive officer and one of its directors, and $125,000 to Mr. Harlan, its
chief financial officer and one of its directors. These amounts were outstanding
under the loans at December 31, 2001. U.S. Concrete subsequently forgave these
loans in 2002. The expense related to the forgiveness of these loans was
recorded by U.S. Concrete in 2001. The loans, which were payable in full on
March 1, 2005, did not bear interest.
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
$213,000, $403,000 and $180,000 in 2001, 2000 and 1999, respectively, for
reimbursement of expenses related to U.S. Concrete's acquisition program and
certain financings.
In March 2001, U.S. Concrete modified its non-compete arrangements with
Neil J. Vannucci, one of its directors. U.S. Concrete originally established
these arrangements in the acquisition agreement for Bay Cities Building
Materials Co., Inc., of which he is a former stockholder. The modifications
further limit Mr. Vannucci's right to compete against U.S. Concrete in exchange
for three annual cash payments of $138,000 each to Mr. Vannucci or a designate
of Mr. Vannucci, of which U.S. Concrete paid $92,000 in 2001.
Effective April 2001, U.S. Concrete granted incentive compensation to Mr.
Foster, the Chairman of its Board, in the amount of 5,400 unrestricted shares of
its common stock, valued at $7.19 per share, and $25,900 in cash in recognition
of the overall contribution made by Mr. Foster to its various 2001 capital
raising initiatives.
T. William Porter, a member of U.S. Concrete's board of directors, is the
Chairman of Porter & Hedges, L.L.P., a Houston, Texas law firm. Porter & Hedges,
L.L.P. performed some legal services for U.S. Concrete in 2001, however the
amount of fees paid to them was not material.
39
In September 2001, U.S. Concrete issued 12,000 restricted shares of its
common stock, valued at $7.97 per share, to Mr. Porter for nominal consideration
and paid to Mr. Porter $64,000 in connection with his election to its board.
11. 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, 2001.
12. COMMITMENTS AND CONTINGENCIES
Litigation and Other Claims
Bay-Crete Transportation & Materials, LLC alleges in a lawsuit it filed on
July 11, 2000 in California Superior Court in San Mateo County, against U.S.
Concrete's subsidiary, Central, and U.S. Concrete 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 81 years. Central
and U.S. Concrete 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 U.S. Concrete believe they have meritorious defenses
to Bay-Crete's claim and intend to vigorously defend this suit.
In September 2001, U.S. Concrete entered into a settlement agreement
relating to a complaint that Del Webb California Corp. filed on June 29, 2001 in
the Superior Court of the State of California for the County of Sacramento
against one of its subsidiaries, Central, and two other companies. The complaint
related to concrete produced by Central and delivered for use in a large,
single-family home tract-construction project in northern California. The
complaint (1) alleged various causes of action relating to concrete that Central
manufactured using a batch mix that did not meet Del Webb's specifications and
(2) sought relief including damages of at least $7 million. Under the settlement
agreement entered into among the plaintiff and its parent company, Central, U.S.
Concrete and one of the other defendants in the case, Central agreed to accept a
back charge in the amount of $608,000 from Del Webb, effectively eliminating a
receivable from Del Webb in that amount, and pay an additional $2.2 million to
Del Webb. In connection with the settlement, Central, U.S. Concrete and the
other settling defendant also entered into a two-year supply agreement with Del
Webb to continue to provide concrete for use in Del Webb's project in northern
California at an agreed-to selling price adjustment from the price charged by
Central (which U.S. Concrete believes approximates the discount it would provide
for a contract with similar volume). In December 2001, the Superior Court
determined that the parties entered into the settlement in good faith and the
matter was concluded. U.S. Concrete recorded the $608,000 and $2.2 million
charges as selling, general and administrative expenses in the second and third
quarters, respectively, of 2001.
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 believes that the resolution of all litigation currently
pending or threatened against it or any of its subsidiaries (including the
dispute with Bay-Crete described above) will not have a material adverse effect
on its business or financial condition; however, because of the inherent
uncertainty of litigation, U.S. Concrete cannot assure you 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
40
operations for the fiscal period in which that resolution occurs. U.S. Concrete
expects in the future it will from time to time be a party to litigation or
administrative proceedings which arise in the normal course of its business.
Lease Payments
U.S. Concrete leases tracts of land, facilities and equipment it uses in
its operations. Rental expense under operating leases was $11.1 million, $5.5
million and $2.0 million in 2001, 2000 and 1999, respectively. Minimum future
annual lease payments under U.S. Concrete's noncancellable leases are as follows
(in thousands):
Year Ending
December 31
-----------
2002 ............................................. $ 10,544
2003 ............................................. 7,991
2004 ............................................. 6,454
2005 ............................................. 4,733
2006 ............................................. 3,892
Thereafter ....................................... 8,952
----------
$ 42,566
==========
Insurance Programs
U.S. Concrete maintains third-party insurance coverage in amounts and
against the risks it believes are reasonable. Under certain components of its
insurance program, U.S. Concrete shares the risk of loss with its insurance
underwriters by maintaining high deductibles subject to aggregate annual loss
limitations. U.S. Concrete funds these deductibles and records an expense for
expected losses under the programs. The expected losses are determined using a
combination of U.S. Concrete's historical loss experience and subjective
assessments of U.S. Concrete's future loss exposure.
Underwriting Arrangement
In January 2002, U.S. Concrete entered into an underwriting agreement that
allows U.S. Concrete to issue a limited number of shares of its common stock
through an underwriter over a two-year period. To the extent that U.S. Concrete
does not raise a minimum amount through the issuance of equity under this
agreement over its two-year term, it would be required to pay the underwriter up
to $100,000 in stand-by fees.
13. SIGNIFICANT CUSTOMERS
Significant customers are defined as those customers who comprised greater
than 10% of a company's revenues in a given period. U.S. Concrete did not have
any significant customers during 2001, 2000 or 1999.
14. SIGNIFICANT SUPPLIERS
Significant suppliers are defined as those suppliers who comprised greater
than 10% of a company's cost of goods sold in a given period. Significant
suppliers represented purchases (as a percentage of total cost of goods sold) as
follows:
Year Ended December 31
---------------------
2001 2000 1999
------ ------ -----
Supplier A ................... 11.7% 10.9% 23.3%
Supplier B ................... 0.7 5.0 17.4
15. 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 IRS regulations permit. U.S. Concrete
matches 100% of employee contributions up to a maximum of 5% of their
compensation. U.S. Concrete paid matching contributions of $1.9 million during
2001 and $865,000 during 2000.
41
U.S. Concrete maintained defined contribution profit-sharing and money
purchase pension plans for the non-union employees of certain of its companies
for the period from their acquisition by U.S. Concrete through the date that
those companies adopted the U.S. Concrete 401(k) plan. Contributions made to
these plans were approximately $143,000, $0 and $816,000 in 2001, 2000 and 1999,
respectively.
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. During 2001, Carrier
Excavation and Foundation Company, a subsidiary of U.S. Concrete, withdrew from
the multi-employer pension plan of the union that represented various of its
employees. That union disclaimed interest in representing those employees. U.S.
Concrete has no plans to withdraw from any other multi-employer plans. 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, including with respect to Carrier's plan withdrawal, are not
ascertainable at this time. U.S. Concrete made contributions to these plans of
$10.9 million in 2001, $9.0 million in 2000 and $4.2 million in 1999.
16. SELECTED QUARTERLY FINANCIAL INFORMATION (unaudited; in thousands, except per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
2001
Sales ........................ $ 89,878 $136,299 $138,587 $128,827
Income from operations ....... 1,666 13,408 11,883 8,980
Net income (loss) ............ (1,827) 4,982 3,785 2,605
Basic earnings (loss) per share (0.08) 0.21 0.15 0.10
Diluted earnings (loss) per share (0.08) 0.21 0.15 0.10
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
17. SUBSEQUENT EVENTS
Acquisitions
From January 1 through March 15, 2002, U.S. Concrete acquired one business.
The aggregate consideration it paid in this transaction consisted of $17.1
million in cash and was funded by U.S. Concrete's secured credit facility.
42
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 2002 Annual Meeting of Stockholders. We intend to file that definitive proxy
statement with the SEC by April 30, 2002.
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 2002 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 2002
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 2002 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 2002 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 page 20.
(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
- --------- ------------
3.1*--Restated Certificate of Incorporation of U.S. Concrete (Form S-1
(Reg. No. 333-74855), Exhibit 3.1).
3.2*--Amended and Restated Bylaws of U.S. Concrete, as amended (Post
Effective Amendment No. 1 to Form S-3 (Reg. No. 333-42860), Exhibit
4.2).
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).
43
Exhibit
Number Description
- --------- ------------
4.1*--Amended and Restated Credit Agreement, dated as of August 31, 2001,
among U.S. Concrete, the Guarantors named therein, the Lenders named
therein, The Chase Manhattan Bank, as administrative agent, Credit
Lyonnais New York Branch and First Union National Bank, as
syndication agents, Branch Banking & Trust Company, as documentation
agent, and J.P. Morgan Securities, Inc., as sole bookrunner and lead
arranger. (Form 10-Q for the quarter ended September 30, 2001 (File
No. 000-26025), Exhibit 4.1).
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.
4.2*--Form of certificate representing common stock (Form S-1 (Reg. No.
333-74855), Exhibit 4.3).
4.3*--Rights Agreement by and between U.S. Concrete and American Stock
Transfer & Trust Company, including form of Rights Certificate
attached as Exhibit B thereto (Form S-1 (Reg. No. 333-74855), Exhibit
4.4).
4.4---First Amendment to Note Purchase Agreement, dated November 30, 2001,
among U.S. Concrete, Inc., The Prudential Insurance Company of
America, Metropolitan Life Insurance Company, Teachers Insurance &
Annuity Association, Connecticut General Life Insurance Company,
Allstate Life Insurance Company, Allstate Life Insurance Company of
New York and Southern Farm Bureau Life Insurance Company.
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).
10.14*-- Promissory Note, dated March 2, 2000, issued by Michael W. Harlan to
U.S. Concrete, Inc. (Form 10-K for the year ended December 31, 2001
(File No. 000-26205), Exhibit 10.14).
10.15*-- Promissory Note, dated March 2, 2000, issued by Eugene P. Martineau
to U.S. Concrete, Inc. (Form 10-K for the year ended December 31,
2001 (File No. 000-26205), Exhibit 10.15).
10.16*-- Agreement, dated March 15, 2000, between U.S. Concrete, Inc. and Neil
J. Vannucci (Form 10-K for the year ended December 31, 2001 (File No.
000-26205), Exhibit 10.16).
10.17*-- Underwriting Agreement, dated July 12, 2001, between U.S. Concrete
and BB&T Capital Markets, a division of Scott & Stringfellow, Inc.
(Form 8-K dated July 13, 2001 (File No. 000-26025), Exhibit 1.1).
10.18*-- Flexible Underwritten Equity FaciLity (FUEL(R)) Agreement dated as of
January 7, 2002 between Ramius Securities, LLC and U.S. Concrete
(Form S-3 (Reg. No. 333-42860), Exhibit 1.2).
10.19*-- Amended and restated engagement letter agreement dated as of January
18, 2002 between Credit Lyonnais Securities (USA) Inc. and U.S.
Concrete (Form S-3 (Reg. No. 333-42860), Exhibit 1.3).
44
Exhibit
Number Description
- --------- ------------
21--Subsidiaries
23--Consent of independent public accountants.
99--Letter to SEC regarding Arthur Andersen quality control system.
- --------
* Incorporated by reference to the filing indicated.
+ Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
None
45
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 22, 2002
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 22, 2002.
Signature Title
----------------------------- --------------------------------------
/s/ EUGENE P. MARTINEAU President and Chief Executive Officer
----------------------------- and Director (Principal Executive
Eugene P. Martineau Officer)
/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/ WILLIAM T. ALBANESE Director
-----------------------------
William T. Albanese
/s/ JOHN R. COLSON Director
-----------------------------
John R. Colson
/s/ MICHAEL D. MITSCHELE Director
-----------------------------
Michael D. Mitschele
/s/ T. WILLIAM PORTER Director
-----------------------------
T. William Porter
/s/ MURRAY S. SIMPSON Director
-----------------------------
Murray S. Simpson
/s/ NEIL J. VANNUCCI Director
-----------------------------
Neil J. Vannucci
/s/ ROBERT S. WALKER Director
-----------------------------
Robert S. Walker
46