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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, 2002
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 of (I.R.S. Employer
incorporation or organization) Identification Number)
2925 Briarpark, Suite 500, Houston, Texas 77042
(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code: (713) 499-6200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001
(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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes [X] No [ ]
As of March 25, 2003, there were 28,042,573 shares of common stock, par
value $.001 per share, of the registrant issued and outstanding, 21,422,593 of
which, having an aggregate market value of $94,687,861, based on the closing
market price of $4.42 per share of the common stock of the registrant reported
on the Nasdaq National 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 2003 Annual
Stockholders Meeting are incorporated by reference into Part III of this report.
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TABLE OF CONTENTS
PAGE
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PART I
Items 1 and 2. Business and Properties.................................................................. 2
Cautionary Statement Concerning Forward-Looking Statements............................... 12
Item 3. Legal Proceedings........................................................................ 13
Item 4. Submission of Matters to a Vote of Security Holders...................................... 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................... 14
Item 6. Selected Financial Data.................................................................. 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................... 25
Item 8. Financial Statements and Supplementary Data.............................................. 26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.............................................................................. 50
PART III
Item 10. Directors and Executive Officers of the Registrant....................................... 51
Item 11. Executive Compensation................................................................... 51
Item 12. Security Ownership of Certain Beneficial Owners and Management........................... 51
Item 13. Certain Relationships and Related Transactions........................................... 51
Item 14. Controls and Procedures.................................................................. 51
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................... 52
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 facts, are
forward-looking statements under the Private Securities Litigation Reform Act of
1995. These forward-looking statements are subject to various risks,
uncertainties and assumptions, including those to which we refer under the
heading "Cautionary Statement Concerning Forward-Looking Statements" following
Items 1 and 2 of Part I of this report.
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
GENERAL
U.S. Concrete provides ready-mixed concrete and related products and
services to the construction industry in several major markets in the United
States. As of March 25, 2003, we have 89 fixed and seven portable ready-mixed
concrete plants, eight pre-cast concrete plants, three concrete block plants and
one aggregates quarry. During 2002, these facilities produced approximately 5.4
million cubic yards of ready-mixed concrete, 7.1 million eight-inch equivalent
block units and 1.2 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 businesses and began operating 26
fixed concrete plants in three major markets in the United States. Since our IPO
and through March 25, 2003, we have acquired an additional 23 ready-mixed
concrete and related businesses, and are operating an additional 63 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
General
Annual usage of ready-mixed concrete in the United States remains near
record levels. According to information available from the National Ready-Mixed
Concrete Association and F.W. Dodge, total sales from the production and
delivery of ready-mixed concrete in the United States over the past three years
are as follows (in millions):
2000......................... $ 26,629
2001......................... $ 27,137
2002......................... $ 26,971
According to F.W. Dodge data, the four major segments of the construction
industry accounted for the following approximate percentages of the total volume
of ready-mixed concrete produced in the United States in 2002:
Residential construction.................................. 27%
Commercial and industrial construction.................... 20%
Street and highway construction and paving................ 21%
Other public works and infrastructure construction........ 32%
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Total................................................ 100%
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Ready-mixed concrete is a versatile, low-cost manufactured material the
construction industry uses in substantially all its projects. It is a stone-like
compound that results from combining coarse and fine aggregates, such as gravel,
crushed stone and sand, with water, various admixtures and cement. Ready-mixed
concrete can be manufactured in thousands of variations, which in each instance
may reflect a specific design use. Manufacturers of ready-mixed concrete
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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
homebuilders. 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, approximately 3,000
independent concrete producers currently operate a total of approximately 6,000
plants in the United States. Larger markets generally have numerous producers
competing for business on the basis of price, timing of delivery and reputation
for quality and service. 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.
For a discussion of the seasonality of the ready-mixed concrete industry
generally, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Factors That May Affect Our Future Operating Results" in
Item 7 of this report.
Significant Factors Impacting the Market for Ready-Mixed Concrete
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.
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;
. flowable fill for backfill applications;
. continuous-slab rail-support systems for rapid transit and heavy-
traffic rail lines; and
. concrete bridges, tunnels and other structures for rapid transit
systems.
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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.
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 on a selective basis 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,
Tennessee/Northern Mississippi, Northern New Jersey/Southern New York,
Knoxville, Tennessee 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.
. 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 25, 2003, we have entered into
new geographic markets in: San Diego, California; North Texas/Southwest
Oklahoma; Memphis, Tennessee/Northern Mississippi; Knoxville,
Tennessee; Phoenix, Arizona; 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;
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. 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.
We have formed strategic alliances with several national specialty chemical
product and engineering software companies to provide alternative concrete
solutions for designers and contractors using value-added products. Through
these alliances, we can offer color conditioned, fiber reinforced and high
performance concretes, as well as advanced software technology that can be
utilized to design buildings constructed of reinforced concrete. We believe the
design software provides opportunities to expand uses of structural concrete in
office and institutional buildings to better compete with structural steel. With
each of these initiatives, we are seeking to enhance our product offering,
capabilities and services, penetrate new market segments, increase market demand
for our products and provide economical solutions to our customers. We train our
sales professionals in the application of these technologies and intend to
expand our promotion of these advanced technologies as we seek to advance
concrete as the preferred building material of choice.
. Achieving Cost Efficiencies. We strive over time to reduce operating
expenses of the businesses we acquire. We believe that, as we continue
to increase in size on both a local market and national level, we
should experience cost savings in such areas as:
. materials through procurement and optimized mix design;
. purchases of mixer trucks and other equipment, spare parts and
tools;
. vehicle and equipment maintenance; and
. insurance and other risk management programs.
PRODUCTS AND SERVICES
Ready-Mixed Concrete. Our ready-mixed concrete products consist of
proportioned mixes we prepare and deliver in unhardened plastic states for
placement and shaping into their designed forms. Selecting the optimum mix for a
job entails determining not only the ingredients that will produce the desired
permeability, strength, appearance and other properties of the concrete after it
has hardened and cured, but also the ingredients necessary to achieve a workable
consistency considering the weather and other conditions at the job site. We
believe we can achieve product differentiation for the mixes we offer because of
the variety of mixes we can produce, our volume production capacity and our
scheduling, delivery and placement reliability. We also believe we distinguish
ourselves with our value-added service approach that emphasizes reducing our
customers' overall construction costs by lowering the installed, or in-place,
cost of concrete and the time required for construction.
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;
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. quality control, through automated production and laboratory testing,
that ensures consistent results and minimizes the need to correct
completed work; and
. 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.
Pre-Cast Concrete. We produce pre-cast concrete products at five of our
Northern California plants, at one of our Delaware 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. Our pre-cast
operations in Northern California and Delaware are located near our ready-mixed
concrete operations.
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.
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. Production at this site during 2002 was
approximately 1.2 million tons of aggregates, and we estimate the quarry has
approximately 45 million tons of remaining mineral reserves. We acquired this
quarry in January 2002 principally to expand our market presence in Northern New
Jersey and to provide crushed stone aggregates to third party customers as well
as our existing ready-mixed concrete operations in that market.
OPERATIONS
The businesses we have acquired have made substantial capital investments
in equipment, systems and personnel 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.
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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 mobile-plant operations deploy our seven 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 25, 2003, we operated 14 wet batch plants and 75 dry batch plants.
The market primarily will drive our future plant decisions. The relevant
market factors include:
. the expected production demand for the plant;
. the expected types of projects the plant will service; and
. the desired location of the plant.
Generally, plants intended primarily to serve high-volume, commercial or
public works projects will be wet batch plants, while plants intended primarily
to serve low-volume, residential construction projects will be dry batch plants.
From time to time, we also may use portable plants, which include both wet batch
and dry batch facilities, to service large, long-term jobs and jobs in remote
locations.
The batch operator in a dry batch plant simultaneously loads the dry
components of stone, sand and cement with water and admixtures in a mixer truck
that begins the mixing process during loading and completes that process while
driving to the job site. In a wet batch plant, the batch operator blends the dry
components and water in a plant mixer from which he loads the already mixed
concrete into the mixer truck, which leaves for the job site promptly after
loading.
Mixer trucks slowly rotate their loads on route to job sites in order to
maintain product consistency. A mixer truck typically has a load capacity of 10
cubic yards, or approximately 20 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 usually require refurbishment after three to
nine years. A new truck of this size currently costs approximately $130,000. At
March 25, 2003, we operated a fleet of approximately 944 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
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communication with the contractor concerning the status of the job and any
changes in the job's specifications in order to coordinate the multi-sourced
purchases of cement and other materials we will need to fill the job order and
meet the contractor's delivery requirements. We confirm that our customers are
ready to take delivery of manufactured product throughout the placement process.
On any given day, a particular plant may have production orders for dozens of
customers at various locations throughout its area of operation. To fill an
order:
. the customer service office coordinates the timing and delivery of the
concrete to the job site;
. a load operator supervises and coordinates the receipt of the necessary
raw materials and operates the hopper that dispenses those materials
into the appropriate storage bins;
. a batch operator, using a computerized batch panel, prepares the
specified mixture from the order and oversees the loading of the mixer
truck with either dry ingredients and water in a dry batch plant or the
already-mixed concrete in a wet batch plant; and
. the driver of the mixer truck delivers the load to the job site,
discharges the load and, after washing the truck, departs at the
direction of the dispatch office.
The central dispatch system tracks the status of each mixer truck as to
whether a particular truck is:
. loading concrete;
. in route to a particular job site;
. on the job site;
. discharging concrete;
. being washed; or
. in route to a particular plant.
The system is updated continuously via signals received from the individual
truck operators as to their status. In this manner, the dispatcher can determine
the optimal routing and timing of subsequent deliveries by each mixer truck and
monitor the performance of each driver.
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
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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 2002 sales, we made approximately 37% to commercial and industrial
construction contractors, approximately 41% to residential construction
contractors, approximately 13% to street and highway construction contractors
and approximately 9% to other public works and infrastructure contractors. In
2002, 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 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. 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
As of March 25, 2003, we had approximately 429 salaried employees,
including executive officers and management, sales, technical, administrative
and clerical personnel, and approximately 1,539 hourly personnel, including
truck drivers, we generally employ on an as-needed basis. The number of
employees fluctuates depending on the number and size of projects ongoing at any
particular time, which may be impacted by variations in weather conditions
throughout the year.
As of March 25, 2003, approximately 844 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.
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FACILITIES AND EQUIPMENT
As of March 25, 2003, we operated a fleet of approximately 944 owned and
leased mixer trucks and 596 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 6.1
years.
The table below summarizes the operations at our facilities at March 25,
2003. We believe that these facilities are sufficient for our immediate needs.
The ready-mixed volumes in the table represent the 2002 volumes produced by each
location.
READY-MIXED
CONCRETE
READY-MIXED CONCRETE PLANTS VOLUME
------------------------------------- (IN THOUSANDS
PRE-CAST BLOCK OF CUBIC
LOCATIONS: FIXED PORTABLE TOTAL PLANTS PLANTS YARDS)
---------- --------- --------- --------- -------- --------- --------------
Northern California..... 20 2 22 5 -- 1,931
Atlantic Region......... 26 2 28 1 2 1,412
North Texas/Southwest
Oklahoma.............. 15 3 18 -- -- 813
Michigan................ 13 -- 13 -- 1 854
Tennessee/Northern
Mississippi........... 15 -- 15 -- -- 412
Southern California
Arizona............... -- -- -- 2 -- --
--------- --------- --------- -------- --------- --------------
89 7 96 8 3 5,422
========= ========= ========= ======== ========= ==============
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. These laws are complex and
subject to frequent change. They impose strict liability in some cases without
regard to negligence or fault. Sanctions for noncompliance may include
revocation of permits, corrective action orders, administrative or civil
penalties and criminal prosecution. Some environmental laws provide for joint
and several strict liability for remediation of spills and releases of hazardous
substances. In addition, businesses may be subject to claims alleging personal
injury or property damage as a result of alleged exposure to hazardous
substances, as well as damage to natural resources. These laws also may expose
us to liability for the conduct of or conditions caused by others, or for acts
that complied with all applicable laws when performed. We have conducted Phase I
investigations to assess environmental conditions on substantially all the real
properties we own or lease and have engaged independent environmental consulting
firms in that connection. We have not identified any environmental concerns we
believe are likely to have a material adverse effect on our business, financial
position, results of operations or cash flows, but 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.
10
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 2002. We currently do not anticipate any material
adverse effect on our business, financial position, results of operations or
cash flows as a result of our future compliance with existing environmental laws
controlling the discharge of materials into the environment.
PRODUCT WARRANTIES
Our operations involve providing ready-mixed and other concrete
formulations that must meet building code or other regulatory requirements and
contractual specifications for durability, stress-level capacity, weight-bearing
capacity and other characteristics. If we fail or are unable to provide product
meeting these requirements and specifications, material claims may arise against
us and our reputation could be damaged.
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.
AVAILABLE INFORMATION
Our website address is www.us-concrete.com. We make available on this
website under "Investor Relations-Financial Information-Publications," free of
charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to those reports as soon as reasonably
practicable after we electronically file those materials with, or furnish those
materials to, the SEC.
11
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;
. sustained adverse weather conditions that delay or adversely affect our
ability to deliver concrete or the construction projects of our
customers;
. our ability to control costs and maintain quality; and
. our exposure to warranty claims from developers and other customers.
12
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 Concrete Supply Co., Inc., 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 80
years. Central and we each filed an answer and cross-complaint in August 2000,
seeking (1) declaratory relief for a determination that Bay-Crete is not
entitled to use the contract and (2) 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. We
withdrew our cross-complaint in September 2002 for procedural reasons. Central's
cross-compliant is still pending. Central and we believe we have meritorious
defenses to Bay-Crete's claim and intend to vigorously defend this suit. The
trial date is set for May 2003.
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, financial position, results of operations or cash flows; 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 that 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 2002.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the Nasdaq National Market under the symbol
"RMIX." As of March 25, 2003, 28,042,573 shares of our common stock were
outstanding, held by approximately 928 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 last reported bid price for our common stock on the Nasdaq National
Market on March 25, 2003 was $4.42 per share. The following table sets forth,
for the periods indicated, the range of high and low sales prices for our common
stock:
2002 2001
--------------------- ----------------------
High Low High Low
---------- --------- ---------- ----------
First Quarter........... $ 7.29 $ 6.15 $ 9.13 $ 6.13
Second Quarter.......... 7.08 5.49 9.25 7.17
Third Quarter........... 6.72 4.39 8.51 6.65
Fourth Quarter.......... 5.80 4.20 7.45 5.73
We have not paid or declared any dividends since our formation and
currently intend to retain earnings to fund our working capital. Information
concerning restrictions on the payment of cash dividends is included in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" in Item 7 of this report and Note 9
to our Consolidated Financial Statements in Item 8 of this report.
The following table summarizes as of December 31, 2002, certain information
regarding equity compensation to our employees, officers, directors and other
persons under our equity compensation plans:
NUMBER OF SECURITIES
REMAINING AVAILABLE
NUMBER OF FOR FUTURE ISSUANCE
SECURITIES TO BE WEIGHTED UNDER EQUITY
ISSUED UPON AVERAGE COMPENSATION PLANS
EXERCISE OF EXERCISE PRICE (EXCLUDING
OUTSTANDING OF OUTSTANDING SECURITIES REFLECTED
STOCK OPTIONS STOCK OPTIONS IN COLUMN (A))
PLAN CATEGORY (A) (B) (C)
- ---------------------------------------------------- ----------------- ----------------- ---------------------
Equity compensation plans approved by
security holders (1)............................. 2,947,491 $ 7.44 1,106,151
Equity compensation plans not approved by
security holders (2)(3).......................... 1,147,252 $ 6.65 203,962
----------------- ---------------------
Total............................................. 4,094,743 1,310,113
================= =====================
(1) The number of shares of common stock available for issuance under our 1999
Incentive Plan at any time is 15% of the number of shares of common stock
issued and outstanding on the last day of the immediately preceding quarter.
(2) The number of shares of common stock available for issuance under our 2001
Employee Incentive Plan at any time is 5% of the number of shares of common
stock issued and outstanding on the last day of the immediately preceding
quarter.
(3) Our board adopted the U.S. Concrete, Inc. 2001 Employee Incentive Plan in
February 2001. The purpose of this plan is to attract, retain and motivate
employees of and consultants to U.S. Concrete, to encourage a sense of
propriety of those persons in our company and to stimulate an active
interest of those persons in the development and financial success of our
company. Awards may be made to any employee of U.S. Concrete and to any
consultant to U.S. Concrete. The plan provides for grants of incentive stock
options, nonqualified stock options, stock appreciation rights, restricted
stock and other long-term incentive awards. No officers or directors of U.S.
Concrete are eligible to participate in the plan.
14
ITEM 6. SELECTED FINANCIAL DATA
We acquired one business in 2002, seven businesses in 2001, six businesses
in 2000 and 14 businesses in 1999 (including our initial six acquisitions), all
of which we have accounted for under the purchase method of accounting (see Note
4 to our Consolidated Financial Statements in Item 8 of this report). 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. 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 for the year ended December 31, 1998, derives from the audited financial
statements of Central.
The consolidated financial statements for 1998 through 2001 were audited by
Arthur Andersen LLP ("Arthur Andersen"), which has ceased operations. A copy of
the auditor's report previously issued by Arthur Andersen on our financial
statements as of December 31, 2001 and 2000 and for each of the three years in
the period ended December 31, 2001 is included elsewhere in this report. Arthur
Andersen did not reissue its report.
YEAR ENDED DECEMBER 31
----------------------------------------------------------------------
2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
(in thousands, except per share amounts)
STATEMENT OF OPERATIONS INFORMATION:
Sales......................................... $ 503,314 $ 493,591 $ 394,636 $ 167,912 $ 66,499
Cost of goods sold............................ 404,376 396,769 314,297 135,195 53,974
---------- ---------- ---------- ---------- ----------
Gross profit................................ 98,938 96,822 80,339 32,717 12,525
Selling, general and administrative expenses.. 47,254 44,933 27,741 9,491 4,712
Special compensation charges.................. -- 2,124 -- 2,880 --
Restructuring and impairments................. 28,440 -- -- -- --
Depreciation, depletion and amortization...... 10,734 13,828 11,212 3,453 930
---------- ---------- ---------- ---------- ----------
Income from operations...................... 12,510 35,937 41,386 16,893 6,883
Interest expense, net......................... 17,127 19,386 14,095 1,708 165
Other income, net............................. 1,187 652 1,319 663 36
---------- ---------- ---------- ---------- ----------
Income (loss) before income tax provision... (3,430) 17,203 28,610 15,848 6,754
Income tax provision.......................... 608 7,658 11,750 7,658 100
---------- ---------- ---------- ---------- ----------
Income (loss) before cumulative effect of
accounting change......................... (4,038) 9,545 16,860 8,190 6,654
Cumulative effect of accounting change........ (24,328) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss)........................... $ (28,366) $ 9,545 $ 16,860 $ 8,190 $ 6,654
========== ========== ========== ========== ==========
EARNINGS PER SHARE:
Basic and diluted income (loss) per share
before cumulative effect of accounting
change....................................... $ (0.15) $ 0.39 $ 0.78 $ 0.70 $ 2.13
Cumulative effect of accounting change........ (0.91) -- -- -- --
---------- ---------- ---------- ---------- ----------
Basic and diluted income (loss) per share..... $ (1.06) $ 0.39 $ 0.78 $ 0.70 $ 2.13
========== ========== ========== ========== ==========
BALANCE SHEET INFORMATION:
Working capital............................... $ 47,058 $ 46,941 $ 43,185 $ 14,578 $ 7,431
Total assets.................................. 378,362 430,836 357,490 212,734 26,640
Long-term debt, including current maturities.. 161,808 163,775 157,134 57,375 3,530
Total stockholders' equity.................... 161,845 188,315 150,555 110,793 15,154
15
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 facts, 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 most of 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 and
administrative staff. These expenses also include office rent and utilities,
communications expenses and professional fees.
We purchased one business in 2002, seven businesses in 2001, six businesses
in 2000 and 14 businesses in 1999, all of which we have accounted for in
accordance with the purchase method of accounting.
FACTORS THAT MAY AFFECT OUR FUTURE OPERATING RESULTS
Reflecting the levels of construction activity, the demand for ready-mixed
concrete is highly seasonal. Results of any individual quarter are not
necessarily indicative of results to be expected for the year due principally to
the effects that seasonal changes and other weather-related conditions can have
on construction activity, as a result, on our sales and earnings. Normally, we
attain the highest sales and earnings in the second and third quarters and the
lowest sales and earnings in the first quarter.
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;
. sustained adverse weather conditions;
. the availability of short- and long-term financing;
16
. 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 that
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
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.
We are subject to federal, state and local environmental laws and
regulations concerning, among other matters, air emissions and wastewater
discharge. Our management believes we are in substantial compliance with
applicable environmental laws and regulations. From time to time, we receive
claims from federal and state environmental regulatory agencies and entities
asserting that we may be in violation of environmental laws and regulations. On
the basis of our experience and the information currently available, our
management believes these claims will not have a material impact on our
consolidated financial position, results of operations or cash flows. Despite
compliance and experience, it is possible that we could be held liable for
future charges that might be material, but are not currently known or estimable.
In addition, changes in federal or state laws, regulations or requirements or
discovery of currently unknown conditions could require additional expenditures.
We reserved $300,000 for remediation costs in connection with the aggregates
business we acquired in 2002. We currently do not expect the costs of that
remediation to exceed that amount.
17
RESULTS OF OPERATIONS
The following table sets forth selected historical statement of operations
information and that information as a percentage of sales for the years
indicated. Except as noted below, our acquisitions in 2002 and 2001 primarily
account for the changes in 2002 from 2001, and our acquisitions in 2001
primarily account for the changes in 2001 from 2000.
YEAR ENDED DECEMBER 31
----------------------------------------------------------------------------------
2002 2001 2000
------------------------- ------------------------- ------------------------
(dollars in thousands)
Sales................................. $ 503,314 100.0% $ 493,591 100.0% $ 394,636 100.0%
Cost of goods sold.................... 404,376 80.3 396,769 80.4 314,297 79.6
---------- ---------- ---------- ---------- ---------- ---------
Gross profit..................... 98,938 19.7 96,822 19.6 80,339 20.4
Selling, general and administrative
expenses............................. 47,254 9.4 44,933 9.1 27,741 7.0
Special compensation charge........... -- -- 2,124 0.4 -- --
Restructuring and impairments......... 28,440 5.7 -- -- -- --
Depreciation, depletion and
amortization......................... 10,734 2.1 13,828 2.8 11,212 2.9
---------- ---------- ---------- ---------- ---------- ---------
Income from operations........... 12,510 2.5 35,937 7.3 41,386 10.5
Interest expense, net................. 17,127 3.4 19,386 3.9 14,095 3.6
Other income, net..................... 1,187 0.2 652 0.1 1,319 0.4
---------- ---------- ---------- ---------- ---------- ---------
Income (loss) before income tax
provision....................... (3,430) (0.7) 17,203 3.5 28,610 7.3
Income tax provision.................. 608 0.1 7,658 1.6 11,750 3.0
---------- ---------- ---------- ---------- ---------- ---------
Income (loss) before cumulative
effect of accounting change..... (4,038) (0.8) 9,545 1.9 16,860 4.3
Cumulative effect of accounting
change............................... (24,328) (4.8) -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------
Net income (loss)................ $ (28,366) (5.6)% $ 9,545 1.9% $ 16,860 4.3%
========== ========== ========== ========== ========== =========
2002 COMPARED TO 2001
Sales. Sales increased $9.7 million, or 2.0%, from $493.6 million in 2001 to
$503.3 million in 2002. The increase is attributable to a full year of revenues
associated with businesses we acquired in 2001 and revenues of $9.5 million
associated with the aggregates business we acquired in the first quarter of 2002
and a modest 0.4% average ready-mixed concrete price increase. Partially
offsetting these increases was a 6.8% decrease in volumes of ready-mixed
concrete we sold.
Gross profit. Gross profit increased $2.1 million, or 2.2%, from $96.8 million
in 2001 to $98.9 million in 2002. Gross margins increased from 19.6% in 2001 to
19.7% in 2002. These increases are attributable to gross profit of $4.2 million
associated with the aggregates business acquired in 2002. In 2002, the lower
volumes of ready-mixed concrete depressed gross profit and margin.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $2.3 million, or 5.2%, from $44.9 million in
2001 to $47.2 million in 2002. In 2001, charges totaling $2.8 million relating
to the settlement of litigation with Del Webb California Corp. and its parent
company, Del Webb Corporation, increased our selling, general and administrative
expenses. If these litigation charges were removed from 2001 expenses, selling,
general and administrative expenses for 2002 would have increased $5.1 million
from 2001. The increase in selling, general and administrative expenses was
attributable to the inclusion of a full year of costs associated with businesses
we acquired in 2001 and selling expenses incurred by the aggregate business we
acquired in the first quarter of 2002, increased communication costs in some of
our markets, increased professional fees, higher sales compensation costs,
higher advertising and travel costs and higher incentive compensation expense.
Special compensation charge. In 2001, 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 special award was in addition to our recurring
annual incentive compensation program.
Restructuring and impairments. In 2002, we recorded an impairment charge of
$25.6 million for goodwill impairments in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
18
Assets," related to two reporting units in our North Texas/Southwest Oklahoma
and Memphis, Tennessee/Northern Mississippi markets. We also recorded charges
totaling $2.8 million related to severance for one employee, lease terminations,
other exit costs and asset impairments that were primarily associated with the
realignment of our business in the North Texas market. For additional
information, see Note 6 to our Consolidated Financial Statements in Item 8 of
this report.
Depreciation, depletion and amortization. Depreciation, depletion and
amortization expense decreased $3.1 million, or 22.4%, from $13.8 million in
2001 to $10.7 million in 2002. In 2002, goodwill was not amortized due to the
adoption of SFAS No. 142. If goodwill amortization was removed from 2001
expenses, depreciation, depletion and amortization expense for 2002 would have
increased by $2.3 million, as a result of fewer additions to property and
equipment under operating leases and additional depreciation of property, plant
and equipment associated with businesses we acquired in 2001 and 2002, as well
as depletion of mineral deposits in the aggregates business we acquired in 2002.
Interest expense, net. Interest expense, net, decreased $2.3 million, or 11.7%,
from $19.4 million in 2001 to $17.1 million in 2002. This decrease was
attributable to a lower average interest rate, partially offset by a higher
average balance, under our secured revolving credit facility during 2002. As of
December 31, 2002, we had borrowings totaling $66.7 million outstanding under
our credit facility at a weighted average interest cost of 4.3% per annum. As of
December 31, 2002, we had borrowings totaling $161.8 million outstanding at a
weighted average annual interest rate of 8.8%. As of December 31, 2001, we had
borrowings totaling $163.8 million outstanding at a weighted average annual
interest rate of 9.1%.
Other income, net. Other income, net, increased $0.5 million, or 82.1%, from
$0.7 million in 2001 to $1.2 million in 2002. This increase was attributable to
a gain we realized in 2002 on the sale of certain FCC licenses in our Northern
California market.
Income tax provision. We provided for income taxes of $0.6 million in 2002, a
decrease of $7.1 million from our provision in 2001. The decrease in income
taxes is principally the result of lower taxable income generated by our
operations during 2002. The effective tax rate was 17.7% for 2002 and 44.5% for
2001. The change in this rate was due to the operating loss, nondeductible items
relating to goodwill impairments (see "Restructuring and impairments" above for
discussion) and state income taxes. For additional information, see Note 11 to
our Consolidated Financial Statements in Item 8 of this report.
Cumulative effect of accounting change. The 2002 net loss includes a cumulative
effect of accounting change, net of tax, as a result of our adoption of SFAS No.
142. Under SFAS No. 142, we recorded a transitional goodwill impairment charge
of $24.3 million, net of tax, effective January 1, 2002. This impairment charge
was attributable to two reporting units, our divisions in North Texas/Southwest
Oklahoma and Memphis, Tennessee/Northern Mississippi. Local market and economic
conditions have affected the value of acquisitions made in North Texas (in 2000
and 2001) and Memphis, Tennessee/Northern Mississippi (in 1999). For additional
information, see Note 3 to our Consolidated Financial Statements in Item 8 of
this report.
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. The increase was primarily attributable to revenues
associated with companies we acquired since 2000 and a 4.9% average ready-mixed
concrete price increase. Partially offsetting these increases was a 3.2%
decrease in volumes of ready-mixed concrete.
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
$0.6 million 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.
Special charge. In 2001, 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.
19
This special award was in addition to our recurring annual incentive
compensation program. For additional information, see Note 5 to our Consolidated
Financial Statements in Item 8 of this report.
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.
Interest expense, net. Interest expense, net, increased $5.3 million, or 37.5%,
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 $0.7 million, 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. For additional information, see Note 11 to our
Consolidated Financial Statements in Item 8 of this report.
LIQUIDITY AND CAPITAL RESOURCES
The following key financial measurements reflect our financial position and
capital resources at December 31, 2002, 2001 and 2000 (dollars in thousands):
2002 2001 2000
------------ ------------- ------------
Cash and cash equivalents............... $ 4,685 $ 7,127 $ 711
Working capital......................... $ 47,058 $ 46,941 $ 43,185
Total debt.............................. $ 161,808 $ 163,775 $ 157,134
Debt as a percent of capital employed... 50.0% 46.5% 50.0%
In 2002, we decreased our debt by $19.0 million, after including the impact
associated with $17.1 million cash consideration funded by our secured credit
facility at the beginning of the year. That reduction in debt was a result of
our strong cash flows from operating activities, which generated $34.9 million,
a primary source of our liquidity during the past two years.
Cash Flow
Cash provided by operations was $34.9 million in 2002, as compared to $44.9
million in 2001, and $9.6 million in 2000. These cash flows were primarily
derived from net income (loss) before deduction of certain noncash charges for
depreciation, depletion, amortization and impairments of properties and
goodwill. Depreciation, depletion, amortization and impairments for the years
ended December 31, 2002, 2001 and 2000 were as follows (in thousands):
2002 2001 2000
------------- ------------- -------------
Depreciation, depletion and amortization........................ $ 10,734 $ 13,828 $ 11,212
Impairments..................................................... 28,100 -- --
Impairments - cumulative effect of accounting change............ 24,328 -- --
------------- ------------- -------------
Total........................................................ $ 63,162 $ 13,828 $ 11,212
============= ============= =============
Changes in working capital for 2002 included decreases in accounts
receivable and accounts payable and increases in inventory levels from lower
sales volume, particularly in the fourth quarter, as compared with the
prior-year period. The 2001 working capital changes included increases in
accounts payable and a reduction in receivables from cash management
improvements, which were partially offset by increases in other current assets.
Other assets and liabilities, net, include changes to both current and
noncurrent balance sheet accounts.
20
Net cash used for investing activities was $36.4 million in 2002, a
decrease of $22.0 million from $58.4 million in 2001. Of that amount, we used,
net of cash acquired, $17.1 million for the purchase of one business, compared
with $47.1 million in 2001 used for the purchase of seven businesses, and $95.0
million in 2000 used for the purchase of six businesses. Additions to property,
plant and equipment, excluding effects of acquisitions, were $18.0 million in
2002, compared with $10.9 million and $8.2 million in 2001 and 2000,
respectively. The increase for 2002 in those capital expenditures was
attributable primarily to fewer additions to property and equipment under
operating leases, a full year of expenditures associated with businesses we
acquired in 2001 and expenditures in the aggregates business we acquired in the
first quarter of 2002. We expect our 2003 expenditures for property, plant and
equipment, exclusive of acquisitions and property and equipment acquired under
operating leases, to be approximately $15 million and depreciation, depletion
and amortization to be approximately $11.5 million.
We used approximately $0.9 million of cash for financing activities during
2002, compared with $19.9 million and $94.8 million of cash provided by
financing activities in 2001 and 2000, respectively. We repaid net indebtedness
of $2.0 million in 2002, compared with incurrences of net indebtedness of $6.5
million and $99.8 million in 2001 and 2000, respectively. We paid debt issue
costs of $0.2 million, $1.6 million and $5.3 million in 2002, 2001 and 2000,
respectively. In 2002, we issued stock to employees, providing $1.2 million in
cash. Cash provided by issuance of common stock, net, was $15.0 million and $0.3
million in 2001 and 2000, respectively.
Capital Resources
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. On June 12, 2002, the
size of the facility increased to $200 million with the addition of a new
lender. We had approximately $66.7 million of outstanding borrowings under our
credit facility at December 31, 2002. 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 and internal expansion of our operations;
. working capital; and
. general corporate purposes.
Our subsidiaries have fully and unconditionally guaranteed the repayment of
all amounts owing under the facility, and we collateralized the facility with
the capital stock and assets of our subsidiaries on a joint and several basis.
The facility:
. requires the consent of the lenders for 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, 2002, we were
in compliance with these covenants. Based on our expected results for the first
quarter of 2003 and the severe weather in that period, we may not remain in
compliance in the first half of 2003. We are currently seeking to avoid any
potential covenant violations through an amendment of our secured revolving
credit facility as well as a similar amendment under the documents relating to
our senior subordinated notes. We expect to finalize these amendments prior to
the occurrence of any potential covenant violation.
Our 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 our
common stock. At December 31, 2002, we had approximately $133.3 million of
remaining capacity under this facility, of which we could borrow approximately
$15.4 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. These notes:
. are mandatorily repayable in equal annual installments of approximately
$13.6 million on November 10 in each of the years 2004 through 2010;
. are subordinated in right of payment to the indebtedness outstanding
under the credit facility;
21
. are guaranteed by our subsidiaries; and
. require us to comply with covenants generally consistent with those
required under the credit facility.
We used the net proceeds from our sale of the notes to reduce amounts
outstanding under our credit facility.
Our management believes, on the basis of current expectations, that our
internally generated cash flow and access to existing credit facilities are
sufficient to meet the liquidity requirements necessary to fund our operations,
capital requirements and debt service payments for at least the next 12 months.
However, our ability to maintain existing credit facilities can be impacted by
economic conditions outside of our control.
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. If we are unable to
obtain additional capital on acceptable terms, we may be unable to grow through
significant acquisitions.
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 off-balance sheet
arrangements in the ordinary course of business that result in risks our balance
sheet does not directly reflect. Our significant off-balance sheet transactions
are liabilities associated with noncancellable operating leases and letter of
credit obligations.
We enter into noncancellable operating leases for many of our facility,
vehicle and equipment needs. These leases allow us to conserve up-front cash
requirements 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.
Our long-term commitments for debt and minimum lease commitments for all
noncancellable operating leases as of December 31, 2002 are as follows (in
thousands):
OPERATING
DEBT LEASE
OBLIGATIONS OBLIGATIONS TOTAL
-------------- -------------- --------------
2003............. $ 56 $ 9,747 $ 9,803
2004............. 80,324 7,638 87,962
2005............. 13,571 5,728 19,299
2006............. 13,571 4,762 18,333
2007............. 13,571 3,424 16,995
Thereafter....... 40,715 2,733 43,448
-------------- -------------- --------------
Total......... $ 161,808 $ 34,032 $ 195,840
============== ============== ==============
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. We have accrued the estimated cost of reclamation
over the life of the mineral deposits based on the number of tons mined in
relation to total estimated tons of reserves. We currently estimate this life to
be approximately 45 years.
In the normal course of business, we are currently contingently liable for
performance under $22.4 million in performance bonds that various states and
municipalities have required. The bonds are principally related to construction
contracts, reclamation obligations and mining permits. Three of these bonds
totaling $11.7 million, or 52% of all outstanding performance bonds, relate to
specific performance for airport construction projects. We have indemnified the
underwriting insurance company against any exposure under the performance bonds.
In our past experience, no material claims have been made against these bonds.
22
In connection with one business we acquired in 2001, we entered into a
contingent consideration arrangement with former owners of that business. At
December 31, 2002, we estimated no contingent consideration would be payable. We
currently estimate the contingent consideration will consist of common stock
valued at $368,000 and $552,000 in cash. Any contingent consideration, when
accrued, will increase the amount of goodwill related to that acquisition.
In January 2002, we entered into an underwriting agreement that allows us
to issue up to 1.8 million shares of our common stock through an underwriter
over a two-year period. If we do not use this arrangement to raise an aggregate
of $2 million or more, we will be required to pay the underwriter up to $100,000
in stand-by fees. The stand-by fees will be equal to 5% of the difference
between the $2 million and the amount raised under this arrangement. At our
option, we may pay the stand-by fees in cash or in shares of our common stock.
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 12 to our Consolidated Financial Statements in Item 8
of this report for a description of those transactions.
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 allowances 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 to our Consolidated Financial
Statements in Item 8 of this report for a summary of our accounting policies,
including the policies we discuss below.
Allowance for Doubtful Accounts
We provide an allowance for accounts receivable we believe we may not
collect in full. A provision for bad debt expense recorded to selling, general
and administrative expenses increases the allowance. Accounts receivable that we
write off our books decrease the allowance. We determine the amount of bad debt
expense we record each period and the resulting adequacy of the allowance at the
end of each period by using a combination of our historical loss experience,
customer-by-customer analyses of our accounts receivable balances each period
and subjective assessments of our bad debt exposure.
Goodwill
Effective January 1, 2002, we adopted SFAS No. 142. As result and from that
date, we no longer amortize goodwill. Our goodwill amortization was $5.4 million
in 2001. At December 31, 2002, our total assets included $157.4 million of
goodwill. SFAS No. 142 requires us to compare the fair value of the reporting
unit to its carrying amount on an annual basis to determine if there is a
potential impairment. If that fair value is less than its carrying value, we
would record an impairment loss to the extent of that difference. We base the
fair values of our reporting units on a combination of valuation approaches,
including discounted cash flows, multiples of sales and earnings before
interest, taxes, depreciation, depletion and amortization and comparisons of
recent transactions. The impairment tests we conducted in 2002 resulted in
reductions of the carrying value of goodwill for the divisions in North
Texas/Southwest Oklahoma and Memphis, Tennessee/Northern Mississippi. We
reported the goodwill reductions as (1) a cumulative effect of a change in
accounting principle effective January 1, 2002, which resulted in a transitional
charge to earnings, net of tax, of $24.3 million and (2) an impairment charge to
income from operations of $25.6 million in the fourth quarter of 2002, after we
conducted an annual valuation test and determined that our divisions in North
Texas/Southwest Oklahoma and Memphis, Tennessee/Northern Mississippi had
experienced a further decline in value.
Insurance Programs
We maintain third-party insurance coverage in amounts and against the risks
we believe are reasonable. Under our insurance program, we share the risk of
loss with our insurance underwriters by maintaining high deductibles subject to
aggregate annual loss limitations. We fund these deductibles and record an
expense for losses we expect under the programs. We determine the expected
losses using a combination of our historical loss experience and subjective
assessments of our future loss exposure. The estimated losses are subject to
uncertainty from various sources, including
23
Insurance Programs
We maintain third-party insurance coverage in amounts and against the risks
we believe are reasonable. Under our insurance program, we share the risk of
loss with our insurance underwriters by maintaining high deductibles subject to
aggregate annual loss limitations. We fund these deductibles and record an
expense for losses we expect under the programs. We determine the expected
losses using a combination of our historical loss experience and subjective
assessments of our future loss exposure. The estimated losses are subject to
uncertainty from various sources, including changes in claims reporting
patterns, claims settlement patterns, judicial decisions, legislation and
economic conditions. Although we believe that the estimated losses are
reasonable, significant differences related to the items noted above could
materially affect our insurance obligations and future expense.
Income Taxes
We use the liability method of accounting for income taxes. Under this
method, we record deferred income taxes based on temporary differences between
the financial reporting and tax basis of assets and liabilities and use enacted
tax rates and laws that we expect will be in effect when we recover those assets
or settle those liabilities, as the case may be, to measure those taxes.
Property, Plant and Equipment, Net
We state our property, plant and equipment at cost and use the
straight-line method to compute depreciation of these assets over the following
estimated useful lives: buildings and land improvements, from 10 to 40 years;
machinery and equipment, from 10 to 30 years; mixers, trucks and other vehicles,
from 6 to 12 years; and furniture and fixtures, from 3 to 10 years.
We evaluate the recoverability of our property, equipment and intangible
assets in accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." We compare the carrying value of long-lived
assets to our projection of future undiscounted cash flows attributable to those
assets. If the carrying value of the asset exceeds the future undiscounted cash
flows, we record an impairment loss equal to the excess of the carrying value
over the fair value. Actual useful lives and future cash flows could be
different from those estimated by our management. These differences could have a
material effect on our future operating results.
In 2002, we recorded impairment charges totaling $2.5 million for equipment
that was removed from service or held for disposal. We have included this charge
as a component of the restructuring and impairment charges in our consolidated
statements of operations. See Note 6 of our Consolidated Financial Statements in
Item 8 of this report.
In 2002, there were no material changes to or in the application of our
critical accounting policies presented in the 2001 10-K, except for the
provisions in SFAS No. 142 related to goodwill. For further discussion on our
accounting policies, see Note 2 to our Consolidated Financial Statements in Item
8 of this report.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations." The standard
requires that legal obligations associated with the retirement of long-lived
assets be recorded at fair value when incurred. SFAS No. 143 will be effective
for us on January 1, 2003. We do not expect the adoption of SFAS No. 143 will
have a material impact on our consolidated financial position, results of
operations or cash flows.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This statement provides guidance on the classification of gains
and losses from the extinguishment of debt and on the accounting for specified
lease transactions. We do not expect the adoption of SFAS No. 145 will have a
material impact on our consolidated financial position, results of operations or
cash flows.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This statement provides guidance
on the recognition and measurement of liabilities associated with disposal
activities and will be effective for us on January 1, 2003. We do not expect the
adoption of SFAS No. 146 will have a material impact on our consolidated
financial position, results of operations or cash flows.
24
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of the Indebtedness of Others," which clarifies the
requirements of SFAS No. 5, "Accounting for Contingencies," relating to a
guarantor's accounting for and disclosures of certain guarantees issued. FIN 45
requires enhanced disclosures for certain guarantees. It also will require us to
record certain guarantees that we issue or modify after December 31, 2002,
including certain third-party guarantees, on the balance sheet initially at fair
value. We will record liabilities for guarantees we issued on or before December
31, 2002 when and if payments become probable and estimable. We do not expect
the adoption of FIN 45 will have a material impact on our consolidated financial
position, results of operations or cash flows.
In November 2002, the Emerging Issues Task Force of the FASB (the "EITF")
reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple
Deliverables," which provides guidance on the accounting for arrangements that
involve the delivery or performance of multiple products, services and/or rights
to use assets. We do not expect the adoption of EITF Issue No. 00-21 will have a
material impact on our consolidated financial position, results of operations or
cash flows.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities," which clarifies the application
of Accounting Research Bulletin No. 51, "Consolidated Financial Statements,"
relating to consolidation of certain entities. FIN 46 will require
identification of our participation in variable interests entities ("VIEs"),
which are defined as entities with a level of invested equity that is not
sufficient to fund future activities to permit them to operate on a stand-alone
basis, or whose equity holders lack certain characteristics of a controlling
financial interest. For entities identified as VIEs, FIN 46 sets forth a model
to evaluate potential consolidation based on an assessment of which party to the
VIE, if any, bears a majority of the exposure to its expected losses, or stands
to gain from a majority of its expected returns. FIN 46 also sets forth certain
disclosures regarding interests in VIE that are deemed significant, even if
consolidation is not required. As we do not maintain any VIE, the adoption of
FIN 46 will not have a material impact on our consolidated financial position,
results of operations or cash flows.
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
We do not enter into derivatives or other financial instruments for trading
or speculative purposes. Because of the short duration of our investments,
changes in market interest rates would not have a significant impact on their
aggregate fair value.
Borrowings under our $200 million revolving credit facility expose us to
certain market risks. Interest on amounts drawn under the revolving credit
facility varies based on either the prime rate or one, two, three or six month
Eurodollar rates. Based on the $66.7 million outstanding balance as of December
31, 2002, a one-percent change in the applicable rate would change the amount of
interest paid by $0.7 million for 2003.
Our operations are subject to factors affecting the level of general
construction activity, including the level of interest rates and availability of
funds for construction. A significant decrease in the level of general
construction activity in any of our market areas may have a material adverse
effect on our sales and earnings.
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
U.S. CONCRETE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Our Consolidated Financial Statements as of December 31, 2002 and for the
year then ended together with related notes and the report of
PricewaterhouseCoopers LLP are set forth herein.
Our Consolidated Financial Statements as of December 31, 2001 and 2000 and
for each of the three years in the period ended December 31, 2001 were audited
by Arthur Andersen LLP ("Arthur Andersen"), which has ceased operations. A copy
of Arthur Andersen's previously issued report on those financial statements is
set forth herein. Arthur Andersen has not reissued that report.
PAGE
----
U.S. CONCRETE, INC. AND SUBSIDIARIES
Report of Independent Accountants - PricewaterhouseCoopers LLP......................................... 27
Report of Independent Public Accountants - Arthur Andersen LLP......................................... 28
Consolidated Balance Sheets at December 31, 2002 and 2001.............................................. 29
Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000............ 30
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2002,
2001 and 2000........................................................................................ 31
Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000............. 32
Notes to Consolidated Financial Statements............................................................. 33
26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of U.S. Concrete, Inc.:
In our opinion, the accompanying consolidated balance sheet as of December 31,
2002 and the related consolidated statements of operations, of changes in
stockholders' equity and of cash flows present fairly, in all material respects,
the financial position of U.S. Concrete, Inc. and its subsidiaries (the
"Company") at December 31, 2002, and the results of their operations and their
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion. The
Company's consolidated financial statements as of December 31, 2001, and for
each of the two years in the period ended December 31, 2001, prior to the
revision described in Note 3 of the consolidated financial statements, were
audited by other independent accountants who have ceased operations. Those
independent accountants expressed an unqualified opinion on those financial
statements in their report dated February 26, 2002.
As discussed in Note 3 to the consolidated financial statements, the Company
changed its method of accounting for goodwill effective January 1, 2002.
As discussed above, the Company's consolidated financial statements as of
December 31, 2001, and for each of the two years in the period ended December
31, 2001, were audited by other independent accountants who have ceased
operations. As described in Note 3, those financial statements have been revised
to include the transitional disclosures required by Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets," which was
adopted by the Company as of January 1, 2002. We audited the transitional
disclosures for 2001 and 2000 included in Note 3. In our opinion, the
transitional disclosures for 2001 and 2000 in Note 3 are appropriate. However,
we were not engaged to audit, review, or apply any procedures to the 2001 or
2000 financial statements of the Company other than with respect to such
disclosures and, accordingly, we do not express an opinion or any other form of
assurance on the 2001 or 2000 financial statements taken as a whole.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 21, 2003
27
THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP (ARTHUR ANDERSEN). THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN AND
ARTHUR ANDERSEN DID NOT CONSENT TO THE INCORPORATION BY REFERENCE OF THIS REPORT
(AS INCLUDED IN THIS FORM 10-K) INTO ANY OF U.S. CONCRETE, INC.'S REGISTRATION
STATEMENTS.
AS DISCUSSED IN NOTE 3, U.S. CONCRETE, INC. HAS REVISED ITS FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 TO INCLUDE THE TRANSITIONAL
DISCLOSURES REQUIRED BY STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 142,
"GOODWILL AND INTANGIBLE ASSETS." THE ARTHUR ANDERSEN REPORT DOES NOT EXTEND TO
THOSE CHANGES. THE REVISIONS TO THE 2001 AND 2000 FINANCIAL STATEMENTS RELATED
TO THESE TRANSITIONAL DISCLOSURES WERE REPORTED ON BY PRICEWATERHOUSECOOPERS
LLP, AS STATED IN THEIR REPORT APPEARING HEREIN.
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
* U.S. Concrete's consolidated balance sheet as of December 31, 2000 and the
consolidated statements of operations, stockholders' equity and cash flows for
the year ended December 31, 1999 are not required to be presented and are not
included in this Form 10-K.
28
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
DECEMBER 31
-------------------------------------
2002 2001
---------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 4,685 $ 7,127
Trade accounts receivable, net.................................................. 59,224 72,326
Inventories..................................................................... 21,044 16,499
Deferred income taxes........................................................... 4,188 1,851
Prepaid expenses and other current assets....................................... 9,715 7,444
---------------- ----------------
Total current assets........................................................ 98,856 105,247
---------------- ----------------
Property, plant and equipment, net................................................. 117,199 100,309
Goodwill, net...................................................................... 157,364 219,868
Other assets....................................................................... 4,943 5,412
---------------- ----------------
Total assets................................................................ $ 378,362 $ 430,836
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............................................ $ 56 $ 77
Accounts payable and accrued liabilities........................................ 51,742 58,229
---------------- ----------------
Total current liabilities................................................... 51,798 58,306
---------------- ----------------
Long-term debt, net of current maturities.......................................... 161,752 163,698
Other long-term obligations........................................................ 466 --
Deferred income taxes.............................................................. 2,501 20,517
---------------- ----------------
Total liabilities........................................................... 216,517 242,521
---------------- ----------------
Commitments and contingencies (Note 14)
Stockholders' equity:
Preferred stock, $0.001 value; 10,000,000 shares authorized; none issued and
outstanding.................................................................... -- --
Common stock, $0.001 value; 60,000,000 shares authorized; 27,024,286 and
26,711,094 shares issued and outstanding in 2002 and 2001, respectively........ 27 27
Additional paid in capital...................................................... 157,276 155,380
Retained earnings............................................................... 4,542 32,908
---------------- ----------------
Total stockholders' equity.................................................. 161,845 188,315
---------------- ----------------
Total liabilities and stockholders' equity.................................. $ 378,362 $ 430,836
================ ================
The accompanying notes are an integral part of these
consolidated financial statements.
29
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
YEAR ENDED DECEMBER 31
-------------------------------------------------
2002 2001 2000
-------------- ------------- ------------
Sales................................................................. $ 503,314 $ 493,591 $ 394,636
Cost of goods sold.................................................... 404,376 396,769 314,297
-------------- ------------- ------------
Gross profit..................................................... 98,938 96,822 80,339
Selling, general and administrative expenses.......................... 47,254 44,933 27,741
Special compensation charge........................................... -- 2,124 --
Restructuring and impairments......................................... 28,440 -- --
Depreciation, depletion and amortization.............................. 10,734 13,828 11,212
-------------- ------------- ------------
Income from operations........................................... 12,510 35,937 41,386
Interest expense, net................................................. 17,127 19,386 14,095
Other income, net..................................................... 1,187 652 1,319
-------------- ------------- ------------
Income (loss) before income tax provision........................ (3,430) 17,203 28,610
Income tax provision.................................................. 608 7,658 11,750
-------------- ------------- ------------
Income (loss) before cumulative effect of accounting change...... (4,038) 9,545 16,860
Cumulative effect of accounting change................................ (24,328) -- --
-------------- ------------- ------------
Net income (loss)................................................ $ (28,366) $ 9,545 $ 16,860
============== ============= ============
Earnings per share:
Basic and diluted income (loss) per share before cumulative
effect of accounting change..................................... $ (0.15) $ 0.39 $ 0.78
Cumulative effect of accounting change, net of tax............... (0.91) -- --
-------------- ------------- ------------
Basic and diluted income (loss) per share........................ $ (1.06) $ 0.39 $ 0.78
============== ============= ============
Number of shares used in calculating earnings per share:
Basic............................................................ 26,825 24,551 21,573
Diluted.......................................................... 26,825 24,621 21,592
The accompanying notes are an integral part of these
consolidated financial statements.
30
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, 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
Acquisitions of purchased companies....... 18 -- 349 -- 349
Stock issued under employee stock
purchase plan............................ 247 -- 1,247 -- 1,247
Stock issued in connection with
compensation plan........................ 48 -- 300 -- 300
Net loss.................................. -- -- -- (28,366) (28,366)
------------ -------- ---------- ----------- -------------
BALANCE, December 31, 2002................... 27,024 $ 27 $ 157,276 $ 4,542 $ 161,845
============ ======== ========== =========== =============
The accompanying notes are an integral part of these
consolidated financial statements.
31
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEAR ENDED DECEMBER 31
------------------------------------------------
2002 2001 2000
------------- ------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................................... $ (28,366) $ 9,545 $ 16,860
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Cumulative effect of accounting change............................ 24,328 -- --
Restructuring and impairments..................................... 28,115 -- --
Depreciation, depletion and amortization.......................... 10,734 13,828 11,212
Debt issuance cost amortization................................... 1,361 1,719 1,099
Net loss (gain) on sale of property, plant and equipment.......... (485) 77 (435)
Deferred income tax provision (benefit)........................... (4,232) 4,881 3,011
Provision for doubtful accounts................................... 2,126 2,507 220
Stock compensation................................................ -- 871 --
Changes in assets and liabilities, excluding effects of acquisitions:
Receivables....................................................... 10,976 3,953 (4,194)
Other assets and liabilities, net................................. (3,945) (1,801) (2,623)
Accounts payable and accrued liabilities.......................... (5,679) 9,294 (15,567)
------------- ------------- ------------
Net cash provided by operating activities..................... 34,933 44,874 9,583
------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment........................ (18,045) (10,859) (8,205)
Payments for acquisitions, net of cash received of $0, $2,174
and $3,961....................................................... (17,064) (47,129) (94,957)
Payment of direct costs in connection with acquisitions........... (242) (2,613) (3,261)
Proceeds from disposals of property, plant and equipment.......... 1,068 2,214 2,156
Other investing activities........................................ (2,206) -- --
------------- ------------- ------------
Net cash used in investing activities......................... (36,489) (58,387) (104,267)
------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings.......................................... -- 6,620 192,900
Repayments of borrowings.......................................... (1,967) (113) (93,141)
Proceeds from issuances of common stock........................... 1,247 15,200 545
Cash paid related to common stock issuance costs.................. -- (180) (242)
Debt issuance costs............................................... (166) (1,598) (5,294)
------------- ------------- ------------
Net cash provided by (used in) financing activities........... (886) 19,929 94,768
------------- ------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................................................. (2,442) 6,416 84
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD......................... 7,127 711 627
------------- ------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................... $ 4,685 $ 7,127 $ 711
============= ============= ============
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest............................................ $ 15,306 $ 17,865 $ 12,377
Cash paid for income taxes........................................ $ 6,445 $ 336 $ 12,340
Supplemental disclosure of non-cash investing and financing activities:
Additions to property, plant and equipment from exchanges......... $ 88 $ -- $ --
Receivable from sale of assets.................................... $ 450 $ -- $ --
Common stock and stock options issued in connection with
acquisitions.................................................... $ 349 $ 12,375 $ 22,357
The accompanying notes are an integral part of these
consolidated financial statements.
32
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
U.S. Concrete, Inc., a Delaware corporation, provides ready-mixed concrete
and related products and services to the construction industry in several major
markets in the United States. U.S. Concrete is a holding company and conducts
its businesses through its consolidated subsidiaries.
U.S. Concrete commenced operations in May 1999 when it acquired six
operating businesses in three major markets in the United States. Since then,
and through December 31, 2002, U.S. Concrete has acquired an additional 22
operating businesses, in these and seven additional markets in the United
States.
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.
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 and uses the
straight-line method to compute depreciation of these assets over the following
estimated useful lives: buildings and land improvements, from 10 to 40 years;
machinery and equipment, from 10 to 30 years; mixers, trucks and other vehicles,
from 6 to 12 years; and furniture and fixtures, from 3 to 10 years. It
capitalizes leasehold improvements on properties held under operating leases and
amortizes them over the lesser of their estimated useful lives or the applicable
lease term.
U.S. Concrete expenses maintenance and repair costs when incurred and
capitalizes and depreciates expenditures for major renewals and betterments that
extend the useful lives of its existing assets. When U.S. Concrete retires or
disposes of 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.
In January 2002, U.S. Concrete acquired mineral rights in its acquisition
of an aggregates business. Depletion of the related mineral deposits is computed
on the basis of the estimated quantity of recoverable raw materials.
33
Effective January 1, 2002, U.S. Concrete evaluates the recoverability of
its property, equipment, and intangible assets in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." U.S. Concrete compares the carrying value of
long-lived assets to its projection of future undiscounted cash flows
attributable to such assets and in the event that the carrying value exceeds the
future undiscounted cash flows, U.S. Concrete records an impairment charge
against income equal to the excess of the carrying value over the asset's fair
value. Prior to January 1, 2002, U.S. Concrete evaluated its property,
equipment, and intangible assets in accordance with SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." In the fourth quarter of 2002, U.S. Concrete recorded impairment charges
totaling $2.5 million for certain equipment that was removed from service or
held for disposal. This charge was classified as a component of the
restructuring and impairments in the consolidated statements of operations for
the year ended December 31, 2002 (see Note 6 for further discussion).
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. As a result of adopting SFAS
No. 142, U.S. Concrete's goodwill is no longer amortized. Under SFAS No. 142,
U.S. Concrete's goodwill is periodically tested for impairment. SFAS No. 142
provided a six-month transitional period to complete the initial impairment
review. U.S. Concrete completed its initial impairment review during the quarter
ended June 30, 2002. That review indicated impairments attributable to two
reporting units. As a result, U.S. Concrete recorded a transitional goodwill
impairment charge of $24.3 million, net of tax, which it has presented as a
cumulative effect of accounting change in the consolidated statement of
operations for the year ended December 31, 2002. In the fourth quarter of 2002,
U.S. Concrete recorded a goodwill impairment charge of $25.6 million,
representing the remaining goodwill associated with those two reporting units.
Debt Issue Costs
Other long-term assets include debt issue costs related to U.S. Concrete's
credit facility and subordinated notes (see Note 9 for discussion). U.S.
Concrete amortizes these costs as interest expense over the scheduled maturity
period of the debt. As of December 31, 2002 and 2001, accumulated amortization
of debt issue costs was $4.3 million and $2.9 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
that U.S. Concrete writes off its books decrease the allowance. U.S. Concrete
determines the amount of bad debt expense it records each period and the
resulting adequacy of the allowance at the end of each period by using a
combination of U.S. Concrete's historical loss experience, a
customer-by-customer analysis of U.S. Concrete's accounts receivable balances
each period and subjective assessments of U.S. Concrete's 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. Amounts billed to customers for delivery costs are
classified as a component of total revenues and the related delivery costs are
classified as a component of total costs of goods sold. 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.
34
Insurance Programs
U.S. Concrete maintains third-party insurance coverage in amounts and
against the risks it believes are reasonable. Under 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 those deductibles and records an expense for losses it expects under the
programs. U.S. Concrete determines expected losses using a combination of its
historical loss experience and subjective assessments of its future loss
exposure. The estimated losses are subject to uncertainty from various sources,
including changes in claim reporting patterns, claim settlement patterns,
judicial decisions, legislation and economic conditions. Although U.S. Concrete
believes that the estimated losses are reasonable, significant differences
related to the items noted above could materially affect U.S. Concrete's
insurance obligations and future expense.
Reclamation
The estimated cost of reclamation is accrued over the life of the mineral
deposits based on tons mined in relation to total estimated tons of reserves.
Expenditures to reclaim land are charged to the reserves as paid.
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 U.S. Concrete expects will
be in effect when it recovers those assets or settles those liabilities, as the
case may be, to measure those taxes.
U.S. Concrete files a consolidated federal income tax return, which
includes the operations of all acquired businesses for periods subsequent to
their respective acquisition dates. The acquired businesses file "short period"
federal income tax returns for the period from their last fiscal year through
their respective acquisition dates.
Fair Value of Financial Instruments
The financial instruments of U.S. Concrete consist primarily of cash and
cash equivalents, trade receivables, trade payables and long-term debt. U.S.
Concrete's 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 accounting
principles generally accepted in the United States of America requires the use
of estimates and assumptions by management in determining the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Estimates and assumptions that U.S. Concrete considers significant in
the preparation of its financial statements include those related to its
allowance for doubtful accounts, realization of goodwill, accruals for
self-insurance, accruals for income tax provision and the valuation and useful
lives of property, plant and equipment.
35
Earnings per Share
The following table reconciles the numerator and denominator of the basic
and diluted earnings per share during the years ended December 31, 2002, 2001
and 2000 (in thousands, except per share amounts). Basic earnings represent
earnings per weighted average outstanding share. Diluted earnings represent
those earnings as diluted by potentially dilutive securities, such as
outstanding options.
2002 2001 2000
-------- -------- --------
Numerator:
Net income (loss).................................. $(28,366) $ 9,545 $ 16,860
Denominator:
Weighted average common shares outstanding-basic... 26,825 24,551 21,573
Effect of dilutive stock options................... -- 70 19
-------- -------- --------
Weighted average common shares outstanding-diluted. $ 26,825 $ 24,621 $ 21,592
======== ======== ========
Earnings (loss) per share:
Basic.............................................. $ (1.06) $ 0.39 $ 0.78
Diluted............................................ $ (1.06) $ 0.39 $ 0.78
For the years ended December 31, 2002, 2001 and 2000, options to purchase
4.1 million, 1.9 million and 2.1 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.
Comprehensive Income
Comprehensive income represents all changes in equity of an entity during
the reporting period, except those resulting from investments by and
distributions to stockholders. For each of the three years in the period ended
December 31, 2002, no differences existed 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 combines as one segment its ready-mixed concrete and other
concrete related products. All of its operations, sales and long-lived assets
are in the United States.
Stock Options
Under the requirements of SFAS No. 123, as amended by SFAS No. 148,
"Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment
of FASB Statement No. 123," U.S. Concrete accounts for stock option awards in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees" (
"APB No. 25 ") and its related interpretations. Under APB No. 25, no
compensation expense is recognized when the exercise price is greater than or
equal to the market price of the underlying common stock on the date of grant.
The exercise price per share of each employee stock option U.S. Concrete awarded
during 2002, 2001 and 2000 was greater than or equal to the fair market value of
a share of U.S. Concrete's common stock on the date of grant.
36
The following table reflects pro forma net income (loss) and earnings
(loss) per share implications if the fair value method of SFAS No. 123 had been
applied to all awards that vested during the years ended December 31, 2002, 2001
and 2000 (in thousands, except per share amounts):
2002 2001 2000
--------- -------- --------
Net income (loss)........................................ $ (28,366) $ 9,545 $ 16,860
Deduct: Total stock option employee compensation expense
determined under fair value method for all awards vested
during the year, net of any tax effects................. 1,713 1,428 784
--------- -------- --------
Pro forma net income (loss)............................. $ (30,079) $ 8,117 $ 16,076
========= ======== ========
Earnings (loss) per share:
Reported basic and diluted......................... $ (1.06) $ 0.39 $ 0.78
Pro forma basic and diluted........................ $ (1.12) $ 0.33 $ 0.74
The weighted average fair values of options at their grant date for 2002,
2001 and 2000, where the exercise price equaled the market price on the grant
date, were $2.01, $4.85 and $4.44, respectively. The estimated fair values for
options granted in 2002, 2001 and 2000 were calculated using a Black-Scholes
option pricing model, with the following weighted-average assumptions for 2002,
2001 and 2000, respectively: risk-free interest rate of 2.78%, 5.00% and 5.00%;
dividend yield of 0.0%, 0.0% and 0.0%; volatility factor of 0.313, 0.542 and
0.482; and an expected option life of 5, 10 and 10 years.
For additional discussion related to stock options, see Note 10.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (the "FASB ") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations." The standard
requires that legal obligations associated with the retirement of long-lived
assets be recorded at fair value when incurred. SFAS No. 143 will be effective
for U.S. Concrete on January 1, 2003. U.S. Concrete does not expect the adoption
of SFAS No. 143 will have a material impact on its consolidated financial
position, results of operations or cash flows.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This statement provides guidance on the classification of gains
and losses from the extinguishment of debt and on the accounting for specified
lease transactions. U.S. Concrete does not expect the adoption of SFAS No. 145
will have a material impact on its consolidated financial position, results of
operations or cash flows.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This statement provides guidance
on the recognition and measurement of liabilities associated with disposal
activities and will be effective for U.S. Concrete on January 1, 2003. U.S.
Concrete does not expect the adoption of SFAS No. 146 will have a material
impact on its consolidated financial position, results of operations or cash
flows.
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of the Indebtedness of Others," which clarifies the
requirements of SFAS No. 5, "Accounting for Contingencies," relating to a
guarantor's accounting for and disclosures of certain guarantees issued. FIN 45
requires enhanced disclosures for certain guarantees. It also will require U.S.
Concrete to record certain guarantees that it issues or modifies after December
31, 2002, including certain third-party guarantees, on the balance sheet
initially at fair value. For guarantees issued on or before December 31, 2002,
liabilities are recorded when and if payments become probable and estimable.
U.S. Concrete does not expect FIN 45 to have a material impact on its
consolidated financial position, results of operations or cash flows.
In November 2002, the Emerging Issues Task force of the FASB (the "EITF")
reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple
Deliverables," which provides guidance on the accounting for arrangements that
involve the delivery or performance of multiple products, services and/or rights
to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue
arrangements U.S. Concrete enters into in fiscal periods beginning after June
15, 2003. U.S. Concrete does not expect EITF Issue No. 00-21 to have a material
impact on its consolidated financial position, results of operations or cash
flows.
37
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities," which clarifies the application
of Accounting Research Bulletin No. 51, "Consolidated Financial Statements,"
relating to consolidation of certain entities. FIN 46 will require
identification of U.S. Concrete's participation in variable interest entities
("VIEs"), which are defined as entities with a level of invested equity that is
not sufficient to fund future activities to permit them to operate on a
stand-alone basis, or whose equity holders lack certain characteristics of a
controlling financial interest. For entities identified as VIEs, FIN 46 sets
forth a model to evaluate potential consolidation based on an assessment of
which party to the VIE, if any, bears a majority of the exposure to its expected
losses, or stands to gain from a majority of its expected returns. FIN 46 also
sets forth certain disclosures regarding interests in VIE that are deemed
significant, even if consolidation is not required. As U.S. Concrete does not
maintain any VIE, the adoption of FIN 46 will not have a material impact on its
consolidated financial position, results of operations or cash flows.
3. GOODWILL - ADOPTION OF SFAS NO. 142
U.S. Concrete adopted SFAS No. 142 effective January 1, 2002. Under SFAS
No. 142, substantially all of U.S. Concrete's intangible assets are no longer
amortized and U.S. Concrete must perform an annual impairment test for goodwill
and intangible assets. U.S. Concrete allocates these assets to various reporting
units, consisting of 11 operating divisions. SFAS No. 142 requires U.S. Concrete
to compare the fair value of the reporting unit to its carrying amount on an
annual basis to determine if there is a potential impairment. If the fair value
of the reporting unit is less than its carrying value, U.S. Concrete would
record an impairment loss to the extent of that difference. The impairment test
for intangible assets consists of comparing the fair value of the intangible
asset to its carrying amount. If the carrying amount of the intangible asset
exceeds its fair value, U.S. Concrete would recognize an impairment. U.S.
Concrete bases the fair values of its reporting units on a combination of
valuation approaches, including discounted cash flows, multiples of sales and
earnings before interest, taxes, depreciation, depletion and amortization and
comparisons of recent transactions. Under SFAS No. 142, U.S. Concrete recorded a
transitional goodwill impairment charge of $36.6 million ($24.3 million, net of
tax), which it presented as a cumulative effect of accounting change in the
first quarter of 2002. This impairment charge is attributable to two reporting
units, its divisions in North Texas/Southwest Oklahoma and Memphis,
Tennessee/Northern Mississippi. Local market and economic conditions have
affected the value of acquisitions made in North Texas (in 2000 and 2001) and
Memphis, Tennessee/Northern Mississippi (in 1999).
In the fourth quarter of 2002, U.S. Concrete conducted an annual valuation
test and determined that two reporting units, its divisions in North
Texas/Southwest Oklahoma and Memphis, Tennessee/Northern Mississippi, had
experienced a further decline in value and determined that the fair value of
goodwill in those reporting units was less than its carrying amount. U.S.
Concrete recorded a goodwill impairment charge of $25.6 million, representing
the remaining goodwill associated with those reporting units. This charge was
included as a component of restructuring and impairment charges in the
consolidated statement of operations in 2002 (see Note 6 for further
discussion).
The following table reconciles net earnings, basic earnings per share and
diluted earnings per share for prior years ended December 31, 2001 and 2000,
adjusted for the effect of SFAS No. 142 (in thousands, except per share
amounts):
2001 2000
-------- ---------
Net income:
Reported net income .................. $ 9,545 $ 16,860
Add: goodwill amortization, net of tax 3,993 3,420
-------- ---------
Adjusted net income ............... $ 13,538 $ 20,280
======== =========
Earnings per share:
Reported basic and diluted ........ $ 0.39 $ 0.78
Adjusted basic and diluted ........ $ 0.55 $ 0.94
The changes in the carrying amount of goodwill for the year ended December
31, 2002, were as follows (in thousands):
Balance at January 1, 2002 . $ 219,868
Impairments ................ (62,223)
Adjustments ................ (281)
---------
Balance at December 31, 2002 $ 157,364
=========
The goodwill adjustments primarily represent post-acquisition adjustments
to reflect the final fair values of assets acquired and liabilities assumed in
the acquisition of five businesses in 2001.
38
4. BUSINESS COMBINATIONS
In January 2002, U.S. Concrete completed the acquisition of an aggregates
business for a contractual purchase price of $17.1 million. In addition to the
$17.1 million contractual purchase price, U.S. Concrete paid approximately $0.2
million in transaction expenses. As a result of this acquisition, U.S. Concrete
entered the aggregates market in Northern New Jersey and acquired mineral
rights. U.S. Concrete has accounted for this transaction under the purchase
method of accounting, and the excess of the purchase price compared to the fair
market value of assets acquired has been allocated to the acquired mineral
rights. U.S. Concrete also 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 following table summarizes the
aggregate consideration U.S. Concrete paid for transactions during the years
ended December 31, 2002, 2001 and 2000:
Consideration (in thousands): 2002 2001 2000
-------- ------- ---------
Cash ............................ $ 17,064 $ 49,303 $ 98,918
Fair value of common stock issued -- 12,375 22,357
-------- -------- --------
Total ......................... $ 17,064 $ 61,678 $ 121,275
======== ======== =========
The following summarized unaudited pro forma consolidated financial
information for years ended December 31, 2002 and 2001 adjusts the historical
consolidated financial information to reflect the assumption that all
acquisitions since 2000 occurred on January 1, 2001 and to reflect the effect of
nonamortization of goodwill in accordance with SFAS No. 142 (in thousands,
except per share data):
2002 2001
--------- ---------
(unaudited)
Revenues ............................................................. $ 503,314 $ 525,871
Net income (loss) before cumulative effect of accounting change ...... $ (4,038) $ 15,210
Net income (loss) .................................................... $ (28,366) $ 15,210
Basic and diluted earnings (loss) per share .......................... $ (1.06) $ 0.57
The pro forma financial information for 2002 includes a cumulative effect
of a change in accounting principle effective January 1, 2002, which resulted in
a transitional charge to earnings, net of tax, of $24.3 million (see Note 3 for
discussion) and restructuring and impairment charges to income from operations
of $28.4 million (see Note 6 for discussion).
Pro forma adjustments in these amounts primarily relate to:
. contractual reductions in salaries, bonuses and benefits to employees and
former owners of the acquired businesses;
. elimination of sellers' legal, accounting and other professional fees
incurred in connection with the acquisitions;
. elimination of the amortization of goodwill during the 2001 period;
. adjustments to interest expense, net to reflect borrowings incurred to
fund acquisitions; and
. adjustments to the federal and state income tax provision based on pro
forma operating results.
The pro forma financial information does not purport to represent what the
combined financial results of operations of U.S. Concrete actually would have
been if these transactions and events had in fact occurred when assumed and are
not necessarily representative of its financial results of operations for any
future period.
39
In connection with the acquisitions, U.S. Concrete has determined the
resulting goodwill during the years ended December 31, 2002, 2001 and 2000 as
follows (in thousands):
2002 2001 2000
--------- --------- ---------
Cash consideration ............................................... $ 17,064 $ 49,303 $ 98,918
Less: cash received from acquired companies ................... -- (2,174) (3,961)
--------- --------- ---------
Cash paid, net of cash acquired .............................. 17,064 47,129 94,957
Fair value of common stock issued ............................. -- 12,375 22,357
Direct acquisition costs incurred ............................. 242 2,613 3,261
--------- --------- ---------
Total purchase costs incurred, net of cash acquired ........ 17,306 62,117 120,575
--------- --------- ---------
Fair value of assets acquired, net of cash acquired ........... 17,606 40,056 48,546
Less: fair value of assumed liabilities ....................... (300) (14,257) (15,700)
--------- --------- ---------
Fair value of net assets acquired, net of cash acquired ....... 17,306 25,799 32,846
--------- --------- ---------
Costs incurred in excess of fair value of net assets acquired $ -- $ 36,318 $ 87,729
========= ========= =========
5. SPECIAL COMPENSATION AND LITIGATION CHARGES
Special Compensation Charge
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 capital raising incentive compensation award was 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):
CASH
STOCK AWARDS 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
============ ============ ============
Those shares of common stock issued 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 capital raising incentive
compensation charge was $2.1 million ($1.2 million, net of tax) and $0.4
million, net of tax, on a cash basis. U.S. Concrete recorded the $2.1 million
special compensation charge as an operating expense in 2001.
Litigation Charges
In September 2001, U.S. Concrete and Central entered into a settlement
agreement with Del Webb California Corp. and its parent company, Del Webb
Corporation (together, "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 $0.6 million from Del Webb and pay an
additional $2.2 million to Del Webb. U.S. Concrete recorded the $2.8 million
charges as selling, general and administrative expenses in 2001.
40
6. RESTRUCTURING AND IMPAIRMENT CHARGES
In the fourth quarter of 2002, U.S. Concrete implemented operational
initiatives focusing on the realignment of the business in its North Texas and
Memphis, Tennessee/Northern Mississippi markets. The initiatives included
termination of certain services in U.S. Concrete's North Texas market. In
connection with those initiatives, U.S. Concrete completed a restructuring plan
that included severance for one employee, lease terminations, the disposal of
assets, the write-down of certain equipment and other actions. U.S. Concrete
recorded restructuring and impairment charges of $28.4 million ($18.9 million,
net of tax) for the year ended December 31, 2002, summarized as follows (in
thousands):
LIABILITY AT
TOTAL CASH PAID NON-CASH DECEMBER 31,
RECORDED IN 2002 ITEMS 2002
------------ ------------ ----------- -------------
Severance costs ...................... $ 90 $ -- $ -- $ 90
Lease termination and other exit costs 250 44 15 191
Asset impairments .................... 2,503 -- 2,503 --
Goodwill impairments ................. 25,597 -- 25,597 --
------------ ------------ ------------ ------------
Total ................................ $ 28,440 $ 44 $ 28,115 $ 281
============ ============ ============ ============
The assets impairment charges were related primarily to rolling stock. The
impaired assets to be sold, totaling approximately $0.9 million as of December
31, 2002, are included in prepaid and other current assets in the consolidated
balance sheet. U.S. Concrete sold substantially all of those assets in the first
quarter of 2003 for $1.3 million.
The goodwill impairments relate to two reporting units in U.S. Concrete's
North Texas/Southwest Oklahoma and Memphis, Tennessee/Northern Mississippi
markets (see Note 3 for discussion).
The restructuring liability, totaling $0.3 million as of December 31, 2002,
is included in accrued liabilities in the consolidated balance sheet.
7. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is as follows (in thousands):
DECEMBER 31
----------------------
2002 2001
--------- ---------
Land and mineral deposits .................................. $ 29,180 $ 15,182
Buildings and improvements ................................. 12,393 11,773
Machinery and equipment .................................... 46,933 40,822
Mixers, trucks and other vehicles .......................... 56,680 53,785
Furniture and fixtures ..................................... 1,258 1,397
Construction in progress ................................... 4,566 3,194
--------- ---------
151,010 126,153
Less: accumulated depreciation and depletion (33,811) (25,844)
--------- ---------
$ 117,199 $ 100,309
========= =========
8. 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
------------------------------
2002 2001 2000
-------- ------- -------
Balance, beginning of period .............................. $ 3,667 $ 1,627 $ 730
Additions from acquisitions ............................ -- 1,031 1,085
Provision for doubtful accounts ........................ 2,126 2,507 220
Uncollectible receivables written off, net of recoveries (1,296) (1,498) (408)
------- ------- -------
Balance, end of period .................................... $ 4,497 $ 3,667 $ 1,627
======= ======= =======
41
Prepaid expenses and other current assets consist of the following (in
thousands):
DECEMBER 31
-------------------
2002 2001
-------- --------
Prepaid expenses ......................... $ 2,639 $ 2,649
Other receivables ........................ 5,969 4,482
Assets held for sale ..................... 850 --
Other current assets ..................... 257 313
-------- --------
$ 9,715 $ 7,444
======== ========
Inventory consists of the following (in thousands):
DECEMBER 31
-------------------
2002 2001
-------- --------
Raw materials ............................ $ 8,151 $ 5,699
Pre-cast products ........................ 7,264 6,530
Building materials for resale ............ 4,050 3,157
Repair parts ............................. 1,579 1,113
-------- --------
$ 21,044 $ 16,499
======== ========
Accounts payable and accrued liabilities consist of the following (in
thousands):
DECEMBER 31
--------------------
2002 2001
-------- ---------
Accounts payable.......................... $ 23,803 $ 37,568
Accrued compensation and benefits......... 3,999 6,449
Accrued interest.......................... 2,319 1,729
Accrued income taxes...................... 2,844 2,467
Other..................................... 18,777 10,016
-------- --------
$ 51,742 $ 58,229
======== ========
9. LONG-TERM DEBT
A summary of long-term debt is as follows (in thousands):
DECEMBER 31
--------------------
2002 2001
--------- --------
Secured revolving credit facility ........ $ 66,730 $ 68,620
12.00% senior subordinated notes ......... 95,000 95,000
Other .................................... 78 155
--------- --------
161,808 163,775
Less: current maturities .............. (56) (77)
--------- --------
Long-term debt, net of current
maturities .............................. $ 161,752 $163,698
========= ========
U.S. Concrete maintains a secured revolving credit facility totaling $200
million, with a scheduled maturity of May 2004. U.S. Concrete plans to renew or
extend this credit facility prior to the scheduled expiration. U.S. Concrete may
use this facility for the following purposes:
. financing acquisitions and internal expansion of its operations;
. working capital; and
. general corporate purposes.
U.S. Concrete's subsidiaries have fully and unconditionally guaranteed the
repayment of all amounts owing under the facility and it collateralized the
facility with the capital stock and assets of its subsidiaries on a joint and
several basis. The facility:
. requires the consent of the lenders for acquisitions;
42
. prohibits the payment of cash dividends on U.S. Concrete's common stock;
. limits U.S. Concrete's ability to incur additional indebtedness; and
. requires U.S. Concrete to comply with financial covenants.
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. Advances bear interest at the prime rate or certain Eurodollar
rates, 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, 2002, U.S. Concrete had approximately $66.7 million of
outstanding borrowings under this facility at a weighted average interest cost
of 4.26%. At December 31, 2002, U.S. Concrete had approximately $133.3 million
of remaining capacity under this facility, of which it could borrow
approximately $15.4 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
estimated positive cash flow.
In 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. These notes:
. are mandatorily repayable in equal annual installments of approximately
$13.6 million on November 10 in each of the years 2004 through 2010;
. are subordinated in right of payment to the indebtedness outstanding
under the credit facility; . are guaranteed by U.S. Concrete's
subsidiaries; and
. require U.S. Concrete to comply with covenants generally consistent with
those required under the credit facility.
U.S. Concrete used the net proceeds from its sale of the notes to reduce
amounts outstanding under its credit facility.
Aggregate maturities of long-term debt as of December 31, 2002 are as
follows (in thousands):
2003..................................... $ 56
2004..................................... 80,324
2005..................................... 13,571
2006..................................... 13,571
2007..................................... 13,571
Thereafter............................... 40,715
------------
$ 161,808
============
10. STOCKHOLDERS' EQUITY
Public Offering
In 2001, U.S. Concrete issued in a public offering 1.8 million shares of
common stock to the public at a price of $8.00 per share, resulting in net
proceeds to U.S. Concrete of $13.6 million, after deducting offering costs.
Common Stock Issuances in Acquisition Transactions
During 2002, 2001, and 2000, U.S. Concrete issued 18,754, 2,075,887 and
3,710,371 shares of its common stock, respectively, in connection with the
acquisition of 12 separate businesses, none of which were individually material
transactions. These acquisitions generally consisted of the acquisition of
certain assets or stock of the businesses being acquired in exchange for cash
and/or our common stock paid to the selling businesses or their shareholders,
along with the assumption of certain liabilities of the businesses. All of the
shares U.S. Concrete issued in these acquisition transactions were issued under
an exemption from the registration requirements of the Securities Act of 1933,
as amended (the "1933 Act"), under Section 4(2) of the 1933 Act.
Employee Stock Purchase Plan
In January 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 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
43
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.
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
U.S. Concrete grants under these plans generally vest over a four-year period
and expire if not exercised prior to the tenth anniversary following the grant
date. The number of shares available for awards under these plans was 1.3
million as of December 31, 2002 and 1.8 million as of December 31, 2001. The
board of directors of U.S. Concrete may, in its discretion, grant additional
awards or establish other compensation plans.
The following tables set forth certain stock option information (shares in
thousands):
WEIGHTED-
NUMBER AVERAGE
OF EXERCISE
OPTIONS PRICE
-------- ---------
Options outstanding at December 31, 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
Granted ................................. 1,138 6.25
Exercised ............................... -- --
Forfeited ............................... (458) 7.05
------
Options outstanding at December 31, 2002 ... 4,094 $ 7.22
======
Options exercisable at December 31, 2000 ... 389 $ 7.94
======
Options exercisable at December 31, 2001 ... 955 $ 7.84
======
Options exercisable at December 31, 2002 ... 1,698 $ 7.64
======
WEIGHTED-
AVERAGE
REMAINING WEIGHTED- WEIGHTED-
NUMBER OF YEARS OF AVERAGE NUMBER OF AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE
- ------------------------ ---------- ------------ ------------ ----------- ---------
$4.85 - $6.25 ...... 49 5.38 $ 5.70 39 $ 5.90
$6.26 - $6.99 ...... 1,401 8.63 6.38 200 6.62
$7.00 - $7.99 ...... 977 7.83 7.09 339 7.12
$8.00 - $8.75 ...... 1,667 6.65 8.05 1,120 8.05
---------- -----------
4,094 1,698
========== ===========
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 expired in May 2002. U.S. Concrete issued
warrants to purchase an additional 100,000 shares of common stock to the same
underwriters in May 2000 at an exercise price of $8.00 per share for advisory
services they agreed to provide. These warrants are scheduled to expire in May
2003.
44
11. 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
----------------------------
2002 2001 2000
------- ------- -------
Current:
Federal .... $ 3,478 $ 2,346 $ 7,617
State ...... 1,362 431 1,122
------- ------- -------
4,840 2,777 8,739
------- ------- -------
Deferred:
Federal .... $(3,487) $ 4,532 $ 2,646
State ...... (745) 349 365
------- ------- -------
(4,232) 4,881 3,011
------- ------- -------
Total provision $ 608 $ 7,658 $11,750
======= ======= =======
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
---------------------------------
2002 2001 2000
-------- -------- --------
Tax at statutory rate ...... $ (1,201) $ 6,021 $ 10,013
Add (deduct):
State income taxes ...... 401 507 967
Nondeductible expenses .. 1,421 1,068 960
Other ................... (13) 62 (190)
-------- -------- --------
Income tax provision ....... $ 608 $ 7,658 $ 11,750
======== ======== ========
Effective income tax rate 17.7% 44.5% 41.1%
======== ======== ========
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
--------------------
2002 2001
-------- --------
Deferred income tax liabilities:
Property, plant and equipment, net ............... $ 15,569 $ 14,149
Goodwill ......................................... -- 4,206
Other ............................................ 2,167 2,568
-------- --------
Total deferred income tax liabilities .......... 17,736 20,923
-------- --------
Deferred income tax assets
Goodwill ......................................... 14,937 --
Allowance for doubtful accounts .................. 674 752
Inventory ........................................ 935 --
Accrued expenses ................................. 2,579 1,099
Other ............................................ 298 406
-------- --------
Total deferred income tax assets ............... 19,423 2,257
-------- --------
Net deferred income tax (assets) liabilities . $ (1,687) $ 18,666
======== ========
45
12. 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, of
which it currently leases seven. 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 $214,800 in current annual rent
during the initial terms of these leases. During 2001 and a portion of 2002,
Robert S. Beall, a former owner of these companies, beneficially owned 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
LOCATIONS: FACILITIES ANNUAL RENTALS
-------------------------- ------------ ----------------
Central................... 2 $ 316,950
Eastern................... 2 $ 294,195
William T. Albanese, a former owner of Central and the President of U.S.
Concrete's Bay Area Region, and Michael D. Mitschele, the former owner of
Eastern Concrete Materials, Inc. and the President of U.S. Concrete's Atlantic
Region, 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 2002, $2.8 million in 2001 and $2.0 million in
2000. The schedule of minimum lease payments in Note 14 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 is a co-trustee. Central's purchases from this company
totaled $277,750 in 2002, $310,000 in 2001 and $122,000 in 2000. 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 building materials company in
early 2002.
Central sold ready-mixed concrete to a company owned by a cousin of William
T. Albanese. Central's sales to this company totaled $14.1 million in 2002,
$15.8 million in 2001 and $15.4 million in 2000. 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 $180,269 in 2002 and $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 in the amount of $88,097 and $118,792 in 2002 and 2001,
respectively. These purchases were 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.
In 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. U.S. Concrete recorded an
expense related to these loans in 2001. The aggregate amount outstanding under
these loans at December 31, 2001 was $300,000. U.S. Concrete forgave the
indebtedness outstanding under these loans in 2002. The loans, which were
payable in full on March 1, 2005, did not bear interest. In 2002, we extended
loans of $70,595 to Mr. Martineau and $50,000 to Mr. Harlan. The aggregate
amount outstanding under these loans at December 31, 2001 was $120,595. These
loans do not bear interest.
46
U.S. Concrete paid Main Street Mezzanine Fund, LLC (or its predecessor), of
which Vincent D. Foster, U.S. Concrete's chairman, is a senior managing
director, $396,578, $213,000 and $403,000 in 2002, 2001 and 2000, respectively,
for reimbursement of expenses primarily related to U.S. Concrete's acquisition
program and other business development activities.
In March 2001, U.S. Concrete modified its non-compete arrangements with
Neil J. Vannucci, one of its directors during 2001 and a portion of 2002. 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 and 2002.
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 U.S. Concrete to 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 2002 and 2001, and the
amount of fees paid to them was not material.
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.
13. RISK CONCENTRATION
U.S. Concrete grants credit, generally without collateral, to its
customers, which include general contractors, municipalities and commercial
companies located primarily in California, Texas, Michigan, New Jersey/New York,
and Tennessee. Consequently, it is subject to potential credit risk related to
changes in business and economic factors throughout those states. U.S. Concrete
generally has lien rights in the work it performs, and concentrations of credit
risk are limited because of the diversity of its customer base. Further,
management believes that its contract acceptance, billing and collection
policies are adequate to minimize any potential credit risk.
14. 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 80 years. Central
and U.S. Concrete each filed an answer and cross-complaint in August 2000,
seeking (1) declaratory relief for a determination that Bay-Crete is not
entitled to use the contract and (2) 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. U.S.
Concrete withdrew its cross-complaint in September 2002 for procedural reasons.
Central's cross-complaint is still pending. Central and U.S. Concrete believe
they have meritorious defenses to Bay-Crete's claim and intend to vigorously
defend this suit. The trial date is set for May 2003.
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 financial position, results of operations or cash flows; 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 operations for the fiscal
period in which that resolution occurs. U.S. Concrete expects in the future it
and its operating subsidiaries will from time to time be a party to litigation
or administrative proceedings that arise in the normal course of its business.
47
Lease Payments
U.S. Concrete leases tracts of land, facilities and equipment it uses in
its operations. Rental expense under operating leases was $12.4 million, $11.1
million and $5.5 million in 2002, 2001 and 2000, respectively. Minimum future
annual lease payments under U.S. Concrete's noncancellable leases as of December
31, 2002 are as follows (in thousands):
2003.............................................. $ 9,747
2004.............................................. 7,638
2005.............................................. 5,728
2006.............................................. 4,762
2007.............................................. 3,424
Thereafter........................................ 2,733
---------
$ 34,032
=========
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. The estimated losses are
subject to uncertainty from various sources, including changes in claims
reporting patterns, claims settlement patterns, judicial decisions, legislation
and economic conditions. Although U.S. Concrete believes that the estimated
losses are reasonable, significant differences related to the items noted above
could materially affect U.S. Concrete's insurance obligations and future
expense.
Letters of Credit
In March 2002, U.S. Concrete issued a $50,000 letter of credit to a
municipality in connection with U.S. Concrete's obligation to perform
reclamation services on the closure of an aggregates quarry site.
Performance Bonds
In the normal course of business, U.S. Concrete is currently contingently
liable for performance under $22.4 million in performance bonds that various
states and municipalities have required. The bonds are principally related to
construction contracts, reclamation obligations and mining permits. Three of
these bonds totaling $11.7 million, or 52% of all outstanding performance bonds,
relate to specific performance for airport construction projects. U.S. Concrete
has indemnified the underwriting insurance company against any exposure under
the performance bonds. In U.S. Concrete's past experience, no material claims
have been made against these bonds.
Contingent Purchase Obligations
In connection with one business U.S. Concrete acquired in 2001, U.S.
Concrete entered into a contingent consideration arrangement with former owners
of that business. These obligations require U.S. Concrete to pay up to $1.2
million in additional consideration if a specified earnings threshold, as
defined in that agreement, and/or working capital targets are met. As of
December 31, 2002, U.S. Concrete estimated no contingent consideration to be
payable. Any additional consideration would be paid partially in stock.
Underwriting Arrangement
In January 2002, U.S. Concrete entered into an underwriting agreement that
allows U.S. Concrete to issue up to 1.8 million shares of its common stock
through an underwriter over a two-year period. If U.S. Concrete does not use
this arrangement to raise an aggregate of $2 million or more, it will be
required to pay the underwriter up to $100,000 in stand-by fees. The stand-by
fees will be equal to 5% of the difference between the $2 million and the amount
raised under this arrangement. U.S. Concrete may pay, at its option, the
stand-by fees in cash or in shares of its common stock.
48
15. SIGNIFICANT CUSTOMERS AND SUPPLIERS
U.S. Concrete defines its significant customers as those customers who
accounted for more than 10% of its revenues in a given period. U.S. Concrete did
not have any significant customers during 2002, 2001 or 2000.
U.S. Concrete defines its significant suppliers as those suppliers who
accounted for more than 10% of its cost of goods sold in a given period. U.S.
Concrete did not have any significant suppliers during 2002. For prior years,
one supplier accounted for 11.7% and 10.9% of total purchases (as a percentage
of total cost of goods sold) during 2001 and 2000, respectively.
16. 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 $2.8 million during
2002 and $1.9 million during 2001.
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 $0, $143,000 and $0 in 2002, 2001 and 2000, 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. In 2001, Carrier
Excavation and Foundation Company, a subsidiary of U.S. Concrete, withdrew from
the multi-employer pension plan of the union that represented several of its
employees. That union disclaimed interest in representing those employees. U.S.
Concrete has no plans to withdraw from any other multi-employer plans. 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
$11.3 million in 2002, $10.9 million in 2001 and $9.0 million in 2000.
For discussions of U.S. Concrete's incentive plans and employee stock
purchase plan, see Note 9.
17. SUBSEQUENT EVENT
Acquisition
On January 31, 2003, U.S. Concrete acquired one ready-mixed concrete
business. U.S. Concrete accounted for this transaction as a purchase, and the
aggregate consideration it paid in this transaction consisted of $6.9 million in
cash and 920,726 shares of common stock. U.S. Concrete funded the cash component
of the consideration with borrowings under its secured revolving credit
facility.
49
18. SELECTED QUARTERLY FINANCIAL INFORMATION
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- --------- --------- ---------
(unaudited; in thousands, except per share data)
2002(1)(2)
Sales ............................................. $ 104,900 $ 140,187 $ 144,061 $ 114,166
Income (loss) from operations ..................... 3,033 15,559 15,624 (21,706)
Net income (loss) ................................. (689) 6,705 6,707 (16,761)
Basic and diluted earnings (loss) per share ....... (0.03) 0.25 0.25 (0.62)
2001(3)
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 and diluted earnings (loss) per share ....... (0.08) 0.21 0.15 0.10
(1) Net income (loss) does not reflect the transitional goodwill impairment
charge for the adoption of SFAS No. 142 of $24.3 million ($0.91 per share), net
of tax, presented as a cumulative effect of accounting change in the first
quarter of 2002. See Note 3.
(2) Reflects restructuring and impairment charges of $28.4 million in the
fourth quarter of 2002. The earning per share impact of the charges was $0.70
per share. See Note 6.
(3) Reflects special compensation charge of $2.1 million in the second
quarter of 2001. The earning per share impact of the charge was $0.05 per share.
See Note 5.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As we previously disclosed in our current report on Form 8-K dated May 16,
2002, which we filed with the SEC on May 21, 2002, we dismissed Arthur Andersen
LLP as our independent auditors and appointed PricewaterhouseCoopers LLP to
serve as our independent auditors for 2002.
50
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 2003 Annual Meeting of Stockholders. We intend to file that definitive proxy
statement with the SEC by April 30, 2003.
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 and Key Employees" in the
definitive proxy statement for our 2003 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 2003
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 2003 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 2003 Annual Meeting of
Stockholders for the information this Item 13 requires.
ITEM 14. CONTROLS AND PROCEDURES
Within the 90-day period immediately preceding the filing of this report,
our chief executive officer and chief financial officer have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934). On the basis of that evaluation, our chief executive
officer and chief financial officer concluded that the design and operation of
our disclosure controls and procedures were effective as of the date of that
evaluation. There have been no significant changes in our internal controls or
in other factors that could significantly affect those controls subsequent to
the date of that evaluation.
51
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
See Index to Consolidated Financial Statements on page 26.
(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).
4.1*--Amended and Restated Credit Agreement, dated as of August 31, 2001, the
parties to which include U.S. Concrete, the Guarantors named therein,
the Lenders named therein and JP Morgan Chase Bank, as administrative
agent (Form 10-Q for the quarter ended September 30, 2001 (File No.
000-26025), Exhibit 4.1).
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 Exhibit 4.1 (Form 10-Q for the quarter ended June
30, 2002 (File No. 000-26025), Exhibit 4.2).
4.5*--New Lender Acceptance, dated June 12, 2002 under Exhibit 4.1 (Form 10-Q
for the quarter ended June 30, 2002 (File No. 000-26025), Exhibit 4.3).
4.6*--Note Purchase Agreement, dated November 10, 2000, the parties to which
include U.S. Concrete, Inc. and 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 (Form 10-K for the
year ended December 31, 2000 (File No. 000-26025), Exhibit 4.4).
4.7*--First Amendment to Exhibit 4.6 (Form 10-K for the year ended December
31, 2001 (File No. 000-26025), Exhibit 4.4).
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. Under paragraph 4(iii) (A) of
Item 601(b) of Regulation S-K, U.S. Concrete agrees to furnish a copy
of those instruments to the SEC on request.
10.1*+--1999 Incentive Plan of U.S. Concrete (Form S-1 (Reg. No. 333-74855),
Exhibit 10.1).
10.2*+--Employment Agreement between U.S. Concrete and William T. Albanese (Form
S-1 (Reg. No. 333-74855), Exhibit 10.2).
10.3*+--Form of Employment Agreement between U.S. Concrete and Michael W. Harlan
(Form S-1 (Reg. No. 333-74855), Exhibit 10.3).
10.4*+--Form of Employment Agreement between U.S. Concrete and Eugene P.
Martineau (Form S-1 (Reg. No. 333-74855), Exhibit 10.4).
10.5*+--Employment Agreement between U.S. Concrete and Michael D. Mitschele
(Form S-1 (Reg. No. 333-74855), Exhibit 10.5).
10.6*+--Employment Agreement between U.S. Concrete and Charles W. Sommer (Form
S-1 (Reg. No. 333-74855), Exhibit 10.6).
10.7*+--Employment Agreement between U.S. Concrete and Neil J. Vannucci (Form
S-1 (Reg. No. 333-74855), Exhibit 10.7).
52
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------------------
10.8*+--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).
10.9*+-- Form of Employment Agreement between U.S. Concrete and Terry Green
(Form S-1 (Reg. No. 333-74855), Exhibit 10.10).
10.10*+--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).
10.11*+--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).
10.12*+--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).
10.13*-- 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. 000-26025), Exhibit 10.14).
10.14*-- 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. 000-26025), Exhibit 10.15).
10.15*-- 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.
000-26025), Exhibit 10.16).
10.16*-- 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).
10.17*-- 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).
10.18-- Promissory Note, dated May 24, 2002, issued by Eugene P. Martineau to
U.S. Concrete, Inc.
10.19-- Promissory Note, dated May 24, 2002, issued by Michael Harlan to U.S.
Concrete, Inc.
21-- Subsidiaries
23-- Consent of independent accountants.
- ----------
* Incorporated by reference to the filing indicated.
+ Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
We did not file any current reports on Form 8-K during the last quarter of
the year covered by this report.
53
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 28, 2003
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 28, 2003.
SIGNATURE TITLE
----------------------------- --------------------------------------------
/s/ Eugene P. Martineau President and Chief Executive Officer and
----------------------------- Director (Principal Executive Officer)
EUGENE P. MARTINEAU
/s/ Michael W. Harlan Chief Financial Officer and Director
----------------------------- (Principal Financial and Accounting Officer)
MICHAEL W. HARLAN
/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/ Mary P. Ricciardello Director
-----------------------------
MARY P. RICCIARDELLO
/s/ Murray S. Simpson Director
-----------------------------
MURRAY S. SIMPSON
/s/ Robert S. Walker Director
-----------------------------
ROBERT S. WALKER
54
CERTIFICATIONS
I, Eugene P. Martineau, chief executive officer of U.S. Concrete, Inc., certify
that:
1. I have reviewed this annual report on Form 10-K of U.S. Concrete, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
March 28, 2003
/s/ Eugene P. Martineau
----------------------------
Eugene P. Martineau
Chief Executive Officer
55
I, Michael W. Harlan, chief financial officer of U.S. Concrete, Inc., certify
that:
1. I have reviewed this annual report on Form 10-K of U.S. Concrete, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
March 28, 2003
/s/ Michael W. Harlan
----------------------------
Michael W. Harlan
Chief Financial Officer
56
INDEX TO 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).
4.1*--Amended and Restated Credit Agreement, dated as of August 31, 2001, the
parties to which include U.S. Concrete, the Guarantors named therein,
the Lenders named therein and JP Morgan Chase Bank, as administrative
agent (Form 10-Q for the quarter ended September 30, 2001 (File No.
000-26025), Exhibit 4.1).
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 Exhibit 4.1 (Form 10-Q for the quarter ended June
30, 2002 (File No. 000-26025), Exhibit 4.2).
4.5*--New Lender Acceptance, dated June 12, 2002 under Exhibit 4.1 (Form 10-Q
for the quarter ended June 30, 2002 (File No. 000-26025), Exhibit 4.3).
4.6*--Note Purchase Agreement, dated November 10, 2000, the parties to which
include U.S. Concrete, Inc. and 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 (Form 10-K for the
year ended December 31, 2000 (File No. 000-26025), Exhibit 4.4).
4.7*--First Amendment to Exhibit 4.6 (Form 10-K for the year ended December
31, 2001 (File No. 000-26025), Exhibit 4.4).
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*+--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).
10.9*+--Form of Employment Agreement between U.S. Concrete and Terry Green
(Form S-1 (Reg. No. 333-74855), Exhibit 10.10).
10.10*+--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).
10.11*+--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).
10.12*+--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).
10.13*--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. 000-26025), Exhibit 10.14).
10.14*--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. 000-26025), Exhibit 10.15).
10.15*--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.
000-26025), Exhibit 10.16).
10.16*--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).
57
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------
10.17*--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).
10.18--Promissory Note, dated May 24, 2002, issued by Eugene P. Martineau to
U.S. Concrete, Inc.
10.19--Promissory Note, dated May 24, 2002, issued by Michael Harlan to U.S.
Concrete, Inc.
21--Subsidiaries
23--Consent of independent accountants.
- ----------
* Incorporated by reference to the filing indicated.
+ Management contract or compensatory plan or arrangement.
58