Attached files
file | filename |
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EX-31.1 - U.S. CONCRETE, INC. | v165210_ex31-1.htm |
EX-31.2 - U.S. CONCRETE, INC. | v165210_ex31-2.htm |
EX-32.2 - U.S. CONCRETE, INC. | v165210_ex32-2.htm |
EX-32.1 - U.S. CONCRETE, INC. | v165210_ex32-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the Quarterly Period Ended September 30, 2009
Commission
File Number 000-26025
U.S.
CONCRETE, INC.
(Exact
name of registrant as specified in its charter)
Delaware
(State or
other jurisdiction of incorporation or organization)
IRS
Employer Identification No. 76-0586680
2925
Briarpark, Suite 1050
Houston,
Texas 77042
(Address
of principal executive offices, including zip code)
(713)
499-6200
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes þ No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes ¨ No ¨
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company (as defined in Rule 12b-2 of the
Exchange Act).
Large
accelerated filer ¨ Accelerated
filer þ Non-accelerated
filer ¨ Smaller
Reporting Company ¨
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No þ
As of the
close of business on November 6, 2009, U.S. Concrete, Inc. had 37,328,861 shares
of its common stock, $0.001 par value, outstanding (excluding 551,997 of
treasury shares).
U.S.
CONCRETE, INC.
INDEX
Page
No.
|
|
Part
I – Financial Information
|
|
Item
1. Financial Statements
|
|
Condensed
Consolidated Balance Sheets
|
3
|
Condensed
Consolidated Statements of Operations
|
4
|
Condensed
Consolidated Statement of Changes in Equity
|
5
|
Condensed
Consolidated Statements of Cash Flows
|
6
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
Item
2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
|
25
|
Item
3. Quantitative and Qualitative Disclosures
About Market Risk
|
38
|
Item
4. Controls and Procedures
|
38
|
Part
II – Other Information
|
|
Item
1. Legal Proceedings
|
38
|
Item
6. Exhibits
|
39
|
SIGNATURE
|
40
|
INDEX
TO EXHIBITS
|
41
|
2
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements
U.S.
CONCRETE, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in
thousands)
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 10,528 | $ | 5,323 | ||||
Trade
accounts receivable, net
|
93,268 | 100,269 | ||||||
Inventories
|
30,176 | 32,768 | ||||||
Deferred
income taxes
|
12,535 | 11,576 | ||||||
Prepaid
expenses
|
4,213 | 3,519 | ||||||
Other
current assets
|
6,563 | 13,801 | ||||||
Total
current assets
|
157,283 | 167,256 | ||||||
Property,
plant and equipment, net
|
246,908 | 272,769 | ||||||
Goodwill
|
14,063 | 59,197 | ||||||
Other
assets
|
6,954 | 8,588 | ||||||
Total
assets
|
$ | 425,208 | $ | 507,810 | ||||
LIABILITIES
AND EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Current
maturities of long-term debt
|
$ | 10,387 | $ | 3,371 | ||||
Accounts
payable
|
44,252 | 45,920 | ||||||
Accrued
liabilities
|
56,306 | 54,481 | ||||||
Total
current liabilities
|
110,945 | 103,772 | ||||||
Long-term
debt, net of current maturities
|
288,207 | 302,617 | ||||||
Other
long-term obligations and deferred credits
|
7,249 | 8,522 | ||||||
Deferred
income taxes
|
12,042 | 12,536 | ||||||
Total
liabilities
|
418,443 | 427,447 | ||||||
Commitments
and contingencies (Note 12)
|
||||||||
Equity:
|
||||||||
Preferred
stock
|
– | – | ||||||
Common
stock
|
38 | 37 | ||||||
Additional
paid-in capital
|
267,532 | 265,453 | ||||||
Retained
deficit
|
(264,072 | ) | (192,564 | ) | ||||
Treasury
stock, at cost
|
(3,277 | ) | (3,130 | ) | ||||
Total
stockholders’ equity
|
221 | 69,796 | ||||||
Non-controlling
interest (Note 1)
|
6,544 | 10,567 | ||||||
Total
equity
|
6,765 | 80,363 | ||||||
Total
liabilities and equity
|
$ | 425,208 | $ | 507,810 |
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
3
U.S.
CONCRETE, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in
thousands, except per share amounts)
Three
Months
Ended
September 30,
|
Nine
Months
Ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenue
|
$ | 153,608 | $ | 212,819 | $ | 414,634 | $ | 580,973 | ||||||||
Cost
of goods sold before depreciation, depletion and
amortization
|
128,572 | 176,324 | 352,683 | 488,025 | ||||||||||||
Selling,
general and administrative expenses
|
16,206 | 19,643 | 50,727 | 55,494 | ||||||||||||
Goodwill
and other asset impairments
|
54,560 | — | 54,560 | — | ||||||||||||
Depreciation,
depletion and amortization
|
7,645 | 7,850 | 22,551 | 21,763 | ||||||||||||
(Gain)
loss on sale of assets
|
2,865 | (321 | ) | 2,029 | (399 | ) | ||||||||||
Income
(loss) from operations
|
(56,240 | ) | 9,323 | (67,916 | ) | 16,090 | ||||||||||
Interest
expense, net
|
6,578 | 6,747 | 19,908 | 20,121 | ||||||||||||
Gain
on purchases of senior subordinated notes
|
— | — | 7,406 | — | ||||||||||||
Other
income, net
|
326 | 578 | 1,016 | 1,628 | ||||||||||||
Income
(loss) from continuing operations before income taxes
|
(62,492 | ) | 3,154 | (79,402 | ) | (2,403 | ) | |||||||||
Income
tax expense (benefit)
|
(1,194 | ) | 1,248 | (2,262 | ) | 346 | ||||||||||
Income
(loss) from continuing operations
|
(61,298 | ) | 1,906 | (77,140 | ) | (2,749 | ) | |||||||||
Loss
from discontinued operations (net of tax benefit of $0 and $81 in
2008)
|
— | — | — | (149 | ) | |||||||||||
Net
income (loss)
|
(61,298 | ) | 1,906 | (77,140 | ) | (2,898 | ) | |||||||||
Net
loss (income) attributable to non-controlling interest
|
3,238 | (184 | ) | 5,632 | 2,645 | |||||||||||
Net
income (loss) attributable to stockholders
|
$ | (58,060 | ) | $ | 1,722 | $ | (71,508 | ) | $ | (253 | ) | |||||
Earnings
(loss) per share attributable to stockholders – basic
|
||||||||||||||||
Income
(loss) from continuing operations
|
$ | (1.60 | ) | $ | 0.04 | $ | (1.98 | ) | $ | — | ||||||
Loss
from discontinued operations, net of income tax benefit
|
— | — | — | — | ||||||||||||
Net
income (loss)
|
$ | (1.60 | ) | $ | 0.04 | $ | (1.98 | ) | $ | — | ||||||
Earnings
(loss) per share attributable to stockholders – diluted
|
||||||||||||||||
Income
(loss) from continuing operations
|
$ | (1.60 | ) | $ | 0.04 | $ | (1.98 | ) | $ | — | ||||||
Loss
from discontinued operations, net of income tax benefit
|
— | — | — | — | ||||||||||||
Net
income (loss)
|
$ | (1.60 | ) | $ | 0.04 | $ | (1.98 | ) | $ | — | ||||||
Weighted
average shares outstanding:
|
||||||||||||||||
Basic
|
36,272 | 38,808 | 36,132 | 38,702 | ||||||||||||
Diluted
|
36,272 | 39,389 | 36,132 | 38,702 |
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
4
U.S.
CONCRETE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY
(Unaudited)
(in
thousands)
Common
Stock
|
Additional
|
Non-
|
||||||||||||||||||||||||||
Shares
|
Par
Value
|
Paid-In
Capital
|
Retained
Deficit
|
Treasury
Stock
|
Controlling
Interest
|
Total
Equity
|
||||||||||||||||||||||
BALANCE,
December 31, 2008
|
36,793 | $ | 37 | $ | 265,453 | $ | (192,564 | ) | $ | (3,130 | ) | $ | 10,567 | $ | 80,363 | |||||||||||||
Stock-based
compensation
|
497 | 1 | 1,791 | — | — | — | 1,792 | |||||||||||||||||||||
Employee
purchase of ESPP shares
|
171 | — | 288 | — | — | — | 288 | |||||||||||||||||||||
Purchase
of treasury shares
|
(89 | ) | — | — | — | (147 | ) | — | (147 | ) | ||||||||||||||||||
Cancellation
of shares
|
(39 | ) | — | — | — | — | — | — | ||||||||||||||||||||
Capital
contribution to Superior Materials Holdings, LLC
|
— | — | — | — | — | 1,609 | 1,609 | |||||||||||||||||||||
Net
loss
|
— | — | — | (71,508 | ) | — | (5,632 | ) | (77,140 | ) | ||||||||||||||||||
BALANCE,
September 30, 2009
|
37,333 | $ | 38 | $ | 267,532 | $ | (264,072 | ) | $ | (3,277 | ) | $ | 6,544 | $ | 6,765 |
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
5
U.S.
CONCRETE, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in
thousands)
Nine
Months
Ended
September 30,
|
||||||||
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$ | (77,140 | ) | $ | (2,898 | ) | ||
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
||||||||
Goodwill
and other asset impairments
|
54,560 | — | ||||||
Depreciation,
depletion and amortization
|
22,551 | 21,763 | ||||||
Debt
issuance cost amortization
|
1,356 | 1,250 | ||||||
Gain
on purchases of senior subordinated notes
|
(7,406 | ) | — | |||||
Net
(gain) loss on sale of assets
|
2,029 | (892 | ) | |||||
Deferred
income taxes
|
(1,453 | ) | (402 | ) | ||||
Provision
for doubtful accounts
|
2,925 | 996 | ||||||
Stock-based
compensation
|
1,792 | 2,231 | ||||||
Changes
in assets and liabilities, excluding effects of
acquisitions:
|
||||||||
Accounts
receivable
|
4,076 | (22,138 | ) | |||||
Inventories
|
2,481 | (3,431 | ) | |||||
Prepaid
expenses and other current assets
|
6,544 | 1,540 | ||||||
Other
assets and liabilities
|
3 | 126 | ||||||
Accounts
payable and accrued liabilities
|
(366 | ) | 21,369 | |||||
Net
cash provided by operating activities
|
11,952 | 19,514 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases
of property, plant and equipment
|
(12,491 | ) | (20,196 | ) | ||||
Proceeds
from disposals of property, plant and equipment
|
9,122 | 3,350 | ||||||
Payments
for acquisitions
|
(5,214 | ) | (21,778 | ) | ||||
Disposal
of business unit
|
— | 7,583 | ||||||
Other
investing activities
|
— | 103 | ||||||
Net
cash used in investing activities
|
(8,583 | ) | (30,938 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds
from borrowings
|
138,859 | 6,282 | ||||||
Repayments
of borrowings
|
(132,354 | ) | (4,924 | ) | ||||
Purchases
of senior subordinated notes
|
(4,810 | ) | — | |||||
Shares
purchased under common stock buyback program
|
— | (703 | ) | |||||
Purchase
of treasury shares
|
(147 | ) | (390 | ) | ||||
Proceeds
from issuances of common stock under compensation plans
|
288 | 376 | ||||||
Other
financing activities
|
— | (160 | ) | |||||
Net
cash provided by financing activities
|
1,836 | 481 | ||||||
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
5,205 | (10,943 | ) | |||||
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
5,323 | 14,850 | ||||||
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | 10,528 | $ | 3,907 |
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
6
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS
OF PRESENTATION
The
accompanying condensed consolidated financial statements include the accounts of
U.S. Concrete, Inc. and its subsidiaries and have been prepared by us, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (the “SEC”). We include in our condensed consolidated
financial statements the results of operations, balance sheets and cash flows of
our 60%-owned Michigan subsidiary, Superior Materials Holdings, LLC
(“Superior”). We reflect the minority owner’s 40% interest in income,
net assets and cash flows of that subsidiary as a non-controlling interest in
our condensed consolidated financial statements. Some information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the SEC’s rules and regulations. These unaudited
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and related notes in our annual report on
Form 10-K for the year ended December 31, 2008 (the “2008 Form
10-K”). In the opinion of our management, all adjustments necessary
to state fairly the information in our unaudited condensed consolidated
financial statements have been included. Operating results for the
three and nine month periods ended September 30, 2009 are not necessarily
indicative of our results expected for the year ending December 31, 2009. We
have made certain reclassifications to prior period amounts to conform to the
current period presentation in accordance with authoritative accounting guidance
related to non-controlling interests in consolidated financial
statements.
The
preparation of financial statements and accompanying notes in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions in determining the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities as
of the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates. Estimates and assumptions that we consider
significant in the preparation of our financial statements include those related
to our allowance for doubtful accounts, goodwill, accruals for self-insurance,
income taxes, reserves for inventory obsolescence and the valuation and useful
lives of property, plant and equipment.
We
evaluated subsequent events through November 9, 2009, the date we filed this
quarterly report on Form 10-Q for the quarter ended September 30, 2009 with the
SEC, and have disclosed a subsequent event under Note 15.
2. SIGNIFICANT
ACCOUNTING POLICIES
For a
description of our accounting policies, see Note 1 of the consolidated financial
statements in the 2008 Form 10-K, as well as Note 14 below.
3. RISKS
AND UNCERTAINTIES
Covenants
contained in the credit agreement governing our senior revolving credit facility
(the “Credit Agreement”) could adversely affect our ability to obtain cash from
external sources. Specifically, the Credit Agreement requires us to maintain a
minimum fixed-charge coverage ratio of 1.0 to 1.0 on a rolling 12-month basis if
the available credit under the facility falls below $25 million. Our
liquidity outlook for 2010 continues to weaken, primarily as a result of
continued softness in residential construction, further softening of demand in
the commercial sector and delays in public works projects in many of our
markets. We are also experiencing product pricing pressure and expect
ready-mixed concrete pricing declines in 2010 compared to 2009 in most of our
markets, which will have a negative effect on our gross margins. Our
anticipated product volume declines and product price erosions are expected to
negatively impact our liquidity. Based upon our projections as of the
date of this quarterly report, we expect our available credit to remain above
$25 million over the next twelve months. However, if the severity of
product volume and price declines are more than anticipated, this may cause our
available credit under the Credit Agreement to fall below $25 million in
2010. Additionally, our business is subject to certain risks and
uncertainties which could cause our actual results to vary from those
expected. These risks and uncertainties are discussed in greater
detail in our Annual Report on Form 10-K for the year ended December 31,
2008. If our available credit falls below $25 million, we do not
currently expect that we would be able to meet the minimum fixed-charge coverage
ratio of 1.0 to 1.0 on a rolling 12-month basis.
Absent a
waiver or amendment from our lenders or a successful refinancing of the Credit
Agreement prior to a potential noncompliance event, our lenders would control
our cash depository accounts, may limit or restrict our future borrowings under
the Credit Agreement and may, at their option, immediately accelerate the
maturity of the facility. If the lenders were to accelerate our
obligation to repay borrowings under the Credit Agreement, we may not be able to
repay the debt or refinance the debt on acceptable terms, and we may not have
sufficient liquidity to make the payments when due. Our lenders may also
prohibit interest payments on our 8⅜% senior subordinated notes due April 1,
2014 (the “8⅜% Notes”) for a period ending on the earlier of 180 days or the
date the event of default has been waived or amended.
7
Under the
provisions of our 8⅜% Notes, an event of default under our credit facility would
not accelerate the 8⅜% Notes unless the Credit Agreement lenders accelerate
maturity of the debt outstanding under that agreement. If our
obligation to repay the indebtedness under our 8⅜% Notes was accelerated, we may
not be able to repay the debt or refinance the debt on acceptable terms, and we
may not have sufficient assets to make the payments when due. The
acceleration of our credit agreement or the 8⅜% Notes would have a material
adverse affect on our operations and our ability to meet our obligations as they
become due.
4. DISCONTINUED
OPERATIONS
In the first quarter of 2008, we sold
our ready-mixed concrete business unit headquartered in Memphis,
Tennessee. This unit was part of our ready-mixed concrete and
concrete-related products segment. We classified this business unit
as discontinued operations beginning in the fourth quarter of 2007, and we have
presented the results of operations, net of tax, as discontinued operations in
the accompanying condensed consolidated statements of operations. The
results of discontinued operations included in the accompanying condensed
consolidated statements of operations were as follows for the nine month period
ended September 30, 2008 (in thousands):
Nine Months Ended
September 30, 2008
|
||||
Revenue
|
$ | 671 | ||
Operating
expenses
|
1,395 | |||
Gain
on disposal of assets
|
494 | |||
Loss
from discontinued operations, before income tax benefit
|
(230 | ) | ||
Income
tax benefits from discontinued operations
|
(81 | ) | ||
Loss
from discontinued operations, net of tax
|
$ | (149 | ) |
5. BUSINESS
COMBINATIONS AND DISPOSALS
In September 2009, we sold four
ready-mixed concrete plants in Sacramento, California for approximately $6.0
million, plus a payment for inventory on hand at closing. This sale resulted in
a pre-tax loss of approximately $3.0 million after the allocation of
approximately $3.0 million of goodwill related to these assets.
In May 2009, we acquired substantially
all the assets of a concrete recycling business in Queens, New York. We used
borrowings under our revolving credit facility to fund the cash purchase price
of approximately $4.5 million.
In November 2008, we acquired a
ready-mixed concrete plant and related inventory in Brooklyn, New
York. We used borrowings under our revolving credit facility to fund
the cash purchase price of approximately $2.5 million.
In August 2008, we acquired a
ready-mixed concrete operation in Mount Vernon, New York and a precast concrete
product operation in San Diego, California. We used cash on hand to
fund the purchase prices of $2.0 million and $2.5 million,
respectively.
In June
2008, we acquired nine ready-mixed concrete plants, together with related real
property, rolling stock and working capital, in our west Texas market from
another ready-mixed concrete producer for approximately $13.5
million. We used cash on hand and borrowings under our existing
credit facility to fund the purchase price.
In May
2008, we paid $1.4 million of contingent purchase consideration related to real
estate acquired pursuant to the acquisition of Builders’ Redi-Mix, Inc. in
January 2003.
In
January 2008, we acquired a ready-mixed concrete operation in Staten Island, New
York. We used cash on hand to fund the purchase price of
approximately $1.8 million.
The pro forma impacts of our 2009 and
2008 acquisitions have not been included due to the fact that they were
immaterial to our financial statements individually and in the
aggregate.
8
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
6. GOODWILL
AND OTHER ASSET IMPAIRMENTS
The
change in goodwill from December 31, 2007 to September 30, 2009 is as follows
(in thousands):
Ready-Mixed
Concrete and
Concrete-Related
Products
|
Precast Concrete
Products
|
Total
|
||||||||||
Balance
at December 31, 2007:
|
||||||||||||
Goodwill
|
$ | 321,967 | $ | 45,957 | $ | 367,924 | ||||||
Accumulated
impairment
|
(173,851 | ) | (9,074 | ) | (182,925 | ) | ||||||
148,116 | 36,883 | 184,999 | ||||||||||
Acquisitions
(see Note 5)
|
8,954 | — | 8,954 | |||||||||
Impairments
|
(109,331 | ) | (25,994 | ) | (135,325 | ) | ||||||
Adjustments
|
1,431 | (862 | ) | 569 | ||||||||
Balance
at December 31, 2008
|
$ | 49,170 | $ | 10,027 | $ | 59,197 | ||||||
Balance
at December 31, 2008:
|
||||||||||||
Goodwill
|
$ | 332,352 | $ | 45,095 | $ | 377,447 | ||||||
Accumulated
impairment
|
(283,182 | ) | (35,068 | ) | (318,250 | ) | ||||||
49,170 | 10,027 | 59,197 | ||||||||||
Acquisitions
(see Note 5)
|
3,596 | — | 3,596 | |||||||||
Impairments
|
(45,776 | ) | — | (45,776 | ) | |||||||
Allocated
to assets sold
|
(2,954 | ) | — | (2,954 | ) | |||||||
Balance
at September 30, 2009
|
$ | 4,036 | $ | 10,027 | $ | 14,063 | ||||||
Balance
at September 30, 2009:
|
||||||||||||
Goodwill
|
332,994 | 45,095 | 378,089 | |||||||||
Accumulated
impairment
|
(328,958 | ) | (35,068 | ) | (364,026 | ) | ||||||
$ | 4,036 | $ | 10,027 | $ | 14,063 |
During
the third quarter of 2009, we recorded a goodwill impairment charge of $45.8
million related to our northern California and Atlantic Region reporting
units. We sold four ready-mixed concrete plants in Sacramento,
California during the third quarter of 2009 (see Note 5). These plants and
operations were included in our northern California ready-mixed concrete
reporting unit and $3.0 million of goodwill was allocated to these assets and
included in the calculation of loss on sale. Concurrent with this
sale, we performed an impairment test on the remaining goodwill for this
reporting unit and on all other reporting units with remaining goodwill as a
result of current economic conditions. The U.S. recession and
downturn in the U.S. construction markets have continued to impact our revenue
and expected future growth. The cost of capital has increased while the
availability of funds from capital markets has not improved significantly. Lack
of available capital impacts our end-use customers by creating project delays or
cancellations, thereby impacting our revenue growth and assumptions. The
downturn in residential construction has not improved and we are now seeing the
recession affect the commercial sector of our revenue base. In addition, the
California budget crisis may have a prolonged effect on public works spending in
this market. All these factors have led to a more negative outlook for expected
future cash flows and have resulted in an impairment charge of $45.8 million, of
which $42.2 million is related to our northern California reporting
unit.
We
evaluated the recoverability of all our long-lived assets during the third
quarter of 2009 given current economic conditions. We measured recoverability by
comparing the carrying amount of the assets to future undiscounted net cash
flows expected to be generated by the assets. The Michigan market
continues to be significantly impacted by the global recession and by events
specific to its region including the difficult operating conditions of the U.S.
automotive industry manufacturers, high unemployment rates and lack of public
works spending. The decline in construction activity in each of our
end-use markets has negatively affected our outlook of future sales growth and
cash flow. We identified an impairment related to the property, plant
and equipment in our Michigan market and recorded a charge of $8.8 million,
which represents the amount that the carrying value of these assets exceeded
fair value.
9
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
7. INVENTORIES
Inventories consist of the following
(in thousands):
September 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
Raw
materials
|
$ | 17,389 | $ | 18,100 | ||||
Precast
products
|
6,957 | 8,353 | ||||||
Building
materials for resale
|
2,757 | 2,922 | ||||||
Repair
parts
|
3,073 | 3,393 | ||||||
$ |
30,176
|
$ | 32,768 |
8. DEBT
A summary of debt is as follows (in
thousands):
September 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
Senior
secured credit facility due 2011
|
$ | 16,000 | $ | 11,000 | ||||
8⅜%
senior subordinated notes due 2014
|
271,708 | 283,998 | ||||||
Notes
payable
|
2,747 | 5,411 | ||||||
Superior
Materials Holdings, LLC secured credit facility due 2010
|
7,917 | 5,149 | ||||||
Capital
leases
|
222 | 430 | ||||||
298,594 | 305,988 | |||||||
Less: current
maturities
|
10,387 | 3,371 | ||||||
$ | 288,207 | $ | 302,617 |
The
estimated fair value of our debt at September 30, 2009 and December 31, 2008 was
$204.1 million and $168.1 million, respectively.
Senior
Secured Credit Facility
On June
30, 2006, we entered into the Credit Agreement, which amended and restated our
senior secured credit agreement dated as of March 12, 2004. The
Credit Agreement, as amended to date, provides for a revolving credit facility
of up to $150 million, with borrowings limited based on a portion of the net
amounts of eligible accounts receivable, inventory and mixer trucks. The
facility is scheduled to mature in March 2011. At September 30, 2009, we had
borrowings of $16.0 million under this facility. We pay interest on borrowings
at either the Eurodollar-based rate (“LIBOR”) plus 1.75% to 2.25% per annum or
the domestic rate (3.25% at September 30, 2009) plus 0.25% to 0.75% per annum.
The rate paid over either LIBOR or the domestic rate varies depending on the
level of borrowings. Commitment fees at an annual rate of 0.25% are
payable on the unused portion of the facility. The Credit Agreement
provides that the administrative agent may, on the bases specified, reduce the
amount of the available credit from time to time. Additionally, any
“material adverse change” of the Company could restrict our ability to borrow
under the Credit Agreement. A material adverse change is defined as a
material adverse change in any of (a) the condition (financial or otherwise),
business, performance, prospects, operations or properties of us and our
Subsidiaries, taken as a whole, (b) our ability and the ability of our
guarantors, taken as a whole, to perform the respective obligations under the
Credit Agreement and ancillary documents or (c) the rights and remedies of the
administrative agent, the lenders or the issuers to enforce the Credit Agreement
and ancillary documents. At September 30, 2009, the amount of
available credit was approximately $71.6 million, net of outstanding revolving
credit borrowings of $16.0 million and outstanding letters of credit of
approximately $11.6 million.
Our subsidiaries,
excluding Superior and minor subsidiaries without operations or material assets,
have guaranteed the repayment of all amounts owing under the Credit
Agreement. In addition, we collateralized our obligations under the
Credit Agreement with the capital stock of our subsidiaries, excluding Superior
and minor subsidiaries without operations or material assets, and substantially
all the assets of those subsidiaries, excluding most of the assets of the
aggregates quarry in northern New Jersey, other real estate owned by us or our
subsidiaries, and the assets of Superior. The Credit Agreement
contains covenants restricting, among other things, prepayment or redemption of
subordinated notes, distributions, dividends and repurchases of capital
stock and other equity interests, acquisitions and investments, mergers, asset
sales other than in the ordinary course of business, indebtedness, liens,
changes in business, changes to charter documents and affiliate
transactions. It also limits capital expenditures (excluding
permitted acquisitions) to the greater of $45 million or 5% of consolidated
revenues in the prior 12 months and will require us to maintain a minimum
fixed-charge coverage ratio of 1.0 to 1.0 on a rolling 12-month basis if the
available credit under the facility falls below $25 million. The
Credit Agreement also provides that specified change-of-control events would
constitute events of default. As of September 30, 2009, we were in
compliance with our covenants under the Credit Agreement. The maintenance of a
minimum fixed charge coverage ratio was not applicable, as the available credit
under the facility did not fall below $25.0 million (See Note 3 – Risks and
Uncertainties for a discussion of our liquidity and the effect on our covenants
in the future).
10
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
Senior
Subordinated Notes
On March 31, 2004, we
issued $200 million of 8⅜% Notes. Interest on these notes is payable
semi-annually on April 1 and October 1 of each year. We used
the net proceeds of this financing to redeem our prior 12% senior subordinated
notes and prepay outstanding debt under a prior credit facility. In
July 2006, we issued $85 million of additional 8⅜% Notes.
During the first quarter
of 2009, we purchased $7.4 million aggregate principal amount of our 8⅜% Notes
in open market transactions for approximately $2.8 million plus accrued interest
of approximately $0.3 million through the dates of purchase. We
recorded a gain of approximately $4.5 million as a result of these open-market
transactions after writing off $0.1 million of previously deferred financing
costs associated with the pro-rata amount of the 8⅜% Notes purchased. During the
second quarter of 2009, we purchased an additional $5.0 million principal amount
of our 8⅜% Notes for approximately $2.0 million. This resulted in a
gain of approximately $2.9 million in April 2009, after writing off $0.1 million
of previously deferred financing costs associated with the pro-rata amount of
the 8⅜% Notes purchased.
All of our subsidiaries,
excluding Superior and minor subsidiaries, have jointly and severally and fully
and unconditionally guaranteed the repayment of the 8⅜% Notes.
The indenture governing
the 8⅜% Notes limits our ability and the ability of our subsidiaries to pay
dividends or repurchase common stock, make certain investments, incur additional
debt or sell preferred stock, create liens or merge or transfer assets. We may
redeem all or a part of the 8⅜% Notes at a redemption price of 104.188% for the
remainder of 2009, 102.792% in 2010, 101.396% in 2011 and 100% in 2012 and
thereafter. The indenture requires us to offer to repurchase (1) an
aggregate principal amount of the 8⅜% Notes equal to the proceeds of certain
asset sales that are not reinvested in the business or used to pay senior debt,
and (2) all the 8⅜% Notes following the occurrence of a change of
control. The Credit Agreement would prohibit these
repurchases.
As a result of
restrictions contained in the indenture relating to the 8⅜% Notes, our ability
to incur additional debt is primarily limited to the greater of (1) borrowings
available under the Credit Agreement, plus the greater of $15 million or 7.5% of
our tangible assets, or (2) additional debt if, after giving effect to the
incurrence of such additional debt, our earnings before interest, taxes,
depreciation, amortization and certain noncash items equal or exceed two times
our total interest expense.
Superior Credit
Facility and Subordinated Debt
Superior
has a separate credit agreement that provides for a
revolving credit facility. The credit agreement, as amended, allows
for borrowings of up to $17.5 million. Borrowings under this credit
facility are collateralized by substantially all the assets of Superior and are
scheduled to mature on April 1, 2010. Availability of
borrowings is subject to a borrowing base that is determined based on the values
of net receivables, certain inventories, certain rolling stock and letters of
credit. The credit
agreement provides that the lender may, on the bases specified, reduce
the amount of the available credit from time to time. As of September 30,
2009, there was $7.9 million in outstanding borrowings under the revolving
credit facility, and the amount of available credit was approximately $4.8
million. The outstanding borrowings are included under current
maturities of long-term debt on the condensed consolidated balance sheet.
Letters of credit outstanding at September 30, 2009 were $2.8 million, which
reduces the amount available under the credit facility.
Currently, borrowings have an annual
interest rate, at Superior’s option, of either LIBOR plus 4.25% or prime rate
(3.25% at September 30, 2009) plus 2.00%. Commitment fees at an
annual rate of 0.25% are payable on the unused portion of the
facility.
The credit
agreement contains covenants restricting, among other things, Superior’s
distributions, dividends and repurchases of capital stock and other equity
interests, acquisitions and investments, mergers, asset sales other than in the
ordinary course of business, indebtedness, liens, changes in business, changes
to charter documents and affiliate transactions. It also generally limits
Superior’s capital expenditures and requires the subsidiary to maintain
compliance with specified financial covenants, including an affirmative covenant
which requires earnings before income taxes, interest and depreciation
(“EBITDA”) to meet certain minimum thresholds quarterly. During the trailing 12
months ended September 30, 2009, the credit agreement required a threshold
EBITDA of $(2.7) million. As of September 30, 2009, Superior was in
compliance with its financial covenants under the credit agreement. Based on its
fourth quarter 2009 outlook, Superior does not expect to meet its threshold
EBITDA compliance test for the quarter ended December 31,
2009. Superior is in discussions with its lender regarding the
receipt of a waiver of its noncompliance with this covenant or amendment to the
terms of the covenant. Although Superior currently believes it will
receive a waiver, we can provide no assurance that we will receive any waiver or
amendment. A breach of this covenant could result in a default under
Superior’s credit agreement. Upon the occurrence of an event of default under
that agreement, all amounts outstanding under that agreement could become
immediately due and payable, and the lender could terminate all commitments to
extend further credit.
11
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
U.S. Concrete and its 100%-owned
subsidiaries are not obligors under the terms of the Superior credit agreement.
However, Superior’s credit agreement provides that an event of
default beyond a 30-day grace period under either U.S. Concrete’s or Edw. C.
Levy Co.’s credit agreement would constitute an event of
default. Furthermore, U.S. Concrete agreed to provide or obtain
additional equity or subordinated debt capital not to exceed $6.75 million
through the term of the revolving credit facility to fund any future cash flow
deficits, as defined in the credit agreement, of Superior. In the
first quarter of 2009, U.S. Concrete provided subordinated debt capital in the
amount of $2.4 million under this agreement in lieu of payment of related party
payables. Additionally, the minority partner, Edw. C. Levy Co., provided $1.6
million of subordinated debt capital to fund operations. The subordinated debt
with U.S. Concrete was eliminated in consolidation. There was no
interest due on each note, and each note was scheduled to mature on May 1,
2011. During the third quarter of 2009, U.S. Concrete and the
minority partner, Edw. C. Levy Co., converted the subordinated debt capital into
capital contributions to Superior. Pursuant to the existing credit
agreement, U.S. Concrete and Edw. C. Levy Co. expect to make additional equity
or subordinated debt capital contributions to Superior in the first half of
2010. Superior is in the process of renegotiating its credit
facility. If the renegotiation process is unsuccessful, U.S. Concrete
and Edw. C. Levy Co. may make additional cash equity contributions to Superior
to finance its working capital requirements and fund its cash operating
losses.
9. INCOME
TAXES
We made
income tax payments of approximately $0.1 million and $0.4 million during the
three and nine month periods ended September 30, 2009. For the three
and nine month periods ended September 30, 2008, our income tax payments were
approximately $0.1 million and $0.5 million, respectively.
In
accordance with generally accepted accounting principles (“GAAP”), we estimate
the effective tax rate expected to be applicable for the full
year. We use this estimate in providing for income taxes on a
year-to-date basis, which may vary in subsequent interim periods if our
estimates change. Our effective tax benefit rate for the nine months
ended September 30, 2009 was approximately 2.8%. For the nine months
ended September 30, 2009, we applied a valuation allowance against certain of
our deferred tax assets, including net operating loss carryforwards, which
reduced our effective benefit rate from the statutory rate. In accordance with
GAAP, a valuation allowance is required unless it is more likely than not that
future taxable income or the reversal of deferred tax liabilities will be
sufficient to recover deferred tax assets. In addition, certain state taxes are
calculated on bases different than pre-tax loss. This results in us
recording income tax expense for these states, which also lowered the effective
benefit rate for the nine months ended September 30, 2009 compared to the
statutory rate.
10. STOCKHOLDERS’
EQUITY
Common
Stock and Preferred Stock
The following table presents
information regarding U.S. Concrete’s common stock (in
thousands):
September 30, 2009
|
December 31, 2008
|
|||||||
Shares
authorized
|
60,000 | 60,000 | ||||||
Shares
outstanding at end of period
|
37,333 | 36,793 | ||||||
Shares
held in treasury
|
548 | 459 |
Under our
restated certificate of incorporation, we are authorized to issue 10,000,000
shares of preferred stock, $0.001 par value, none of which were issued or
outstanding as of September 30, 2009 and December 31, 2008.
Treasury
Stock
Employees
may elect to satisfy their tax obligations on the vesting of their restricted
stock by having us make the required tax payments and withhold a number of
vested shares having an aggregate value on the date of vesting equal to the tax
obligation. As a result of such employee elections, we withheld
approximately 89,000 shares during the nine months ended September 30,
2009, at a total value of approximately $0.1 million. There were no shares
withheld during the third quarter of 2009. We accounted for the withholding of
these shares as treasury stock.
12
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
Share
Repurchase Plan
On
January 7, 2008, our Board of Directors approved a plan to repurchase up to an
aggregate of three million shares of our common stock. The Board
modified the repurchase plan in October 2008 to slightly increase the aggregate
number of shares authorized for repurchase. The plan permitted the
stock repurchases to be made on the open market or in privately negotiated
transactions in compliance with applicable securities and other
laws. As of December 31, 2008, we had repurchased and subsequently
cancelled 3,148,405 shares with an aggregate value of $6.6 million and completed
the repurchase program. Based on restrictions contained in our indenture
governing our 8⅜% Notes, we are currently prohibited from making additional
share repurchases.
11. SHARES
USED IN COMPUTING NET INCOME (LOSS) PER SHARE
The following table summarizes the
number of shares (in thousands) of common stock we have used, on a
weighted-average basis, in calculating basic and diluted net income (loss) per
share attributable to stockholders:
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Basic
weighted average common shares outstanding
|
36,272 | 38,808 | 36,132 | 38,702 | ||||||||||||
Effect
of dilutive stock options and awards
|
— | 581 | — | — | ||||||||||||
Diluted
weighted average common shares outstanding
|
36,272 | 39,389 | 36,132 | 38,702 |
For
the three and nine month periods ended September 30, we excluded stock options
and awards covering 3.0 million shares in 2009 and 2.0 million shares in 2008
from the computation of the net income (loss) per share because their effect
would have been antidilutive.
12.
COMMITMENTS AND CONTINGENCIES
From time to time, and currently, we
are subject to various claims and litigation brought by employees, customers and
other third parties for, among other matters, personal injuries, property
damages, product defects and delay damages that have, or allegedly have,
resulted from the conduct of our operations. As a result of these
types of claims and litigation, we must periodically evaluate the probability of
damages being assessed against us and the range of possible
outcomes. In each reporting period, if we determine that the
likelihood of damages being assessed against us is probable, and, if we believe
we can estimate a range of possible outcomes, then we record a liability
reflecting either the low end of our range or a specific estimate, if we believe
a specific estimate to be likely based on current information. At
September 30, 2009, we have accrued $3.1 million for potential damages
associated with four separate class actions pending against us in Alameda
Superior Court (California). The class actions were filed between
April 6, 2007 and September 27, 2007 on behalf of various Central Concrete
Supply Co., Inc. (“Central”) ready-mixed concrete and transport drivers,
alleging primarily that Central, which is one of our subsidiaries, failed to
provide meal and rest breaks as required under California law. We have entered
into settlements with one of the classes and a number of individual drivers. The
other three classes have been consolidated and a single class was certified on
July 24, 2009. Our accrual is based on prior settlement values. While
there can be no assurance that we will be able to fully resolve the remaining
class actions without exceeding this existing accrual, based on information
available to us as of September 30, 2009, we believe our existing accrual for
these matters is reasonable.
In May
2008, we received a letter from a multi-employer pension plan to which one of
our subsidiaries is a contributing employer, providing notice that the Internal
Revenue Service had denied applications by the plan for waivers of the minimum
funding deficiency from prior years, and requesting payment of approximately
$1.3 million as our allocable share of the minimum funding
deficiency. We continue to evaluate several options to minimize our
exposure, including transferring our assets and liabilities into another
plan. We may receive future funding deficiency demands from this
particular multi-employer pension plan, or other multi-employer plans to which
we contribute. We are unable to estimate the amount of any potential
future funding deficiency demands, because the actions of each of the other
contributing employers in the plans has an effect on each of the other
contributing employers, the development of a rehabilitation plan by the trustees
and subsequent submittal to and approval by the Internal Revenue Service is not
predictable, and the allocation of fund assets and return assumptions by
trustees are variable, as are actual investment returns relative to the plan
assumptions.
Currently, there are no material
product defects claims pending against us. Accordingly, our existing
accruals for claims against us do not reflect any material amounts relating to
products defects claims. While our management is not aware of any
facts that would reasonably be expected to lead to material product defects
claims against us that would have a material adverse effect on our business,
financial condition or results of operations, it is possible that claims could
be asserted against us in the future. We do not maintain insurance
that would cover all damages resulting from product defects
claims. In particular, we generally do not maintain insurance
coverage for the cost of removing and rebuilding structures, or so-called “rip
and tear” coverage. In addition, our indemnification arrangements
with contractors or others, when obtained, generally provide only limited
protection against product defects claims. Due to inherent
uncertainties associated with estimating unasserted claims in our business, we
cannot estimate the amount of any future loss that may be attributable to
unasserted product defects claims related to ready-mixed concrete we have
delivered prior to September 30, 2009.
13
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
We believe that the resolution of all
litigation currently pending or threatened against us or any of our subsidiaries
will not materially exceed our existing accruals for those
matters. However, because of the inherent uncertainty of litigation,
there is a risk that we may have to increase our accruals for one or more claims
or proceedings to which we or any of our subsidiaries is a party as more
information becomes available or proceedings progress, and any such increase in
accruals could have a material adverse effect on our consolidated financial
condition or results of operations. We expect in the future that we
and our operating subsidiaries will from time to time be a party to litigation
or administrative proceedings that arise in the normal course of our
business.
We are
subject to federal, state and local environmental laws and regulations
concerning, among other matters, air emissions and wastewater discharge. Our
management believes we are in substantial compliance with applicable
environmental laws and regulations. From time to time, we receive claims from
federal and state environmental regulatory agencies and entities asserting that
we may be in violation of environmental laws and regulations. Based on
experience and the information currently available, our management believes the
possibility that these claims could materially exceed our related accrual is
remote. Despite compliance and experience, it is possible that we
could be held liable for future charges, which might be material, but are not
currently known to us or cannot be estimated by us. In addition,
changes in federal or state laws, regulations or requirements, or discovery of
currently unknown conditions, could require additional
expenditures.
As
permitted under Delaware law, we have agreements that provide indemnification of
officers and directors for certain events or occurrences while the officer or
director is or was serving at our request in such capacity. The maximum
potential amount of future payments that we could be required to make under
these indemnification agreements is not limited; however, we have a director and
officer insurance policy that potentially limits our exposure and enables us to
recover a portion of future amounts that may be paid. As a result of
the insurance policy coverage, we believe the estimated fair value of these
indemnification agreements is minimal. Accordingly, we have not recorded any
liabilities for these agreements as of September 30, 2009.
We and
our subsidiaries are parties to agreements that require us to provide
indemnification in certain instances when we acquire businesses and real estate
and in the ordinary course of business with our customers, suppliers, lessors
and service providers.
Insurance
Programs
We
maintain third-party insurance coverage against certain risks. Under
certain components of our insurance program, we share the risk of loss with our
insurance underwriters by maintaining high deductibles subject to aggregate
annual loss limitations. Generally, our deductible
retentions per occurrence for auto, workers’ compensation and general liability
insurance programs are $1.0 million, although certain of our operations are
self-insured for workers’ compensation. We fund these deductibles and
record an expense for expected losses under the programs. The
expected losses are determined using a combination of our historical loss
experience and subjective assessments of our future loss exposure. The estimated
losses are subject to uncertainty from various sources, including changes in
claims reporting patterns, claims settlement patterns, judicial decisions,
legislation and economic conditions. Although we believe that the
estimated losses we have recorded are reasonable, significant differences
related to the items noted above could materially affect our insurance
obligations and future expense.
Performance
Bonds
In the
normal course of business, we and our subsidiaries are contingently liable for
performance under $40.9 million in performance bonds that various contractors,
states and municipalities have required. The bonds principally relate to
construction contracts, reclamation obligations and mining
permits. We and our subsidiaries have indemnified the underwriting
insurance company against any exposure under the performance bonds. No material
claims have been made against these bonds.
13. SEGMENT
INFORMATION
We have
two segments that serve our principal markets in the United
States. Our ready-mixed concrete and concrete-related products
segment produces and sells ready-mixed concrete, aggregates (crushed stone, sand
and gravel), concrete masonry and building materials. This segment serves
the following principal markets: north and west Texas, northern California, New
Jersey, New York, Washington, D.C., Michigan and Oklahoma. Our precast
concrete products segment produces and sells precast concrete products in select
markets in the western United States and the mid-Atlantic region.
14
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
We
account for inter-segment revenue at market prices. Segment operating
income (loss) consists of net revenue less operating expense, including certain
operating overhead directly related to the operation of the specific
segment. Corporate includes executive, administrative, financial, legal,
human resources, business development and risk management activities which are
not allocated to operations and are excluded from segment operating income
(loss).
The following table sets forth certain
financial information relating to our continuing operations by reportable
segment (in thousands):
Three Months Ended September
30,
|
Nine Months Ended September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenue:
|
||||||||||||||||
Ready-mixed
concrete and concrete-related products
|
$ | 142,008 | $ | 198,434 | $ | 380,742 | $ | 540,224 | ||||||||
Precast
concrete products
|
15,596 | 19,231 | 45,127 | 53,145 | ||||||||||||
Inter-segment
revenue
|
(3,996 | ) | (4,846 | ) | (11,235 | ) | (12,396 | ) | ||||||||
Total
revenue
|
$ | 153,608 | $ | 212,819 | $ | 414,634 | $ | 580,973 | ||||||||
Segment Operating Income
(Loss):
|
||||||||||||||||
Ready-mixed
concrete and concrete-related products
|
$ | (53,890 | ) | $ | 13,053 | $ | (56,762 | ) | $ | 24,824 | ||||||
Precast
concrete products
|
485 | 1,762 | 1,111 | 5,277 | ||||||||||||
Gain
on purchases of senior subordinated notes
|
— | — | 7,406 | — | ||||||||||||
Unallocated
overhead and other income
|
1,497 | 1,347 | 2,482 | 4,042 | ||||||||||||
Corporate:
|
||||||||||||||||
Selling,
general and administrative expenses
|
(4,006 | ) | (6,219 | ) | (13,728 | ) | (16,642 | ) | ||||||||
Gain
(loss) on sale of assets
|
— | (42 | ) | (3 | ) | 217 | ||||||||||
Interest
expense, net
|
(6,578 | ) | (6,747 | ) | (19,908 | ) | (20,121 | ) | ||||||||
Profit
(loss) from continuing operations before income taxes and non-controlling
interest
|
$ | (62,492 | ) | $ | 3,154 | $ | (79,402 | ) | $ | (2,403 | ) | |||||
Depreciation,
Depletion and Amortization:
|
||||||||||||||||
Ready-mixed
concrete and concrete-related products
|
$ | 6,327 | $ | 6,907 | $ | 18,801 | $ | 19,518 | ||||||||
Precast
concrete products
|
713 | 827 | 2,157 | 1,885 | ||||||||||||
Corporate
|
605 | 116 | 1,593 | 360 | ||||||||||||
Total
depreciation, depletion and amortization
|
$ | 7,645 | $ | 7,850 | $ | 22,551 | $ | 21,763 | ||||||||
Revenue by
Product:
|
||||||||||||||||
Ready-mixed
concrete
|
$ | 124,380 | $ | 172,956 | $ | 335,522 | $ | 471,575 | ||||||||
Precast
concrete products
|
15,776 | 19,570 | 45,514 | 54,066 | ||||||||||||
Building
materials
|
3,138 | 4,828 | 7,602 | 13,359 | ||||||||||||
Aggregates
|
6,771 | 8,049 | 15,994 | 19,455 | ||||||||||||
Other
|
3,543 | 7,416 | 10,002 | 22,518 | ||||||||||||
Total
revenue
|
$ | 153,608 | $ | 212,819 | $ | 414,634 | $ | 580,973 | ||||||||
Capital
Expenditures:
|
||||||||||||||||
Ready-mixed
concrete and concrete-related products
|
$ | 3,203 | $ | 7,360 | $ | 12,213 | $ | 18,278 | ||||||||
Precast
concrete products
|
152 | 474 | 278 | 1,918 | ||||||||||||
Total
capital expenditures
|
$ | 3,355 | $ | 7,834 | $ | 12,491 | $ | 20,196 |
15
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
Total Assets:
|
As of
September 30,
2009
|
As of
December 31,
2008
|
||||||
Ready-mixed
concrete and concrete-related products
|
$ | 325,817 | $ | 390,843 | ||||
Precast
concrete products
|
54,997 | 58,600 | ||||||
Corporate
|
44,394 | 58,367 | ||||||
Total
assets
|
$ | 425,208 | $ | 507,810 |
14. RECENT
ACCOUNTING PRONOUNCEMENTS
In August
2009, the Financial Accounting Standards Board ("FASB") issued authoritative
guidance, which provides additional guidance on measuring the fair value of
liabilities. This guidance reaffirms that the fair value measurement of a
liability assumes the transfer of a liability to a market participant as of the
measurement date. This guidance became effective October 1, 2009. We do not
believe this guidance will have a material impact on our condensed consolidated
financial statements.
In
June 2009, the FASB issued the FASB Accounting Standard
Codification™ (the “Codification”). The Codification becomes
the single source of authoritative nongovernmental U.S. GAAP, superseding
existing FASB, American Institute of Certified Public Accountants AICPA,
Emerging Issues Task Force EITF and related literature. The codification
establishes one level of authoritative GAAP. All other literature is considered
non-authoritative. This Statement was effective for our financial statements
issued during the quarter ended September 30, 2009. As a result, references
to authoritative accounting literature in our financial statement disclosures
are referenced in accordance with the Codification.
In June
2009, the FASB issued authoritative guidance on consolidation of variable
interest entities (VIEs) that changes how a reporting entity
determines a primary beneficiary that would consolidate the VIE from a
quantitative risk and rewards approach to a qualitative approach based on which
variable interest holder has the power to direct the economic performance
related activities of the VIE as well as the obligation to absorb losses or
right to receive benefits that could potentially be significant to the VIE. This
guidance requires the primary beneficiary assessment to be performed on an
ongoing basis and also requires enhanced disclosures that will provide more
transparency about a company’s involvement in a VIE. This guidance is effective
for a reporting entity’s first annual reporting period that begins after
November 15, 2009. We expect that the adoption of this guidance will not
have a material impact on our condensed consolidated financial
statements.
In
May 2009, the FASB issued authoritative guidance on subsequent
events. This guidance sets forth: (1) the period after the balance sheet
date during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements; (2) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements; and (3) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. This guidance
is effective for interim and annual periods ending after June 15, 2009. We
adopted this guidance during the quarter ended June 30, 2009 and it did not
have an impact on our consolidated financial statements. The required disclosure
is included in Note 1 to our condensed consolidated financial
statements.
In
April 2009, the FASB issued authoritative guidance related to interim
disclosures about fair value of financial instruments. The guidance requires an
entity to provide disclosures about fair value of financial instruments in
interim financial information. This guidance is to be applied prospectively and
is effective for interim and annual periods ending after June 15, 2009. We
adopted this guidance in the quarter ended June 30, 2009. There was no
impact on our condensed consolidated financial statements, as the guidance
relates only to additional disclosures. The required disclosure is included in
Note 8 to our condensed consolidated financial statements.
In
December 2007, the FASB issued authoritative guidance related to business
combinations that establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any non-controlling interest in the entity
acquired and the goodwill acquired. This guidance also establishes
disclosure requirements which will enable users to evaluate the nature and
financial effects of the business combination and was effective for fiscal years
beginning after December 15, 2008. The adoption of this guidance did not
have a material impact on our condensed consolidated financial
statements.
16
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
In
April 2009, the FASB issued authoritative guidance related to accounting
for assets acquired and liabilities assumed in a business combination that arise
from contingencies. This guidance requires that assets acquired and liabilities
assumed in a business combination that arise from contingencies be recognized at
fair value, if fair value can be reasonably estimated. If fair value cannot be
reasonably estimated, the asset or liability would generally be recognized in
accordance with existing authoritative guidance related to accounting for
contingencies and reasonable estimation of the amount of a loss. The guidance
also eliminates the requirement to disclose an estimate of the range of possible
outcomes of recognized contingencies at the acquisition date. For unrecognized
contingencies, the FASB requires that entities include only the disclosures
required by the authoritative guidance on accounting for contingencies. This was
adopted effective January 1, 2009. There was no impact on our condensed
consolidated financial statements upon adoption, and its effects on future
periods will depend on the nature and significance of business combinations
subject to this guidance.
In June
2008, the FASB issued authoritative guidance on the treatment of participating
securities in the calculation of earnings per share (“EPS”). This
guidance addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting and, therefore, need
to be included in computing earnings per share under the two-class
method. This guidance was effective for fiscal years beginning after
December 15, 2008, and any EPS data presented after adoption is to be adjusted
retrospectively. The adoption of this guidance did not have a
material impact on our condensed consolidated financial statements.
In March
2008, the FASB issued authoritative guidance on derivative instruments and
hedging activities. This guidance was intended to improve financial reporting
about derivative instruments and hedging activities by requiring enhanced
disclosures to enable investors to better understand their effects on an
entity’s financial position, financial performance and cash flows. This guidance
was effective in the first quarter of 2009, and the adoption did not have a
material impact on our condensed consolidated financial statements.
In
September 2006, the FASB issued authoritative guidance on fair value
measurements and disclosures. This guidance defines fair value,
establishes a framework for measuring fair value in accordance with GAAP, and
expands disclosures about fair value measurement. The initial
application of this guidance was limited to financial assets and liabilities and
became effective on January 1, 2008. The impact of the initial
application on our consolidated financial statements was not material. In
February 2008, the FASB revised the authoritative guidance on fair value
measurements and disclosures to delay the effective date of the guidance for
nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis, to fiscal years beginning after November 15, 2008. We elected to
defer the adoption of this guidance for nonfinancial assets and nonfinancial
liabilities until January 1, 2009. Adoption of this guidance on January 1,
2009 did not have a material impact on our condensed consolidated financial
statements.
In December 2007, the FASB issued
authoritative guidance on non-controlling interests. This guidance establishes
accounting and reporting standards for ownership interests in subsidiaries held
by parties other than the parent, the amount of consolidated net income
attributable to the parent and to the non-controlling interest, changes in a
parent’s ownership interest and the valuation of retained non-controlling equity
investments when a subsidiary is deconsolidated. It also establishes
reporting requirements that provide sufficient disclosures that clearly identify
and distinguish between the interests of the parent and the interests of the
non-controlling owners. The guidance was effective for fiscal years
beginning after December 15, 2008. We adopted this guidance in the first
quarter of 2009 and have included the non-controlling interest in Superior as a
component of equity on the condensed consolidated balance sheets and have
included net loss attributable to non-controlling interest in our consolidated
net loss.
15. STOCKHOLDER
RIGHTS PLAN
In November 2009, our Board of
Directors adopted a Stockholder Rights Plan designed to protect stockholder
value by preserving the value of certain of our deferred tax assets primarily
associated with net operating loss carryforwards under Section 382 of the
Internal Revenue Code. Our ability to use net operating losses
carryforwards and other tax benefits could be substantially reduced if an
"ownership change" under Section 382 were to occur. The Stockholder Rights Plan
was adopted to reduce the likelihood of an unintended "ownership change"
occurring as a result of ordinary buying and selling of shares of our
common stock. The Stockholder Rights Plan entails a dividend of one right for
each outstanding share of our common stock. Each right will entitle the
holder to buy one one-hundredth of a share of a new Series A Junior
Participating Preferred Stock, for an exercise price of $10.00. Each one
one-hundredth of a share of such preferred stock would be essentially the
economic equivalent of one share of our common stock.
The
rights will trade with our common stock until exercisable. The rights
will not be exercisable until ten days following a public announcement that a
person or group has acquired 4.9% of our common stock or until ten business
days after a person or group begins a tender offer that would result in
ownership of 4.9% of our common stock, subject to certain extensions by the
Board of Directors. In the event that an acquiror becomes a 4.9% beneficial
owner of our common stock, the rights "flip in" and become rights to
buy our common stock at a 50% discount, and rights owned by that acquiror
become void.
17
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
In the
event that our company is merged and our common stock is exchanged or
converted, or if 50% or more of our assets or earning power is sold or
transferred, the rights "flip over" and entitle the holders to buy shares of the
acquiror's common stock at a 50% discount. A tender or exchange offer for all
outstanding shares of our common stock at a price and on terms
determined to be fair and otherwise in the best interests of our company and our
stockholders by a majority of our independent directors will not trigger either
the flip-in or flip-over provisions.
We may
redeem the rights for $0.001 per right at any time until ten days following the
first public announcement that an acquiror has acquired the level of ownership
that "triggers" the Stockholder Rights Plan. The rights extend for ten years and
will expire on October 31, 2019. The distribution of the rights will be made to
stockholders of record on November 16, 2009.
18
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
16. FINANCIAL
STATEMENTS OF SUBSIDIARY GUARANTORS
All of
our subsidiaries, excluding Superior and minor subsidiaries, have jointly and
severally and fully and unconditionally guaranteed the repayment of our
long-term debt. We directly or indirectly own 100% of each subsidiary
guarantor. The following supplemental financial information sets
forth, on a condensed consolidating basis, the financial statements for U.S.
Concrete, Inc., the parent company and its subsidiary guarantors (including
minor subsidiaries), Superior and our consolidated company, as of September 30,
2009 and December 31, 2008 and for the three and nine month periods ended
September 30, 2009 and 2008.
(Unaudited)
Condensed Consolidating Balance Sheet
As of September 30, 2009:
|
U.S.
Concrete
Parent
|
Subsidiary
Guarantors1
|
Superior
|
Eliminations
|
Consolidated
|
|||||||||||||||
(in
thousands)
|
||||||||||||||||||||
ASSETS
|
|
|||||||||||||||||||
Current
assets:
|
||||||||||||||||||||
Cash
and cash equivalents
|
$ | – | $ | 10,294 | $ | 234 | $ | – | $ | 10,528 | ||||||||||
Trade
accounts receivable, net.
|
– | 80,399 | 12,869 | – | 93,268 | |||||||||||||||
Inventories
|
– | 26,546 | 3,630 | – | 30,176 | |||||||||||||||
Deferred
income taxes
|
– | 12,535 | – | – | 12,535 | |||||||||||||||
Prepaid
expenses
|
– | 3,357 | 856 | – | 4,213 | |||||||||||||||
Other
current assets
|
– | 5,621 | 942 | – | 6,563 | |||||||||||||||
Total
current assets
|
– | 138,752 | 18,531 | – | 157,283 | |||||||||||||||
Property,
plant and equipment, net
|
– | 226,352 | 20,556 | – | 246,908 | |||||||||||||||
Goodwill
|
– | 14,063 | – | – | 14,063 | |||||||||||||||
Investment
in subsidiaries
|
302,368 | 16,309 | – | (318,677 | ) | – | ||||||||||||||
Other
assets
|
5,268 | 1,620 | 66 | – | 6,954 | |||||||||||||||
Total
assets
|
$ | 307,636 | $ | 397,096 | $ | 39,153 | $ | (318,677 | ) | $ | 425,208 | |||||||||
LIABILITIES
AND EQUITY
|
||||||||||||||||||||
Current
liabilities:
|
||||||||||||||||||||
Current
maturities of long-term debt
|
$ | 849 | $ | 1,399 | $ | 8,139 | $ | – | $ | 10,387 | ||||||||||
Accounts
payable
|
– | 33,834 | 10,418 | – | 44,252 | |||||||||||||||
Accrued
liabilities
|
11,917 | 40,102 | 4,287 | – | 56,306 | |||||||||||||||
Total
current liabilities
|
12,766 | 75,335 | 22,844 | – | 110,945 | |||||||||||||||
Long-term
debt, net of current maturities
|
288,001 | 206 | – | – | 288,207 | |||||||||||||||
Other
long-term obligations and deferred credits
|
6,648 | 601 | – | – | 7,249 | |||||||||||||||
Deferred
income taxes
|
– | 12,042 | – | – | 12,042 | |||||||||||||||
Total
liabilities
|
307,415 | 88,184 | 22,844 | – | 418,443 | |||||||||||||||
Equity:
|
||||||||||||||||||||
Common
stock
|
38 | – | – | – | 38 | |||||||||||||||
Additional
paid-in capital
|
267,532 | 538,412 | 42,757 | (581,169 | ) | 267,532 | ||||||||||||||
Retained
deficit
|
(264,072 | ) | (236,044 | ) | (26,448 | ) | 262,492 | (264,072 | ) | |||||||||||
Treasury
stock, at cost
|
(3,277 | ) | – | – | – | (3,277 | ) | |||||||||||||
Total
stockholders’ equity
|
221 | 302,368 | 16,309 | (318,677 | ) | 221 | ||||||||||||||
Non-controlling
interest
|
– | 6,544 | – | – | 6,544 | |||||||||||||||
Total
equity
|
221 | 308,912 | 16,309 | (318,677 | ) | 6,765 | ||||||||||||||
Total
liabilities and equity
|
$ | 307,636 | $ | 397,096 | $ | 39,153 | $ | (318,677 | ) | $ | 425,208 |
1
Including minor subsidiaries without operations or material
assets.
19
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Condensed Consolidating Statement of Operations
Three months ended September 30, 2009:
|
U.S.
Concrete
Parent
|
Subsidiary
Guarantors1
|
Superior
|
Eliminations
|
Consolidated
|
|||||||||||||||
(in
thousands)
|
||||||||||||||||||||
Revenue
|
$ | – | $ | 136,344 | $ | 17,264 | $ | – | $ | 153,608 | ||||||||||
Cost
of goods sold before depreciation, depletion and
amortization
|
– | 112,699 | 15,873 | – | 128,572 | |||||||||||||||
Selling,
general and administrative expenses
|
– | 14,836 | 1,370 | – | 16,206 | |||||||||||||||
Goodwill
and other asset impairments
|
– | 47,410 | 7,150 | – | 54,560 | |||||||||||||||
Depreciation,
depletion and amortization
|
– | 6,770 | 875 | – | 7,645 | |||||||||||||||
(Gain)
loss on sale of assets
|
– | 2,877 | (12 | ) | – | 2,865 | ||||||||||||||
Loss
from operations
|
– | (48,248 | ) | (7,992 | ) | – | (56,240 | ) | ||||||||||||
Interest
expense, net
|
6,411 | 32 | 135 | – | 6,578 | |||||||||||||||
Other
income, net
|
– | 290 | 36 | – | 326 | |||||||||||||||
Loss
before income tax provision (benefit)
|
(6,411 | ) | (47,990 | ) | (8,091 | ) | – | (62,492 | ) | |||||||||||
Income
tax expense (benefit)
|
(2,244 | ) | 975 | 75 | – | (1,194 | ) | |||||||||||||
Equity
losses in subsidiary
|
(53,893 | ) | (8,166 | ) | – | 62,059 | – | |||||||||||||
Loss
from continuing operations
|
(58,060 | ) | (57,131 | ) | (8,166 | ) | 62,059 | (61,298 | ) | |||||||||||
Loss
from discontinued operations, net of tax
|
– | – | – | – | – | |||||||||||||||
Net
loss
|
(58,060 | ) | (57,131 | ) | (8,166 | ) | 62,059 | (61,298 | ) | |||||||||||
Net
loss attributable to non-controlling interest
|
– | 3,238 | – | – | 3,238 | |||||||||||||||
Net
loss attributable to stockholders
|
$ | (58,060 | ) | $ | (53,893 | ) | $ | (8,166 | ) | $ | 62,059 | $ | (58,060 | ) |
1Including
minor subsidiaries without operations or material assets.
Condensed Consolidating Statement of Operations
Nine months ended September 30, 2009:
|
U.S.
Concrete
Parent
|
Subsidiary
Guarantors1
|
Superior
|
Eliminations
|
Consolidated
|
|||||||||||||||
(in
thousands)
|
||||||||||||||||||||
Revenue
|
$ | – | $ | 377,077 | $ | 37,557 | $ | – | $ | 414,634 | ||||||||||
Cost
of goods sold before depreciation, depletion and
amortization
|
– | 315,948 | 36,735 | – | 352,683 | |||||||||||||||
Selling,
general and administrative expenses
|
– | 46,115 | 4,612 | – | 50,727 | |||||||||||||||
Goodwill
and other asset impairments
|
– | 47,410 | 7,150 | – | 54,560 | |||||||||||||||
Depreciation,
depletion and amortization
|
– | 19,848 | 2,703 | – | 22,551 | |||||||||||||||
(Gain)
loss on sale of assets
|
– | 2,137 | (108 | ) | – | 2,029 | ||||||||||||||
Loss
from operations
|
– | (54,381 | ) | (13,535 | ) | – | (67,916 | ) | ||||||||||||
Interest
expense, net
|
19,413 | 113 | 382 | – | 19,908 | |||||||||||||||
Gain
on purchase of senior subordinated notes
|
7,406 | – | – | – | 7,406 | |||||||||||||||
Other
income, net
|
– | 920 | 96 | – | 1,016 | |||||||||||||||
Loss
before income tax provision (benefit)
|
(12,007 | ) | (53,574 | ) | (13,821 | ) | – | (79,402 | ) | |||||||||||
Income
tax expense (benefit)
|
(4,202 | ) | 1,715 | 225 | – | (2,262 | ) | |||||||||||||
Equity
losses in subsidiary
|
(63,703 | ) | (14,046 | ) | – | 77,749 | – | |||||||||||||
Loss
from continuing operations
|
(71,508 | ) | (69,335 | ) | (14,046 | ) | 77,749 | (77,140 | ) | |||||||||||
Loss
from discontinued operations, net of tax
|
– | – | – | – | – | |||||||||||||||
Net
loss
|
(71,508 | ) | (69,335 | ) | (14,046 | ) | 77,749 | (77,140 | ) | |||||||||||
Net
loss attributable to non-controlling interest
|
– | 5,632 | – | – | 5,632 | |||||||||||||||
Net
loss attributable to stockholders
|
$ | (71,508 | ) | $ | (63,703 | ) | $ | (14,046 | ) | $ | 77,749 | $ | (71,508 | ) |
1Including
minor subsidiaries without operations or material assets.
20
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Condensed Consolidating Statement of Cash Flows
Nine months ended September 30, 2009:
U.S.
Concrete
Parent
|
Subsidiary
Guarantors1
|
Superior
|
Eliminations
|
Consolidated
|
||||||||||||||||
(in thousands)
|
||||||||||||||||||||
Net
cash provided by (used in) operating activities
|
$ | 7,759 | $ | 11,276 | $ | (7,083 | ) | $ | — | $ | 11,952 | |||||||||
Net
cash provided by (used in) investing activities
|
— | (8,680 | ) | 97 | — | (8,583 | ) | |||||||||||||
Net
cash provided by (used in) financing activities
|
(7,759 | ) | 3,013 | 6,582 | — | 1,836 | ||||||||||||||
Net
increase (decrease) in cash and cash equivalents
|
— | 5,609 | (404 | ) | — | 5,205 | ||||||||||||||
Cash
and cash equivalents at the beginning of the period
|
— | 4,685 | 638 | — | 5,323 | |||||||||||||||
Cash
and cash equivalents at the end of the period
|
$ | — | $ | 10,294 | $ | 234 | $ | — | $ | 10,528 |
1
Including minor subsidiaries without operations or material
assets.
21
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
Condensed Consolidating Balance Sheet
As of December 31, 2008:
U.S.
Concrete
Parent
|
Subsidiary
Guarantors1
|
Superior
|
Eliminations
|
Consolidated
|
||||||||||||||||
(in thousands)
|
||||||||||||||||||||
ASSETS
|
||||||||||||||||||||
Current
assets:
|
||||||||||||||||||||
Cash
and cash equivalents
|
$ | – | $ | 4,685 | $ | 638 | $ | – | $ | 5,323 | ||||||||||
Trade
accounts receivable, net.
|
– | 89,483 | 10,786 | – | 100,269 | |||||||||||||||
Inventories
|
– | 28,438 | 4,330 | – | 32,768 | |||||||||||||||
Deferred
income taxes
|
– | 11,576 | – | – | 11,576 | |||||||||||||||
Prepaid
expenses
|
– | 3,178 | 341 | – | 3,519 | |||||||||||||||
Other
current assets
|
4,886 | 7,977 | 938 | – | 13,801 | |||||||||||||||
Total
current assets
|
4,886 | 145,337 | 17,033 | – | 167,256 | |||||||||||||||
Property,
plant and equipment, net
|
– | 242,371 | 30,398 | – | 272,769 | |||||||||||||||
Goodwill
|
– | 59,197 | – | – | 59,197 | |||||||||||||||
Investment
in subsidiaries
|
369,853 | 26,334 | – | (396,187 | ) | – | ||||||||||||||
Other
assets
|
6,751 | 1,747 | 90 | – | 8,588 | |||||||||||||||
Total
assets
|
$ | 381,490 | $ | 474,986 | $ | 47,521 | $ | (396,187 | ) | $ | 507,810 | |||||||||
LIABILITIES
AND EQUITY
|
||||||||||||||||||||
Current
liabilities:
|
||||||||||||||||||||
Current
maturities of long-term debt
|
$ | 819 | $ | 2,291 | $ | 261 | $ | – | $ | 3,371 | ||||||||||
Accounts
payable
|
– | 32,870 | 13,050 | – | 45,920 | |||||||||||||||
Accrued
liabilities
|
7,000 | 44,922 | 2,559 | – | 54,481 | |||||||||||||||
Total
current liabilities
|
7,819 | 80,083 | 15,870 | – | 103,772 | |||||||||||||||
Long-term
debt, net of current maturities
|
295,931 | 1,369 | 5,317 | – | 302,617 | |||||||||||||||
Other
long-term obligations and deferred credits
|
7,944 | 578 | – | – | 8,522 | |||||||||||||||
Deferred
income taxes
|
– | 12,536 | – | – | 12,536 | |||||||||||||||
Total
liabilities
|
311,694 | 94,566 | 21,187 | – | 427,447 | |||||||||||||||
Equity:
|
||||||||||||||||||||
Common
stock
|
37 | – | – | – | 37 | |||||||||||||||
Additional
paid-in capital
|
265,453 | 542,194 | 38,736 | (580,930 | ) | 265,453 | ||||||||||||||
Retained
deficit
|
(192,564 | ) | (172,341 | ) | (12,402 | ) | 184,743 | (192,564 | ) | |||||||||||
Treasury
stock, at cost
|
(3,130 | ) | – | – | – | (3,130 | ) | |||||||||||||
Total
stockholders’ equity
|
69,796 | 369,853 | 26,334 | (396,187 | ) | 69,796 | ||||||||||||||
Non-controlling
interest
|
– | 10,567 | – | – | 10,567 | |||||||||||||||
Total
equity
|
69,796 | 380,420 | 26,334 | (396,187 | ) | 80,363 | ||||||||||||||
Total
liabilities and equity
|
$ | 381,490 | $ | 474,986 | $ | 47,521 | $ | (396,187 | ) | $ | 507,810 |
1
Including minor subsidiaries without operations or material
assets.
22
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Condensed Consolidating Statements of Operations
Three months ended September 30, 2008:
Three months ended September 30, 2008:
U.S. Concrete
Parent
|
Subsidiary
Guarantor1
|
Superior
|
Eliminations
|
Consolidated
|
||||||||||||||||
(in thousands)
|
||||||||||||||||||||
Revenue
|
$ | — | $ | 186,330 | $ | 26,489 | $ | — | $ | 212,819 | ||||||||||
Cost
of goods sold before depreciation, depletion and
amortization
|
— | 152,997 | 23,327 | — | 176,324 | |||||||||||||||
Selling,
general and administrative expenses
|
— | 17,993 | 1,650 | — | 19,643 | |||||||||||||||
Depreciation,
depletion and amortization
|
— | 6,909 | 941 | — | 7,850 | |||||||||||||||
(Gain)
loss on sale of assets
|
— | (232 | ) | (89 | ) | — | (321 | ) | ||||||||||||
Income
from operations
|
— | 8,663 | 660 | — | 9,323 | |||||||||||||||
Interest
expense, net
|
6,572 | 35 | 140 | — | 6,747 | |||||||||||||||
Other
income, net
|
— | 563 | 15 | — | 578 | |||||||||||||||
Income
(loss) before income tax provision
|
(6,572 | ) | 9,191 | 535 | — | 3,154 | ||||||||||||||
Income
tax expense (benefit)
|
(2,300 | ) | 3,473 | 75 | — | 1,248 | ||||||||||||||
Equity
earnings in subsidiaries
|
5,994 | 460 | — | (6,454 | ) | — | ||||||||||||||
Income
from continuing operations
|
1,722 | 6,178 | 460 | (6,454 | ) | 1,906 | ||||||||||||||
Loss
from discontinued operations, net of tax
|
— | — | — | — | — | |||||||||||||||
Net
income
|
1,722 | 6,178 | 460 | (6,454 | ) | 1,906 | ||||||||||||||
Net
income attributable to non-controlling interest
|
— | 184 | — | — | 184 | |||||||||||||||
Net
income attributable to stockholders
|
$ | 1,722 | $ | 5,994 | $ | 460 | $ | (6,454 | ) | $ | 1,722 |
Condensed Consolidating Statements of Operations
Nine months ended September 30, 2008:
|
U.S. Concrete
Parent
|
Subsidiary
Guarantor1
|
Superior
|
Eliminations
|
Consolidated
|
|||||||||||||||
(in thousands)
|
||||||||||||||||||||
Revenue
|
$ | — | $ | 527,945 | $ | 53,028 | $ | — | $ | 580,973 | ||||||||||
Cost
of goods sold before depreciation, depletion and
amortization
|
— | 436,625 | 51,400 | — | 488,025 | |||||||||||||||
Selling,
general and administrative expenses
|
— | 50,836 | 4,658 | — | 55,494 | |||||||||||||||
Depreciation,
depletion and amortization
|
— | 18,645 | 3,118 | — | 21,763 | |||||||||||||||
(Gain)
loss on sale of assets
|
— | (314 | ) | (85 | ) | — | (399 | ) | ||||||||||||
Income
(loss) from operations
|
— | 22,153 | (6,063 | ) | — | 16,090 | ||||||||||||||
Interest
expense, net
|
19,475 | 210 | 436 | — | 20,121 | |||||||||||||||
Other
income, net
|
— | 1,512 | 116 | — | 1,628 | |||||||||||||||
Income
(loss) before income tax provision
|
(19,475 | ) | 23,455 | (6,383 | ) | — | (2,403 | ) | ||||||||||||
Income
tax expense (benefit)
|
(6,816 | ) | 6,932 | 230 | — | 346 | ||||||||||||||
Equity
earnings (losses) in subsidiaries
|
12,406 | (6,613 | ) | — | (5,793 | ) | — | |||||||||||||
Income
(loss) from continuing operations
|
(253 | ) | 9,910 | (6,613 | ) | (5,793 | ) | (2,749 | ) | |||||||||||
Loss
from discontinued operations, net of tax
|
— | (149 | ) | — | — | (149 | ) | |||||||||||||
Net
income (loss)
|
(253 | ) | 9,761 | (6,613 | ) | (5,793 | ) | (2,898 | ) | |||||||||||
Net
loss attributable to non-controlling interest
|
— | (2,645 | ) | — | — | (2,645 | ) | |||||||||||||
Net
income (loss) attributable to stockholders
|
$ | (253 | ) | $ | 12,406 | $ | (6,613 | ) | $ | (5,793 | ) | $ | (253 | ) |
1
Including minor subsidiaries without operations or material
assets.
23
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Condensed Consolidating Statements of Cash Flows
Nine Months ended September 30, 2008:
|
U.S. Concrete
Parent
|
Subsidiary
Guarantors1
|
Superior
|
Eliminations
|
Consolidated
|
|||||||||||||||
(in thousands)
|
||||||||||||||||||||
Net
cash provided by (used in) operating activities
|
$ | (456 | ) | $ | 21,290 | $ | (1,320 | ) | $ | — | $ | 19,514 | ||||||||
Net
cash used in investing activities
|
(6,652 | ) | (24,043 | ) | (243 | ) | — | (30,938 | ) | |||||||||||
Net
cash provided by (used in) financing activities
|
7,108 | (6,864 | ) | 237 | — | 481 | ||||||||||||||
Net
decrease in cash and cash equivalents
|
— | (9,617 | ) | (1,326 | ) | — | (10,943 | ) | ||||||||||||
Cash
and cash equivalents at the beginning of the period
|
— | 13,368 | 1,482 | — | 14,850 | |||||||||||||||
Cash
and cash equivalents at the end of the period
|
$ | — | $ | 3,751 | $ | 156 | $ | — | $ | 3,907 |
1
Including minor subsidiaries without operations or material
assets.
24
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Statements
we make in the following discussion which express a belief, expectation or
intention, as well as those that are not historical fact, are forward-looking
statements that are subject to various risks, uncertainties and assumptions,
including projections as to available credit over the next 12 months. Our actual
results, performance or achievements, or market conditions or industry results,
could differ materially from the forward-looking statements in the following
discussion as a result of a variety of factors, including the risks and
uncertainties we have referred to under the headings “Risk Factors” in Item 1A
of Part I in the 2008 Form 10-K, and “—Risks and Uncertainties” below. For a
discussion of our commitments not discussed below, related-party transactions,
and our critical accounting policies, see “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” in Item 7 of Part I in the
2008 Form 10-K. We assume no obligation to update these forward-looking
statements, except as required by applicable law.
Our
Business
We
operate our business in two business segments: ready-mixed concrete and
concrete-related products and precast concrete products.
Ready-Mixed
Concrete and Concrete-Related Products. Our ready-mixed concrete
and concrete-related products segment is engaged primarily in the production,
sale and delivery of ready-mixed concrete to our customers’ job
sites. To a lesser extent, this segment is engaged in the mining and
sale of aggregates, and the resale of building materials, primarily to our
ready-mixed concrete customers. We provide these products and
services from our operations in north and west Texas, northern California, New
Jersey, New York, Washington, D.C., Michigan and Oklahoma.
Precast Concrete
Products. Our precast concrete
products segment engages principally in the production, distribution and sale of
precast concrete products from our seven plants located in California, Arizona
and Pennsylvania. From these facilities, we produce precast concrete
structures such as utility vaults, manholes and other wastewater management
products, specialty engineered structures, pre-stressed bridge girders, concrete
piles, curb-inlets, catch basins, retaining and other wall systems,
custom-designed architectural products and other precast concrete
products.
Our
Markets: Pricing and Demand Trends
The
markets for our products are generally local, and our operating results are
subject to fluctuations in the level and mix of construction activity that occur
in our markets. The level of activity affects the demand for our
products, while the product mix of activity among the various segments of the
construction industry affects both our relative competitive strengths and our
operating margins. Commercial and industrial projects generally
provide more opportunities to sell value-added products that are designed to
meet the high-performance requirements of these types of projects.
Our
customers are generally involved in the construction industry, which is a
cyclical business and is subject to general and more localized economic
conditions, including the recessionary conditions impacting all our
markets. In addition, our business is impacted by seasonal variations
in weather conditions, which vary by regional market. Accordingly,
demand for our products and services during the winter months is typically lower
than in other months of the year because of inclement weather. Also,
sustained periods of inclement weather could cause the delay of construction
projects during other times of the year.
For the
first nine months of 2009, our consolidated average sales price per cubic yard
of ready-mixed concrete increased approximately 1.3%, as compared to the first
nine months of 2008. This increase was attributable to higher prices
in certain markets, partially offset by lower prices in certain other
markets. We experienced downward pressure on our product pricing, in
certain markets, beginning in the second quarter of 2009. We
anticipate that pricing in most of our markets will be negatively affected by
the recessionary conditions for the remainder of 2009 and into
2010.
We
continued to experience declines in demand for our products during the first
nine months of 2009, primarily in our residential and commercial end-use
markets. Ready-mixed concrete sales volumes generally began to
decline during the early summer of 2006 and continued to decline throughout
2007, 2008 and the first nine months of 2009. This decline reflects a
sustained downward trend in residential construction activity and commercial
projects in many of our markets. The overall construction downturn,
in both residential and commercial end-use markets, resulted in ready-mixed
concrete sales volumes being down on a same-plant-sales basis in our major
markets, as compared to the third quarter and first nine months of
2008. For the full year, we expect 2009 ready-mixed concrete sales
volumes to be significantly lower than sales volumes achieved in 2008 because of
continued sluggishness in the residential and commercial end-use construction
markets, which continues to be exacerbated by the financial crisis and U.S.
recession.
Demand
for our products in our precast concrete products segment also decreased in the
first nine months of 2009, as compared to the first nine months of
2008. This decline is reflective of the decrease in residential
construction starts in our northern California and Phoenix, Arizona markets,
where our precast business has been heavily weighted toward products used in new
residential construction projects. Additionally, lower commercial construction
spending in the mid-Atlantic market has affected this segment.
25
Our
outlook for 2010 continues to reflect weak demand, primarily as a result of
continued softness in residential construction, further softening of demand in
the commercial sector and delays in public works projects in many of our
markets. Product pricing pressure and the expectation of lower
ready-mixed concrete pricing in 2010 compared to 2009 in most of our markets
will have a negative effect on our gross margins. We have implemented
further cost reduction programs in an effort to partially mitigate the impact of
these weaknesses in our markets.
Sustaining
or improving our operating margins in the future will depend on market
conditions, including the impact of continued weakness in the residential and
commercial construction sectors and the uncertainty of public works projects in
light of state budgetary shortfalls and economic conditions in the
U.S. We are beginning to see demand attributable to the American
Recovery and Reinvestment Act (the “Act”) passed by the U.S. government in 2009.
While we have been awarded certain projects related to the Act, the associated
revenue is not expected to be significant in 2009 and will not have a meaningful
impact this year. We anticipate that more funds will be released in 2010 under
the Act, but the magnitude of funds to be released is uncertain and the effect
on our sales volumes, operating margins and liquidity also remains
uncertain.
Cement
and Other Raw Materials
We obtain
most of the raw materials necessary to manufacture ready-mixed concrete and
precast concrete products on a daily basis. These materials include cement,
other cementitious materials (generally, fly ash and blast furnace slag) and
aggregates (stone, gravel and sand), in addition to certain chemical admixtures.
With the exception of chemical admixtures, each plant typically maintains an
inventory level of these materials sufficient to satisfy its operating needs for
a few days. Typically, cement, other cementitious materials and
aggregates represent the highest-cost materials used in manufacturing a cubic
yard of ready-mixed concrete. In each of our markets, we purchase
each of these materials from several suppliers. Admixtures are generally
purchased from suppliers under national purchasing agreements.
We
negotiate cement and aggregates pricing with suppliers both on a company-wide
basis and at the local market level in an effort to obtain the most competitive
pricing available. Due to the severe slowdown in residential housing
starts and decreased demand in other construction activity, combined with
increased U.S. cement capacity, we did not experience cement shortages during
the first nine months of 2009, and we do not expect to experience cement
shortages for the remainder of the year. Cement costs have remained flat in
certain markets, but we have realized cement cost decreases in some of our major
markets in the first nine months of 2009 and expect cement prices to remain
stable to moderately down throughout the remainder of 2009. Cement
pricing for 2010 remains uncertain.
Overall,
and in certain markets in particular, aggregates pricing in the first nine
months of 2009 was lower when compared with the first nine months of 2008.
However, prices by market and for specific types of aggregates
varied. Currently, in most of our markets, we believe there is an
adequate supply of aggregates. Should demand increase significantly,
we could experience escalating prices or shortages of aggregates. On
average, we expect our aggregates costs for all of 2009 to be flat or slightly
down over aggregates costs in 2008. Fuel charges have declined
substantially during the first nine months of 2009, compared to the first three
quarters of 2008, due to lower diesel fuel prices and lower production
volumes.
Acquisitions
Since our
inception in 1999, our growth strategy has contemplated
acquisitions. The rate and extent to which appropriate further
acquisition opportunities are available, and the extent to which acquired
businesses are integrated and anticipated synergies and cost savings are
achieved, can affect our operations and results. We expect the rate
of our acquisitions for the remainder of 2009 and 2010 to be significantly lower
than our historical rate due to the global credit crisis, our limited available
capital and ongoing recessionary conditions in the United States. Our
recent acquisitions are discussed briefly below.
Ready-Mixed
Concrete and Concrete-Related Products Segment
New York Acquisitions. In
May 2009, we acquired substantially all the assets of a concrete crushing and
recycling business in Queens, New York for approximately $4.5 million. In
November 2008, we paid $2.5 million to acquire a ready-mixed concrete operation
in Brooklyn, New York, and in August 2008, we paid $2.0 million to acquire a
ready-mixed concrete operation in Mount Vernon, New York. We used
borrowings under our existing credit facility to fund these acquisitions. In
January 2008, we acquired a ready-mixed concrete operation in Staten Island, New
York. The purchase price was approximately $1.8 million in
cash.
26
West Texas Acquisition. In
June 2008, we acquired nine ready-mixed concrete plants, together with related
real property, rolling stock and working capital, in our west Texas market for
approximately $13.5 million. We used borrowings under
our existing credit facility to fund the payment of the purchase
price.
Precast
Concrete Products Segment
Pomeroy. In August
2008, we paid $2.5 million to acquire a precast operation to augment our
existing precast operations in San Diego, California. We used cash on
hand to fund the purchase price.
Architectural Precast, LLC
(“API”). In October 2007, we acquired the operating assets,
including working capital and real property, of API, a leading designer and
manufacturer of premium quality architectural and structural precast concrete
products serving the mid-Atlantic region, for approximately $14.5 million plus a
$1.5 million contingent payment based on the future earnings of
API. For the twelve-month period ended September 30, 2008, API
attained 50% of its established earnings target, and we made a $750,000 payment,
reduced for certain uncollected pre-acquisition accounts receivable, to the
sellers in the first quarter of 2009 in partial satisfaction of our contingent
payment obligation. API did not attain the established earnings
target for the twelve-month period ended September 30, 2009, and accordingly no
additional consideration is due the sellers.
Divestitures
During the third quarter of 2009, we
sold four ready-mixed concrete plants in Sacramento, California for
approximately $6.0 million, plus a payment for certain inventory on hand at
closing (See Note 5 to our condensed consolidated financial statements included
in this report). We sold our Memphis, Tennessee operations for $7.2
million, plus the payment for certain inventory on hand at closing in January
2008. We exited this market because it did not meet our
performance and return criteria or fit our long-term strategic objectives (See
Note 4 to our condensed consolidated financial statements included in this
report).
Risks
and Uncertainties
Numerous
factors could affect our future operating results. These factors are discussed
under the heading “Risk Factors” in Item 1A of Part I of the 2008 Form
10-K. Based on current economic conditions and our outlook of
continued weak demand in 2010 for our products and product pricing pressures, we
have also included additional disclosures regarding our liquidity and covenants
under our debt agreement under “Liquidity and Capital Resources” in this
quarterly report.
Critical
Accounting Policies
We have
outlined our critical accounting policies in Item 7 of Part II of the 2008 Form
10-K. Our critical accounting policies involve the use of estimates
in the recording of the allowance for doubtful accounts, realization of
goodwill, accruals for self-insurance, accruals for income taxes, inventory
obsolescence reserves and the valuation and useful lives of property, plant and
equipment. See Note 1 to our consolidated financial statements included in
Item 8 of Part II of the 2008 Form 10-K for a discussion of these accounting
policies and the discussion below. See Note 14 to the condensed
consolidated financial statements in Part I of this report for a discussion of
recent accounting pronouncements and accounting changes.
Goodwill
We record as goodwill the amount by
which the total purchase price we pay in our acquisition transactions exceeds
our estimated fair value of the identifiable net assets we acquire. We test
goodwill for impairment on an annual basis, or more often if events or
circumstances indicate that there may be impairment. We generally
test for goodwill impairment in the fourth quarter of each year, because this
period gives us the best visibility of the reporting units’ operating
performances for the current year (seasonally, April through October are highest
revenue and production months) and outlook for the upcoming year, since much of
our customer base is finalizing operating and capital budgets. The
impairment test we use consists of comparing our estimates of the current fair
values of our reporting units with their carrying amounts. We currently have
seven reporting units. Reporting units are organized based on our two
product segments ((1) ready-mixed concrete and concrete-related products and (2)
precast concrete products) and geographic regions.
During
the third quarter of 2009, we sold four ready-mixed concrete plants in
Sacramento, California. These plants and operations were included in our
northern California ready-mixed concrete reporting unit. Concurrently
with this sale, we performed an impairment test on the remaining goodwill for
this reporting unit and on all remaining goodwill as a result of current
economic conditions. The U.S. recession and downturn in the U.S.
construction markets has continued to impact our revenue and expected future
growth. The cost of capital has increased while the availability of funds from
capital markets has not improved significantly. Lack of available capital
impacts our end-use customers by creating project delays or cancellations,
thereby impacting our revenue growth and assumptions. The downturn in
residential construction has not improved and we are now seeing the recession
affect the commercial sector of our revenue base. In addition, the California
budget crisis has affected public works spending in this market.
All these factors have led to a more negative outlook for expected
future cash flows and resulted in an impairment charge of $45.8 million, of
which $42.2 million related to our northern California reporting
unit.
27
Our fair value analysis is supported by
a weighting of the following three generally accepted valuation
approaches:
|
·
|
Income
Approach - discounted cash flows of future benefit
streams;
|
|
·
|
Market
Approach - public comparable company multiples of sales and earnings
before interest, taxes, depreciation, depletion and amortization
(“EBITDA”); and
|
|
·
|
Market
Approach - multiples generated from recent transactions comparable in
size, nature and industry
|
These approaches include numerous
assumptions with respect to future circumstances, such as industry and/or local
market conditions that might directly impact each of the reporting units
operations in the future, and are, therefore uncertain. These
approaches are utilized to develop a range of fair values and a weighted average
of these approaches is utilized to determine the best fair value estimate within
that range.
Income Approach - Discounted Cash
Flows. This valuation approach derives a present value of the
reporting unit’s projected future annual cash flows over the next 15 years and
the present residual value of the reporting unit. We use a variety of
underlying assumptions to estimate these future cash flows, including
assumptions relating to future economic market conditions, product pricing,
sales volumes, costs and expenses and capital expenditures. These
assumptions vary by each reporting unit depending on regional market conditions,
including competitive position, degree of vertical integration, supply and
demand for raw materials and other industry conditions. The discount
rate used in the Income Approach, specifically, the weighted average cost of
capital, used in our analysis during the third quarter was 15.0%. The
revenue compounded annual growth rates used in the Income Approach varied from
-0.1% to 2.0%, depending on the reporting unit and the year. Our
EBITDA margins derived from these underlying assumptions varied between
approximately -8% and 18%, depending on the reporting unit. The terminal growth
rate used was 3.0%.
Market Approach - Multiples of Sales
and EBITDA. This valuation approach utilizes publicly traded
construction materials companies’ enterprise values, as compared to their recent
sales and EBITDA information. We used an average sales multiple of
0.60 times and an average EBITDA multiple of 6.79 times in determining this
market approach metric. These multiples are used as a valuation
metric to our most recent financial performance. We use sales as an
indicator of demand for our products/services and EBITDA because it is a widely
used key indicator of the cash generating capacity of construction material
companies.
Market Approach - Comparisons of
Recent Transactions. This valuation approach uses publicly
available information regarding recent third-party sales transactions in our
industry to derive a valuation metric of the target’s respective enterprise
values over their EBITDA amounts. We utilize this valuation metric
with each of our reporting units’ most recent financial performance to derive a
“what if” sales transaction comparable, fair-value estimate. We did
not weigh this market approach because current economic conditions yielded no
recent transactions to derive an appropriate valuation metric.
We selected these valuation approaches
because we believe the combination of these approaches, and our best judgment
regarding underlying assumptions and estimates, provides us with the best
estimate of fair value for each of our reporting units. We believe these
valuation approaches are proven valuation techniques and methodologies for the
construction materials industry and widely accepted by investors. The
estimated fair value of each reporting unit would change if our weighting
assumptions under the three valuation approaches were materially
modified. We weighted the Income Approach at 45% and the Market
Approach - Multiples of Sales and EBITDA at 55%. No weighting was
used for the Market Approach - Recent Transactions as described
above. This weighting was utilized to reflect fair value in current
market conditions.
Our valuation model utilizes
assumptions which represent our best estimate of future events, but would be
sensitive to positive or negative changes in each of the underlying assumptions
as well as to an alternative weighting of valuation methods which would result
in a potentially higher or lower goodwill impairment
expense. Specifically, a continued decline in our ready-mixed
concrete volumes and corresponding revenues and lower precast product revenues
declining at rates greater than our expectations may lead to additional goodwill
impairment charges, especially to the reporting units whose carrying values
closely approximate their estimated fair values. Furthermore, a
continued decline in publicly traded construction materials enterprise values,
including lower operating margins and lower multiples used in third-party sales
transactions and continued global-financial credit conditions may also lead to
additional goodwill impairment charges. After the impairment during
the third quarter of 2009, our goodwill balance is $14.1 million and is
contained in the Atlantic Precast Region and South Central reporting
units. The remaining five reporting units do not have goodwill
reflected as an asset on their balance sheets, as we have fully impaired
previously reported goodwill during the current quarter and prior years. The
reporting unit whose estimated fair value closely approximates its carrying
value is our Atlantic Precast Region with a goodwill balance of $10.0 million.
The carrying value is $15.1 million and the estimated fair value is $15.3
million. We can provide no assurance that future goodwill impairments
will not occur.
28
Property,
Plant and Equipment, Net
We state
our property, plant and equipment at cost and use the straight-line method to
compute depreciation of these assets over their estimated remaining useful
lives. Our estimates of those lives may be affected by such factors as changing
market conditions, technological advances in our industry or changes in
applicable regulations.
We
evaluate the recoverability of our property, plant and equipment when changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable in accordance with authoritative guidance related to accounting for
the impairment of long-lived assets. We compare the carrying values
of long-lived assets to our projection of future undiscounted cash flows
attributable to those assets. If the carrying value of a long-lived
asset exceeds the future undiscounted cash flows we project to be derived from
that asset, we record an impairment loss equal to the excess of the carrying
value over the fair value. Actual useful lives and future cash flows could be
different from those we estimate. These differences could have a material effect
on our future operating results.
During
the third quarter of 2009, we evaluated the recoverability of our property,
plant and equipment. The Michigan market continues to be significantly impacted
by the global recession and by events specific to the region, including the
difficult operating conditions of the U.S. automotive industry manufacturers,
high unemployment rates and lack of public works spending. The
decline in construction activity in each of our end-use markets in Michigan has
negatively affected our outlook of future sales growth and cash
flow. We identified an impairment related to the property, plant and
equipment in our Michigan market and recorded expense of $8.8 million, which
represents the amount that the carrying value of these assets exceeded fair
value.
29
Results
of Operations
The
following table sets forth selected historical statement of operations
information (in thousands, except for selling prices) and that information as a
percentage of sales for each of the periods indicated.
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
||||||||||||||||||||||||||||
(unaudited)
|
(unaudited)
|
||||||||||||||||||||||||||||||
Revenue:
|
|||||||||||||||||||||||||||||||
Ready-mixed
concrete and concrete-related products
|
$ | 142,008 | 92.5 | % | $ | 198,434 | 93.2 | % | $ | 380,742 | 91.8 | % | $ | 540,224 | 93.0 | % | |||||||||||||||
Precast
concrete products
|
15,596 | 10.2 | 19,231 | 9.0 | 45,127 | 10.9 | 53,145 | 9.1 | |||||||||||||||||||||||
Inter-segment
revenue
|
(3,996 | ) | (2.7 | ) | (4,846 | ) | (2.2 | ) | (11,235 | ) | (2.7 | ) | (12,396 | ) | (2.1 | ) | |||||||||||||||
Total
revenue
|
$ | 153,608 | 100.0 | % | $ | 212,819 | 100.0 | % | $ | 414,634 | 100.0 | % | $ | 580,973 | 100.0 | % | |||||||||||||||
Cost
of goods sold before depreciation, depletion and
amortization:
|
|||||||||||||||||||||||||||||||
Ready-mixed
concrete and concrete-related products
|
$ | 116,219 | 75.6 | % | $ | 161,925 | 76.1 | % | $ | 316,971 | 76.5 | % | $ | 448,286 | 77.2 | % | |||||||||||||||
Precast
concrete products
|
12,353 | 8.0 | 14,399 | 6.8 | 35,712 | 8.6 | 39,739 | 6.8 | |||||||||||||||||||||||
Selling,
general and administrative expenses
|
16,206 | 10.6 | 19,643 | 9.2 | 50,727 | 12.2 | 55,494 | 9.6 | |||||||||||||||||||||||
Goodwill
and other asset impairments
|
54,560 | 35.5 | — | — | 54,560 | 13.2 | — | — | |||||||||||||||||||||||
Depreciation,
depletion and amortization
|
7,645 | 5.0 | 7,850 | 3.7 | 22,551 | 5.4 | 21,763 | 3.7 | |||||||||||||||||||||||
(Gain)
loss on sale of assets
|
2,865 | 1.9 | (321 | ) | (0.1 | ) | 2,029 | 0.5 | (399 | ) | (0.1 | ) | |||||||||||||||||||
Income
(loss) from operations
|
(56,240 | ) | (36.6 | ) | 9,323 | 4.4 | (67,916 | ) | (16.4 | ) | 16,090 | 2.8 | |||||||||||||||||||
Interest
expense, net
|
6,578 | 4.3 | 6,747 | 3.2 | 19,908 | 4.8 | 20,121 | 3.5 | |||||||||||||||||||||||
Gain
on purchase of senior subordinated notes
|
— | — | — | — | 7,406 | 1.8 | — | — | |||||||||||||||||||||||
Other
income, net
|
326 | 0.2 | 578 | 0.3 | 1,016 | 0.3 | 1,628 | 0.3 | |||||||||||||||||||||||
Income
(loss) from continuing operations before income taxes
|
(62,492 | ) | (40.7 | ) | 3,154 | 1.5 | (79,402 | ) | (19.1 | ) | (2,403 | ) | (0.4 | ) | |||||||||||||||||
Income
tax provision (benefit)
|
(1,194 | ) | (0.8 | ) | 1,248 | 0.6 | (2,262 | ) | (0.5 | ) | 346 | 0.1 | |||||||||||||||||||
Income
(loss) from continuing operations
|
(61,298 | ) | (39.9 | ) | 1,906 | 0.9 | (77,140 | ) | (18.6 | ) | (2,749 | ) | (0.5 | ) | |||||||||||||||||
Loss
from discontinued operations, net of tax
|
— | — | — | — | — | — | (149 | ) | (0.0 | ) | |||||||||||||||||||||
Net
income (loss)
|
(61,298 | ) | (39.9 | ) | 1,906 | 0.9 | (77,140 | ) | (18.6 | ) | (2,898 | ) | (0.5 | ) | |||||||||||||||||
Net
loss attributable to non-controlling interest
|
3,238 | 2.1 | (184 | ) | (0.1 | ) | 5,652 | 1.4 | 2,645 | 0.5 | |||||||||||||||||||||
Net
loss attributable to stockholders
|
$ | (58,060 | ) | (37.8 | )% | $ | 1,722 | 0.8 | % | $ | (71,508 | ) | (17.3 | )% | $ | (253 | ) | (0.0 | )% | ||||||||||||
Ready-mixed
Concrete Data:
|
|||||||||||||||||||||||||||||||
Average
selling price per cubic yard
|
$ | 95.00 | $ | 93.74 | $ | 95.53 | $ |
94.28
|
|||||||||||||||||||||||
Sales
volume in cubic yards
|
1,309 | 1,845 | 3,512 |
5,002
|
|||||||||||||||||||||||||||
Precast
Concrete Data:
|
|||||||||||||||||||||||||||||||
Average
selling price per cubic yard of concrete used in
production
|
$ | 794.32 | $ | 904.19 | $ | 894.34 | $ |
771.91
|
|||||||||||||||||||||||
Ready-mixed
concrete used in production in cubic yards
|
20 | 20 | 51 | 69 |
30
Revenue
Ready-mixed
concrete and
concrete-related products. Revenue from our ready-mixed concrete
and concrete-related products segment decreased $56.4 million, or 28.4%, to
$142.0 million for the
three months ended September 30, 2009, from $198.4
million in the corresponding period
of 2008. Our ready-mixed sales
volumes for the third quarter of 2009 were approximately 1.3 million cubic
yards, down 29.0% from the 1.8 million cubic yards of ready-mixed concrete we
sold in the third quarter of 2008. Excluding the volumes associated with
acquired operations, on a same-plant-sales basis, our ready-mixed volumes in the
third quarter of 2009 were down approximately 30.3% compared to the third
quarter of 2008. For the nine months ended September 30, 2009,
ready-mixed concrete and
concrete-related products revenues were $380.7 million, a decrease of 29.5% compared to the nine-month period ended September
30,
2008. Our ready-mixed concrete sales
volumes for the first nine months of 2009 were approximately 3.5 million cubic yards, down 29.8% from approximately 5.0 million cubic yards of ready-mixed
concrete sold during the first nine months of 2008. Excluding ready-mixed
concrete volumes attributable to acquired business operations, volumes during the nine months ended September
30, 2009 were down
approximately 33.0% on a same-plant-sales basis from the
corresponding period
of
2008.
These
declines primarily reflect a continuation of the downturn in residential home
construction activity that began in the second half of 2006 in all our markets,
and the downturn in commercial construction and public works spending due to the
ongoing credit crisis and the economic recession in the United
States. Less favorable weather conditions in our north Texas
markets during the nine months ended September 30, 2009 also contributed to
these decreases. Partially offsetting the effects of lower sales volumes was the
approximate 1.3% rise in the average sales price per cubic yard of ready-mixed
concrete during the nine months ended September 30, 2009, as compared to the
corresponding period in 2008.
Precast concrete products.
Revenue from our precast concrete products segment was down $3.6 million,
or 18.9%, to $15.6 million for the third quarter of 2009 from $19.2 million
during the corresponding period of 2008. For the nine months ended
September 30, 2009, revenues decreased $8.0 million, or 15.1%, to $45.1 million
from $53.1 million during the first nine months of 2008. These decreases reflect
the downturn primarily in residential construction in our northern California
and Phoenix, Arizona markets and lower commercial construction in the
mid-Atlantic market. The decrease in revenue was partially offset by higher
revenue in 2009 from the acquisition of the assets of a San Diego, California
precast operation in August 2008.
Cost
of goods sold before depreciation, depletion and amortization
Ready-mixed concrete and
concrete-related products. Cost of goods sold before depreciation,
depletion and amortization for our ready-mixed concrete and concrete-related
products segment decreased $45.7 million, or 28.2%, to $116.2 million for the
three months ended September 30, 2009 from $161.9 million for the three months
ended September 30, 2008. For the nine months ended September 30,
2009, these costs decreased $131.3 million, or 29.3%, to $317.0 million from
$448.3 million for the nine months ended September 30, 2008. These decreases
were primarily associated with lower sales volumes in 2009.
As a percentage of ready-mixed concrete
and concrete-related product revenue, cost of goods sold before depreciation,
depletion and amortization was 81.8% for the three months ended September 30,
2009, as compared to 81.6% for the corresponding period of 2008. As a percentage
of ready-mixed concrete and concrete-related product revenue, cost of goods sold
before depreciation, depletion and amortization was 83.3% for the nine months
ended September 30, 2009, as compared to 83.0% for the corresponding period of
2008. The increase in cost of goods sold as a percentage of ready-mixed concrete
and concrete-related products revenue was primarily attributable to slightly
higher per unit delivery costs, as compared to the three and nine months
ended September 30, 2008. Additionally, the effect of our fixed costs being
spread over lower volumes increased this percentage.
Precast concrete
products. Cost
of goods sold before depreciation, depletion and amortization for our precast
concrete products segment declined $2.0 million, or 14.2%, to $12.4 million for
the quarter ended September 30, 2009 from $14.4 million for the corresponding
period of 2008. Cost of goods sold before depreciation, depletion and
amortization declined $4.0 million, or 10.1%, to $35.7 million for the nine
months ended September 30, 2009 from $39.7 million for the first three quarters
of 2008. This decrease was primarily related to the declining residential
construction market that has been impacting our northern California and Phoenix,
Arizona precast markets.
As a percentage of precast concrete
products revenue, cost of goods sold before depreciation, depletion and
amortization for precast concrete products rose to 79.2% for three months ended
September 30, 2009 from 74.9% during the three months ended September 30, 2008.
As a percentage of precast concrete revenue, cost of goods sold before
depreciation, depletion and amortization rose to 79.1% for the nine months ended
September 30, 2009 from 74.8% during the corresponding period of 2008. This
percentage increased primarily because of the decreased efficiency in our plant
operations in northern California and Phoenix, Arizona, resulting from lower
demand for our primarily residential product offerings in these
markets.
31
Selling, general and administrative
expenses. Selling, general and administrative expenses for the three
months ended September 30, 2009 were $16.2 million compared to $19.6 million in
the corresponding period of 2008. We experienced lower costs during the third
quarter of 2009 related primarily to reduced compensation as a result of
workforce reductions in 2008 and 2009, reduced incentive-based compensation
accruals, and other administrative reductions such as in travel and
entertainment costs and office expenses. When compared to the third
quarter of 2008, these reductions were offset by an increase in our bad debt
provision.
Selling, general and administrative
expenses were $50.7 million in the first nine months of 2009, compared to $55.5
million in the first nine months of 2008. This decrease was primarily
due to lower incentive compensation accruals, lower travel and entertainment
expenses and other cost reductions implemented in late 2008 and in 2009,
partially offset by higher professional fees and an increase in our bad
debt provision.
Goodwill and other asset
impairments. During the third quarter of 2009, we recorded a
goodwill impairment charge of $45.8 million related to our northern California
and Atlantic Region reporting units, and an asset impairment charge of $8.8
million related to our Michigan operations (see “Critical Accounting Policies”
above).
Depreciation, depletion and
amortization. Depreciation, depletion and amortization expense decreased
$0.2 million, or 2.6%, to $7.6 million for the three months ended September 30,
2009 from $7.8 million in the corresponding period of 2008. Depreciation,
depletion and amortization expense for the nine months ended September 30, 2009
increased $0.8 million to $22.6 million, as compared to $21.8 million during the
first nine months of 2008. The increase during the nine months ended September
30, 2009 was attributable primarily to higher depreciation expense related to
our new information technology system and acquisitions in the second half of
2008 and second quarter of 2009.
Gain/loss on sale of
assets. Our loss on sale
of assets increased to $2.9 million during the third quarter of 2009, compared
to a gain on sale of assets of 0.3 million for the third quarter of 2008. For
the nine month periods ended September 30, 2009 and 2008, our loss on sale of assets increased to
$2.0 million compared to a gain on sale of assets of $0.4 million, respectively.
As previously announced, we completed the sale of four ready-mixed
concrete plants in the Sacramento, California market for $6.0 million, plus
payment for inventory on hand at closing, during the third quarter of 2009. This
sale resulted in a $3.0 million loss after the allocation of $3.0 million of
related goodwill.
Gain on purchases of senior
subordinated notes. During the first and second quarters of 2009, we
purchased $12.4 million aggregate principal amount of our 8⅜% Senior
Subordinated Notes due April 1, 2014 (the “8⅜% Notes”) in open-market
transactions for approximately $4.8 million. This resulted in a gain
of approximately $7.4 million after writing off a total of $0.2 million of
previously deferred financing costs associated with the pro-rata amount of the
8⅜% Notes purchased.
Interest expense,
net. Net interest expense decreased $0.2 million, or 2.5%, to
$6.6 million in the third quarter of 2009 from $6.8 million in the third quarter
of 2008. Net interest expense for the nine months ended September 30, 2009 was
$19.9 million, compared to $20.1 million for the first nine months of
2008. We experienced interest savings from the repurchase of our 8⅜%
Notes and lower interest rates on borrowings under our Credit Facility when
compared to the corresponding periods of 2008. This reduction was mostly offset
by increased interest associated with higher amounts outstanding under our
Credit Facility.
Income taxes. We
recorded an income tax benefit from continuing operations of $2.3 million for
the nine months ended September 30, 2009, as compared to tax expense of $0.3
million for the corresponding period in 2008. At the end of each interim
reporting period, we estimate the effective income tax rate expected to be
applicable for the full year. We use this estimate in providing for
income taxes on a year-to-date basis, and it may vary in subsequent interim
periods if our estimate of the full year income or loss changes. Our
effective tax benefit rate was 2.8% for the nine months ended September 30,
2009. For the nine months ended September 30, 2009, we applied a valuation
allowance against certain of our deferred tax assets, including operating loss
carryforwards, which reduced our effective benefit rate from the statutory rate.
In accordance with GAAP, a valuation allowance is required unless it is more
likely than not that future taxable income or the reversal of deferred tax
liabilities will be sufficient to recover deferred tax assets. In addition,
certain state taxes are calculated on bases different than pre-tax loss. This
results in us recording income tax expense for these states, which also lowered
the effective benefit rate for the nine months ended September 30, 2009 compared
to the statutory rate.
Non-controlling
interest. The net loss attributable to non-controlling
interest reflected in the three and nine month periods ended September 30, 2009
and 2008 relate to the allocable share of net loss, including the proportionate
share of the asset impairment charges in 2009 from our Michigan joint venture,
Superior Materials Holdings, LLC (“Superior”), to the minority interest
owner.
32
Liquidity
and Capital Resources
Our primary short-term liquidity needs
consist of financing seasonal working capital requirements, maintaining our
property and equipment, and paying cash interest expense under the
8⅜% Notes and cash interest expense on borrowings under our senior secured
revolving credit facility that is scheduled to expire in March
2011. In addition to cash and cash equivalents of $10.5 million at
September 30, 2009, our senior secured revolving credit facility provides us
with a significant source of liquidity. At September 30, 2009, we had
$71.6 million of available credit, net of outstanding revolving credit
borrowings of $16.0 million and outstanding letters of credit of $11.6 million.
Our working capital needs are typically at their lowest level in the first
quarter and increase in the second and third quarters to fund the increases in
accounts receivable and inventories during those periods and the cash interest
payment on the 8⅜% Notes on April 1 and October 1 of each year. Generally,
in the fourth quarter of each year, our working capital borrowings decline and
are at their lowest annual levels in the first quarter of the following year.
Current market conditions have limited the availability of new sources of
financing and capital, which will have an impact on our ability to obtain
financing for our acquisition program and developmental capital.
The
principal factors that could adversely affect the amount of and availability of
our internally generated funds include:
|
§
|
further
deterioration of revenue because of weakness in the markets in which we
operate;
|
|
§
|
further
decline in gross margins due to shifts in our project mix or increases in
the cost of our raw materials including fuel surcharges and cash fixed
costs associated with our operating
structure;
|
|
§
|
any
deterioration in our ability to collect our accounts receivable from
customers as a result of further weakening in residential and other
construction demand or as a result of payment difficulties experienced by
our customers relating to the global financial crisis;
and
|
|
§
|
the
extent to which we are unable to generate internal growth through
integration of additional businesses or capital expansions of our existing
business.
|
Covenants
contained in the credit agreement governing our senior revolving credit facility
(the “Credit Agreement”) and the indenture governing the 8⅜% Notes could
adversely affect our ability to obtain cash from external sources. Specifically,
the Credit Agreement limits capital expenditures (excluding permitted
acquisitions) to the greater of $45 million or 5% of consolidated revenues in
the prior 12 months and will require us to maintain a minimum fixed-charge
coverage ratio of 1.0 to 1.0 on a rolling 12-month basis if the available credit
under the facility falls below $25 million.
Our
liquidity outlook for 2010 continues to weaken, primarily as a result of
continued softness in residential construction, further softening of demand in
the commercial sector and delays in public works projects in many of our
markets. We are also experiencing product pricing pressure and expect
ready-mixed concrete pricing to be down in 2010 compared to 2009 in most of our
markets, which will have a negative effect on our gross margins. Our
anticipated product volume declines and product price erosions are expected to
negatively impact our liquidity. Based upon our projections as of the
date of this quarterly report, we expect our available credit to remain above
$25 million over the next twelve months. However, if the severity of
product volume and price declines are more than anticipated, this may cause our
available credit under the Credit Agreement to fall below $25 million in
2010. Additionally, our business is subject to certain risks and
uncertainties which could cause our actual results to vary from those
expected. These risks and uncertainties are discussed in greater
detail in our Annual Report on Form 10-K for the year ended December 31,
2008. If our available credit falls below $25 million, we do not
currently expect that we would be able to meet the minimum fixed-charge coverage
ratio of 1.0 to 1.0 on a rolling 12-month basis.
Absent a
compliance waiver or amendment from our lenders or a successful refinancing of
the Credit Agreement prior to a potential noncompliance event, our lenders would
control our cash depository accounts, may limit or restrict our future
borrowings under the Credit Agreement and may, at their option, immediately
accelerate the maturity of the facility. If the lenders were to
accelerate our obligation to repay borrowings under the Credit Agreement, we may
not be able to repay the debt or refinance the debt on acceptable terms, and we
may not have sufficient liquidity to make the payments when due. Our lenders may
also prohibit interest payments on our 8⅜% Notes for a period ending on the
earlier of 180 days or the date the event of default has been waived or
amended.
Under the
provisions of our 8⅜% Notes, an event of default under our credit facility would
not accelerate the 8⅜% Notes unless the Credit Agreement lenders accelerate
maturity of the debt outstanding under that agreement. If our
obligation to repay the indebtedness under our 8⅜% Notes were accelerated, we
may not be able to repay the debt or refinance the debt on acceptable terms, and
we may not have sufficient assets to make the payments when due. The
acceleration of our credit agreement or the 8⅜% Notes would have a material
adverse affect on our operations and our ability to meet our obligations as they
become due.
Under the
indenture governing the 8⅜% Notes, there are restrictions on our ability to
incur additional debt, primarily limited to the greater of (1) borrowings
available under the Credit Agreement plus the greater of $15 million or 7.5% of
our tangible assets, or (2) additional debt if, after giving effect to the
incurrence of such additional debt, our earnings before interest, taxes,
depreciation, amortization and certain noncash items equal or exceed two times
our total interest expense. Based on our September 30, 2009 balance
sheet, generally this restriction in the indenture limits our borrowing
availability to approximately $28.2 million, in addition to our borrowings
available under our existing Credit Agreement. Additionally, our ability to
obtain cash from external sources could be adversely affected by volatility in
the markets for corporate debt, fluctuations in the market price of our common
stock or 8⅜% Notes and any additional market instability, unavailability of
credit or inability to access the capital markets which may result from the
effect of the global financial crisis and U.S. recession.
33
The
following key financial measurements reflect our financial position and capital
resources as of September 30, 2009 and December 31, 2008 (dollars in
thousands):
September 30, 2009
|
December 31, 2008
|
|||||||
Cash
and cash equivalents
|
$ | 10,528 | $ | 5,323 | ||||
Working
capital
|
$ | 46,338 | $ | 63,484 | ||||
Total
debt
|
$ | 298,594 | $ | 305,988 | ||||
Available
credit
|
$ | 71,600 | $ | 91,100 | ||||
Debt
as a percentage of capital employed
|
97.8 | % | 79.2 | % |
Our cash
and cash equivalents consist of highly liquid investments in deposits we hold at
major financial institutions.
Senior
Secured Credit Facility
On June
30, 2006, we entered into the Credit Agreement, which amended and restated our
senior secured credit agreement dated as of March 12, 2004. The
Credit Agreement, as amended to date, provides for a revolving credit facility
of up to $150 million, with borrowings limited based on a portion of the net
amounts of eligible accounts receivable, inventory and mixer trucks. The
facility is scheduled to mature in March 2011. At September 30, 2009, we had
borrowings of $16.0 million under this facility. We pay interest on borrowings
at either the Eurodollar-based rate (“LIBOR”) plus 1.75% per annum to 2.25% per
annum or the domestic rate (3.25% at September 30, 2009) plus 0.25% to 0.75% per
annum. The rate paid over either LIBOR or the domestic rate varies depending on
the level of borrowings. Commitment fees at an annual rate of 0.25%
are payable on the unused portion of the facility. The Credit
Agreement provides that the administrative agent may, on the bases specified,
reduce the amount of the available credit from time to
time. Additionally, any “material adverse change” of the Company
could restrict our ability to borrow under the senior secured credit
facility. A material adverse change is defined as a material adverse
change in any of (a) the condition (financial or otherwise), business,
performance, prospects, operations or properties of us and our Subsidiaries,
taken as a whole, (b) our ability and the ability of our guarantors, taken as a
whole, to perform the respective obligations under the Credit Agreement and
ancillary documents or (c) the rights and remedies of the administrative agent,
the lenders or the issuers to enforce the Credit Agreement and ancillary
documents. At September 30, 2009, the amount of the available credit
was approximately $71.6 million, net of outstanding revolving credit borrowings
of $16.0 million and outstanding letters of credit of approximately $11.6
million.
Our
subsidiaries, excluding Superior and minor subsidiaries without operations or
material assets, have guaranteed the repayment of all amounts owing under the
Credit Agreement. In addition, we have collateralized our obligations
under the Credit Agreement with the capital stock of our subsidiaries, excluding
Superior and minor subsidiaries without operations or material assets, and
substantially all the assets of those subsidiaries, excluding most of the assets
of the aggregates quarry in northern New Jersey, other real estate owned by us
or our subsidiaries, and the assets of Superior. The Credit Agreement
contains covenants restricting, among other things, prepayment or redemption of
subordinated notes, distributions, dividends and repurchases of capital stock
and other equity interests, acquisitions and investments, mergers, asset sales
other than in the ordinary course of business, indebtedness, liens, changes in
business, changes to charter documents and affiliate transactions. It
also limits capital expenditures (excluding permitted acquisitions) to the
greater of $45 million or 5% of consolidated revenues in the prior 12 months and
will require us to maintain a minimum fixed-charge coverage ratio of 1.0 to 1.0
on a rolling 12-month basis if the available credit under the facility falls
below $25 million. The Credit Agreement provides that specified
change-of-control events would constitute events of default. As of
September 30, 2009, we were in compliance with our financial covenants under the
Credit Agreement. The maintenance of a minimum fixed charge coverage
ratio was not applicable, as the available credit under the facility did not
fall below $25.0 million (See Note 3 – Risks and Uncertainties for a discussion
of our liquidity and the effect on our covenants in the future).
Senior
Subordinated Notes
On March
31, 2004, we issued $200 million of 8⅜% Notes. Interest on these
notes is payable semi-annually on April 1 and October 1 of each
year. We used the net proceeds of this financing to redeem our
prior 12% senior subordinated notes and prepay outstanding debt under a prior
credit facility. In July 2006, we issued $85 million of additional
8⅜% Notes.
During
the first quarter of 2009, we purchased $7.4 million aggregate principal amount
of the 8⅜% Notes in open market transactions for approximately $2.8 million
plus accrued interest of approximately $0.3 million through the dates of
purchase. We recorded a gain of approximately $4.5 million as a
result of these open market transactions after writing off $0.1 million of
previously deferred financing costs associated with the pro-rata amount of the
8⅜% Notes purchased. During the quarter ended June 30, 2009, we
purchased an additional $5.0 million principal amount of our 8⅜% Notes for
approximately $2.0 million. This resulted in a gain of approximately $2.9
million in April 2009, after writing off $0.1 million of previously deferred
financing costs associated with the pro-rata amount of the 8⅜% Notes purchased.
We used cash on hand and borrowings under our Credit Agreement to fund these
transactions. These purchases reduce the amount outstanding under the
8⅜% Notes by $12.4 million and will reduce our interest expense by
approximately $0.7 million in 2009 and $0.9 million on an annual basis
thereafter.
34
All of
our subsidiaries, excluding Superior and minor subsidiaries, have jointly and
severally and fully and unconditionally guaranteed the repayment of the 8⅜%
Notes.
The
indenture governing the 8⅜% Notes limits our ability
and the ability of our subsidiaries to pay dividends or repurchase common stock,
make certain investments, incur additional debt or sell preferred stock, create
liens, merge or transfer assets. We may redeem all or a part of the
8⅜% Notes at a
redemption price of 104.188% for the remainder of 2009, 102.792% in 2010,
101.396% in 2011 and 100% in 2012 and thereafter. The indenture
requires us to offer to repurchase (1) an aggregate principal amount of the
8⅜% Notes equal to
the proceeds of certain asset sales that are not reinvested in the business or
used to pay senior debt, and (2) all the 8⅜% Notes following the
occurrence of a change of control. The Credit Agreement would
prohibit these repurchases.
As a
result of restrictions contained in the indenture relating to the 8⅜% Notes, our
ability to incur additional debt is primarily limited to the greater of (1)
borrowings available under the Credit Agreement, plus the greater of $15 million
or 7.5% of our tangible assets, or (2) additional debt if, after giving effect
to the incurrence of such additional debt, our earnings before interest, taxes,
depreciation, amortization and certain noncash items equal or exceed two times
our total interest expense. Based on our September 30, 2009 balance sheet,
generally this restriction in the indenture limits our borrowing availability to
approximately $28.2 million, in addition to our borrowings available under our
existing Credit Agreement.
Superior
Credit Facility and Subordinated Debt
Superior
has a separate credit agreement that provides for a revolving credit
facility. The credit agreement, as amended, allows for borrowings of
up to $17.5 million. Borrowings under this credit facility are
collateralized by substantially all the assets of Superior and are scheduled to
mature on April 1, 2010. Availability of borrowings is subject to a
borrowing base that is determined based on the values of net receivables,
certain inventories, certain rolling stock and letters of credit. The credit agreement
provides that the lender may, on the bases specified, reduce the amount of the
available credit from time to time. As of September 30, 2009, there was
$7.9 million in outstanding borrowings under the revolving credit facility, and
the remaining amount of the available credit was approximately $4.8 million.
Letters of credit outstanding at September 30, 2009 were $2.8 million, which
reduced the amount available under the credit facility.
Currently, borrowings have an annual
interest rate at Superior’s option of either, LIBOR, plus 4.25%, or prime rate
plus 2.00%. Commitment fees at an annual rate of 0.25% are payable on
the unused portion of the facility.
The
credit agreement contains covenants restricting, among other things, Superior’s
distributions, dividends and repurchases of capital stock and other equity
interests, acquisitions and investments, mergers, asset sales other than in the
ordinary course of business, indebtedness, liens, changes in business, changes
to charter documents and affiliate transactions. It also generally limits
Superior’s capital expenditures and requires the subsidiary to maintain
compliance with specified financial covenants, including an affirmative covenant
which requires earnings before income taxes, interest and depreciation
(“EBITDA”) to meet certain minimum thresholds quarterly. During the
trailing 12 months ended September 30, 2009, the credit agreement required a
threshold EBITDA of $(2.7) million. As of September 30, 2009, Superior was in
compliance with its financial covenants under the credit
agreement. Based on its fourth quarter 2009 outlook, Superior does
not expect to meet its threshold EBITDA compliance test for the quarter ended
December 31, 2009. Superior is in discussions with its lender
regarding the receipt of a waiver of its noncompliance with this covenant or
amendment to the terms of the covenant. Although Superior currently
believes it will receive a waiver, we can provide no assurance that we will
receive any waiver or amendment. A breach of this covenant could
result in a default under Superior’s credit agreement. Upon the occurrence of an
event of default under that agreement, all amounts outstanding under that
agreement could become immediately due and payable, and the lender could
terminate all commitments to extend further credit.
U.S. Concrete and its 100%-owned
subsidiaries are not obligors under the terms of the Superior credit agreement.
However, Superior’s credit agreement provides that an event of default beyond a
30-day grace period under either U.S. Concrete’s or Edw. C. Levy Co.’s credit
agreement would constitute an event of default. Furthermore, U.S.
Concrete has agreed to provide or obtain additional equity or subordinated debt
capital not to exceed $6.75 million through the term of the revolving credit
facility to fund any future cash flow deficits, as defined in the credit
agreement, of Superior. In the first quarter of 2009, U.S. Concrete
provided subordinated debt capital in the amount of $2.4 million under this
agreement in lieu of payment of related party payables. Additionally, the
minority partner, Edw. C. Levy Co., provided $1.6 million of subordinated debt
capital to fund operations during the first quarter of 2009. The
subordinated debt with U.S. Concrete was eliminated in
consolidation. There was no interest due on each note, and each note
was scheduled to mature on May 1, 2011. During the third quarter of 2009, U.S.
Concrete and the minority partner, Edw. C. Levy Co., converted the subordinated
debt capital into capital contributions to Superior. Pursuant to the
existing credit agreement, U.S. Concrete and Edw. C. Levy Co. expect to make
additional equity or subordinated debt capital contributions to Superior in the
first half of 2010. Superior is in the process of renegotiating its
credit facility. If the renegotiation process is unsuccessful, U.S.
Concrete and Edw. C. Levy Co. may make additional cash equity contributions to
Superior to finance its working capital requirements and fund its cash operating
losses.
35
Cash
Flows
Our net
cash provided by (used in) operating activities generally reflects the cash
effects of transactions and other events used in the determination of net income
or loss. Net cash provided by operating activities was $12.0 million
for the nine months ended September 30, 2009, compared to net cash provided
by operating activities of $19.5 million for the nine months ended September 30,
2008. The change in the 2009 period was principally a
result of lower profitability and working capital improvement, partially offset
by the receipt of a federal tax refund of $4.9 million.
Our cash
flows from investing activities were an $8.6 million use of cash for the nine
months ended September 30, 2009 and a $30.9 million use of cash for the nine
months ended September 30, 2008. The change during the 2009 period
was primarily attributable to lower payments related to acquisitions and lower
net capital expenditures compared to the first nine months of
2008. During the first nine months of 2008, we received $7.6 million
in proceeds from the sale of our Memphis operations and spent approximately $3.7
million for two ready-mixed concrete operations in New York, $13.5 million for
certain ready-mixed concrete operations in west Texas and $2.5 for a precast
operation in San Diego, California. We also paid $1.4 million of
contingent purchase price consideration during the first nine months of 2008,
related to real estate acquired in connection with the acquisition of a
ready-mixed operation in 2003. During the first nine months of 2009 we received
$6.0 million in proceeds from the sale of four ready-mixed concrete plants in
Sacramento, California, plus a cash payment for inventory on hand, and paid
approximately $4.5 million for a concrete crushing and recycling operation in
New York. Additionally, in the first quarter of 2009, we made a $750,000
payment, reduced for certain uncollected pre-acquisition accounts receivable, to
the sellers of API related to a contingent payment obligation.
Our net
cash provided by financing activities was $1.8 million and $0.5 million for the
nine months ended September 30, 2009 and 2008, respectively. This increase
was primarily the result of higher net borrowings under our Credit Agreement in
2009 compared to the same period in 2008, partially offset by the purchase of
$12.4 million principal amount of our 8⅜% Notes for $4.8 million during the
first nine months of 2009. At September 30, 2009, we had $16.0
million outstanding under the Credit Agreement compared to $3.5 million at
September 30, 2008. The increase in the 2009 period was primarily due
to borrowings to finance the purchase of the 8⅜% Notes and to make our
semi-annual interest payment on the 8⅜% Notes.
We define
free cash flow as net cash provided by operating activities less purchases of
property, plant and equipment (net of disposals). Free cash flow is a
liquidity measure not prepared in accordance with GAAP. Our
management uses free cash flow in managing our business because we consider it
to be an important indicator of our ability to service our debt and generate
cash for acquisitions and other strategic investments. We believe
free cash flow may provide users of our financial information additional
meaningful comparisons between current results and results in prior operating
periods. Our working capital needs are typically greater in the
second and third quarters of each year. This is due to the cyclical nature of
our business which requires more working capital to fund increases in accounts
receivable and inventories. To the extent that we are unable to generate
positive free cash flow, we would be required to draw on other capital sources,
including our credit agreement and possibly delay acquisitions or other
strategic investments. As a non-GAAP financial measure, free cash flow should be
viewed in addition to, and not as an alternative for, our reported operating
results or cash flow from operations or any other measure of performance
prepared in accordance with GAAP.
A
reconciliation of our net cash provided by operations and free cash flow is
as follows (in thousands):
Nine Months Ended September 30,
|
||||||||
2009
|
2008
|
|||||||
Net
cash provided by operations
|
$ | 11,952 | $ | 19,514 | ||||
Less: purchases
of property, plant and equipment
|
(12,491 | ) | (20,196 | ) | ||||
Plus:
Proceeds from disposals of property, plant and equipment
|
9,122 | 3,350 | ||||||
Free
cash flow (as defined)
|
$ | 8,583 | $ | 2,668 |
Future
Capital Requirements
For the
last three months of 2009, we expect our capital expenditures will be in the
range of $2.0 million to $3.0 million, including maintenance capital,
developmental capital and rolling stock mixer/barrel replacement. We anticipate
that our borrowing capacity, which was $71.6 million at September 30, 2009,
under our Credit Agreement and cash flow from operations will provide adequate
liquidity for the next twelve months to pay for all current obligations,
including anticipated capital expenditures, debt service, lease obligations and
working capital requirements (see discussion of risks and uncertainties under
Note 3 and “Liquidity and Capital Resources”). We can provide no
assurance, however, that we will be successful in obtaining sources of capital
that will be sufficient to support our requirements over the
long-term.
36
If the national and global financial
crisis intensifies, potential disruptions in the capital and credit markets may
adversely affect us, including by adversely affecting the availability and cost
of short-term funds for our liquidity requirements and our ability to meet
long-term commitments, which in turn could adversely affect our results of
operations, cash flows and financial condition.
We rely on our Credit Agreement to fund
short-term liquidity needs if internal funds are not available from our
operations. We also use letters of credit issued under our revolving
credit facility to support our insurance policies in certain business
units. Disruptions in the capital and credit markets could adversely
affect our ability to draw on our bank revolving credit
facilities. Our access to funds under our credit facilities is
dependent on the ability of the banks that are parties to the facilities to meet
their funding commitments and on our ability to comply with terms of
agreement. Our banks may not be able to meet their funding
commitments to us if they experience shortages of capital and liquidity or if
they experience excessive volumes of borrowing requests from us and other
borrowers within a short period of time.
Longer-term disruptions in the capital
and credit markets as a result of uncertainty, changing or increased regulation,
or failures of significant financial institutions could adversely affect our
access to liquidity needed in our operations. Any disruption could
require us to take measures to conserve cash until the markets stabilize or
until alternative credit arrangements or other funding for our business needs
can be arranged. Such measures could include deferring capital
expenditures, as well as reducing or eliminating future share repurchases, bond
repurchases or other discretionary uses of cash.
Many of our customers and suppliers
also have exposure to risks that their businesses are adversely affected by the
worldwide financial crisis and resulting potential disruptions in the capital
and credit markets. In the event that any of our significant
customers or suppliers, or a significant number of smaller customers and
suppliers, are adversely affected by these risks, we may face disruptions in
supply, significant reductions in demand for our products and services,
inability of our customers to pay invoices when due and other adverse effects
that could negatively affect our financial conditions, results of operations or
cash flows.
Off-Balance
Sheet Arrangements
We do not
currently have any off-balance sheet arrangements that have or are
reasonably likely to have a material current or future effect on our financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources. From time to time, we may enter into
noncancelable operating leases that would not be reflected on our balance sheet.
At September 30, 2009, we and Superior had $14.4 million of undrawn
letters of credit outstanding. We are also contingently liable for
performance under $40.9 million in performance bonds relating primarily to our
ready-mixed concrete operations.
Share
Repurchase Plan
On
January 7, 2008, our Board of Directors approved a plan to repurchase up to an
aggregate of 3,000,000 shares of our common stock. The Board modified the
repurchase plan in October 2008 to slightly increase the aggregate number of
shares authorized for repurchase. The plan permitted the stock
repurchases to be made on the open market or in privately negotiated
transactions in compliance with applicable securities and other
laws. As of December 31, 2008, we had repurchased and subsequently
cancelled 3,148,405 shares with an aggregate value of $6.6 million and completed
the repurchase program. Based on certain restrictions contained in our indenture
governing our 8⅜% Notes, we are currently prohibited from completing future
share repurchases.
Other
We
periodically evaluate our liquidity requirements, alternative uses of capital,
capital needs and availability of resources in view of, among other things, our
dividend policy, our debt service and capital expenditure requirements and
estimated future operating cash flows. As a result of this process,
in the past we have sought, and in the future we may seek, to reduce, refinance,
repurchase or restructure indebtedness; raise additional capital; issue
additional securities; repurchase shares of our common stock; modify our
dividend policy; restructure ownership interests; sell interests in subsidiaries
or other assets; or take a combination of such steps or other steps to manage
our liquidity and capital resources. In the normal course of our
business, we may review opportunities for the acquisition, divestiture, joint
venture or other business combinations in the ready-mixed concrete or related
businesses. In the event of any acquisition or other business
combination transaction, we may consider using available cash, issuing equity
securities or increasing our indebtedness to the extent permitted by the
agreements governing our existing debt.
37
Inflation
We
experienced minimal increases in operating costs during the third quarter of
2009 related to inflation. However, in non-recessionary conditions
cement prices and certain other raw material prices, including aggregates and
diesel fuel prices, have generally risen faster than regional inflationary
rates. When these price increases have occurred, we have been able to
partially mitigate our cost increases with price increases we obtained for our
products. In 2007 and 2008, prices for our products increased at a rate similar
to, or greater than, the rate of increase in our raw materials costs. During the
fourth quarter of 2008, diesel fuel prices declined substantially from the
historically high levels reached in the third quarter of 2008. These prices have
increased slightly from the fourth quarter of 2008 but remain substantially
lower than the levels reached in the third quarter of 2008.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
We do not
enter into derivatives or other financial instruments for trading or speculative
purposes, but we may utilize them to manage our fixed-to-variable-rate debt
ratio. All derivatives, whether designated as hedging relationships
or not, are required to be recorded on the balance sheet at their fair
values. Because of the short duration of our investments, changes in
market interest rates would not have a significant impact on their fair
values. As of September 30, 2009 and December 31, 2008, we were not a
party to any derivative financial instruments.
The
indebtedness evidenced by the 8⅜% Notes is fixed-rate debt, so we are not
exposed to cash-flow risk from market interest rate changes on these
notes. The fair value of that debt will vary as interest rates
change.
Borrowings
under our Credit Agreement and our Superior Materials Holdings, LLC separate
credit agreement expose us to certain market risks. Interest on
amounts drawn under the credit facilities varies based on either the prime rate
or one-, two-, three- or six-month Eurodollar rates. Based on the
$23.9 million outstanding under these facilities as of September 30, 2009, a one
percent change in the applicable rate would change our annual interest expense
by $0.2 million.
We
purchase commodities, such as cement, aggregates and diesel fuel, at market
prices and do not currently use financial instruments to hedge commodity
prices.
Our
operations are subject to factors affecting the overall strength of the U.S.
economy and economic conditions impacting financial institutions, including the
level of interest rates, availability of funds for construction, and the level
of general construction activity. A significant decrease in the level
of general construction activity in any of our market areas may have a material
adverse effect on our consolidated revenues and earnings.
Item
4. Controls and Procedures
In
accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of
1934, as amended (the “Exchange Act”), we carried out an evaluation, under the
supervision and with the participation of management, including our chief
executive officer and chief financial officer, of the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act) as of September 30, 2009. Based on that
evaluation, our chief executive officer and chief financial officer concluded
that our disclosure controls and procedures were effective as of September 30,
2009 to provide reasonable assurance that information required to be disclosed
in our reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by
an issuer in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the issuer’s management, including its principal
executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure. During the three months ended September 30, 2009, there
were no changes in our internal control over financial reporting or in other
factors that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART
II – OTHER INFORMATION
Item 1. Legal
Proceedings
For
information about litigation involving us, see Note 12 to the condensed
consolidated financial statements in Part I of this report, which we incorporate
by reference into this Item 1.
38
Item
6. Exhibits
Exhibit
Number
|
Description
|
|
3.1*
|
—Restated
Certificate of Incorporation of U.S. Concrete, Inc. (Form 8-K filed on May
9, 2006 (File No. 000-26025), Exhibit 3.1).
|
|
3.2*
|
—Amended
and Restated Bylaws of U.S. Concrete, Inc., as amended (Post Effective
Amendment No. 1 to Form S-3 (Reg. No. 333-42860), Exhibit
4.2).
|
|
3.3*
|
—Restated
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).
|
|
3.4*
|
—Certificate
of Designation of Series A Junior Participating Preferred Stock of U.S.
Concrete, Inc. (Form 8-K filed on November 6, 2009 (File No. 000-26025),
Exhibit 3.1).
|
|
3.5*
|
—Rights
Agreement dated as of November 5, 2009 between U.S. Concrete, Inc and
American Stock Transfer& Trust Company, LLC (Form 8-K filed on
November 6, 2009 (File No. 000-26025), Exhibit 4.1).
|
|
10.1*
|
—Second
Amendment to Severance Agreement dated as of August 31, 2009, by and
between U.S. Concrete,Inc. and Terry Green (Form8-K filed on September 1,
2009 (File No. 000-26025), Exhibit 10.1).
|
|
31.1
|
—Rule
13a-14(a)/15d-14(a) Certification of Michael W. Harlan.
|
|
31.2
|
—Rule
13a-14(a)/15d-14(a) Certification of Robert D. Hardy.
|
|
32.1
|
—Section
1350 Certification of Michael W. Harlan.
|
|
32.2
|
|
—Section
1350 Certification of Robert D.
Hardy.
|
* Incorporated
by reference to the filing indicated.
39
SIGNATURE
Pursuant
to the requirements 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:
November 9, 2009
|
By:
|
/s/ Robert D. Hardy
|
Robert
D. Hardy
|
||
Executive
Vice President and Chief Financial Officer
|
||
(Principal
Financial and Accounting
Officer)
|
40
INDEX
TO EXHIBITS
Exhibit
Number
|
Description
|
|
3.1*
|
—Restated
Certificate of Incorporation of U.S. Concrete, Inc. (Form 8-K filed on May
9, 2006 (File No. 000-26025), Exhibit 3.1).
|
|
3.2*
|
—Amended
and Restated Bylaws of U.S. Concrete, Inc., as amended (Post Effective
Amendment No. 1 to Form S-3 (Reg. No. 333-42860), Exhibit
4.2).
|
|
3.3*
|
—Restated
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).
|
|
3.4*
|
—Certificate
of Designation of Series A Junior Participating Preferred Stock of U.S.
Concrete, Inc. (Form 8-K filed on November 6, 2009 (File No. 000-26025),
Exhibit 3.1).
|
|
3.5*
|
—Rights
Agreement dated as of November 5, 2009 between U.S. Concrete, Inc and
American Stock Transfer & Trust Company, LLC (Form 8-K filed on
November 6, 2009 (File No. 000-26025), Exhibit 4.1).
|
|
10.1*
|
—Second
Amendment to Severance Agreement dated as of August 31, 2009, by and
between U.S. Concrete, Inc. and Terry Green (Form8-K filed on September 1,
2009 (File No. 000-26025), Exhibit 10.1).
|
|
31.1
|
—Rule
13a-14(a)/15d-14(a) Certification of Michael W. Harlan.
|
|
31.2
|
—Rule
13a-14(a)/15d-14(a) Certification of Robert D. Hardy.
|
|
32.1
|
—Section
1350 Certification of Michael W. Harlan.
|
|
32.2
|
|
—Section
1350 Certification of Robert D.
Hardy.
|
*Incorporated
by reference to the filing indicated.
41