UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the fiscal year ended December 31, 2007
Commission
file number 000-26025
U.S.
CONCRETE, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
76-0586680
|
(State
or other jurisdiction of
Incorporation
or organization)
|
(I.R.S.
Employer
Identification
Number)
|
2925
Briarpark, Suite 1050, Houston, Texas 77042
(Address
of principal executive offices) (Zip code)
Registrant’s
telephone number, including area code: (713) 499-6200
Securities
registered pursuant to Section 12(b) of the Act:
Common
Stock, par value $.001
|
Nasdaq Global
Select Market
|
(Title
of class)
|
(Name of exchange on which registered)
|
Rights
to Purchase Series A Junior
Participating
Preferred Stock
(Title
of class)
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes o
No þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act. Yes o
No þ
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past
90 days. Yes þ
No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this
Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or non-accelerated filer, or a smaller reporting company.
See
the definition of “large
accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer ¨
Accelerated
filer þ
Non-accelerated
filer ¨
Smaller
reporting company ¨
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act.) Yes o
Noþ
Aggregate
market value of the voting stock held by nonaffiliates of the registrant
computed by reference to the last reported sale price of $8.69 of the
registrant’s common stock on the Nasdaq National Market as of June 29, 2007, the
last business day of the registrant’s most recently completed second quarter:
$297,219,667.
There
were 39,910,877 shares of common stock, par value $.001 per share, of the
registrant outstanding as of March 3, 2008.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Proxy Statement related to the registrant’s 2008 Annual Meeting of
Stockholders are incorporated by reference into Part III of this
report.
U.S.
CONCRETE, INC.
FORM
10-K
For
the Year Ended December 31, 2007
TABLE
OF CONTENTS
|
|
Page
|
|
PART
I
|
|
|
|
|
Item
1.
|
Business
|
3
|
Item
1A.
|
Risk
Factors
|
15
|
Item
1B.
|
Unresolved
Staff Comments
|
21
|
Item
2.
|
Properties
|
22
|
Item
3.
|
Legal
Proceedings
|
22
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
23
|
|
|
|
|
PART
II
|
|
|
|
|
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
23
|
Item
6.
|
Selected
Financial Data
|
26
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
27
|
Item
7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
41
|
Item
8.
|
Financial
Statements and Supplementary Data
|
42
|
Item
9.
|
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
|
70
|
Item
9A.
|
Controls
and Procedures
|
70
|
Item
9B.
|
Other
Information
|
70
|
|
|
|
|
PART
III
|
|
|
|
|
Item
10.
|
Directors,
Executive Officers and Corporate Governance
|
71
|
Item
11.
|
Executive
Compensation
|
71
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
71
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
71
|
Item
14.
|
Principal
Accountant Fees and Services
|
71
|
|
|
|
|
PART
IV
|
|
|
|
|
Item
15.
|
Exhibits
and Financial Statement Schedules
|
71
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
43
|
CONSOLIDATED
BALANCE SHEETS
|
44
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
45
|
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
|
46
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
47
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
48
|
SIGNATURES
|
74
|
INDEX
TO EXHIBITS
|
75
|
Cautionary
Statement Concerning Forward-Looking Statements
From
time to time, our management or persons acting on our behalf make
forward-looking statements to inform existing and potential security holders
about our company. These statements may include projections and estimates
concerning our business strategies, revenues, income, cash flows and capital
requirements. Forward-looking statements generally use words such as “estimate,”
“project,” “predict,” “believe,” “expect,” “anticipate,” “plan,” “forecast,”
“budget,” “goal” or other words that convey the uncertainty of future events or
outcomes. In addition, sometimes we will specifically describe a statement
as
being a forward-looking statement and refer to this cautionary
statement.
This
report contains various statements, including those that express a belief,
expectation or intention and those that are not statements of historical fact,
are forward-looking statements under the Private Securities Litigation Reform
Act of 1995. Those forward-looking statements appear in Item 1—“Business,” Item
2— “Properties,” Item 3—“Legal Proceedings,” Item 7—“Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” Item
7A—“Quantitative and Qualitative Disclosures About Market Risk,” Item
9A—“Controls and Procedures” and elsewhere in this report, including in the
notes to our Consolidated Financial Statements in Item 8 of this report. Those
forward-looking statements speak only as of the date of this report. We disclaim
any obligation to update those statements, and we caution you not to rely unduly
on them. We have based those forward-looking statements on our current
expectations and assumptions about future events, which may prove to be
inaccurate. While our management considers those expectations and assumptions
to
be reasonable, they are inherently subject to significant business, economic,
competitive, regulatory and other risks, contingencies and uncertainties, most
of which are difficult to predict and many of which are beyond our control.
Therefore, actual results may differ materially and adversely from those
expressed in any forward-looking statements. Factors that might cause or
contribute to such differences include, but are not limited to, those we discuss
in this report under the section entitled “Risk Factors” in Item 1A and the
section entitled “Risks and Uncertainties” in Item 7— “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” and in other
reports we file with the Securities and Exchange Commission (the “SEC”). The
factors we discuss in this report are not necessarily all the important factors
that could affect us. Unpredictable or unknown factors we have not discussed
in
this report also could have material adverse effects on actual results of
matters that are the subject of our forward-looking statements. We do not intend
to update our description of important factors each time a potential important
factor arises. We advise our existing and potential security holders that they
should (1) be aware that important factors to which we do not refer in this
report could affect the accuracy of our forward-looking statements and (2)
use
caution and common sense when considering our forward-looking
statements.
PART
I
Item
1. Business
General
We
are a
major producer of ready-mixed concrete, precast concrete products and
concrete-related products in select markets in the United States. We operate
our
business through our ready-mixed concrete and concrete-related products segment;
and our precast products concrete segment. We are a leading ready-mixed concrete
or precast concrete producer products in substantially all the markets in which
we have operations. Ready-mixed and precast concrete products are important
building materials that are used in a vast majority of commercial, residential
and public works construction projects.
All
of
our operations are in (and all of our sales are made within) the United States.
We operate principally in Texas, California, New Jersey and Michigan, with
those
states representing 35%, 32%, 14% and 11%, respectively, of our net sales from
continuing operations for the year ended December 31, 2007. According to
publicly available industry information, those states represented an aggregate
of 27.5% of the consumption of ready-mixed concrete in the United States in
2007
(Texas, 13.0%, California, 10.9%, New Jersey, 1.6% and Michigan, 2.0%). We
believe the geographic scope of our operations enables us to achieve cost
savings through consolidated purchasing, reduction of our administrative costs
on both a national and regional level, and aids in moderating the impact of
regional economic cycles and weather conditions. Our consolidated revenues
from
continuing operations for the year ended December 31, 2007 were $803.8 million,
of which we derived approximately 90.9% from our ready-mixed concrete and
concrete-related products segment and 9.1% from our precast concrete products
segment. For information on our consolidated revenues and income from operations
for the years ended December 31, 2007, 2006 and 2005 and our consolidated total
assets as of December 31, 2007 and 2006, see our Consolidated Financial
Statements included in this report.
As
of
March 3, 2008, we had 124 fixed and eight portable ready-mixed concrete plants,
eight precast concrete plants, one concrete block plant and seven producing
aggregates facilities (including 27 fixed ready-mixed concrete plants and one
masonry block plant operated by our 60%-owned Michigan subsidiary). During
2007,
these plants and facilities produced approximately 7.2 million cubic yards
of
ready-mixed concrete, 2.7 million
eight-inch equivalent block units and 3.8 million
tons of aggregates. We also own two aggregates facilities that we lease to
third
parties and retain a royalty on production from those facilities.
Our
ready-mixed concrete and concrete-related products segment engages principally
in the formulation, preparation and delivery of ready-mixed concrete to the
job
sites of our customers. We also provide services intended to reduce our
customers’ overall construction costs by lowering the installed, or “in-place,”
cost of concrete. These services include the formulation of mixtures for
specific design uses, on-site and lab-based product quality control, and
customized delivery programs to meet our customers’ needs. Our marketing efforts
primarily target concrete sub-contractors, general contractors, property owners
and developers and home builders whose focus extends beyond the price of
ready-mixed concrete to product quality, on-time delivery and reduction of
in-place costs. To a lesser extent, this segment is also engaged in the mining
and sale of aggregates and the resale of building materials, primarily to our
ready-mixed concrete customers. These businesses are generally complementary
to
our ready-mixed concrete operations and provide us opportunities to cross-sell
various products in markets in where we sell both ready-mixed concrete and
concrete-related products. We provide our ready-mixed concrete and
concrete-related products from our continuing operations in north and west
Texas, northern California, New Jersey, Washington, D.C., Michigan and
Oklahoma.
Our
precast concrete products segment produces precast concrete products at eight
plants in three states, with five plants in California, two in Arizona and
one
in Pennsylvania. Our customers choose precast technology for a variety of
architectural applications, including free-standing walls used for landscaping,
soundproofing and security walls, panels used to clad a building façade, storm
water drainage as well as water and sewage pipes and tunnels. Our operations
also specialize in a variety of finished products, among which are manholes,
catch basins, highway barriers and curb inlets.
For
financial information regarding our reporting segments, including sales and
operating income for the years ended December 31, 2007, 2006 and 2005, see
Note
12 to our Consolidated Financial Statements included in this
report.
U.S.
Concrete, Inc. is a Delaware corporation which was incorporated in 1997. We
began operations in 1999, which is the year we completed our initial public
offering. In this report, we refer to U.S. Concrete, Inc. and its subsidiaries
as “we,” “us” or “U.S. Concrete” unless we specifically state otherwise or the
context indicates otherwise.
Industry
Overview
General
Ready-mixed
concrete is a highly versatile construction material that results from combining
coarse and fine aggregates, such as gravel, crushed stone and sand, with water,
various admixtures and cement. We manufacture ready-mixed concrete in thousands
of variations, which in each instance may reflect a specific design use. We
generally maintain only a few days’ inventory of raw materials and coordinate
our daily materials purchases with the time-sensitive delivery requirements
of
our customers.
The
quality of ready-mixed concrete is time-sensitive as it becomes difficult to
place within 90 minutes after mixing. Consequently, the market for a permanently
installed ready-mixed concrete plant is usually limited to an area within a
25-mile radius of its plant location. We produce ready-mixed concrete in batches
at our plants and use mixer and other trucks to distribute and deliver the
concrete to the job sites of our customers. We generally do not provide paving
or other finishing services, which construction contractors or subcontractors
typically perform.
Ready-mixed
concrete is poured-in-place in forms at a construction site and cured on site.
In contrast, our precast concrete products are made with ready-mixed concrete
(its primary raw material), but are cast in reusable molds or “forms” and cured
in a controlled environment at our plant, then either placed in inventory or
transported to the construction site. The advantages of using precast concrete
products include the higher quality of the material, when formed in controlled
conditions, and the reduced cost of reusable forms as compared to the cost
of
constructing large forms used with ready-mixed concrete placed at the
construction site.
We
generally obtain contracts through local sales and marketing efforts directed
at
concrete sub-contractors, general contractors, property owners and developers,
and home builders. As a result, local relationships are very
important.
Based
on
information from the National Ready-Mixed Concrete Association (“NRMCA”) and the
National Precast Concrete Association(“NPCA”), we estimate that, in addition to
vertically integrated manufacturers of cements and aggregates, over 2,300
independent ready-mixed concrete producers currently operate approximately
6,000
plants in the United States and 3,600 precast concrete products manufacturers
operate in the United States and Canada. Larger markets generally have several
producers competing for business on the basis of product quality, service,
on-time delivery and price.
Annual
usage of ready-mixed concrete in the United States dropped slightly in 2007
from
its “near record” 2006 level. According to information available from the NRMCA
and F.W. Dodge, total sales from the production and delivery of ready-mixed
concrete in the United States over the past three years were as follows (in
millions):
2007
|
|
$
|
36,131
|
|
2006
|
|
$
|
37,684
|
|
2005
|
|
$
|
33,219
|
|
Ready-mixed
concrete and precast concrete products have historically benefited from
relatively stable demand and pricing. However, pricing of our products is
primarily driven by the cost of raw materials (cement, aggregates, etc.), cost
of labor and competition in our local markets. In 2007, raw materials cost
and
ready-mixed concrete and precast concrete products average selling prices
increased. Under these economic conditions, we were able to maintain or slightly
improve our operating margins. In the preceding two years, raw materials costs
generally increased at a higher rate than our ready-mixed or precast concrete
products prices and we experienced a reduction in our operating
margins.
According
to recently published F.W. Dodge data, the four major segments of the
construction industry accounted for the following approximate percentages of
the
total volume of ready-mixed concrete produced in the United States in
2007:
Commercial
and industrial construction
|
|
|
24
|
%
|
Residential
construction
|
|
|
23
|
%
|
Street
and highway construction and paving
|
|
|
20
|
%
|
Other
public works and infrastructure construction
|
|
|
33
|
%
|
Barriers
to the start-up of new ready-mixed concrete and precast concrete products
manufacturing operations have been increasing. During the past decade, public
concerns about dust, process water runoff, noise and heavy mixer and other
truck
traffic associated with the operation of these types of plants and their general
appearance have made obtaining the permits and licenses required for new plants
more difficult. Delays in the regulatory process, coupled with the substantial
capital investment that start-up operations entail, have raised the barriers
to
entry for those operations.
For
a
discussion of the seasonality of the construction industry generally, see Item
1A - “Risk Factors - Our operating results may vary significantly from one
reporting period to another and may be adversely affected by the seasonal and
cyclical nature of the markets we serve” and Item 7 - “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” of this
report.
Significant
Factors Impacting the Market for Ready-Mixed Concrete and Precast Concrete
Products
On
the
basis of available industry information, we believe that ready-mixed concrete
revenue as a percentage of total construction expenditures in the United States
has increased over the last five years.
Industry-wide
Promotional and Marketing Activities.
Since
the 1990s, we believe industry participants have increased their focus on and
benefited from promotional activities to increase the industry’s share of street
and highway construction, commercial and industrial construction and residential
construction expenditures. Many of these promotional efforts result from
initiatives put forth by industry trade organizations such as the NRMCA, the
Portland Cement Association and the NPCA. We believe these types of programs
have been a catalyst for increased investment in the promotion of concrete
as a
construction material of choice.
Development
of Concrete Products.
Concrete
has many attributes that make it a highly versatile construction material.
In
recent years, industry participants have developed various uses for concrete
products, including:
|
§
|
high-strength
engineered concrete to compete with steel-frame
construction;
|
|
§
|
precast
modular paving stones;
|
|
§
|
flowable
fill for backfill applications;
|
|
§
|
continuous-slab
rail-support systems for rapid transit and heavy-traffic rail lines;
and
|
|
§
|
concrete
bridges, tunnels and other structures for rapid transit
systems.
|
Other
examples of successful innovations that have opened new markets for concrete
include:
|
§
|
overlaying
asphalt pavement with concrete, or “white
topping”;
|
|
§
|
highway
median barriers;
|
|
§
|
highway
sound barriers;
|
|
§
|
paved
shoulders to replace less permanent and increasingly costly asphalt
shoulders;
|
|
§
|
pervious
concrete parking lots for water drainage management, as well
as providing
a long-lasting and aesthetically pleasing urban environment;
and
|
|
§
|
colored
pavements to mark entrance and exit ramps and lanes of
expressways.
|
Federal
Highway Funding Legislation.
In
August 2005, President Bush signed a six-year, $244.1 billion transportation
reauthorization act known as the Safe, Accountable, Flexible and Efficient
Transportation Equity Act: A Legacy for Users. This law funds, among other
things, federal bridge and highway construction programs. We began to see the
effects of this law in 2007, and we remain cautiously optimistic regarding
continued state and federal spending on infrastructure projects in light of
the
current economic concerns driven by the downturn in residential housing and
sub-prime lending markets.
Our
Business Strategy
Our
objectives are to become the leading provider of ready-mixed concrete, precast
concrete and concrete-related products in each of our existing markets, on
a
select basis, to integrate our operations vertically through acquisition of
aggregates supply sources that support our ready-mixed concrete operations,
and
to further expand the geographic scope of our business. We plan to achieve
these
objectives by continuing to implement our business strategy, which includes
the
primary elements we discuss below.
Improving
Marketing and Sales Initiatives
Our
marketing and sales strategy emphasizes the sale of value-added products to
customers more focused on reducing their in-place building material costs than
on the price per cubic yard of ready-mixed concrete or unit price of the
concrete-related product they purchase. Key elements of our customer-focused
approach include:
|
§ |
corporate-level
marketing and sales expertise;
|
|
§ |
technical
service expertise to develop innovative new branded products;
and
|
|
§
|
training
programs that emphasize successful marketing and sales techniques
that
focus on the sale of high-margin concrete mix designs and
specialty-engineered precast concrete
products.
|
We
have
also formed strategic alliances with several national companies to provide
alternative solutions for designers and contractors by using value-added
concrete products. Through these alliances, we offer color-conditioned,
fiber-reinforced and high-performance concrete and utilize software technology
that can be used to design buildings constructed of reinforced
concrete.
Promoting a
Green Environment
We
recognize the value in advocating green building and construction as part of
our
strategy. We recently initiated Environmentally Friendly
Concrete, EF
Technology,
our
commitment to environmentally friendly concrete technologies that significantly
reduces potential carbon dioxide (CO2)
emissions. Our EF
Technology
ready-mixed concrete product replaces a portion of traditional Portland cement
with reclaimed fly ash, slag and other materials. This results in an
environmentally superior and sustainable alternative to traditional Portland
cement concrete. We believe
EF
Technology
reduces
greenhouse gases and landfill space consumption and produces a highly durable
product. Customers can also receive LEED credits. During 2007, our
promotion and use of EF
Technology
resulted
in a reduction of over 400,000 tons of potential CO2
emissions
in our operations, an 18% reduction in CO2
emissions
as compared to 2006.
Promoting
Operational Excellence and Achieving Cost
Efficiencies
We
strive
to be an operationally excellent organization by:
|
§ |
investing
in safety training solutions and technologies which enhance the safety
of
our work environments;
|
|
§
|
implementing
and enhancing standard operating procedures;
|
|
§
|
standardizing
plants and equipment;
|
|
§
|
investing
in software and communications
technology;
|
|
§
|
implementing
company-wide quality-control initiatives;
|
|
§
|
providing
technical expertise to optimize ready-mixed concrete mix designs;
and
|
|
§
|
developing
strategic alliances with key suppliers of goods and services for
new
product development.
|
We
also
strive to increase operating efficiencies. We believe that, if we continue
to
increase in size on both a local and national level, we should continue to
experience future productivity and cost improvements in such areas
as:
|
§
|
purchase
of raw materials, through procurement and optimized ready-mixed concrete
mix designs;
|
|
§
|
purchases
of mixer trucks and other equipment, supplies, spare parts and
tools;
|
|
§
|
vehicle
and equipment maintenance; and
|
|
§
|
insurance
and other risk management programs.
|
Pursuing
Disciplined Growth
Our
growth strategy targets a balance between internal growth opportunities and
the
acquisition of existing businesses. We believe this balanced approach provides
us the opportunity to achieve above average growth rates.
Internal
Growth.
We seek
to grow in our existing markets by expanding existing plants, green-fielding
new
plants, and identifying complementary products or services we can provide to
our
customers on a cost-effective basis. The benefits and challenges of expansion
by
internal growth include:
|
§
|
the
initial capital investment for most internal growth projects is typically
less than the capital required to purchase a similar situated existing
business;
|
|
§
|
internal
growth projects are designed and constructed with state-of-the-art
equipment which usually results in greater productivity and lower
operating costs than existing businesses that have been in operation
for
many years;
|
|
§
|
internal
growth projects often take more time to begin generating revenue
and
profits due to the upfront permitting and design process;
and
|
|
§
|
generally,
internal growth projects eliminate the integration risks associated
with
the acquisition of an existing business.
|
Acquisition
of Existing Businesses.
We also
seek growth by targeting opportunities to acquire businesses in our existing
markets and entering new geographic markets on a select basis in the United
States. We typically pursue acquisitions that we believe represent attractive
opportunities to strengthen local management teams, implement cost-saving
initiatives, achieve market-leading positions and establish best practices.
We
adhere to a disciplined pricing methodology when acquiring businesses. Based
on
our methodology for valuing, acquiring and integrating target businesses, we
expect our future acquisitions to be accretive to our earnings per share after
a
reasonable period of integration. We cannot provide any assurance, however,
regarding the impact any future acquisition we may complete could have on our
future earnings per share.
Our
acquisition growth program targets the following:
|
§
|
vertical
integration of our existing ready-mixed concrete markets with the
acquisition of aggregate quarries;
|
|
§
|
acquisition
of high margin precast concrete products manufacturing businesses
with
similar operating strategies, product mix, and markets as we have;
and
|
|
§
|
selectively
acquire ready-mixed concrete operations, primarily in existing markets,
as
well as evaluate potential new
markets.
|
Products
and Services
Ready-Mixed
Concrete and Concrete-Related Products Segment
Ready-Mixed
Concrete.
Our
ready-mixed concrete products consist of proportioned mixes we prepare and
deliver in an unhardened plastic state for placement and shaping into designed
forms at the job site. Selecting the optimum mix for a job entails determining
not only the ingredients that will produce the desired permeability, strength,
appearance and other properties of the concrete after it has hardened and cured,
but also the ingredients necessary to achieve a workable consistency considering
the weather and other conditions at the job site. We believe we can achieve
product differentiation for the mixes we offer because of the variety of mixes
we can produce, our volume production capacity and our scheduling, delivery
and
placement reliability. Additionally, we believe our EF
Technology
initiative, which utilizes alternative materials and mix designs that result
in
lower CO2
emissions, helps differentiate us from our competitors. We also believe we
distinguish ourselves with our value-added service approach that emphasizes
reducing our customers’ overall construction costs by reducing the in-place cost
of concrete and the time required for construction.
From
a
contractor’s perspective, the in-place cost of concrete includes both the amount
paid to the ready-mixed concrete manufacturer and the internal costs associated
with the labor and equipment the contractor provides. A contractor’s unit cost
of concrete is often only a small component of the total in-place cost that
takes into account all the labor and equipment costs required to build the
forms
for the ready-mixed concrete and place and finish the ready-mixed concrete,
including the cost of additional labor and time lost as a result of substandard
products or delivery delays not covered by warranty or insurance. By carefully
designing proper mixes and using advances in mixing technology, we can assist
our customers in reducing the amount of reinforcing steel, time and labor they
will require in various applications.
We
provide a variety of services in connection with our sale of ready-mixed
concrete that can help reduce our customers’ in-place cost of concrete. These
services include:
|
§
|
production
of formulations and alternative product recommendations that reduce
labor
and materials costs;
|
|
§
|
quality
control, through automated production and laboratory testing, that
ensures
consistent results and minimizes the need to correct completed work;
and
|
|
§
|
automated
scheduling and tracking systems that ensure timely delivery and reduce
the
downtime incurred by the customer’s placing and finishing
crews.
|
We
produce ready-mixed concrete by combining the desired type of cement, other
cementitious materials (described below), sand, gravel and crushed stone with
water and, typically, one or more admixtures. These admixtures, such as
chemicals, minerals and fibers, determine the usefulness of the product for
particular applications.
We
use a
variety of chemical admixtures to achieve one or more of five basic
purposes:
|
§
|
relieve
internal pressure and increase resistance to cracking in subfreezing
weather;
|
|
§
|
retard
the hardening process to make concrete more workable in hot
weather;
|
|
§
|
strengthen
concrete by reducing its water
content;
|
|
§
|
accelerate
the hardening process and reduce the time required for curing;
and
|
|
§
|
facilitate
the placement of concrete having low water
content.
|
We
frequently use various mineral admixtures as supplements to cement we refer
to
as cementitious materials, to alter the permeability, strength and other
properties of concrete. These materials include fly ash, ground granulated
blast-furnace slag and silica fume. These materials also reduce the amount
of
cement content used which results in a reduction in CO2
emissions.
We
also
use fibers, such as steel, glass and synthetic and carbon filaments, as
additives in various formulations of concrete. Fibers help to control shrinkage
cracking, thus reducing permeability and improving abrasion resistance. In
many
applications, fibers replace welded steel wire and reinforcing bars. Relative
to
the other components of ready-mixed concrete, these additives generate
comparatively high margins.
Aggregates.
We
produce crushed stone aggregates, sand and gravel from seven aggregates
facilities located in New Jersey and Texas. We sell these aggregates for use
in
commercial, industrial and public works projects in the markets they serve,
as
well as consume them internally in the production of ready-mixed concrete in
those markets. We produced approximately 3.8 million
tons of aggregates in 2007 from these facilities with Texas producing 44% and
New Jersey 56% of total production. In April 2007, we entered into an agreement
to lease our sand pit operations in Michigan to the Edward C. Levy Co. as a
component of a ready-mixed concrete business combination, which we refer to
as
the 60%-owned Michigan subsidiary. We now receive a royalty based on the volume
of product produced and sold from the Michigan quarry during the term of the
lease.
At
December 31, 2007, our total estimated aggregate reserves were 80 million
tons, assuming loss factors of between 10% and 20% for unusable material. We
believe these aggregates reserves provide us with additional raw materials
sourcing flexibility and supply availability, although they will provide us
with
supply for less than 5% of our annual consumption of aggregates.
Building
Materials.
Our
building materials operations supply concrete masonry, various resale materials,
products and tools contractors use in the concrete construction industry. These
materials include rebar concrete block, wire mesh, color additives, curing
compounds, grouts, wooden forms and numerous other items. Our building materials
operations are located near several of our ready-mixed concrete operations
in
northern California, Michigan and Texas.
Precast
Concrete Products Segment
We
produce precast concrete products at eight plants in three states, with five
in
California, two in Arizona and one in Pennsylvania. Our precast concrete
products consist of ready-mixed concrete we either produce on-site or purchase
from third parties, which is then poured into reusable molds at our plant sites.
After the concrete sets, we strip the molds from the finished products and
either place them into inventory or ship them to our customers. Our precast
technology produces a wide variety of finished products, including a variety
of
architectural applications, such as, soundproofing and security walls, signage,
manholes, panels to clad a building façade, highway barriers and curb inlets and
other precast products.
Because
precast concrete products are not perishable, we can place these products into
inventory and stage them at plants or other distribution sites to serve a larger
geographic market area. The cost of transportation and storage usually limits
the market area for these types of products to within approximately 150 miles
of
our plant sites and, therefore, sales are generally driven by the level of
construction activity within the market area served by our plants. Our precast
concrete products are marketed by our local sales organizations and are sold
to
numerous customers.
Operations
Ready-Mixed
Concrete
Our
ready-mixed concrete plants consist of fixed and portable facilities that
produce ready-mixed concrete in wet or dry batches. Our fixed-plant facilities
produce ready-mixed concrete that we transport to job sites by mixer trucks.
Our
portable plant operations deploy our eight portable plant facilities to produce
ready-mixed concrete at the job site that we direct into place using a series
of
conveyor belts or a mixer truck. We use our portable plants to service
high-volume projects or projects in remote locations. Several factors govern
the
choice of plant type, including:
|
§ |
production
consistency requirements;
|
|
§ |
daily
production capacity requirements;
and
|
|
§ |
job
site proximity to fixed plants.
|
Generally,
we will construct wet batch plants to serve markets that we expect will have
consistently high demand, as opposed to dry batch plants that will serve those
markets that we expect will have a less consistent demand. A wet batch plant
generally has a higher initial cost and daily operating expenses, but yields
greater consistency with less time required for quality control in the concrete
produced and generally have greater daily production capacity than a dry batch
plant. We believe that construction of a wet batch plant having an hourly
capacity of 250 cubic yards currently would cost approximately $1.5 million,
while a dry batch plant having the same capacity currently would cost
approximately $0.7 million. As of March 3, 2008, our fixed and portable batch
plants included 23 wet
batch
plants and 109 dry
batch
plants.
Our
batch
operator at a dry batch plant simultaneously loads the dry components of stone,
sand and cement with water and admixtures in a mixer truck that begins the
mixing process during loading and completes that process while driving to the
job site. In a wet batch plant, the batch operator blends the dry components
and
water in a plant mixer from which an operator loads the already mixed concrete
into a mixer truck, which leaves for the job site promptly after
loading.
Any
future decisions we make regarding the construction of additional plants will
be
impacted by market factors, including:
|
§ |
the
expected production demand for the
plant;
|
|
§ |
the
expected types of projects the plant will service;
and
|
|
§ |
the
desired location of the plant.
|
Mixer
trucks slowly rotate their loads en route to job sites in order to maintain
product consistency. Our mixer trucks typically have load capacities of 10
cubic
yards, or approximately 20 tons, and an estimated useful life of 12 years.
A new
truck of this size currently costs approximately $160,000. Depending on the
type
of batch plant from which the mixer trucks generally are loaded, some components
of the mixer trucks usually require refurbishment after three to five years.
As
of December 31, 2007, we operated a fleet of approximately 1,300 mixer trucks,
which had an average age of approximately 6.5 years.
In
our
ready-mixed concrete operations, we emphasize quality control, pre-job planning,
customer service and coordination of supplies and delivery. We often obtain
purchase orders for ready-mixed concrete months in advance of actual delivery.
A
typical order contains specifications the contractor requires the concrete
to
meet. After receiving the specifications for a particular job, we use computer
modeling, industry information and information from previous similar jobs to
formulate a variety of mixtures of cement, aggregates, water and admixtures
which meet or exceed the contractor’s specifications. We perform testing to
determine which mix design is most appropriate to meet the required
specifications. The test results enable us to select the mixture that has the
lowest cost and meets or exceeds the job specifications. The testing center
creates and maintains a project file that details the mixture we will use when
we produce the concrete for the job. For quality control purposes, the testing
center also is responsible for maintaining batch samples of concrete we have
delivered to a job site.
We
use
computer modeling to prepare bids for particular jobs based on the size of
the
job, location, desired margin, cost of raw materials and the design mixture
identified in our testing process. If the job is large enough and has a
projected duration beyond the supply arrangement in place at that time, we
obtain quotes from our suppliers as to the cost of raw materials we use in
preparing the bid. Once we obtain a quotation from our suppliers, the price
of
the raw materials for the specified job is informally established. Several
months may elapse from the time a contractor has accepted our bid until actual
delivery of the ready-mixed concrete begins. During this time, we maintain
regular communication with the contractor concerning the status of the job
and
any changes in the job’s specifications in order to coordinate the multisourced
purchases of cement and other materials we will need to fill the job order
and
meet the contractor’s delivery requirements. We confirm that our customers are
ready to take delivery of manufactured products throughout the placement
process. On any given day, one of our plants may have production orders for
dozens of customers at various locations throughout its area of operation.
To
fill an order:
|
§
|
the
customer service office coordinates the timing and delivery of the
concrete to the job site;
|
|
§
|
a
load operator supervises and coordinates the receipt of the necessary
raw
materials and operates the hopper that dispenses those materials
into the
appropriate storage bins;
|
|
§
|
a
batch operator, using a computerized batch panel, prepares the specified
mixture from the order and oversees the loading of the mixer truck
with
either dry ingredients and water in a dry batch plant or the premixed
concrete in a wet batch plant; and
|
|
§
|
the
driver of the mixer truck delivers the load to the job site, discharges
the load and, after washing the truck, departs at the direction of
the
dispatch office.
|
Our
central dispatch system tracks the status of each mixer truck as to whether
a
particular truck is:
|
§ |
en
route to a particular job site;
|
|
§ |
en
route to a particular plant.
|
The
system is updated continuously via signals received from the individual truck
operators as to their status. In this manner, the dispatcher can determine
the
optimal routing and timing of subsequent deliveries by each mixer truck and
monitor the performance of each driver.
Our
plant
managers oversee the operations of each of our plants. Our operational employees
also include:
|
§ |
maintenance
personnel who perform routine maintenance work throughout our
plants;
|
|
§ |
mechanics
who perform substantially all the maintenance and repair work on
our
rolling stock;
|
|
§ |
testing
center staff who prepare mixtures for particular job specifications
and
maintain quality control;
|
|
§ |
various
clerical personnel who perform administrative tasks;
and
|
|
§ |
sales
personnel who are responsible for identifying potential customers
and
maintaining existing customer
relationships.
|
We
generally operate each of our plants on an extended single shift, with some
overtime operation during the year. On occasion, however, we may have projects
that require deliveries around the clock.
Precast
Concrete Products
Our
precast concrete products operations consist of eight fixed plant sites where
precast products are produced, staged and shipped to our customers and
distribution yards. We stage precast products at distribution facilities to
serve markets beyond the normal reach of our existing manufacturing sites.
Each
of our precast manufacturing sites has as its primary components:
|
§ |
either
a ready-mixed batch plant or local ready-mixed concrete provider
for the
concrete utilized in
production;
|
|
§
|
precast
molds or “forms” for the array of products and product sizes we offer or a
custom design center to create precast forms;
and
|
|
§ |
a
crane-way or other method to facilitate moving forms, finished product
or
pouring ready-mixed concrete.
|
Some
of
the products we produce are designed by the customer for use in their own
systems, while other products are designed by our in-house engineers to meet
the
needs of our customers through a more standardized product. Each of our precast
manufacturing sites produces a range of precast products.
Generally,
precast structures are manufactured by placing pre-engineered ready-mixed
concrete into molds, which are then vibrated to facilitate consolidation of
the
concrete within the mold and remove any voids created by air that may be trapped
during the pouring process. These molds generally utilize some form of
reinforcing which can include products ranging from (1) welded steel wire or
re-bar placed inside the mold in a pre-engineered design to support the
integrity of the finished precast product, to (2) steel fibers or other similar
additives which are blended into the ready-mixed concrete during mixing to
serve
a similar purpose, or a combination of both. Once the pouring is complete,
any
exposed surfaces are finished and the product is allowed to cure in a controlled
environment for a minimum of two to four hours and as long as 24 hours,
depending on the product and design specification. After the product has cured,
the mold is stripped and prepared for re-use in the manufacturing
process.
Precast
concrete structures are not perishable products. This contributes to our ability
to maintain some level of standardized products in inventory at all times,
as
well as service a larger market area from a plant location than a ready-mixed
concrete plant site. Our precast concrete products can be shipped across the
country, but due to the weight of the products, shipping is generally limited
to
within a 150-mile radius of a plant site. Depending on our overall costs,
shipments occur either through our existing fleet of crane-equipped trucks
or
through contract haulers. In some markets, we also install our precast products
and provide our customers with the added benefit of eliminating coordination
with a third party.
Bidding
and order fulfillment processes for our precast business are similar to our
ready-mixed concrete operations, as previously described above. Cement and
aggregates are the two primary raw materials used in precast concrete
manufacturing, similar to our ready-mixed concrete operations, while labor
costs
are second only to our materials cost.
Cement
and Other Raw Materials
We
obtain
most of the materials necessary to manufacture ready-mixed concrete and precast
concrete products on a daily basis. These materials include cement, other
cementitious materials (fly ash, blast furnace slag) and aggregates (stone,
gravel and sand), in addition to certain chemical admixtures. With the exception
of chemical admixtures, each plant typically maintains an inventory level of
these materials sufficient to satisfy its operating needs for a few days.
Typically, cement represents the highest cost material used in manufacturing
a
cubic yard of ready-mixed concrete, while the cost of aggregates used is
slightly less than the cement cost. Historically, we have purchased cement
from
several suppliers in each of our major markets. Due to certain industry
consolidations and our decision to have a primary and secondary supplier, in
certain of our markets, we are now purchasing cement from fewer suppliers than
in past years. Chemical admixtures are generally purchased from suppliers under
national purchasing agreements.
In
certain of our markets in 2007, cement and aggregates prices remained relatively
flat as compared to 2006. In other of our markets, where we did experience
cement and aggregates price increases, our ready-mixed concrete products pricing
increased in relative proportion to our raw material price increases. Generally,
we negotiate with suppliers on a company-wide basis and at the local market
level to obtain the most competitive pricing available for cement, aggregates
and chemical admixtures. We anticipate that the residential construction
downturn that began in the second half of 2006 will continue through 2008,
and,
therefore, commercial construction and other building segments will comprise
a
larger
percentage of domestic demand. We do not expect to experience cement shortages
in the near term. Today, in most of our markets, we believe there is an adequate
supply of aggregates. Should concrete demand increase significantly, we could
experience escalating prices or shortages of aggregates.
Marketing
and Sales
General
contractors typically select their suppliers of ready-mixed concrete and precast
concrete. In large, complex projects, an engineering firm or division within
a
state transportation or public works department may influence the purchasing
decision, particularly if the concrete has complicated design specifications.
In
those projects and in government-funded projects generally, the general
contractor or project engineer usually awards supply orders on the basis of
either direct negotiation or competitive bidding. We believe the purchasing
decision for many jobs ultimately is relationship-based. Our marketing efforts
target general contractors, developers, design engineers, architects and
homebuilders whose focus extends beyond the price of our product to quality,
consistency and reducing the in-place cost.
Customers
Of
our
2007 sales, we made approximately 49% to commercial and industrial construction
contractors, 35% to residential construction contractors, 9% to street and
highway construction contractors and 7% to other public works and infrastructure
contractors. In 2007, no single customer or project accounted for more than
3%
of our total sales.
We
rely
heavily on repeat customers. Our management and sales personnel are responsible
for developing and maintaining successful long-term relationships with key
customers.
Competition
The
ready-mixed concrete, precast concrete and concrete-related products industries
are highly competitive. Our competitive position in a market depends largely
on
the location and operating costs of our plants and prevailing prices in that
market. Price is the primary competitive factor among suppliers for small or
simple jobs, principally in residential construction. However, timeliness of
delivery and consistency of quality and service, along with price, are the
principal competitive factors among suppliers for large or complex jobs. Our
competitors range from small, owner-operated private companies to subsidiaries
or operating units of large, vertically integrated manufacturers of cement
and
aggregates. Our vertically integrated competitors generally have greater
manufacturing, financial and marketing resources than we have, providing them
with a competitive advantage. Competitors having lower operating costs than
we
do or having the financial resources to enable them to accept lower margins
than
we do will have a competitive advantage over us for jobs that are particularly
price-sensitive. Competitors having greater financial resources or less
financial leverage than we do may be able to invest more in new mixer trucks,
ready-mixed concrete plants and other production equipment or pay for
acquisitions which could provide them a competitive advantage over us. See
Item
1A - “Risk Factors - We may lose business to competitors who underbid us, and we
may be otherwise unable to compete favorably in our highly competitive
industry.”
Employees
As
of
March
3,
2008, we had approximately 667 salaried employees, including executive officers
and management, sales, technical, administrative and clerical personnel, and
approximately 2,110 hourly personnel. The number of employees fluctuates
depending on the number and size of projects ongoing at any particular time,
which may be impacted by variations in weather conditions throughout the
year.
As
of
March 3, 2008, approximately 943 of our employees were represented by labor
unions having collective bargaining agreements with us. Generally, these
agreements have multi-year terms and expire on a staggered basis between 2008
and 2012. Under these agreements, we pay specified wages to covered employees
and make payments to multi-employer pension plans and employee benefit trusts
rather than administering the funds on behalf of these employees.
Other
than a two-day strike at certain operations within our Atlantic Region in 2004,
we have not experienced any strikes or significant work stoppages in the past
five years. We believe our relationships with our employees and union
representatives are satisfactory.
Training
and Safety
Our
future success will depend, in part, on the extent to which we can attract,
retain and motivate qualified employees. We believe that our ability to do
so
will depend on the quality of our recruiting, training, compensation and
benefits, the opportunities we afford for advancement and our safety record.
We
support and fund continuing education and training programs for our employees.
We intend to continue and expand these programs. We require all field employees
to attend periodic safety training meetings and all drivers and other delivery
personnel to participate in training seminars. OSHA regulations establish
requirements our training programs must meet. We employ a national safety
director whose responsibilities include managing and executing a unified,
company-wide safety program.
Governmental
Regulation and Environmental Matters
A
wide
range of federal, state and local laws, ordinances and regulations apply
to our
operations, including the following matters:
|
§ |
street
and highway usage;
|
|
§ |
health,
safety and environmental matters.
|
In
many
instances, we are required to have various certificates, permits or licenses
to
conduct our business. Our failure to maintain these required authorizations
or
to comply with applicable laws or other governmental requirements could result
in substantial fines or possible revocation of our authority to conduct some
of
our operations. Delays in obtaining approvals for the transfer or grant of
authorizations, or failures to obtain new authorizations, could impede
acquisition efforts.
Environmental
laws that impact our operations include those relating to air quality, solid
waste management and water quality. These laws are complex and subject to
frequent change. They impose strict liability in some cases without regard
to
negligence or fault. Sanctions for noncompliance may include revocation of
permits, corrective action orders, administrative or civil penalties and
criminal prosecution. Some environmental laws provide for joint and several
strict liability for remediation of spills and releases of hazardous substances.
In addition, businesses may be subject to claims alleging personal injury or
property damage as a result of alleged exposure to hazardous substances, as
well
as damage to natural resources. These laws also may expose us to liability
for
the conduct of or conditions caused by others, or for acts that complied with
all applicable laws when performed.
We
have
conducted Phase I environmental site assessments, which are non-intrusive
investigations conducted to evaluate the potential for significant on-site
environmental impacts, on substantially all the real properties we own or lease
and have engaged independent environmental consulting firms to complete those
assessments. We have not identified any environmental concerns associated with
those properties that we believe are likely to have a material adverse effect
on
our business, financial position, results of operations or cash flows, but
we
can provide no assurance material liabilities will not occur. In addition,
we
can provide no assurance our compliance with amended, new or more stringent
laws, stricter interpretations of existing laws or the future discovery of
environmental conditions will not require additional, material expenditures.
We
believe we have all material permits and licenses we need to conduct our
operations and are in substantial compliance with applicable regulatory
requirements relating to our operations. Our capital expenditures relating
to
environmental matters were not material in 2007. We currently do not anticipate
any material adverse effect on our business, financial condition, results of
operations or cash flows as a result of our future compliance with existing
environmental laws controlling the discharge of materials into the
environment.
In
March
2005, the California Regional Water Quality Control Board for the Central Valley
Region (“CRWQCB”) issued a draft order to regulate discharges of concrete
wastewater and solid wastes associated with concrete manufacturing at
ready-mixed concrete plants located in and near Sacramento, California. This
order would affect four sites in which six of our ready-mixed concrete plants
operate in northern California. If approved in its current draft form, the
order
would require all existing ready-mixed concrete plants in the area to retrofit
or reconstruct their waste management units to provide impermeable containment
of all concrete wastewater and install leak detection systems. It also would
require all new ready-mixed concrete plants in the area to be constructed with
similar waste management units. The draft order provides that operators of
existing ready-mixed concrete plants would have 180 days to apply for coverage
under the order, and then one year after coverage is obtained to complete all
required retrofitting. In June 2005, the CRWQCB delayed approval of the order
to
provide the Construction Materials Association of California and various
concrete producers time to provide certain information to the CRWQCB for further
consideration. Although our actual capital expenditures may vary significantly
and will ultimately depend on final regulations, if the order is approved in
its
current form, the cost of capital improvements to our plants at the four sites
in the affected area may be up to $1.0 million per site. Also, if the order
is
considered and adopted by the California Water Quality Control Board for the
San
Francisco Bay Region, we might incur similar costs to retrofit our existing
plants in that area. At December 31, 2007, we operated 25 ready-mixed concrete
plants in northern California, which could be impacted by this order should
it
be enacted.
Product
Warranties
Our
operations involve providing ready-mixed concrete, precast concrete products
and
other concrete formulations or products that must meet building code or other
regulatory requirements and contractual specifications for durability,
stress-level capacity, weight-bearing capacity and other characteristics. If
we
fail or are unable to provide products meeting these requirements and
specifications, material claims may arise against us and our reputation could
be
damaged. In the past, we have had significant claims of this kind asserted
against us that we have resolved. There currently are, and we expect that in
the
future there will be, additional claims of this kind asserted against us. If
a
significant product-related claim is resolved against us in the future, that
resolution may have a material adverse effect on our business, financial
condition, results of operations and cash flows.
Insurance
Our
employees perform a significant portion of their work moving and storing large
quantities of heavy raw materials, driving large mixer and other trucks in
heavy
traffic conditions and delivering concrete at construction sites or in other
areas that may be hazardous. These operating hazards can cause personal injury
and loss of life, damage to or destruction of properties and equipment and
environmental damage. We maintain insurance coverage in amounts and against
the
risks we believe are in accord with industry practice, but this insurance may
not be adequate to cover all losses or liabilities we may incur in our
operations, and we may be unable to maintain insurance of the types or at levels
we deem necessary or adequate or at rates we consider reasonable. For additional
discussion of our insurance programs, see Note 14 to our Consolidated Financial
Statements included in this report.
Available
Information
Our
Web
site address is www.us-concrete.com.
We make
available on this Web site under the “investors” section, free of charge, our
annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports
on Form 8-K, and amendments to those reports, as soon as reasonably practicable
after we electronically file those materials with, or furnish them to, the
SEC.
Alternatively, the public may read and copy any materials we file with the
SEC
at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C.
20549. Information on the operation of the Public Reference Room may be obtained
by calling the SEC at 1-800-SEC-0330. The SEC also maintains a Web site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The SEC’s Web site
address is www.sec.gov.
Item
1A. Risk
Factors
Set
forth
below and under “Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Risks and Uncertainties” in Item 7 of Part II of this
report are various risks and uncertainties that could adversely impact our
business, financial condition, results of operations
and cash
flows.
There
are risks related to our internal growth and operating
strategy.
Our
ability to generate internal growth will be affected by, among other factors,
our ability to:
|
§
|
attract
new customers; and
|
|
§
|
differentiate
ourselves in a competitive market by emphasizing new product development
and value-added sales and marketing; hire and retain employees; and
reduce
operating and overhead expenses.
|
One
key
component of our operating strategy is to operate our businesses on a
decentralized basis, with local or regional management retaining responsibility
for day-to-day operations, profitability and the internal growth of the
individual business. If we do not implement and maintain proper overall business
controls, this decentralized operating strategy could result in inconsistent
operating and financial practices and our overall profitability could be
adversely affected.
Our
resources, including management resources, are limited and may be strained
if we
engage in a significant number of acquisitions. Also, acquisitions may divert
our management’s attention from initiating or carrying out programs to save
costs or enhance revenues.
Our
inability to achieve internal growth could materially and adversely affect
our
business, financial condition, results of operations and cash flows.
Our
operating results may vary significantly from one reporting period to another
and may be adversely affected by the seasonal and cyclical nature of the markets
we serve.
The
ready-mixed concrete and precast concrete businesses are seasonal. In
particular, demand for our products and services during the winter months are
typically lower than in other months because of inclement winter weather. In
addition, sustained periods of inclement weather or permitting delays could
postpone or delay projects over geographic regions of the United States, and
consequently, could adversely affect our business, financial condition, results
of operations and cash flows. The relative demand for our products is a function
of the highly cyclical construction industry. As a result, our revenues may
be
adversely affected by declines in the construction industry generally and in
our
local markets. Our results also may be materially affected by:
|
§
|
the
level of residential and commercial construction in our regional
markets,
including reductions in the demand for new residential housing
construction below current or historical
levels;
|
|
§ |
the
availability of funds for public or infrastructure construction from
local, state and federal sources;
|
|
§ |
unexpected
events that delay or adversely affect our ability to deliver concrete
according to our customers’
requirements;
|
|
§ |
changes
in interest rates and lending standards;
|
|
§
|
the
changes in mix of our customers and business, which result in periodic
variations in the margins of jobs performed during any particular
quarter;
|
|
§ |
the
timing and cost of acquisitions and difficulties or costs encountered
when
integrating acquisitions;
|
|
§ |
the
budgetary spending patterns of customers;
|
|
§ |
increases
in construction and design costs;
|
|
§ |
power
outages and other unexpected delays;
|
|
§ |
our
ability to control costs and maintain
quality;
|
|
§ |
regional
or general economic conditions.
|
As
a
result, our operating results in any particular quarter may not be indicative
of
the results that you can expect for any other quarter or for the entire year.
Furthermore, negative trends in the ready-mixed concrete industry or in our
geographic markets could have material adverse effects on our business,
financial condition, results of operations and cash flows.
We
may be unsuccessful in continuing to carry out our strategy of growth through
acquisitions.
One
of
our principal growth strategies is to increase our revenues and the markets
we
serve and to continue selectively entering new geographic markets through the
acquisition of additional ready-mixed concrete, precast concrete products,
aggregates products and related businesses. We may not be able to acquire
suitable acquisition candidates at reasonable prices and on other reasonable
terms for a number of reasons, including the following:
|
§
|
the
acquisition candidates we identify may be unwilling to
sell;
|
|
§
|
we
may not have sufficient capital to pay for acquisitions; and
|
|
§
|
competitors
in our industry may outbid us.
|
In
addition, there are risks associated with the acquisitions we complete. We
may
face difficulties integrating the newly acquired businesses into our operations
efficiently and on a timely basis. We also may experience unforeseen
difficulties managing the increased scope, geographic diversity and complexity
of our operations or mitigating contingent or assumed liabilities, potentially
including liabilities we do not anticipate.
We
may lose business to competitors who underbid us, and we may be otherwise unable
to compete favorably in our highly competitive industry.
Our
competitive position in a given market depends largely on the location and
operating costs of our plants and prevailing prices in that market. Generally,
our products are price-sensitive. Our prices are subject to changes in response
to relatively minor fluctuations in supply and demand, general economic
conditions and market conditions, all of which are beyond our control. Because
of the fixed-cost nature of our business, our overall profitability is sensitive
to minor variations in sales volumes and small shifts in the balance between
supply and demand. Price is the primary competitive factor among suppliers
for
small or simple jobs, principally in residential construction. However,
timeliness of delivery and consistency of quality and service, as well as price,
are the principal competitive factors among suppliers for large or complex
jobs.
Concrete manufacturers like us generally obtain customer contracts through
local
sales and marketing efforts directed at general contractors, developers and
homebuilders. As a result, we depend on local relationships. We generally do
not
have any long-term sales contracts with our customers.
Our
competitors range from small, owner-operated private companies to subsidiaries
or operating units of large, vertically integrated manufacturers of cement
and
aggregates. Our vertically integrated competitors generally have greater
manufacturing, financial and marketing resources than we have, providing them
with competitive advantages. Competitors having lower operating costs than
we do
or having the financial resources to enable them to accept lower margins than
we
do will have competitive advantages over us for jobs that are particularly
price-sensitive. Competitors having greater financial resources or less
financial leverage than we do to invest in new mixer trucks, build plants in
new
areas or pay for acquisitions also will have competitive advantages over us.
We
depend on third parties for concrete equipment and supplies essential to operate
our business.
We
rely
on third parties to lease properties, plant and equipment to us and to provide
supplies, including cement and other raw materials, necessary for our
operations. We cannot assure you that our favorable working relationships with
our suppliers will continue in the future. Also, there have historically been
periods of supply shortages in the concrete industry, particularly in a strong
economy.
If
we are
unable to lease necessary properties or equipment, our operations could be
severely impacted. If we lose our supply contracts and receive insufficient
supplies from other third parties to meet our customers’ needs or if our
suppliers experience price increases or disruptions to their business, such
as
labor disputes, supply shortages or distribution problems, our business,
financial condition, results of operations and cash flows could be materially
adversely affected.
In
2006,
cement prices continued to rise at rates similar to those experienced in 2005
and 2004, as a result of strong domestic consumption driven largely by historic
levels of residential construction that did not abate until the second half
of
2006. During 2007, residential construction slowed significantly, which resulted
in a decline in the demand for ready-mixed concrete. Cement price increases
normalized during 2007, while cement supplies were at levels that indicated
a
low risk of cement shortages in our markets in the near term. Should demand
increase substantially beyond our current expectations, we could experience
shortages of cement in future periods, which
could adversely affect our operating results, through both decreased sales
and
higher cost of raw materials.
Throughout
2006 and 2007, our product pricing for ready-mixed concrete continued to
increase in most of our markets. These price increases allowed us to absorb
the
rising cost of raw materials (primarily cement, other cementitious materials
and
aggregates) in 2007. However, in 2006, the rising cost of raw materials outpaced
our ability to increase prices and, as a result, our margins were adversely
impacted. Gains on increased prices in 2007 were offset in part by higher labor,
freight and delivery costs, including rising diesel fuel costs. With the
national average of diesel fuel prices having risen 7% in 2007, 13% in 2006
and
33% in 2005, we experienced both increased freight charges for our raw
materials, in the form of fuel surcharges, and increased costs to deliver our
products. As these costs have become more significant over the last three years,
we have instituted fuel surcharges in most of our markets in an attempt to
cover
these rising costs. We do not have any long-term fuel supply contracts that
would protect us from rising fuel costs. Sustaining or improving our margins
in
the future will depend on market conditions and our ability to increase our
product pricing or realize gains in productivity to offset further increases
in
raw materials and other costs.
Governmental
regulations, including environmental regulations, may result in increases in
our
operating costs and capital expenditures and decreases in our earnings.
A
wide
range of federal, state and local laws, ordinances and regulations apply to
our
operations, including the following matters:
|
§ |
street
and highway usage;
|
|
§ |
health,
safety and environmental matters.
|
In
many
instances, we must have various certificates, permits or licenses in order
to
conduct our business. Our failure to maintain required certificates, permits
or
licenses or to comply with applicable governmental requirements could result
in
substantial fines or possible revocation of our authority to conduct some of
our
operations. Delays in obtaining approvals for the transfer or grant of
certificates, permits or licenses, or failure to obtain new certificates,
permits or licenses, could impede the implementation of our acquisition
program.
Governmental
requirements that impact our operations include those relating to air quality,
solid waste management and water quality. These requirements are complex and
subject to frequent change. They impose strict liability in some cases without
regard to negligence or fault and may expose us to liability for the conduct
of
or conditions caused by others, or for our acts that complied with all
applicable requirements when we performed them. Our compliance with amended,
new
or more stringent requirements, stricter interpretations of existing
requirements, or the future discovery of environmental conditions may require
us
to make unanticipated material expenditures. In addition, we may fail to
identify or obtain indemnification from environmental liabilities of acquired
businesses. We generally do not maintain insurance to cover environmental
liabilities.
In
March
2005, the California Regional Water Quality Control Board for the Central Valley
Region (“CRWQCB”) issued a draft order to regulate discharges of concrete
wastewater and solid wastes associated with concrete manufacturing at
ready-mixed concrete plants located in and near Sacramento, California. This
order would affect four sites in which six of our ready-mixed concrete plants
operate in northern California. If approved in its current draft form, the
order
would require all existing ready-mixed concrete plants in the area to retrofit
or reconstruct their waste management units to provide impermeable containment
of all concrete wastewater and install leak detection systems. It also would
require all new ready-mixed concrete plants in the area to be constructed with
similar waste management units. The draft order provides that operators of
existing ready-mixed concrete plants would have 180 days to apply for coverage
under the order, and then one year after coverage is obtained to complete all
required retrofitting. In June 2005, the CRWQCB delayed approval of the order
to
provide the Construction Materials Association of California and various
concrete producers time to provide certain information to the CRWQCB for further
consideration. Although our actual capital expenditures may vary significantly
and will ultimately depend on final regulations, if the order is approved in
its
current form, the cost of capital improvements to our plants at the four sites
in the affected area may be up to $1.0 million per site. Also, if the order
is
considered and adopted by the California Water Quality Control Board for the
San
Francisco Bay Region, we might incur similar costs to retrofit our existing
plants in that area. At December 31, 2007, we operated a total of 25 ready-mixed
concrete plants in northern California, which could be impacted by this order
should it be enacted.
Our
operations are subject to various hazards that may cause personal injury or
property damage and increase our operating costs.
Operating
mixer trucks, particularly when loaded, exposes our drivers and others to
traffic hazards. Our drivers are subject to the usual hazards associated with
providing services on construction sites, while our plant personnel are subject
to the hazards associated with moving and storing large quantities of heavy
raw
materials. Operating hazards can cause personal injury and loss of life, damage
to or destruction of properties, plant and equipment and environmental damage.
Although we conduct training programs designed to reduce these risks, we cannot
eliminate these risks. We maintain insurance coverage in amounts we believe
are
in accord with industry practice; however, this insurance may not be adequate
to
cover all losses or liabilities we may incur in our operations, and we may
not
be able to maintain insurance of the types or at levels we deem necessary or
adequate or at rates we consider reasonable. A partially or completely uninsured
claim, if successful and of sufficient magnitude, could have a material adverse
effect on us.
The
insurance policies we maintain are subject to varying levels of deductibles.
Losses up to the deductible amounts are accrued based on our estimates of the
ultimate liability for claims incurred and an estimate of claims incurred but
not reported. If we were to experience insurance claims or costs above our
estimates, our business, financial condition, results of operations and cash
flows might be materially and adversely affected.
The
departure of key personnel could disrupt our business, and our business growth
will necessitate the successful hiring of new senior managers and executive
officers.
We
depend
on the efforts of our executive officers and, in many cases, on senior
management of our businesses. Our success will depend on retaining our
senior-level managers and officers. If we cannot achieve this, we cannot be
assured that we will be able to recruit and retain new senior-level managers
and
officers. To the extent we are unable to manage our growth effectively or are
unable to attract and retain qualified management personnel, our business,
financial condition, results of operations and cash flows could be materially
and adversely affected. We do not carry key-person life insurance on any of
our
employees.
We
may be unable to attract and retain qualified employees.
Our
ability to provide high-quality products and services on a timely basis depends
on our success in employing an adequate number of skilled plant managers,
technicians and drivers. Like many of our competitors, we experience shortages
of qualified personnel from time to time. We may not be able to maintain an
adequate skilled labor force necessary to operate efficiently and to support
our
growth strategy, and our labor expenses may increase as a result of a shortage
in the supply of skilled personnel.
Collective
bargaining agreements, work stoppages and other labor relations matters may
result in increases in our operating costs, disruptions in our business and
decreases in our earnings.
As
of
March 3, 2008, approximately 35% of our employees were covered by collective
bargaining agreements, which expire between 2008 and 2012. Of particular note,
512 of our employees are covered by collective bargaining agreements that expire
in 2008. Our inability to negotiate acceptable new contracts or extensions
of
existing contracts with these unions could cause strikes or other work stoppages
by the affected employees. In addition, any new contracts or extensions could
result in increased operating costs attributable to both union and nonunion
employees. If any such strikes or other work stoppages were to occur, or if
other of our employees were to become represented by a union, we could
experience a significant disruption of our operations and higher ongoing labor
costs, which could materially adversely affect our business, financial
condition, results of operations and cash flows. In addition, the coexistence
of
union and nonunion employees may lead to conflicts between union and nonunion
employees or impede our ability to integrate our operations efficiently. Also,
labor relations matters affecting our suppliers of cement and aggregates could
adversely impact our business from time to time.
We
contribute to 14 multiemployer pension plans. If we were to withdraw partially
or completely from any plan that is underfunded, we would be liable for a
proportionate share of that plan’s unfunded vested benefits. Based on the
limited information available from plan administrators, which we cannot
independently validate, we believe that our portion of the contingent liability
in the case of a full or partial withdrawal from or termination of several
of
these plans would be material to our business financial condition, results
of
operations and cash flows.
Our
overall profitability is sensitive to price changes and minor variations in
sales volumes.
Generally,
our products are price-sensitive. Prices for our products are subject to changes
in response to relatively minor fluctuations in supply and demand, general
economic conditions and market conditions, all of which are beyond our control.
Because of the fixed-cost nature of our business, our overall profitability
is
sensitive to price changes and minor variations in sales volumes.
We
may incur material costs and losses as a result of claims our products do not
meet regulatory requirements or contractual specifications.
Our
operations involve providing products that must meet building code or other
regulatory requirements and contractual specifications for durability,
stress-level capacity, weight-bearing capacity and other characteristics. If
we
fail or are unable to provide products meeting these requirements and
specifications, material claims may arise against us and our reputation could
be
damaged. In the past, we have had significant claims of this kind asserted
against us that we have resolved. There currently are, and we expect that in
the
future there will be, additional claims of this kind asserted against us. If
a
significant product-related claim or claims are resolved against us in the
future, that resolution may have a material adverse effect on our business
financial condition, results of operations and cash flows.
Our
net sales attributable to infrastructure projects could be negatively impacted
by a decrease or delay in governmental spending.
Our
business depends in part on the level of governmental spending on infrastructure
projects in our markets. Reduced levels of governmental funding for public
works
projects or delays in that funding could adversely affect our business,
financial condition, results of operations and cash flows.
Some
of our plants are susceptible to damage from earthquakes, for which we have
a
limited amount of insurance.
We
maintain only a limited amount of earthquake insurance, and, therefore, we
are
not fully insured against earthquake risk. Any significant earthquake damage
to
our plants could materially adversely affect our business, financial condition,
results of operations and cash flows.
Our
results of operations could be adversely affected as a result of goodwill
impairments.
Goodwill
represents the amount by which the total purchase price we have paid for
acquisitions exceeds our estimated fair value of the net assets acquired. We
periodically test our recorded goodwill for impairment and charge expense with
any impairment we recognize, but do not otherwise amortize that goodwill.
Because our business is cyclical in nature, goodwill could be significantly
impaired depending upon when the test for impairment is performed in the
business cycle.
During
the fourth quarters of 2007 and 2006, we performed our annual test of goodwill
which resulted in impairments of $81.9 million and $38.8 million, respectively.
The 2006 writedown was related to our Michigan reporting unit and was due to
increased competition, and a general economic downturn in Michigan, driven
by
problems in the automotive business in that region, lower operating profits
and
a downward trend in cash flows. In 2007, our goodwill impairment included a
write-off of the remaining Michigan goodwill on our books and also expanded
to
an impairment of the goodwill in our South Central region and northern
California precast business. Our South Central region and northern California
precast business have been severely impacted by the downturn trend in
residential construction, increased competition and the economic impact of
the
change in the geographic mix of sales volume.
As
of
December 31, 2007, goodwill represented approximately 28.6% of our total assets.
We can provide no assurance that future goodwill impairments will not occur.
If
we determine that any of our remaining balance of goodwill is impaired, we
will
be required to take an immediate noncash charge to earnings.
As
a result of capital constraints and other factors, we may not be able to grow
as
rapidly as we may desire through acquiring additional
businesses.
In
addition to our existing working capital and cash from operations, our senior
secured credit facility provides us with a significant source of liquidity.
Effective March 2, 2007, the facility was increased to provide us a borrowing
capacity of up to $150 million, as compared to $105 million of borrowing
capacity at December 31, 2006. The credit agreement relating to this facility
provides that the administrative agent may, on the bases specified, reduce
the
amount of the available credit from time to time. At December 31, 2007, there
were no amounts outstanding under the credit facility and the amount of the
available credit was approximately $112.6 million, net of outstanding letters
of
credit of $11.8 million.
We
cannot
readily predict the timing, size and success of our acquisition efforts or
the
capital we will need for those efforts. We may use our common stock as a
component of the consideration we pay for future acquisitions. Issuances of
common stock as acquisition consideration could have a dilutive effect on our
stockholders. If our common stock does not maintain a sufficient market value
or
potential acquisition candidates are unwilling to accept our common stock as
part of the consideration for the sale of their businesses, we may be required
to use more of our cash resources to pursue our acquisition
program.
Using
cash for acquisition consideration limits our financial flexibility and
increases the likelihood that we will need to seek additional capital through
future debt or equity financings. If we seek more debt financing, we may have
to
agree to financial covenants that limit our operational and financial
flexibility. Additional equity financing may dilute the ownership interests
of
our stockholders. There is no assurance that additional debt or equity financing
will be available on terms acceptable to us.
Our
substantial debt could adversely affect our financial
condition.
We
currently have a significant amount of debt. As of December 31, 2007, we had
approximately $298.5 million of outstanding debt. Our substantial debt and
other financial obligations could:
|
§
|
make
it difficult for us to satisfy our financial obligations, including
making
scheduled principal and interest payments on our indebtedness;
|
|
§
|
require
us to dedicate a substantial portion of our cash flow from operations
to
service payments on our indebtedness, thereby reducing funds available
for
other purposes;
|
|
§
|
increase
our vulnerability to a downturn in general economic conditions
or the
industry in which we compete;
|
|
§
|
limit
our ability to borrow additional funds for working capital, capital
expenditures, acquisitions, general corporate and other purposes;
|
|
§
|
place
us at a competitive disadvantage to our competitors; and
|
|
§
|
limit
our ability to plan for and react to changes in our business and
the
ready-mixed concrete
industry.
|
Our
senior secured credit facility and the indenture governing our outstanding
8 ⅜%
senior subordinated notes permit us to incur and to guarantee additional
indebtedness. We anticipate that any future acquisitions we pursue as part
of
our strategy may be financed through a combination of cash on hand, operating
cash flow, availability under our existing credit facility and new securities
offerings. If new debt is added to current debt levels, the related risks
described above could increase.
We
will require a significant amount of cash to service all our debt.
Our
ability to pay or to refinance our indebtedness depends on our future operating
performance, which may be affected by general economic, financial, competitive,
legislative, regulatory, business and other factors, many of which are beyond
our control. Our business may not generate sufficient cash flow from operations
and future financings may not be available to us in amounts sufficient to enable
us to pay our debt or fund other liquidity needs. If we are unable to generate
sufficient cash flow to meet our debt service obligations, we may have to
renegotiate the terms of our debt or obtain additional financing, possibly
on
less favorable terms than our current debt. If we are not able to renegotiate
the terms of our debt or obtain additional financing, we could be forced to
sell
assets under unfavorable circumstances. The terms of our senior secured credit
facility and the indenture governing our senior subordinated notes limit our
ability to sell assets and generally restrict the use of proceeds from asset
sales.
Our
existing debt arrangements impose restrictions on us that may adversely affect
our ability to operate our business.
The
indenture governing our $285 million aggregate principal amount of senior
subordinated notes and our senior secured credit facility contain covenants
that
restrict, among other things, our ability to:
|
§ |
incur
additional indebtedness and issue preferred
stock;
|
|
§ |
make
certain investments;
|
|
§ |
enter
into transactions with affiliates;
|
|
§ |
incur
liens on assets to secure other
debt;
|
|
§ |
engage
in specified business activities;
and
|
|
§ |
engage
in certain mergers or consolidations and transfers of
assets.
|
In
addition, our indenture and senior secured credit facility contain financial
covenants and other limitations with which we must comply. Our ability to comply
with these covenants may be affected by events beyond our control, and our
future operating results may not be sufficient to comply with the covenants
or,
in the event of a default under either our indenture or senior secured credit
facility, to remedy such a covenant default.
Our
failure to comply with any of our financial or other covenants under our
indenture or senior secured credit facility could result in an event of default.
On the occurrence of any such event of default, the trustee under the indenture
or our lenders could elect to declare all amounts outstanding under the
indenture or our senior secured credit facility, as applicable, to be
immediately due and payable, and our lenders could terminate all commitments
to
extend further credit to us and foreclose on any collateral we have granted
to
secure our obligations under our senior secured credit facility.
Increasing
insurance claims and expenses could lower our profitability and increase our
business risk.
The
nature of our business subjects us to product liability, property damage and
personal injury claims. Over the last several years, insurance carriers have
raised premiums for many companies operating in our industry, including us.
Increased premiums may further increase our insurance expense as coverage
expires or otherwise cause us to raise our self-insured retention. If the number
or severity of claims within our self-insured retention increases, we could
suffer costs in excess of our reserves. An unusually large liability claim
or a
string of claims based on a failure repeated throughout our mass production
process may exceed our insurance coverage or result in direct damages if we
were
unable or elected not to insure against certain hazards because of high premiums
or other reasons. In addition, the availability of, and our ability to collect
on, insurance coverage is often subject to factors beyond our
control.
Further
tightening of mortgage lending or mortgage financing requirements could
adversely affect the residential
construction market and prolong the downturn in, or further reduce, the demand
for new home construction which began in 2006 and has
had a
negative effect on our sales volumes
and revenues.
During
2007, the mortgage lending and mortgage finance industries experienced
significant instability due to, among other things, defaults on subprime loans
and adjustable-rate
mortgages.
In light of these developments, lenders, investors, regulators and other third
parties have
questioned
the adequacy of lending standards and other credit requirements for several
loan
programs made available to borrowers in recent years. This has led to reduced
investor demand for mortgage loans and mortgage-backed securities, reduced
market values for those securities,
tightened
credit requirements, reduced liquidity, increased credit risk premiums and
regulatory actions. Deterioration in credit quality among subprime and other
loans
has
caused many lenders
to eliminate subprime mortgages and other loan products that do not conform
to
Fannie Mae, Freddie Mac, FHA or VA standards. Fewer loan products and tighter
loan qualifications in turn make it more difficult for some categories of
borrowers to finance the purchase of new homes. In general, these
developments have been a factor in the downturn of, and have delayed any general
improvement in, the housing market.
Approximately
35% of our 2007 sales were to residential construction contractors. Further
tightening of mortgage lending or mortgage financing requirements could
adversely affect the availability to obtain credit for some borrowers and
prolong
the downturn in, or further reduce the demand
for new home construction, which could have a materially adverse effect on
our
business and results of operations in 2008. A further downturn in new home
construction could also adversely affect our customers focused in this industry
segment, possibly resulting in slower payments, higher default rates in our
accounts receivable, and an overall increase in working
capital.
Item
1B. Unresolved
Staff Comments
None.
Item
2. Properties
Facilities
The
table
below lists our concrete plants as of March 3, 2008. We believe these plants
are
sufficient for our current needs. The ready-mixed concrete volumes shown are
the
volumes from continuing operations each location produced in 2007, except that
production volumes related to plants we acquired during the year reflect
production from the date of acquisition through year-end.
|
|
Ready-Mixed
Concrete Plants
|
|
|
|
|
|
Ready-Mixed
Concrete
Volume
(in
thousands
|
|
Locations
|
|
Fixed
|
|
Portable
|
|
Total
|
|
Precast
Plants
|
|
Block
Plants
|
|
of
cubic
yards)
|
|
Ready-Mixed
Concrete and
Concrete-Related
Products
Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northern
California
|
|
|
21
|
|
|
4
|
|
|
25
|
|
|
—
|
|
|
—
|
|
|
1,612
|
|
Atlantic
Region
|
|
|
19
|
|
|
2
|
|
|
21
|
|
|
—
|
|
|
—
|
|
|
1,050
|
|
Texas
/ Southwest Oklahoma
|
|
|
57
|
|
|
2
|
|
|
59
|
|
|
—
|
|
|
—
|
|
|
3,443
|
|
Michigan
|
|
|
27
|
|
|
—
|
|
|
27
|
|
|
—
|
|
|
1
|
|
|
1,071
|
|
Precast
Concrete Products Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northern
California
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
Southern
California/Arizona
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
Pennsylvania
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
Total
Company
|
|
|
124
|
|
|
8
|
|
|
132
|
|
|
8
|
|
|
1
|
|
|
7,176
|
|
The
fixed
plants listed above are located on approximately 41 sites we own and 48 sites
we
lease. The lease terms extend to dates that vary from 2008 to 2019. We intend
to
renew most of the leases expiring in the near term. Of those leases we do not
renew, we expect to relocate most of the related plant facilities to future
leased or owned sites.
We
produce crushed stone aggregates, sand and gravel, from seven aggregates
facilities located in Texas and New Jersey. We sell these aggregates for use
in
commercial, industrial and public works projects in the markets they serve,
as
well as consume them internally in the production of ready-mixed concrete in
those markets. We produced approximately 3.8 million
tons of aggregates in 2007, with Texas producing
44% and New Jersey 56% of that total production. In April 2007, we entered
into
an agreement to lease our sand pit operations in Michigan to the Edward C.
Levy
Co. as a part of the formation of our 60%-owned Michigan subsidiary. We now
receive a royalty based on the volume of product produced and sold from the
quarry during the term of the lease.
At
December 31, 2007, total estimated reserves are 80 million tons, assuming loss
factors of between 10% and 20% for unusable material. We believe these
aggregates reserves provide us with additional raw materials sourcing
flexibility and supply availability, although they will provide us with supply
for less than 5% of our annual consumption of aggregates.
Equipment
As
of
March 3, 2008, we operated a fleet of approximately 1,300 owned
and
leased mixer trucks and 1,588 other
vehicles. Our own mechanics service most of the fleet. We believe these vehicles
generally are well maintained and are adequate for our operations. The average
age of our mixer trucks is approximately 6.5 years.
For
additional information related to our properties, see Item 1 of this
report.
Item
3. Legal
Proceedings
From
time
to time, and currently, we are subject to various claims and litigation brought
by employees, customers and other third parties for, among other matters,
employee grievances, personal injuries, property damages, product defects and
delay damages that have, or allegedly have, resulted from the conduct of our
operations.
We
believe that the resolution of all litigation currently pending or threatened
against us or any of our subsidiaries should not have a material adverse effect
on our business, financial condition, results of operations or cash flows;
however, because of the inherent uncertainty of litigation, we can provide
no
assurance that the resolution of any particular claim or proceeding to which
we
are a party will not have a material adverse effect on our consolidated
financial condition, results of operations or liquidity for the fiscal period
in
which that resolution occurs. See Note 14 to our Consolidated Financial
Statements included in this report for a discussion of an accrual we recorded
in
2007 in connection with certain ongoing litigation.
Item
4. Submission
of Matters to a Vote of Security Holders
No
matter
was submitted to a vote of our security holders during the fourth quarter of
2007.
PART
II
Item
5. Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Our
common stock is traded on the Nasdaq Global Select Stock Market under the symbol
“RMIX.” As of March 3, 2008, shares of our common stock were held by
approximately 542 stockholders
of record. The number of record holders does not necessarily bear any
relationship to the number of beneficial owners of our common
stock.
The
closing price for our common stock on the Nasdaq Global Select Market on March
3,
2008 was
$3.98 per share. The following table sets forth, for the periods indicated,
the
range of high and low sales prices for our common stock:
|
|
2007
|
|
2006
|
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
First
Quarter
|
|
$
|
9.25
|
|
$
|
6.35
|
|
$
|
14.95
|
|
$
|
9.21
|
|
Second
Quarter
|
|
$
|
9.48
|
|
$
|
7.79
|
|
$
|
15.98
|
|
$
|
9.95
|
|
Third
Quarter
|
|
$
|
9.05
|
|
$
|
6.50
|
|
$
|
12.33
|
|
$
|
5.22
|
|
Fourth
Quarter
|
|
$
|
6.99
|
|
$
|
3.21
|
|
$
|
7.30
|
|
$
|
5.69
|
|
We
have
not paid or declared any dividends since our formation and currently intend
to
retain any earnings to fund our working capital and growth initiatives.
Additional information concerning restrictions on our payment of cash dividends
may be found in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Liquidity and Capital Resources” in Item 7 of this report
and Note 9 to our Consolidated Financial Statements in this report.
PERFORMANCE
GRAPH
The
following graph compares, for the period from December 31, 2002 to
December 31, 2007, the cumulative stockholder return on our common stock
with the cumulative total return on the Standard & Poor’s 500 Index and a
peer group index we selected that includes four public companies within our
industry. The comparison assumes that (1) $100 was invested on December 31,
2002 in our common stock, the S&P 500 Index and the peer group index and
(2) all dividends were reinvested.
The
peer
group companies at December 31, 2007 for this performance graph are Texas
Industries, Inc., Eagle Materials Inc., Martin Marietta Materials, Inc. and
Vulcan Materials Company. LaFarge North America, Inc. and Florida Rock
Industries, Inc. were included in the peer group used in the performance
graph contained in our Proxy Statement for our 2006 Annual Meeting of
Stockholders, after which these companies were acquired by third parties.
In
addition to ready-mixed concrete and concrete-related products, the members
of
the peer group also have operations in other segments of the building products
industry in which we either do not currently operate, or do not operate at
a
comparable level, such as cement, aggregates and other building products.
These other business segments of peer group members have an affect on cumulative
stockholder return over the covered period.
*$100
invested on 12/31/02 in stock or index-including reinvestment of
dividends.
Fiscal
year ending December 31.
Copyright
© 2008, Standard & Poor's, a division of The McGraw-Hill Companies, Inc. All
rights reserved.
www.researchdatagroup.com/S&P.htm
Equity
Compensation Plan Information
The
following table summarizes, as of December 31, 2007, the indicated information
regarding equity compensation to our employees, officers, directors and other
persons under our equity compensation plans. These plans use or are based on
shares of our common stock.
Plan
Category
|
|
Number
of Securities to Be Issued Upon Exercise of Outstanding Stock
Options
|
|
Weighted
Average Exercise Price of Outstanding Stock
Options
|
|
Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans
(Excluding
Securities Reflected in first column)
|
|
Equity
compensation plans approved by
security
holders
|
|
|
1,628,683
|
|
$
|
7.36
|
|
|
845,780
|
|
Equity
compensation plans not approved by
security
holders
(1)
|
|
|
349,248
|
|
$
|
6.48
|
|
|
364,714
|
|
Total
|
|
|
1,977,931
|
|
|
|
|
|
|
|
|
(1) |
Our
board adopted the U.S. Concrete, Inc. 2001 Employee Incentive Plan
in
February 2001. The purpose of this plan is to attract,
retain and motivate our employees and consultants, to encourage a
sense of
propriety of those persons in our company
and to stimulate an active interest of those persons in the development
and financial success of our company. Awards may be made
to any of our employees or consultants. The plan provides for grants
of
incentive stock options, nonqualified stock options,
stock appreciation rights, restricted stock and other long-term incentive
awards. None of our officers or directors is eligible
to participate in the plan.
|
Issuer
Purchases of Equity Securities
In
the fourth quarter of 2007, we purchased 7,468 shares of our common stock in
private transactions from employees who elected for us to make their
required
tax payments upon vesting of certain restricted shares by withholding a number
of those vested shares having a value on the date of vesting equal to their
tax
obligations. The
following table provides information regarding those repurchases:
Calendar
Month
|
|
Total
Number of
Shares
Purchased
|
|
Average
Price Paid Per Share
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
|
Maximum
Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased
Under the Plans or Programs
|
|
October
2007
|
|
|
2,525
|
|
$
|
6.59
|
|
|
None
|
|
|
None
|
|
November
2007
|
|
|
4,585
|
|
$
|
8.54
|
|
|
None
|
|
|
None
|
|
December
2007
|
|
|
358
|
|
$
|
3.54
|
|
|
None
|
|
|
None
|
|
Item
6. Selected Financial Data
The
information below was derived from the audited Consolidated Financial Statements
included in this report and in other reports we have previously filed with
the
SEC, and this information should be read together with those financial
statements and the notes to those financial statements. The adoption of new
accounting pronouncements, changes in accounting policies and reclassifications
impact the comparability of the financial information presented below. These
historical results are not necessarily indicative of the results to be expected
in the future.
|
|
Year
Ended December 31(4)
|
|
|
|
2007(1)
|
|
2006(2)
|
|
2005
|
|
2004(3)
|
|
2003
|
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
803,803
|
|
$
|
728,510
|
|
$
|
525,637
|
|
$
|
455,876
|
|
$
|
430,175
|
|
Income
(loss) from continuing operations, net
of tax
|
|
$
|
(63,760
|
)
|
$
|
(7,303
|
)
|
$
|
14,431
|
|
$
|
(10,360
|
)
|
$
|
11,883
|
|
Income
(loss) from discontinued
operations,
net of tax
|
|
$
|
(5,241
|
)
|
$
|
(787
|
)
|
$
|
(1,819
|
)
|
$
|
(179
|
)
|
$
|
(1,580
|
)
|
Net
income (loss)
|
|
$
|
(69,001
|
)
|
$
|
(8,090
|
)
|
$
|
12,612
|
|
$
|
(10,539
|
)
|
$
|
10,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(Loss) Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income (loss) per share
from
continuing operations
|
|
$
|
(1.67
|
)
|
$
|
(0.20
|
)
|
$
|
0.50
|
|
$
|
(0.37
|
)
|
$
|
0.42
|
|
Income
(loss) from discontinued operations, net of tax
|
|
$
|
(0.14
|
)
|
$
|
(0.02
|
)
|
$
|
(0.06
|
)
|
$
|
–
|
|
$
|
(0.05
|
)
|
Basic
net income (loss) per share
|
|
$
|
(1.81
|
)
|
$
|
(0.22
|
)
|
$
|
0.44
|
|
$
|
(0.37
|
)
|
$
|
0.37
|
|
Diluted
income (loss) per share
from
continuing operations
|
|
$
|
(1.67
|
)
|
$
|
(0.20
|
)
|
$
|
0.49
|
|
$
|
(0.37
|
)
|
$
|
0.42
|
|
Income
(loss) from discontinued operations, net of tax
|
|
$
|
(0.14
|
)
|
$
|
(0.02
|
)
|
$
|
(0.06
|
)
|
$
|
–
|
|
$
|
(0.05
|
)
|
Diluted
net income (loss) per share
|
|
$
|
(1.81
|
)
|
$
|
(0.22
|
)
|
$ |
0.43
|
|
$
|
(0.37
|
)
|
$
|
0.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
647,256
|
|
$
|
716,646
|
|
$
|
494,043
|
|
$
|
449,159
|
|
$
|
400,974
|
|
Total
debt (including current maturities)
|
|
$
|
298,500
|
|
$
|
303,292
|
|
$
|
201,571
|
|
$
|
200,777
|
|
$
|
155,039
|
|
Total
stockholders’ equity
|
|
$
|
205,105
|
|
$
|
269,577
|
|
$
|
184,921
|
|
$
|
168,849
|
|
$
|
176,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement
of Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
$
|
44,338
|
|
$
|
39,537
|
|
$
|
41,229
|
|
$
|
34,423
|
|
$
|
26,692
|
|
Net
cash used in investing activities
|
|
$
|
(34,084
|
)
|
$
|
(230,679
|
)
|
$
|
(58,563
|
)
|
$
|
(11,597
|
)
|
$
|
(17,259
|
)
|
Net
cash provided by (used in) financing activities
|
|
$
|
(4,208
|
)
|
$
|
176,292
|
|
$
|
1,281
|
|
$
|
9,770
|
|
$
|
(7,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ready-mixed
Concrete Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
selling price per cubic yard
|
|
$
|
91.70
|
|
$
|
88.23
|
|
$
|
86.42
|
|
$
|
77.43
|
|
$
|
77.20
|
|
Sales
volume in cubic yards from
continuing
operations
|
|
|
7,176
|
|
|
6,679
|
|
|
4,734
|
|
|
4,519
|
|
|
4,504
|
|
(1) |
The
2007 results include an impairment charge of $76.4 million, net of
tax, in
the fourth quarter pursuant to our annual review of goodwill in accordance
with Statement of Financial Accounting Standards (“SFAS”) No. 142,
“Goodwill and Other Intangible Assets”. Also
in 2007, we discontinued the operations of three business units in
certain
markets. The financial data for years prior to 2007 have been restated
to
segregate the effects of the operations of those discontinued units.
|
(2) |
The
2006 results include an impairment charge of $26.8 million, net
of tax,
primarily to reduce the carrying value of goodwill associated
with our
Michigan assets pursuant to our annual review of goodwill in
accordance
with SFAS No. 142.
|
(3) |
The
2004 results include a loss on early extinguishment of debt of $28.8
million ($18.0 million, net of tax), which consisted of $25.9 million
in
premium payments to holders of our prior subordinated notes and a
write-off of $2.9 million of debt issuance costs associated with
our debt
repayments.
|
(4) |
All
data presented in each year has been restated to reflect the effect
of our
fourth quarter of 2007 decision to dispose of certain of our
operations.
|
Item
7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Statements
we make in the following discussion that express a belief, expectation or
intention, as well as those that are not historical facts, are forward-looking
statements that are subject to various risks, uncertainties and assumptions.
Our
actual results, performance or achievements, or industry results, could differ
materially from those we express in the following discussion as a result of
a
variety of factors, including the risks and uncertainties to which we refer
under the headings “Cautionary Statement Concerning Forward-Looking Statements”
preceding Item 1 of this report, “Risk Factors” in Item 1A of this report and
“—Risks and Uncertainties” below.
Our
Business
We
operate our business in two business segments: ready-mixed concrete and
concrete-related products; and precast concrete products.
Ready-Mixed
Concrete and Concrete-Related Products. Our
ready-mixed concrete and concrete-related products segment is engaged primarily
in the production, sale and delivery of ready-mixed concrete to our customer’s
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, 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 its eight 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, curb-inlets,
catch basins, retaining and other wall systems, custom designed architectural
products and other precast concrete products.
Our
Markets
We
derive
substantially all our revenues from the sale of ready-mixed concrete, precast
concrete and concrete-related products to the construction industry in the
United States. We typically sell our products under purchase orders that require
us to formulate, prepare and deliver the product to our customers’ job sites. We
recognize sales from these orders when we deliver the ordered products. The
principal states in which we operate are Texas (35% of 2007 sales and 28% of
2006 sales), California (32% of 2007 sales and 36% of 2006 sales), New Jersey
(14% of 2007 sales and 17% of 2006 sales) and Michigan (11% of 2007 sales and
10% of 2006 sales). We serve substantially all segments of the construction
industry in our markets, and our customers include contractors for commercial
and industrial, residential, street and highway and public works construction.
The approximate percentages of our concrete product sales by construction type
activity were as follows in 2007 and 2006:
|
|
2007
|
|
2006
|
|
Commercial
and industrial
|
|
|
49
|
%
|
|
47
|
%
|
Residential
|
|
|
35
|
%
|
|
39
|
%
|
Street
and highway
|
|
|
9
|
%
|
|
7
|
%
|
Other
public works
|
|
|
7
|
%
|
|
7
|
%
|
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 which 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. 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 are typically lower than other
months of the year because of inclement weather. Also, sustained periods of
inclement weather and other weather conditions could postpone or delay projects
in our markets during other times of the year.
On
average, during 2007 we experienced improved pricing trends in ready-mixed
concrete in all of our major markets, as compared to 2006. Sustaining or
improving our margins in the future will depend on market conditions, including
the continued potential for further softening in the residential sector and
our
ability to increase or maintain our product pricing or realize gains in
productivity to offset further potential increases in raw materials and other
costs.
Ready-mixed
concrete sales volumes have generally declined in 2007 as compared to 2006
on a
same-plant-sales basis, reflecting a sustained downward trend in residential
construction activity in all of our markets and the impact of adverse weather
conditions, primarily in our north and west Texas markets early in the summer
months. We expect the construction downturn to continue in 2008, in both
residential and commercial end-use markets, resulting in ready-mixed concrete
sales volumes being down on a same-plant-sales basis in 2008 in most of our
markets as compared to 2007 volumes.
Our
Michigan market remains subject to a prolonged economic downturn, which is
projected to continue throughout 2008. As a result, our 60%-owned Michigan
subsidiary, which was formed in April 2007 has experienced same-plant-sales
volume declines. At the same time, pricing has improved in 2007, as compared
to
the corresponding period in 2006 (including the results of the operations
contributed to the subsidiary by the Edw. C. Levy Co.). We have made substantial
modifications to our operating structure in Michigan in 2006 and 2007, which
we
believe will bring our operations more in line with the market demand we
anticipate for 2008. We maintain a strong competitive position in Michigan
and
believe we are well positioned for growth when the Michigan economy begins
to
recover.
Demand
for our products in our precast concrete products segment decreased in 2007,
as
compared to 2006. This decline is reflective of the decline 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. We are in the process of refocusing our
product lines and streamlining our operations in these markets to better serve
the existing demand and penetrate additional end-use markets.
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,
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 represents the highest cost material used in
manufacturing a cubic yard of ready-mixed concrete, while the cost of aggregates
used is slightly less than the cement cost. In each of our markets, we purchase
each of these materials from several suppliers. Chemical admixtures are
generally purchased from single suppliers under national purchasing agreements.
In
2007,
cement and aggregates pricing moderated as compared to the price increases
we
experienced in raw materials in 2005 and 2006. We negotiate with suppliers
both
on a company-wide basis and at the local market level to obtain the most
competitive pricing available for cement and aggregates. We anticipate that
the
residential construction downturn that began in the second half of 2006 will
continue through 2008, and, therefore commercial construction and other building
segments will comprise a
larger
percentage of overall product demand. We do not expect to experience cement
shortages during 2008. Today, in most of our markets, we believe there is an
adequate supply of aggregates. Should demand for aggregates increase
significantly, we could experience escalating prices or shortages of
aggregates.
Acquisitions
Since
our
inception in 1999, our growth strategy has contemplated acquisitions. We
purchased three businesses in 2005, six businesses in 2006 and two businesses
in
2007. We also formed a jointly owned limited liability company with another
company in Michigan in 2007. (Please read “— Liquidity and Capital Resources —
Acquisitions” for further information regarding our recent 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.
Divestitures
In
the
fourth quarter of 2007, we began to implement our strategy of exiting markets
that do not meet our performance and return criteria nor fit our long-term
strategic objectives. We sold our Knoxville, Tennessee and Wyoming, Delaware
operations in November of 2007 for $16.5 million, plus certain adjustments
to
working capital. Also in the fourth quarter, we made a decision to sell our
Memphis, Tennessee operations. We subsequently completed the sale of our
Memphis, Tennessee operations for $7.2 million plus the payment for certain
inventory-on-hand at closing in February of 2008 (See Notes 3 and 19 to our
consolidated financial statements included in this report). Each of these
operations have been aggregated and presented in our accompanying Consolidated
Financial Statements as “discontinued operations”.
Risks
and Uncertainties
Numerous
factors could affect our future operating results, including the factors
discussed under the heading “Risk Factors” in Item 1A of this report and the
following factors.
Internal
Computer Network and Applications. We
rely
on our network infrastructure, enterprise applications and internal technology
systems for our operational, support and sales activities. The hardware and
software systems related to such activities are subject to damage from
earthquakes, floods, fires, power loss, telecommunication failures and other
similar events. They are also subject to computer viruses, physical or
electronic vandalism or other similar disruptions that could cause system
interruptions, delays and loss of critical data and could prevent us from
fulfilling our customers’ orders. We have developed disaster recovery plans and
backup systems to reduce the potentially adverse effects of such events. Any
event that causes failures or interruption in our hardware or software systems
could result in disruption in our business operations, loss of revenues or
damage to our reputation.
During
the second half of 2007, we began a process to select a new enterprise resource
planning solution to provide for enhanced control, business efficiency and
effectiveness, more timely and consistent reporting of both operational and
financial data, and provide a platform to more adequately support our long-term
growth plans. In the fourth quarter, a plan of implementation was approved
which
anticipates a phased implementation across our regions during the course of
2008
and into early 2009.
Accounting
Rules and Regulations. We
prepare our consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America (“GAAP”). A change
in these policies can have a significant effect on our reported results and
may
even retroactively affect previously reported transactions. Our accounting
policies that recently have been or may be affected by changes in the accounting
rules are as follows:
|
• |
accounting
for income taxes; and
|
|
• |
accounting
for business combinations and related goodwill.
|
In
July
2007, the Financial Accounting Standards Board issued FIN 48, “Accounting for
Uncertainty in Income Taxes,” which was effective for us as of the interim
reporting period beginning January 1, 2007. Under FIN 48, the impact of an
uncertain income tax position on the income tax provision must be recognized
at
the largest amount that is more likely than not to be sustained upon audit
by
the relevant taxing authority. An uncertain income tax position will not be
recognized if it has less than a 50% likelihood of being sustained. See Note
1
to our Consolidated Financial Statements included in this report.
Tax
Liabilities.
We are
subject to federal, state and local income taxes, applicable to corporations
generally, as well as nonincome-based taxes. Significant judgment is required
in
determining our provision for income taxes and other tax liabilities. In the
ordinary course of business, we make calculations in which the ultimate tax
determination is uncertain. We are also from time to time under audit by state
and local tax authorities. Although we can provide no assurance that the final
determination of our tax liabilities will not differ from what our historical
income tax provisions and accruals reflect, we believe our tax estimates are
reasonable.
Critical
Accounting Policies and Estimates
Preparation
of our financial statements requires us to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses.
Note
1 to our Consolidated Financial Statements included in this report describes
the
significant accounting policies we use in preparing those statements. We believe
the most complex and sensitive judgments, because of their significance to
our
financial statements, result primarily from the need to make estimates about
the
effects of matters that are inherently uncertain. The most significant areas
involving our management’s judgments and estimates are described below. Actual
results in these areas could differ from our estimates.
Allowance
for Doubtful Accounts
We
extend
credit to customers and other parties in the normal course of business. We
regularly review outstanding receivables and provide for estimated losses on
accounts receivable we believe we may not collect in full. A provision for
bad
debt expense recorded to selling, general and administrative expenses increases
the allowance, and accounts receivable that we write off our books decrease
the
allowance. We determine the amount of bad debt expense we record each period
and
assess the resulting adequacy of the allowance at the end of each period by
using a combination of our historical loss experience, customer-by-customer
analyses of our accounts receivable balances each period and subjective
assessments of our bad debt exposure. Our allowance for doubtful accounts was
$3.1 million as of December 31, 2007 and $2.6 million as of December 31,
2006.
Goodwill
We
record
as goodwill the amount by which the total purchase price we pay for our
acquisitions exceeds our estimated fair value of the net assets we acquire.
We
test our recorded goodwill annually for impairment and charge income with any
impairment we recognize, but we do not otherwise amortize that goodwill. Because
our business is cyclical in nature, goodwill could be significantly impaired
depending upon when the test for impairment is performed in the business cycle.
The impairment test we use consists of comparing our estimates of the current
fair values of our reporting units with their carrying amounts. We use a variety
of valuation approaches, primarily the discounted future cash flow approach,
to
arrive at these estimates. These approaches entail making numerous assumptions
respecting future circumstances, such as general or local industry or market
conditions, and, therefore, are uncertain. We did not record a goodwill
impairment in 2005. In 2006, we recorded a $38.8 million goodwill impairment
associated with our Michigan operations. In 2007, we recorded goodwill
impairments of $81.9 million relating to our Michigan and South Central regions
and our northern California precast business. We can provide no assurance that
future goodwill impairments will not occur. Our goodwill balance was $185.0
million as of December 31, 2007 and $251.5 million at December 31, 2006. See
Note 2 to our Consolidated Financial Statements included in this report for
additional information about our goodwill.
Insurance
Programs
We
maintain third-party insurance coverage in amounts and against the risks we
believe are reasonable. We share the risk of loss with our insurance
underwriters by maintaining high deductibles subject to aggregate annual loss
limitations. For 2007, 2006, and 2005, we believe our workers’ compensation,
automobile and general liability per occurrence retentions were consistent
with
industry practices, although there are variations among our business units.
We
fund these deductibles and record an expense for losses we expect under the
programs. We determine the expected losses using a combination of our historical
loss experience and subjective assessments of our future loss exposure. The
estimated losses are subject to uncertainty from various sources, including
changes in claims reporting and settlement patterns, judicial decisions, new
legislation and economic conditions. Although we believe the estimated losses
are reasonable, significant differences related to the items we have noted
above
could materially affect our insurance obligations and future expense. The amount
accrued for self-insurance claims was $12.3 million as of December 31, 2007
(compared to $11.1 million as of December 31, 2006), which is currently
classified in accrued liabilities.
Income
Taxes
We
use
the liability method of accounting for income taxes. Under this method, we
record deferred income taxes based on temporary differences between the
financial reporting and tax bases of assets and liabilities and use enacted
tax
rates and laws that we expect will be in effect when we recover those assets
or
settle those liabilities, as the case may be, to measure those taxes. We believe
our earnings during the periods when the temporary differences become deductible
will be sufficient to realize the related future income tax benefits. In cases
where the expiration date of tax carryforwards or the projected operating
results indicate that realization is not likely, we would provide for a
valuation allowance.
We
have
deferred tax assets, resulting from deductible temporary differences that may
reduce taxable income in future periods. A valuation allowance is required
when it is more likely than not that all or a portion of a deferred tax asset
will not be realized. In assessing the need for a valuation allowance, we
estimate future taxable income, considering the feasibility of ongoing
tax-planning strategies and the realizability of tax loss carryforwards.
Valuation allowances related to deferred tax assets can be impacted by changes
in tax laws, changes in statutory tax rates and future taxable income levels.
If
we were to determine that we would not be able to realize all or a portion
of
our deferred tax assets in the future, we would reduce such amounts through
a
charge to income in the period in which that determination is made. Conversely,
if we were to determine that we would be able to realize our deferred tax assets
in the future in excess of the net carrying amounts, we would decrease the
recorded valuation allowance through an increase to income in the period in
which that determination is made. Subsequently recognized tax benefits
associated with valuation allowances, recorded in connection with a business
combination, will be recorded as an adjustment to goodwill. We recorded no
valuation allowance at December 31, 2007 or December 31, 2006.
In
the
ordinary course of business there is inherent uncertainty in quantifying our
income tax positions. We assess our income tax positions and record tax benefits
for all years subject to examination based upon management’s evaluation of the
facts, circumstances and information available at the reporting date. For those
tax positions where it is more likely than not that a tax benefit will be
sustained, we have recorded the highest amount of tax benefit with a greater
than 50% likelihood of being realized upon ultimate settlement with a taxing
authority that has full knowledge of all relevant information. For those income
tax positions where it is not more likely than not that a tax benefit will
be
sustained, no tax benefit has been recognized in the financial statements.
See
Notes 1 and 11 to the Consolidated Financial Statements for further
discussion.
Inventory
Obsolescence
We
provide reserves for estimated obsolescence or unmarketable inventory equal
to
the difference between the cost of inventory and the estimated net realizable
values using assumptions about future demand for those products and market
conditions. If actual market conditions are less favorable than those projected
by management, additional inventory reserves may be required.
Properties,
Plant and Equipment, Net
We
state
our properties, 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. In addition, we use estimates of salvage values for
certain plant and equipment to reduce the cost which is subject to
depreciation.
We
evaluate the recoverability of our properties, plant and equipment when changes
in circumstances indicate that the carrying amount of the asset may not be
recoverable in accordance with SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets.” We compare the carrying values of long-lived
assets to our projection of future undiscounted cash flows attributable to
those
assets. If the carrying value of a long-lived asset exceeds the future
undiscounted cash flows we project to be derived from that asset, we record
an
impairment loss equal to the excess of the carrying value over the fair value.
Actual useful lives and future cash flows could be different from those we
estimate. These differences could have a material effect on our future operating
results.
Other
We
record
accruals for legal and other contingencies when estimated future expenditures
associated with those contingencies become probable and the amounts can be
reasonably estimated. However, new information may become available, or
circumstances (such as applicable laws and regulations) may change, thereby
resulting in an increase or decrease in the amount required to be accrued for
such matters (and, therefore, a decrease or increase in reported net income
in
the period of such change).
Recent
Accounting Pronouncements
For
a
discussion of recently adopted accounting standards, see Note 1 to our
Consolidated Financial Statements included in this report.
Results
of Operations
The
following table sets forth selected historical statement of operations
information and that information as a percentage of total sales for the years
indicated.
|
|
Year
Ended December 31
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
(amounts
in thousands, except selling prices)
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ready-mixed
concrete and concrete-related
products
|
|
$
|
745,384
|
|
|
92.7
|
|
$
|
655,724
|
|
|
90.0
|
|
$
|
455,808
|
|
|
86.7
|
|
Precast
concrete products
|
|
|
73,300
|
|
|
9.1
|
|
|
80,915
|
|
|
11.1
|
|
|
71,900
|
|
|
13.7
|
|
Inter-segment
sales
|
|
|
(14,881
|
)
|
|
(1.8
|
)
|
|
(8,129
|
)
|
|
(1.1
|
)
|
|
(2,071
|
)
|
|
(0.4
|
)
|
Total
sales
|
|
$
|
803,803
|
|
|
100
|
%
|
$
|
728,510
|
|
|
100
|
%
|
$
|
525,637
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold before depreciation, depletion
and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ready-mixed
concrete and
concrete-related
Products
|
|
$
|
608,043
|
|
|
75.6
|
|
$
|
534,571
|
|
|
73.4
|
|
$
|
372,603
|
|
|
70.9
|
|
Precast
concrete products
|
|
|
55,589
|
|
|
6.9
|
|
|
59,589
|
|
|
8.2
|
|
|
51,766
|
|
|
9.8
|
|
Goodwill
and other asset impairments
|
|
|
82,242
|
|
|
10.2
|
|
|
38,948
|
|
|
5.3
|
|
|
—
|
|
|
—
|
|
Selling,
general and administrative expenses
|
|
|
69,669
|
|
|
8.7
|
|
|
61,397
|
|
|
8.4
|
|
|
49,960
|
|
|
9.5
|
|
Depreciation,
depletion and amortization
|
|
|
28,882
|
|
|
3.6
|
|
|
20,141
|
|
|
2.8
|
|
|
12,102
|
|
|
2.3
|
|
Income
(loss) from operations
|
|
|
(40,622
|
)
|
|
(5.1
|
)
|
|
13,864
|
|
|
1.9
|
|
|
39,206
|
|
|
7.5
|
|
Interest
income
|
|
|
114
|
|
|
—
|
|
|
1,601
|
|
|
0.2
|
|
|
853
|
|
|
0.2
|
|
Interest
expense
|
|
|
28,092
|
|
|
3.5
|
|
|
23,189
|
|
|
3.2
|
|
|
18,172
|
|
|
3.5
|
|
Other
income, net
|
|
|
3,587
|
|
|
0.4
|
|
|
1,769
|
|
|
0.2
|
|
|
1,930
|
|
|
0.4
|
|
Minority
interest in consolidated subsidiary
|
|
|
(1,301
|
)
|
|
(0.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Income
(loss) from continuing operations
before income tax provision
|
|
|
(63,712
|
)
|
|
(7.9
|
)
|
|
(5,955
|
)
|
|
(0.8
|
)
|
|
23,817
|
|
|
4.5
|
|
Income
tax provision
|
|
|
48
|
|
|
0.0
|
|
|
1,348
|
|
|
0.2
|
|
|
9,386
|
|
|
1.8
|
|
Income
(loss) from continuing operations
|
|
|
(63,760
|
)
|
|
(7.9
|
)
|
|
(7,303
|
)
|
|
(1.0
|
)
|
|
14,431
|
|
|
2.7
|
|
Loss
from discontinued operations, net of tax
|
|
|
(5,241
|
)
|
|
(0.7
|
)
|
|
(787
|
)
|
|
(0.1
|
)
|
|
(1,819
|
)
|
|
(0.3
|
)
|
Net
income (loss)
|
|
$
|
(69,001
|
)
|
|
(8.6
|
)%
|
$
|
(8,090
|
)
|
|
(1.1
|
)%
|
$
|
12,612
|
|
|
2.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ready-mixed
Concrete Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
selling price per cubic yard
|
|
$
|
91.70
|
|
|
|
|
$
|
88.23
|
|
|
|
|
$
|
86.44
|
|
|
|
|
Sales
volume in cubic yards
|
|
|
7,176
|
|
|
|
|
|
6,679
|
|
|
|
|
|
4,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Precast
Concrete Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
selling price per cubic yard of concrete used in
production
|
|
$
|
605.8
|
|
|
|
|
$
|
594.9
|
|
|
|
|
$
|
594.2
|
|
|
|
|
Ready-mixed
concrete used in production in cubic yards
|
|
|
121
|
|
|
|
|
|
136
|
|
|
|
|
|
121
|
|
|
|
|
Year
Ended December 31, 2007 Compared to Year Ended December 31,
2006
Sales.
Ready-mixed
concrete and concrete-related products. Sales
of
ready-mixed concrete and concrete-related products increased $89.7
million,
or
13.7%, from $655.7 million in 2006 to $745.4 million in 2007. Our ready-mixed
sales volume for 2007 was approximately 7.2 million cubic yards, up 7.4% from
the 6.7 million cubic yards of concrete we sold in 2006. Excluding the volumes
associated with acquired operations, on a same-plant-sales basis our 2007
ready-mixed volumes were down approximately 14.9% from 2006. The decline
reflects the continuing downturn in residential home construction activity
that
began in the second half of 2006 in all of our markets and the impact of adverse
weather conditions during the spring and summer seasons, especially in our
north
and west Texas markets. Offsetting the effects of lower sales volumes was the
approximate 3.9% rise in the average sales price per cubic yard of ready-mixed
concrete during 2007, as compared to 2006, and increased sales of aggregates
(including those from the aggregate operations we acquired in the fourth quarter
of 2006).
Precast
concrete products. Sales
in
our precast concrete products segment were down $7.6 million, or 9.4%, from
$80.9 million in 2006 to $73.3 million in 2007. This decrease reflects an $11.6
million, or 14.4%, drop in revenue resulting from the downturn in residential
construction in our California and Phoenix, Arizona markets. The overall lower
performance of our precast segment was tempered by sales of $4.0 million
generated by the acquisition made in October 2007 in our Atlantic
region.
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 increased $73.4 million, or
13.7%, from $534.6 million in 2006 to $608.0 million in 2007.
The
increase was primarily associated with higher sales volume, higher delivery
costs and moderately higher raw materials costs in 2007. Cost of goods sold
before depreciation, depletion and amortization, as a percentage of ready-mixed
concrete and concrete-related product sales of 81.6% for 2007 was flat as
compared to the 2006 periods, reflecting
our ability in 2007 to maintain our margins in a period of rising raw materials,
labor and fuel costs.
Precast
concrete products. The
reduction in cost of goods sold before depreciation, depletion and amortization
for our precast concrete products segment of $4.0 million, or 6.7%, from
$59.6 million in 2006 to $55.6 million in 2007,
was
primarily related to the 12.0% reduction in the volume of ready-mixed concrete
used in production, which is reflective of the declining residential
construction market that has been impacting our California and Phoenix, Arizona
precast markets since the second half of 2006. As a percentage of precast
concrete sales, cost of goods sold before depreciation, depletion and
amortization for precast concrete products rose from 73.6% in 2006 to 75.8%
in
2007 reflecting decreased efficiency in our plant operations in California
and
Phoenix, Arizona, resulting from lower demand for our primarily residential
product offerings in these markets.
Goodwill
and other asset impairments. In
the
fourth quarter of each year, we test our recorded goodwill for impairment and
charge expense with any impairment we recognize. During the fourth quarter
of
2007, we performed our annual test, which resulted in an impairment of $81.9
million primarily triggered by the downturn in most of our markets in 2007
brought about by the deterioration in the residential housing sector and the
resultant impact that had on the market value of certain of our businesses.
Our
2007 goodwill impairment related to our Michigan and South Central regions
and
our northern California precast business. During the fourth quarter of 2006,
we
performed our annual test, which resulted in an impairment of $38.8 million
associated with our Michigan operations.
Selling,
general and administrative expenses.
Selling,
general and administrative expenses increased $8.3 million, or 13.5%, from
$61.4
million in 2006 to $69.7 million in 2007. As a percentage of sales, selling,
general and administrative expenses increased from 8.4% in 2006 to 8.7% in
2007.
Selling, general and administrative expenses were higher in 2007, as compared
to
2006, primarily due to higher compensation costs, including personnel costs
and
other administrative expenses from acquired businesses, professional fees and
the effect of an initiative in the fourth quarter to implement an enterprise
resource planning system.
Depreciation,
depletion and amortization.
Depreciation, depletion and amortization expense increased $8.8 million, or
43.4%, from $20.1 million in 2006 to $28.9 million in 2007. The increase was
attributable primarily to the two acquisitions, and the formation of our
60%-owned Michigan subsidiary completed in 2007 and higher capital expenditures
in 2006. Also contributing to this increase has been the decision we made in
late 2005 to discontinue our practice of leasing a portion of our annual rolling
stock requirements. See “- Liquidity and Capital Resources - Future Capital
Requirements” for additional discussion of this leasing activity.
Interest
income.
Interest
income decreased $1.5 million from $1.6 million in 2006 to $0.1 million in
2007,
due to a higher average cash balances in 2006 as compared to 2007, primarily
in
the first half of the year, resulting from our common stock issuance in February
2006.
Interest
expense.
Interest
expense increased $4.9 million, or 21.1%, from $23.2 million in 2006 to $28.1
million in 2007. The increase in interest expense in 2007, as compared to 2006,
was attributable primarily to our additional senior subordinated notes offering
in July 2006, and additional borrowings during 2007 under our senior secured
credit facility to fund our acquisition program.
Income
tax provision.
We
recorded a provision for income taxes of less than $0.1 million in 2007 and
a
provision for income taxes of $1.3 million in 2006. Our estimated annualized
effective tax rate was nil for the full year ended December 31, 2007 and a
negative rate of 22.6% for the full year ended December 31, 2006. The
effective income tax rate for 2007 was lower than the federal statutory rate
primarily due to nondeductible goodwill associated with our goodwill impairment
in the fourth quarter of 2007, state income taxes and settlement of certain
tax
contingencies.
In
the
fourth quarter of 2007, we decided to dispose of three operations. We sold
two
of these operations prior to December 31, 2007. The results of operations,
gain/loss on disposal and impairment of fair value of the remaining unit, along
with the two operations which were sold prior to year-end have been reflected
as
discontinued operations in accordance with SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets”. The discontinued operations
generated a pretax loss of approximately $9.1 million and a corresponding tax
benefit of $3.9 million in the fourth quarter of 2007.
Year
Ended December 31, 2006 Compared to Year Ended December 31,
2005
Sales.
Ready-mixed
concrete and concrete-related products. Sales
of
ready-mixed concrete and concrete-related products increased $199.9 million,
or
43.9%, from $455.8 million in 2005 to $655.7 million in 2006. This increase
was
primarily attributable to a 43.9% increase in ready-mixed concrete sales volumes
and a 2.0% increase in the average sales price of ready-mixed concrete. The
increase in ready-mixed concrete sales volumes in 2006 was largely associated
with the acquisitions made during 2006 and at the end of 2005. During 2006,
the
increase in ready-mixed concrete volumes associated with acquisitions was
partially offset by the slowdown in residential construction, primarily of
single-family homes in the majority of our markets. We realized price
improvements in all of our markets during the year, primarily tracking increases
in our raw materials costs. Our overall average ready-mixed concrete price
improvement in 2006, as compared to 2005, was tempered by the acquisition we
made in July 2006 in our Texas market, where prices are generally lower than
our
other markets.
Precast
concrete products. Sales
in
our precast concrete products segment were up $9.0 million, or 12.5%, from
$71.9
million in 2005 to $80.9 million in 2006. This increase reflected a 12.5%
increase in the volume of ready-mixed concrete used in production in 2006,
as
compared to 2005, which was mostly attributable to the two acquisitions made
in
our precast concrete products segment during 2006. Those acquisitions
significantly increased our production capacity and diversified our product
line. Our two acquisitions included product lines that had lower average selling
prices per cubic yard of concrete used in production than the historical product
mix of this segment, which resulted in the average selling price per cubic
yard
of concrete used in production in 2006 being only slightly higher than in
2005.
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 increased $162.0 million, or
43.5%, from $372.6 million in 2005 to $534.6 million in 2006. Cost of goods
sold
before depreciation, depletion and amortization for this segment as a percentage
of sales decreased slightly from 81.7% in 2005 to 81.5% in 2006. The overall
increase in cost of goods sold before depreciation, depletion and amortization
was attributable primarily to the 41.1% increase in ready-mixed concrete sales
volumes in 2006, as compared to 2005, resulting from the acquisitions we made
in
this segment in the fourth quarter of 2005 and in 2006, along with raw materials
cost increases (primarily cement and aggregates). The decrease in cost of goods
sold before depreciation, depletion and amortization as a percentage of sales
in
this segment in 2006, as compared to 2005, reflects
operational cost efficiency maintained within our plants, while raw materials
costs (primarily cement and aggregates) increased substantially in
2006.
Precast
concrete products. Cost
of
goods sold before depreciation, depletion and amortization for our precast
concrete products segment increased $7.8 million, or 15.1%, from $51.8 million
in 2005 to $59.6 million in 2006. Cost of goods sold before depreciation,
depletion and amortization as a percentage of segment sales increased from
72.0%
in 2005 to 73.6% in 2006. The increase in cost of goods sold before
depreciation, depletion and amortization for the precast concrete products
segment is associated primarily with the 12.3% increase in the volume of
ready-mixed concrete used in production arising from the two acquisitions made
in this segment during 2006, along with higher raw materials costs (primarily
ready-mixed concrete). The increase in cost of goods sold as a percentage of
segment sales was largely attributable to an increase in sales of higher volume
and lower margin precast products, such as manholes and certain wall systems
sold in 2006, as compared to 2005, and production delays and a resulting
reduction in efficiency at our Pleasanton location as a result of the
consolidation of our Santa Rosa production capacity to Pleasanton in early
2006.
Price increases in 2005 generally tracked the increased cost of ready-mixed
concrete, steel and labor.
Goodwill
and other asset impairments. In
the
fourth quarter of each year, we test our recorded goodwill for impairment and
charge expense with any impairment we recognize. During the fourth quarter
of
2006, we performed our annual test, which resulted in an impairment of $38.8
million associated with our Michigan operations. No such impairments were
required in 2005.
Selling,
general and administrative expenses.
Selling,
general and administrative expenses increased $11.4 million, or 22.9%, from
$50.0 million in 2005 to $61.4 million in 2006. As a percentage of sales,
selling, general and administrative expenses decreased from 9.5% in 2005 to
8.4%
in 2006. Selling, general and administrative expenses were higher in 2006,
as
compared to 2005, primarily due to higher compensation costs, including
personnel costs and other administrative expenses from acquired businesses.
Depreciation,
depletion and amortization.
Depreciation, depletion and amortization expense increased $8.0 million, or
66.4%, from $12.1 million in 2005 to $20.1 million in 2006. The increase was
attributable primarily to the six acquisitions made during 2006, the two
acquisitions made in the fourth quarter of 2005, and higher capital expenditures
in 2006.
Interest
income.
Interest
income increased $0.7 million, from $0.9 million in 2005 to $1.6 million in
2006, primarily as a result of a higher average cash balance in 2006, as
compared to 2005, primarily in the first half of the year, resulting from our
common stock issuance in February 2006.
Interest
expense.
Interest
expense increased $5.0 million, or 27.6%, from $18.2 million in 2005 to $23.2
million in 2006. The increase in interest expense in 2006, as compared to 2005,
was attributable primarily to our additional senior subordinated debt offering
in July 2006, additional borrowings under our senior secured credit facility
and
the assumption of certain indebtedness in connection with our acquisition in
the
third quarter of 2006.
Income
tax provision. We
recorded a provision for income taxes of $1.3 million in 2006, compared to
a
provision for income taxes of $9.4 million in 2005. Our estimated annualized
effective tax rate was negative 22.6% for the full year ended December
31, 2006 and 39% for the full year ended December 31, 2005. The effective income
tax rate for 2006 was lower than the federal statutory rate, primarily due
to
nondeductible goodwill associated with our goodwill impairment in the fourth
quarter of 2006 and state income taxes.
Liquidity
and Capital Resources
Our
primary short-term liquidity needs consist of financing seasonal working capital
requirements, purchasing properties and equipment, acquiring new businesses
under our acquisition program and paying cash interest expense under our
8⅜%
senior
subordinated notes due in April 2014 and cash interest expense on borrowings
if
any under our senior secured revolving credit facility that is scheduled to
expire in March 2011. In addition to cash and cash equivalents of $14.9 million
at December 31, 2007 and cash from operations, our senior secured revolving
credit facility provides us with a significant source of liquidity. At December
31, 2007, we had $112.6 million of available credit, net of outstanding letters
of credit of $11.8 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
our senior subordinated 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.
The
principal factors that could adversely affect the amount of our internally
generated funds include:
|
§
|
any
deterioration of sales because of weakness in the markets in which
we
operate;
|
|
§
|
any
decline in gross margins due to shifts in our project
mix;
|
|
§
|
any
deterioration in our ability to collect our accounts receivable from
customers as a result of further weakening in residential and other
construction demand; and
|
|
§
|
the
extent to which we are unable to generate internal growth through
integration of additional businesses or capital expansions of our
existing
business.
|
The
principal factors that could adversely affect our ability to obtain cash from
external sources include:
|
§
|
covenants
contained in the Credit Agreement governing our senior revolving
credit
facility and the indenture governing our 8⅜% senior subordinated
notes;
|
|
§
|
volatility
in the markets for corporate debt and any additional market instability
which may result from the effect of subprime loan default rates;
and
|
|
§ |
fluctuations
in the market price of our common stock or 8⅜%
senior
subordinated notes.
|
The
following key financial measurements reflect our financial position and capital
resources as of December 31, 2007, 2006 and 2005 (dollars in
thousands):
|
|
2007
|
|
2006
|
|
2005
|
|
Cash
and cash equivalents
|
|
$
|
14,850
|
|
$
|
8,804
|
|
$
|
23,654
|
|
Working
capital
|
|
$
|
88,129
|
|
$
|
82,897
|
|
$
|
62,801
|
|
Total
debt
|
|
$
|
298,500
|
|
$
|
303,292
|
|
$
|
201,571
|
|
Available
credit 1
|
|
$
|
112,600
|
|
$
|
82,400
|
|
$
|
86,400
|
|
Debt
as a percent of capital employed
|
|
|
59.3
|
%
|
|
53.0
|
%
|
|
52.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
1)
Based on eligible borrowing base, net of outstanding letters of credit
and
borrowings outstanding under our
senior secured revolving credit
facility.
|
Our
cash
and cash equivalents consist of highly liquid investments in deposits and money
market funds we hold at major financial institutions.
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 us with 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 December 31, 2007, there
were
no borrowings under this facility and new borrowings under the facility would
have borne annual interest at the Eurodollar-based rate (“LIBOR”) plus 1.75% or
the domestic rate of 7.25% plus 0.25%. 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. At December 31, 2007, the
amount of the available credit was approximately $112.6 million, net of
outstanding letters of credit of approximately $11.8 million.
Our
subsidiaries, excluding our recently formed 60%-owned Michigan subsidiary and
minor subsidiaries without operations or material assets, have guaranteed the
repayment of all amounts owing under the Credit Agreement. In addition, we
collateralized the facility with the capital stock of our subsidiaries,
excluding our 60%-owned Michigan subsidiary and minor subsidiaries without
operations or material assets, and substantially all the assets of those
subsidiaries, excluding our 60%-owned Michigan subsidiary, most of the assets
of
the aggregates quarry in northern New Jersey and other real estate owned by
us
or our subsidiaries. The Credit Agreement contains covenants restricting, among
other things, prepayment or redemption of 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.
Senior
Subordinated Notes
On
March
31, 2004, we issued $200 million of 8⅜% senior subordinated notes due April 1,
2014. 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 the outstanding debt under our credit facility. In July 2006, we
issued $85 million of additional 8⅜% senior subordinated notes due April 1, 2014
to fund a portion of the purchase price for the acquisition of Alberta
Investments and Alliance Haulers.
All
of
our subsidiaries, excluding our
recently formed 60%-owned Michigan subsidiary and minor subsidiaries,
have jointly and severally and fully and unconditionally guaranteed the
repayment of the 8⅜%
senior
subordinated notes.
The
indenture governing the 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. After March 31, 2009, we may redeem all or a part of the
notes at a redemption price of 104.188% in 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 subordinated 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 notes following the occurrence of a
change of control. The Credit Agreement prohibits these repurchases.
As
a
result of restrictions contained in the indenture relating to the 8⅜% senior
subordinated notes, our ability to incur additional debt is primarily limited
to
the greater of (1) borrowings available under the Credit Agreement, plus the
greater of $15 million or 7.5% of our tangible assets, or (2) additional debt
if, after giving effect to the incurrence of such additional debt, our earnings
before interest, taxes, depreciation, amortization and certain noncash items
equal or exceed two times our total interest expense.
We
made
interest payments of approximately $26.7 million in 2007 and $19.6 million
in
2006, primarily associated with our senior subordinated notes.
Superior
Materials Holdings, LLC Credit Facility
Superior
Materials Holdings, LLC, our 60%-owned Michigan subsidiary, has a separate
credit agreement which provides for a revolving credit facility. The credit
agreement was amended on February 29, 2008 and allows for borrowings of up
to
$20 million. Borrowings under this credit facility are collateralized by
substantially all the assets of Superior Materials Holdings, LLC 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 and inventory and $5 million plus $1.5 million for the period
January 1 and ending May 31 of
each
year. The
credit agreement provides that the administrative agent may, on the bases
specified, reduce the amount of the available credit from time to time. As
of December 31, 2007, there were $7.8 million in outstanding borrowings under
the revolving credit facility, and the remaining amount of the available credit
was approximately $8.6 million.
Currently,
borrowings under the facility are subject to an interest pricing grid ranging
from LIBOR plus 125 basis points to LIBOR plus 250 basis points. The
interest rate margins vary inversely with a ratio of funded debt to
EBITDA. Commitment fees at an annual rate of 25 basis points are payable
on the unused portion of the facility.
The
credit agreement contains covenants restricting, among other things, Superior
Materials Holdings’ 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 Materials Holdings LLC’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 be at least $6.0 million
for the nine months ended December 31, 2007. Superior Materials Holdings,
LLC was not in compliance with the quarterly EBITDA financial covenant for
the
quarters ended September 30, 2007 and December 31, 2007. However, the
lender has waived its default rights under the credit facility with respect
to
this noncompliance and amended its financial covenants for 2008.
U.S.
Concrete and its 100%-owned subsidiaries are not obligors or guarantors pursuant
to the terms of Superior Materials Holdings LLC debt facility.
Fair
Value of Financial Instruments
The
carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities approximate fair value because of their
short-term maturity and variable rates of interest. The estimated aggregate
fair
value of our 8⅜% senior subordinated notes at year-end was approximately $248.8
million in 2007 and $278.6 million in 2006.
Debt
Ratings
Our
ability to obtain external financing and the related cost of borrowing is
affected by our debt ratings, which are periodically reviewed by the major
credit rating agencies. Debt ratings and outlooks as of March 3, 2008 were
as follows:
|
Rating
|
|
Outlook
|
Moody’s
|
|
|
|
Senior
subordinated notes
|
B2
|
|
|
LT
corporate family rating
|
B1
|
|
Rating
under review
|
|
|
|
|
Standard
& Poor’s
|
|
|
|
Senior
subordinated notes
|
B-
|
|
|
Corporate
credit
|
B+
|
|
Stable
|
These
debt ratings are not recommendations to buy, sell or hold our securities, and
they may be subject to revision or withdrawal at any time by the assigning
rating agency. Each rating should be evaluated independently of any other
rating. On March 3, 2008, Moody’s Investor Service placed our rating and outlook
under review for possible downgrade.
Future
Capital Requirements
For
2008,
our capital expenditures are expected to be in the range of $25 million to
$30
million, including maintenance capital, developmental capital, rolling stock
replacement, costs associated with our enterprise resource planning systems
implementation and certain plant relocation costs. In prior years, we leased
a
higher percentage of our mixer trucks and other rolling stock under operating
leases due to lower long-term interest rates and our inability to recover the
associated tax benefits in those years. In 2007, we purchased a greater
percentage of this equipment, primarily as a result of our ability to recover
the associated tax benefits, and expect to purchase versus lease equipment
in
2008.
Our
management believes, on the basis of current expectations, that our cash on
hand, internally generated cash flow and borrowings under our existing credit
facilities will be sufficient to provide the liquidity necessary to fund our
operations and meet our planned capital expenditure and debt-service
requirements for at least the next 12 months.
Cash
Flow
Our
consolidated cash flows for each of the past three years are presented below
(in
thousands):
|
|
Year
Ended December 31
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$
|
44,338
|
|
$
|
39,537
|
|
$
|
41,229
|
|
Investing
activities
|
|
|
(34,084
|
)
|
|
(230,679
|
)
|
|
(58,563
|
)
|
Financing
activities
|
|
|
(4,208
|
)
|
|
176,292
|
|
|
1,281
|
|
Net
cash provided by (used in) operating, investing and financing
activities
|
|
$
|
6,046
|
|
$
|
(14,850
|
)
|
$
|
(16,053
|
)
|
Our
net
cash provided by operating activities generally reflects the cash effects of
transactions and other events used in the determination of net income or loss.
Net cash provided by operating activities of $44.3 million in the year ended
December 31, 2007 increased $4.8 million from the net cash provided in the
year
ended December 31, 2006.
The
increase was principally due to higher receivable collections in 2007 and
certain liability payments associated with acquired businesses in 2006, which
did not occur in 2007. Net cash provided by operating
activities of $39.5 million in the year ended December 31, 2006 decreased $1.7
million from the net cash provided in the year ended December 31,
2005.
This
decrease was principally a result of higher use of working capital and an
increase in cash income taxes, partially offset by higher operating income
before noncash impairments of goodwill and other assets.
Our
net
cash used in investing activities of $34.1 million in the year ended December
31, 2007 decreased $196.6 million from the net cash used in investing activities
in the year ended December 31, 2006, primarily due to fewer acquisitions
and $11.2 million lower capital expenditures, net of proceeds, in
2007, offset slightly by the proceeds we received from our disposition of two
business units near the end of 2007. Net cash used in investing activities
of
$230.7 million in the year ended December 31, 2006 increased $172.1 million
from
the net cash used in the year ended December 31, 2005, primarily because of
acquisitions we made in 2006. Capital expenditures increased by $24.0 million
during the year ended December 31, 2006, primarily as a result of our decision
to buy rather than lease the mixer trucks and other rolling stock included
in
our capital plan for 2006.
Our
net
cash used in financing activities of $4.2 million decreased $180.5 million
from
the net cash provided by financing activities of $176.3 million in 2006. The
change was primarily attributable to our 2006 issuances of common stock and
senior subordinated notes. Our cash and cash equivalents, which totaled $8.8
million at December 31, 2006, increased to $14.9 million at December 31, 2007.
Our
net
cash provided by financing activities of $176.3 million in the year ended
December 31, 2006 increased $175.0 million from the net cash provided in the
year ended December 31, 2005. This increase was primarily attributable to our
February 2006 common stock issuance, our July 2006 senior subordinated notes
issuance and proceeds from the issuance of common stock under our incentive
compensation plans. Our cash and cash equivalents, which totaled $8.8 million
at
December 31, 2006, decreased $14.9 million from December 31, 2005.
We
define
free cash flow as net cash provided by operating activities less purchases
of
properties, plant and equipment (net of disposals). Free cash flow is a
liquidity measure not prepared in accordance with GAAP. Our management uses
free
cash flow in managing our business because we consider it to be an important
indicator of our ability to service our debt and generate cash for acquisitions
and other strategic investments. We believe free cash flow may provide users
of
our financial information additional meaningful comparisons between current
results and results in prior operating periods. As a non-GAAP financial measure,
free cash flow should be viewed in addition to, and not as an alternative for,
our reported operating results or cash flow from operations or any other measure
of performance prepared in accordance with GAAP.
Our
historical net cash provided by operating activities and free cash flow is
as
follows (in thousands):
|
|
Year
Ended December 31
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Net
cash provided by operating activities
|
|
$
|
44,338
|
|
$
|
39,537
|
|
$
|
41,229
|
|
Less:
Purchases of properties and equipment, net of disposals
of $2,574, $3,699 and $713
|
|
|
(27,145
|
)
|
|
(38,232
|
)
|
|
(17,253
|
)
|
Free
cash flow
|
|
$
|
17,193
|
|
$
|
1,305
|
|
$
|
23,976
|
|
Acquisitions
In
October 2007, we acquired the operating assets, including working capital and
real property, of Architectural Precast, LLC (“API”), a leading designer and
manufacturer of premium quality architectural and structural precast concrete
products serving the Atlantic region, for $14.5 million plus a $1.5 million
contingency based on the future earnings of API.
In
June
2007, we acquired two ready-mix concrete plants, including real property and
certain raw material inventories, in our west Texas market for approximately
$3.6 million.
In
April
2007, we formed a joint venture (Superior Materials Holdings, LLC), with the
Edw. C. Levy Co., which operates in Michigan. Under the contribution agreement,
we contributed substantially all of our ready-mixed concrete and
concrete-related products assets, except our quarry assets and working capital,
in Michigan in exchange for a 60% ownership interest, while the Edw. C. Levy
Co.
contributed all of its Michigan ready-mixed concrete and related concrete
products assets, its 24,000 ton cement terminal and $1.0 million for a 40%
ownership interest. The 60%-owned Michigan subsidiary currently owns and
operates 26 ready-mixed concrete plants, one portable plant, one concrete block
plant, a 24,000-ton cement terminal and approximately 303 ready-mixed concrete
trucks.
In
November 2006, we acquired a small ready-mixed concrete operation and sand
and
gravel quarry in Breckenridge, Texas. We paid $3.0 million in cash and
effectively assumed approximately $0.4 million in interest-bearing
debt.
In
October 2006, we acquired certain aggregates assets located in New Jersey from
Pinnacle Materials, Inc. for $12.5 million in cash. The assets consist of a
granite quarry with approximately 15.6 million tons of reserves and an estimated
useful life of 20 years, and a natural sand pit with approximately 9.1 million
tons of reserves and an estimated 10-year life.
In
July
2006, we acquired all of the outstanding equity interests in Alberta
Investments, Inc. and Alliance Haulers, Inc. for $165.0 million, subject to
specified adjustments. At the time of the acquisition, Alberta Investments
conducted the substantial majority of its business through two subsidiaries:
Redi-Mix, L.P. and Ingram Enterprises, L.P. Redi-Mix operated 13 ready-mixed
concrete plants in the Dallas/Fort Worth Metroplex and in areas north of the
Metroplex. Ingram Enterprises operated 17 ready-mixed concrete plants and three
sand and gravel plants in west Texas. Alliance Haulers provided cement and
aggregates hauling services with a fleet of approximately 260 hauling trucks
owned by Redi-Mix and third-party haulers in the markets covered by Redi-Mix
and
Ingram.
In
June
2006, we acquired the operating assets, including real property, of Olson
Precast Company used in the production of precast concrete products in northern
California for approximately $4.8 million in cash.
In
April
2006, we acquired the operating assets of Pre-Cast Mfg., Inc. in our existing
Phoenix market area for approximately $5.0 million in cash.
In
April
2006, we acquired Kurtz Gravel Company, which produced ready-mixed concrete
from
six plants and mined aggregates from a quarry, all located in or near our
existing metropolitan Detroit market area, for approximately $13.0 million
in
cash. We also assumed certain capital lease liabilities with a net present
value
of $1.5 million.
In
December 2005, we acquired substantially all the operating assets of Go-Crete
and South Loop Development Corporation, which produced and delivered ready-mixed
concrete from six plants and mined sand and gravel from a quarry in the greater
Dallas/Fort Worth, Texas market. We purchased the assets for approximately
$27.5
million in cash and assumed certain capital lease liabilities with a net present
value of about $2.0 million.
In
November 2005, we acquired substantially all the operating assets, including
real property, of City Concrete Company, City Concrete Products, Inc. and City
Transports, Inc., which produced and delivered ready-mixed concrete from five
plants in the greater Memphis, Tennessee and northern Mississippi area, for
approximately $14.3 million in cash.
In
January 2005, we acquired a small ready-mixed concrete operation in Knoxville,
Tennessee. The purchase price was approximately $1.0 million in
cash.
Since
our
inception, cash has been the primary component in the consideration we have
paid
to acquire businesses. We expect that cash will be a significant, if not the
principal, element in acquisitions we might make in the foreseeable
future.
Off-Balance
Sheet Arrangements
We
do not
currently have any off-balance sheet arrangements that have or are reasonably
likely to have a material current or future effect on our financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures
or
capital resources. From time to time, we may enter into noncancelable operating
leases that would not be reflected on our balance sheet. For additional
discussion on our operating leases, see Note 14 to our Consolidated Financial
Statements in this report.
Commitments
The
following are our contractual commitments associated with our indebtedness
and
our lease obligations as of December 31, 2007 (in millions).
Contractual
obligations
|
|
Total
|
|
Less
Than
1
year
|
|
1-3
years
|
|
4-5
years
|
|
After
5
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
on debt
|
|
$
|
297.8
|
|
$
|
2.8
|
|
$
|
11.2
|
|
$
|
—
|
|
$
|
283.8
|
|
Interest
on debt (1)
|
|
|
155.1
|
|
|
23.9
|
|
|
47.7
|
|
|
47.7
|
|
|
35.8
|
|
Capital
leases
|
|
|
0.7
|
|
|
0.3
|
|
|
0.2
|
|
|
0.2
|
|
|
—
|
|
Operating
leases
|
|
|
41.9
|
|
|
14.1
|
|
|
16.4
|
|
|
5.7
|
|
|
5.7
|
|
Total
|
|
$
|
495.5
|
|
$
|
41.1
|
|
$
|
75.5
|
|
$
|
53.6
|
|
$
|
325.3
|
|
|
(1)
|
Interest
payments due under our 8⅜% senior subordinated
notes.
|
The
following are our commercial commitment expirations as of December 31, 2007
(in
millions):
Other
commercial commitments
|
|
Total
|
|
Less
Than
1
year
|
|
1-3
years
|
|
4-5
years
|
|
After
5
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby
letters of credit
|
|
$
|
11.8
|
|
$
|
6.1
|
|
$
|
5.7
|
|
$
|
—
|
|
$
|
—
|
|
Purchase
obligations
|
|
|
4.5
|
|
|
4.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Performance
bonds
|
|
|
26.7
|
|
|
25.0
|
|
|
1.7
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
43.0
|
|
$
|
35.6
|
|
$
|
7.4
|
|
$
|
—
|
|
$
|
—
|
|
The
following long-term liabilities included on the consolidated balance sheet
are
excluded from the table above: accrued employment costs, income tax
contingencies, minority interest, insurance accruals and other
accruals. Due to the nature of these accruals, the estimated timing of such
payments (or contributions in the case of certain accrued employment costs)
for
these items is not predictable. As
of
December 31, 2007, the total unrecognized tax benefit related to uncertain
tax
positions was $6.4 million. We estimate that none of this will be paid within
the next twelve months.
Share
Repurchase Plan
On
January 7, 2008 our Board of Directors approved a plan to repurchase an
aggregate three million shares of our own common stock. Based on the $2.87
closing market price at the time of the announcement, this represents the use
of
approximately $9.0 million of available cash on hand as of December 31, 2007.
The plan permits the stock repurchases to be made on the open market or in
privately negotiated transactions in compliance with securities and other
applicable laws, subject to market and business conditions, levels of cash
generated from operations, and other relevant factors. We intend to retire
the
shares as soon as practicable following repurchase. Our stock repurchase plan
does not obligate us to purchase any particular number of shares and we may
suspend or discontinue the program at any time. As of March 3, 2008, we had
not
begun to repurchase shares of our own stock under this plan.
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 joint venture 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. See Note 9 to our
Consolidated Financial Statements included in Item 8 of this
report.
Inflation
Inflation
did not significantly affect our results of operations in any of the past three
years. However, cement prices and certain other raw material prices, including
aggregates and diesel fuel prices have generally risen faster than regional
inflationary rates. The impact of these price increases was partially mitigated
by price increases we have obtained for our products in 2006 and 2005. In 2007,
prices for our products increased at a rate similar to, or greater than, the
rate of increase in our raw materials costs and fuel.
Item
7A. Quantitative
and Qualitative Disclosures About Market Risk
We
do not
enter into derivatives or other financial instruments for trading or speculative
purposes, but we may utilize them to manage our fixed-to-variable-rate debt
ratio. All derivatives, whether designated as hedging relationships or not,
are
required to be recorded on the balance sheet at fair value. Because of the
short
duration of our investments, changes in market interest rates would not have
a
significant impact on their fair values. At December 31, 2007 and 2006, we
were
not a party to any derivative financial instruments.
The
indebtedness evidenced by our 8⅜% senior subordinated 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 $7.8 million outstanding
under these facilities as of December 31, 2007, a one percent change in the
applicable rate would not materially change the amount of interest expense
for
2007.
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 level of general construction
activity, including the level of interest rates and availability of funds for
construction. A significant decrease in the level of general construction
activity in any of our market areas may have a material adverse effect on our
sales and earnings.
Item
8. Financial
Statements and Supplementary Data
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
43
|
|
|
Consolidated
Balance Sheets at December 31, 2007 and 2006
|
44
|
|
|
Consolidated
Statements of Operations for the Years Ended December 31, 2007, 2006
and
2005
|
45
|
|
|
Consolidated
Statements of Changes in Stockholders’ Equity for the Years Ended December
31, 2007, 2006
and 2005
|
46
|
|
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2007, 2006
and
2005
|
47
|
|
|
Notes
to Consolidated Financial Statements
|
48
|
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors and Stockholders of U.S. Concrete, Inc.:
In
our
opinion, the accompanying financial
statements listed in the accompanying index
present
fairly, in all material respects, the financial position of U.S. Concrete,
Inc.
and
its
subsidiaries at
December 31, 2007 and 2006, and the results of their operations and their cash
flows for each of the three years in the period ended December 31,
2007 in
conformity with accounting principles generally accepted in the United States
of
America. Also
in
our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2007, based on
criteria established in Internal
Control - Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The
Company's management is responsible for these financial statements, for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial
reporting,
included in "Management's Report on Internal Control Over Financial Reporting"
appearing under Item 9A of this Form 10-K.
Our
responsibility is to express opinions on these financial statements and on
the
Company's internal control over
financial reporting based on our integrated audits (which were integrated audits
in 2007 and 2006). We
conducted our
audits
in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits
to
obtain reasonable assurance about whether the financial statements are free
of
material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing
and
evaluating the design and operating effectiveness of internal control based
on
the assessed risk. Our audits also included performing such other procedures
as
we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
As
discussed in Note 1 to the consolidated financial statements, the Company
changed the manner in which it accounts for uncertainty in income taxes in
2007
and stripping costs and share-based compensation in 2006.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures
of
the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use,
or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
As
described in "Management's Report on Internal Control over Financial Reporting,"
management has excluded Architectural Precast, L.L.C. from its assessment of
internal control over financial reporting as of December 31, 2007 because it
was
acquired by the Company in a purchase business combination during 2007. We
have
also excluded Architectural Precast, L.L.C. from our audit of internal control
over financial reporting. Architectural Precast, L.L.C. is a wholly-owned
subsidiary whose total assets and total revenues represent approximately 2%
and
1%, respectively, of the related consolidated financial statement amounts as
of
and for the year ended December 31, 2007.
Pricewaterhouse
Coopers LLP
Houston,
Texas
March
13,
2008
U.S.
CONCRETE, INC. AND SUBSIDIARIES
(in
thousands, including share amounts)
|
|
December
31
|
|
|
|
2007
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
14,850
|
|
$
|
8,804
|
|
Trade
accounts receivable, net
|
|
|
102,612
|
|
|
104,988
|
|
Inventories
|
|
|
32,557
|
|
|
31,287
|
|
Deferred
income taxes
|
|
|
10,937
|
|
|
9,461
|
|
Prepaid
expenses
|
|
|
5,256
|
|
|
2,899
|
|
Other
current assets
|
|
|
11,387
|
|
|
6,919
|
|
Assets
held for sale
|
|
|
7,273
|
|
|
24,974
|
|
Total
current assets
|
|
|
184,872
|
|
|
189,332
|
|
Properties,
plant and equipment, net
|
|
|
267,010
|
|
|
262,811
|
|
Goodwill
|
|
|
184,999
|
|
|
251,499
|
|
Other
assets
|
|
|
10,375
|
|
|
13,004
|
|
Total
assets
|
|
$
|
647,256
|
|
$
|
716,646
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Current
maturities of long-term debt
|
|
$
|
3,172
|
|
$
|
3,764
|
|
Accounts
payable
|
|
|
48,160
|
|
|
46,885
|
|
Accrued
liabilities
|
|
|
45,411
|
|
|
52,886
|
|
Liabilities
held for sale
|
|
|
—
|
|
|
2,900
|
|
Total
current liabilities
|
|
|
96,743
|
|
|
106,435
|
|
Long-term
debt, net of current maturities
|
|
|
295,328
|
|
|
299,528
|
|
Other
long-term obligations and deferred credits
|
|
|
9,125
|
|
|
7,594
|
|
Deferred
income taxes
|
|
|
26,763
|
|
|
33,512
|
|
Total
liabilities
|
|
|
427,959
|
|
|
447,069
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest in consolidated subsidiary (Note 4)
|
|
|
14,192
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value per share (10,000 shares authorized; none
issued)
|
|
|
—
|
|
|
—
|
|
Common
stock, $0.001 par value per share (60,000 shares authorized; 39,361
and 38,795
shares issued
and outstanding as of December 31, 2007 and 2006)
|
|
|
39
|
|
|
39
|
|
Additional
paid-in capital
|
|
|
267,817
|
|
|
262,856
|
|
Retained
earnings (deficit)
|
|
|
(60,118
|
)
|
|
8,541
|
|
Cost
of treasury stock, 315 common shares as of December 31, 2007 and
231
common shares as
of December 31, 2006
|
|
|
(2,633
|
)
|
|
(1,859
|
)
|
Total
stockholders’ equity
|
|
|
205,105
|
|
|
269,577
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
647,256
|
|
$
|
716,646
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
U.S.
CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands, except per share amounts)
|
|
Year
Ended December 31
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
803,803
|
|
$
|
728,510
|
|
$
|
525,637
|
|
Cost
of goods sold before depreciation, depletion and
amortization
|
|
|
663,632
|
|
|
594,160
|
|
|
424,369
|
|
Goodwill
and other asset impairments
|
|
|
82,242
|
|
|
38,948
|
|
|
—
|
|
Selling,
general and administrative expenses
|
|
|
69,669
|
|
|
61,397
|
|
|
49,960
|
|
Depreciation,
depletion and amortization
|
|
|
28,882
|
|
|
20,141
|
|
|
12,102
|
|
Income
(loss) from operations
|
|
|
(40,622
|
)
|
|
13,864
|
|
|
39,206
|
|
Interest
income
|
|
|
114
|
|
|
1,601
|
|
|
853
|
|
Interest
expense
|
|
|
28,092
|
|
|
23,189
|
|
|
18,172
|
|
Other
income, net
|
|
|
3,587
|
|
|
1,769
|
|
|
1,930
|
|
Minority
interest in consolidated subsidiary
|
|
|
(1,301
|
)
|
|
—
|
|
|
—
|
|
Income
(loss) before income tax provision
|
|
|
(63,712
|
)
|
|
(5,955
|
)
|
|
23,817
|
|
Income
tax provision
|
|
|
48
|
|
|
1,348
|
|
|
9,386
|
|
Income
(loss) from continuing operations
|
|
|
(63,760
|
)
|
|
(7,303
|
)
|
|
14,431
|
|
Loss
from discontinued operations (net of tax benefit of $3,911 in 2007,
$538
in 2006 and $1,265 in 2005)
|
|
|
(5,241
|
)
|
|
(787
|
)
|
|
(1,819
|
)
|
Net
income (loss)
|
|
$
|
(69,001
|
)
|
$
|
(8,090
|
)
|
$
|
12,612
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share - Basic
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
(1.67
|
)
|
$
|
(0.20
|
)
|
$
|
0.51
|
|
Loss
from discontinued operations, net of income tax benefit
|
|
|
(0.14
|
)
|
|
(0.02
|
)
|
|
(0.07
|
)
|
Net
income (loss)
|
|
$
|
(1.81
|
)
|
$
|
(0.22
|
)
|
$
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share - Diluted
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
(1.67
|
)
|
$
|
(0.20
|
)
|
$
|
0.50
|
|
Loss
from discontinued operations, net of income tax benefit
|
|
|
(0.14
|
)
|
|
(0.02
|
)
|
|
(0.07
|
)
|
Net
income (loss)
|
|
$
|
(1.81
|
)
|
$
|
(0.22
|
)
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares used in calculating earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
38,227
|
|
|
36,847
|
|
|
28,655
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
38,227
|
|
|
36,847
|
|
|
29,229
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
U.S.
CONCRETE, INC. AND SUBSIDIARIES
(in
thousands)
|
|
Common
Stock
|
|
Additional
|
|
|
|
Retained
|
|
|
|
Total
|
|
|
|
#
of Shares
|
|
Par
Value
|
|
Paid-In
Capital
|
|
Deferred
Compensation
|
|
Earnings
(Deficit)
|
|
Treasury
Stock
|
|
Stockholders’
Equity
|
|
BALANCE,
December 31, 2004
|
|
|
29,344
|
|
$
|
29
|
|
$
|
168,850
|
|
$
|
(3,936
|
)
|
$
|
4,306
|
|
$
|
(400
|
)
|
$
|
168,849
|
|
Employee
purchase of ESPP shares
|
|
|
154
|
|
|
—
|
|
|
837
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
837
|
|
Stock
options exercised
|
|
|
192
|
|
|
—
|
|
|
1,445
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,445
|
|
Stock-based
compensation
|
|
|
244
|
|
|
1
|
|
|
1,725
|
|
|
(1,641
|
)
|
|
—
|
|
|
—
|
|
|
85
|
|
Amortization
of deferred compensation
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,638
|
|
|
—
|
|
|
—
|
|
|
1,638
|
|
Cancellation
of shares
|
|
|
(45
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchase
of treasury shares
|
|
|
(80
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(545
|
)
|
|
(545
|
)
|
Net
income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,612
|
|
|
—
|
|
|
12,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
December 31, 2005
|
|
|
29,809
|
|
$
|
30
|
|
$
|
172,857
|
|
$
|
(3,939
|
)
|
$
|
16,918
|
|
$
|
(945
|
)
|
$
|
184,921
|
|
Change
in accounting principle for stripping costs, net of tax
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(287
|
)
|
|
—
|
|
|
(287
|
)
|
Change
in accounting principle for stock-based compensation
|
|
|
—
|
|
|
—
|
|
|
(3,939
|
)
|
|
3,939
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Employee
purchase of ESPP shares
|
|
|
135
|
|
|
—
|
|
|
995
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
995
|
|
Common
stock issuance
|
|
|
8,050
|
|
|
8
|
|
|
84,804
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
84,812
|
|
Stock
options exercised
|
|
|
607
|
|
|
1
|
|
|
5,327
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,328
|
|
Stock-based
compensation compensation
plan
|
|
|
340
|
|
|
—
|
|
|
2,812
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,812
|
|
Cancellation
of shares
|
|
|
(54
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchase
of treasury shares
|
|
|
(92
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(914
|
)
|
|
(914
|
)
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,090
|
)
|
|
—
|
|
|
(8,090
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
December 31, 2006
|
|
|
38,795
|
|
$
|
39
|
|
$
|
262,856
|
|
$
|
—
|
|
$
|
8,541
|
|
$
|
(1,859
|
)
|
$
|
269,577
|
|
Change
in accounting principle for FIN No. 48
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
342
|
|
|
—
|
|
|
342
|
|
Employee
purchase of ESPP shares
|
|
|
221
|
|
|
—
|
|
|
932
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
932
|
|
Stock
options exercised
|
|
|
153
|
|
|
—
|
|
|
1,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,000
|
|
Stock-based
compensation compensation
plan
|
|
|
311
|
|
|
—
|
|
|
3,029
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,029
|
|
Cancellation
of shares
|
|
|
(35
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchase
of treasury shares
|
|
|
(84
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(774
|
)
|
|
(774
|
)
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(69,001
|
)
|
|
—
|
|
|
(69,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
December 31, 2007
|
|
|
39,361
|
|
$
|
39
|
|
$
|
267,817
|
|
$
|
—
|
|
$
|
(60,118
|
)
|
$
|
(2,633
|
)
|
$
|
205,105
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
U.S.
CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
|
|
Year
Ended December 31
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(69,001
|
)
|
$
|
(8,090
|
)
|
$
|
12,612
|
|
Adjustments
to reconcile net income (loss) to net cash provided by
operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Goodwill
and other asset impairments
|
|
|
82,242
|
|
|
38,964
|
|
|
—
|
|
Deferred
gain on termination of interest rate swaps
|
|
|
—
|
|
|
—
|
|
|
2,024
|
|
Depreciation,
depletion and amortization
|
|
|
30,857
|
|
|
22,322
|
|
|
13,591
|
|
Debt
issuance cost amortization
|
|
|
1,545
|
|
|
1,492
|
|
|
1,302
|
|
Net
(gain) loss on sale of assets
|
|
|
6,392
|
|
|
(316
|
)
|
|
175
|
|
Deferred
income taxes
|
|
|
(6,636
|
)
|
|
(7,419
|
)
|
|
6,584
|
|
Provision
for doubtful accounts
|
|
|
2,253
|
|
|
1,721
|
|
|
1,689
|
|
Stock-based
compensation
|
|
|
3,029
|
|
|
2,812
|
|
|
1,722
|
|
Excess
tax benefits from stock-based compensation
|
|
|
(22
|
)
|
|
(1,205
|
)
|
|
—
|
|
Minority
interest in consolidated subsidiary
|
|
|
(1,301
|
)
|
|
—
|
|
|
—
|
|
Changes
in assets and liabilities, excluding effects of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
4,518
|
|
|
1,454
|
|
|
(14,733
|
)
|
Inventories
|
|
|
2,436
|
|
|
(3,334
|
)
|
|
(2,240
|
)
|
Prepaid
expenses and other current assets
|
|
|
(6,151
|
)
|
|
96
|
|
|
(1,847
|
)
|
Other
assets and liabilities, net
|
|
|
98
|
|
|
(136
|
)
|
|
(645
|
)
|
Accounts
payable and accrued liabilities
|
|
|
(5,921
|
)
|
|
(8,824
|
)
|
|
20,995
|
|
Net
cash provided by operating activities
|
|
|
44,338
|
|
|
39,537
|
|
|
41,229
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Purchases
of properties, plant and equipment
|
|
|
(29,719
|
)
|
|
(41,931
|
)
|
|
(17,966
|
)
|
Payments
for acquisitions, net of cash received of $1,000, $5,829 and
$0
|
|
|
(23,120
|
)
|
|
(192,816
|
)
|
|
(41,204
|
)
|
Proceeds
from disposals of properties, plant and equipment
|
|
|
2,574
|
|
|
3,699
|
|
|
713
|
|
Disposals
of business units
|
|
|
16,432
|
|
|
—
|
|
|
—
|
|
Other
investing activities
|
|
|
(251
|
)
|
|
369
|
|
|
(106
|
)
|
Net
cash used in investing activities
|
|
|
(34,084
|
)
|
|
(230,679
|
)
|
|
(58,563
|
)
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from borrowings
|
|
|
34,227
|
|
|
92,621
|
|
|
—
|
|
Repayments
of borrowings
|
|
|
(39,226
|
)
|
|
(3,373
|
)
|
|
(448
|
)
|
Proceeds
from issuances of common stock
|
|
|
1,910
|
|
|
89,930
|
|
|
2,274
|
|
Excess
tax benefits from stock-based compensation
|
|
|
22
|
|
|
1,205
|
|
|
—
|
|
Purchase
of treasury shares
|
|
|
(774
|
)
|
|
(914
|
)
|
|
(545
|
)
|
Debt
issuance costs
|
|
|
(367
|
)
|
|
(3,177
|
)
|
|
—
|
|
Net
cash provided by (used in) financing activities
|
|
|
(4,208
|
)
|
|
176,292
|
|
|
1,281
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
6,046
|
|
|
(14,850
|
)
|
|
(16,053
|
)
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
8,804
|
|
|
23,654
|
|
|
39,707
|
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
14,850
|
|
$
|
8,804
|
|
$
|
23,654
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
26,665
|
|
$
|
19,655
|
|
$
|
17,379
|
|
Cash
paid for income taxes
|
|
$
|
6,884
|
|
$
|
2,560
|
|
$
|
963
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Noncash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
Assumption
of notes payable and capital leases in acquisitions of
businesses
|
|
$
|
108
|
|
$
|
12,378
|
|
$
|
2,053
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
U.S.
CONCRETE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of Operations
Our
Company, a Delaware corporation, provides ready-mixed concrete, precast concrete
products and concrete-related products and services to the construction industry
in several major markets in the United States. U.S. Concrete, Inc. is a holding
company and conducts its businesses through its consolidated subsidiaries.
In
these Notes to Consolidated Financial Statements, we refer to U.S. Concrete,
Inc. and its Subsidiaries as “we”, “us” or “U.S. Concrete” unless we
specifically state otherwise or the context indicates otherwise.
Basis
of Presentation
The
consolidated financial statements consist of the accounts of U.S. Concrete,
Inc., its wholly owned subsidiaries and its majority owned subsidiary in
Michigan. All significant intercompany account balances and transactions have
been eliminated. We have made certain reclassifications to prior period amounts
to conform to the current period presentation. These reclassifications did
not
have an impact on our financial position, results of operations or cash
flows.
Cash
and Cash Equivalents
We
record
as cash equivalents all highly liquid investments having maturities of three
months or less at the date of purchase. Cash held as collateral or escrowed
for
contingent liabilities is included in other current and noncurrent assets based
on the expected release date of the underlying obligation.
Inventories
Inventories
consist primarily of cement and other raw materials, precast concrete products,
building materials and repair parts that we hold for sale or use in the ordinary
course of business. We use the first-in, first-out method to value inventories
at the lower of cost or market.
We
provide reserves for estimated obsolescence or unmarketable inventory equal
to
the difference between the cost of inventory and its estimated net realizable
value using assumptions about future demand for those products and market
conditions. If actual market conditions are less favorable than those projected
by our management, additional inventory reserves may be required.
Prepaid
Expenses
Prepaid
expenses primarily include amounts we have paid for insurance, licenses, taxes,
rent and maintenance contracts. We expense or amortize all prepaid amounts
as
used or over the period of benefit, as applicable.
Properties,
Plant and Equipment, Net
We
state
properties, plant and equipment at cost and use the straight-line method to
compute depreciation of these assets other than mineral deposits over the
following estimated useful lives: buildings and land improvements, from 10
to 40
years; machinery and equipment, from 10 to 30 years; mixers, trucks and other
vehicles, from six to 12 years; and other, from three to 10 years. For some
of
our assets, we use an estimate of the asset’s salvage value at the end of its
useful life to reduce the cost of the asset which is subject to depreciation.
Salvage values generally approximate 10% of the asset’s original cost. We
capitalize leasehold improvements on properties held under operating leases
and
amortize those costs over the lesser of their estimated useful lives or the
applicable lease term. We compute depletion of the related mineral deposits
on
the basis of the estimated quantity of recoverable raw materials.
We
expense maintenance and repair costs when incurred and capitalize and depreciate
expenditures for major renewals and betterments that extend the useful lives
of
our existing assets. When we retire or dispose of properties, plant or
equipment, we remove the related cost and accumulated depreciation from our
accounts and reflect any resulting gain or loss in our statements of
operations.
We
evaluate the recoverability of our long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability
of
assets is measured by comparing the carrying amount of an asset to future
undiscounted net cash flows expected to be generated by the asset. Such
evaluations for impairment are significantly impacted by estimates of future
prices for our products, capital needs, economic trends in the applicable
construction sector and other factors. If we consider such assets to be
impaired, the impairment we recognize is measured by the amount by which the
carrying amount of the assets exceeds their fair value. Assets to be disposed
of
by sale are reflected at the lower of their carrying amounts, or fair values,
less cost to sell.
Goodwill
and Other Intangible Assets
Intangible
assets acquired in business combinations consist primarily of goodwill and
covenants not-to-compete. Goodwill represents the amount by which the total
purchase price we have paid to acquire businesses, accounted for as purchases,
exceeds the estimated fair value of the net assets acquired. We test goodwill
for impairment annually and charge expense for any impairment recognized, but
goodwill is not otherwise amortized.
Intangible
assets with definite lives consists principally of covenants not-to-compete
established with former owners and other key management personnel in business
combinations and are amortized over the period that we believe best reflects
the
period in which the economic benefits will be consumed. Intangible assets with
definite lives are evaluated for recoverability when events or circumstances
indicate that these assets might be impaired. We test those assets for
impairment by comparing their respective carrying values to estimates of the
sum
of the future undiscounted net cash flows expected to result from the assets.
If
the carrying amount of an asset exceeds the sum of the undiscounted net cash
flows we expect from that asset, we recognize an impairment loss based on the
amount by which the carrying value exceeds the fair value of the asset. See
Note
2 for further discussion of goodwill and other intangibles.
Debt
Issue Costs
We
amortize debt issue costs related to our revolving credit facilities and 8
⅜%
senior subordinated notes as interest expense over the scheduled maturity period
of the debt. Unamortized debt issuance costs were $8.2 million as of December
31, 2007 and $9.3 million as of December 31, 2006. We include those unamortized
costs in other assets.
Allowance
for Doubtful Accounts
We
provide an allowance for accounts receivable we believe may not collect in
full.
A provision for bad debt expense recorded to selling, general and administrative
expenses increases the allowance. Accounts receivable are written off when
we
determine the receivable will not be collected. Accounts receivable that we
write off our books decreases the allowance. We determine the amount of bad
debt
expense we record each period and the resulting adequacy of the allowance at
the
end of each period by using a combination of its historical loss experience,
a
customer-by-customer analysis of our accounts receivable balances each period
and subjective assessments of our bad debt exposure. The allowance for doubtful
accounts balance was $3.1 million as of December 31, 2007 and $2.6 million
as of
December 31, 2006.
Sales
and Expenses
We
derive
substantially all of our sales from the production and delivery of ready-mixed
concrete, precast concrete products and other onsite products and related
building materials. We recognize sales when products are delivered. Amounts
billed to customers for delivery costs are classified as a component of total
revenues and the related delivery costs (excluding depreciation) are classified
as a component of total cost of goods sold. Cost of goods sold consists
primarily of product costs and operating expenses (excluding depreciation,
depletion and amortization). Operating expenses consist primarily of wages,
benefits, insurance and other expenses attributable to plant operations, repairs
and maintenance, and delivery costs. Selling expenses consist primarily of
sales
commissions, salaries of sales managers, travel and entertainment expenses,
and
trade show expenses. General and administrative expenses consist primarily
of
executive and administrative compensation and benefits, office rent, utilities,
communication and technology expenses, provision for doubtful accounts and
professional fees.
Insurance
Programs
We
maintain third-party insurance coverage in amounts and against the risks we
believe are reasonable. Under our insurance programs, we share the risk of
loss
with our insurance underwriters by maintaining high deductibles subject to
aggregate annual loss limitations. We believe our deductible retentions per
occurrence for auto, general liability and worker’s compensation insurance
program are consistent with industry practices, although some variation exists
among our business units. In connection with these automobile and general
liability and workers’ compensation insurance programs, we have entered into
standby letters of credit agreements totaling $11.8 million at December 31,
2007. We fund our deductibles and record an expense for losses we expect under
the programs. We determine expected losses using a combination of our historical
loss experience and subjective assessments of our future loss exposure. The
estimated losses are subject to uncertainty from various sources, including
changes in claim reporting patterns, claim settlement patterns, judicial
decisions, legislation and economic conditions. The amounts accrued for
self-insured claims were $12.3 million as of December 31, 2007 and $11.1 million
as of December 31, 2006. We include those accruals in accrued
liabilities.
Asset
Retirement Obligations
Statement
of Financial Accounting Standards (“SFAS”) No. 143 requires that the fair value
of a liability for an asset retirement obligation be recognized in the period
in
which it is incurred if a reasonable estimate of fair value can be made. The
fair value of the liability is added to the carrying amount of the associated
asset, and this additional carrying amount is amortized over the life of the
asset. The liability is accreted at the end of each reporting period through
charges to operating expenses. If the obligation is settled for other than
the
carrying amount of the liability, we will recognize a gain or loss on
settlement. Asset retirement obligations accrued at December 31, 2007 and 2006
were not material.
Income
Taxes
We
use
the liability method of accounting for income taxes. Under this method, we
record deferred income taxes based on temporary differences between the
financial reporting and tax bases of assets and liabilities and uses enacted
tax
rates and laws that we expect will be in effect when we recover those assets
or
settle those liabilities, as the case may be, to measure those taxes. We record
a valuation allowance to reduce the deferred tax assets to the amount that
is
more likely than not to be realized. As of December 31, 2007 and December 31,
2006, no valuation allowances were recorded.
Effective
January 1, 2007, we adopted Financial Accounting Standards Board (FASB)
Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109, Accounting for Income Taxes.” FIN 48
requires that the financial statement effects of a tax position taken or
expected to be taken in a tax return to be recognized in the financial
statements when it is more likely than not, based on the technical merits,
that
the position will be sustained upon examination. The cumulative effect of
applying FIN 48 was $342,000 and was recorded as an adjustment to the January
1,
2007 balance of retained earings.
Fair
Value of Financial Instruments
Our
financial instruments consist primarily of cash and cash equivalents, trade
receivables, trade payables and long-term debt. Our management considers the
carrying values of cash and cash equivalents, trade receivables, trade payables
and the revolving credit facilities to be representative of their respective
fair values because of their short-term maturities or expected settlement dates.
The fair value of our 8⅜% senior subordinated notes at year end was estimated at
$248.8 million in 2007 and $278.6 million in 2006.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the use of estimates
and assumptions by management in determining the reported amounts of assets
and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Estimates and assumptions that we consider significant in the preparation of
our
financial statements include those related to our allowance for doubtful
accounts, realization of goodwill, accruals for self-insurance, income taxes,
reserves for inventory obsolescence and the valuation and useful lives of
properties, plant and equipment.
Stripping
Costs
Effective
January 1, 2006, we adopted Emerging Issues Task Force Issue No. 04-6,
“Accounting for Stripping Costs in the Mining Industry” (“EITF 04-6”). EITF 04-6
concluded that stripping costs incurred after the first saleable minerals are
extracted from the mine (i.e., post-production stripping costs) are a component
of mineral inventory cost. Under EITF 04-6, all post-production stripping costs
are considered variable production costs that should be included in the costs
of
the inventory produced during the period that the stripping costs are incurred.
We recognized all capitalized post-production stripping costs as an adjustment
to beginning retained earnings at January 1, 2006. Prior to the adoption of
EITF
04-6, we capitalized certain post-production stripping costs and amortized
those
costs over the life of the uncovered reserves using a units-of-production
approach.
Earnings
(Loss) Per Share
We
computed basic earnings (loss) per share using the weighted average number
of
common shares outstanding during the year. We computed diluted earnings per
share using the weighted average number of common shares outstanding during
the
year, but also include the dilutive effect of stock-based incentives and option
plans (including stock options and awards of restricted stock).
The
following table reconciles the numerator and denominator of the basic and
diluted earnings (loss) per share during the years ended December 31, 2007,
2006
and 2005 (in thousands, except per share amounts).
|
|
2007
|
|
2006
|
|
2005
|
|
Numerator:
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
(63,760
|
)
|
$
|
(7,303
|
)
|
$
|
14,431
|
|
Loss
from discontinued operations, net of income tax benefit
|
|
|
(5,241
|
)
|
|
(787
|
)
|
|
(1,819
|
)
|
Net
income (loss)
|
|
$
|
(69,001
|
)
|
$
|
(8,090
|
)
|
$
|
12,612
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding-basic
|
|
|
38,227
|
|
|
36,847
|
|
|
28,655
|
|
Effect
of dilutive stock options and restricted stock
|
|
|
—
|
|
|
—
|
|
|
574
|
|
Weighted
average common shares outstanding-diluted
|
|
|
38,227
|
|
|
36,847
|
|
|
29,229
|
|
Earnings
(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
$
|
(1.67
|
)
|
$
|
(0.20
|
)
|
$
|
0.51
|
|
From
discontinued operations
|
|
$
|
(0.14
|
)
|
$
|
(0.02
|
)
|
$
|
(0.07
|
)
|
Net
income (loss)
|
|
$
|
(1.81
|
)
|
$
|
(0.22
|
)
|
$
|
0.44
|
|
Diluted
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
$
|
(1.67
|
)
|
$
|
(0.20
|
)
|
$
|
0.50
|
|
From
discontinued operations
|
|
$
|
(0.14
|
)
|
$
|
(0.02
|
)
|
$
|
(0.07
|
)
|
Net
income (loss)
|
|
$
|
(1.81
|
)
|
$
|
(0.22
|
)
|
$
|
0.43
|
|
For
the
years ended December 31, stock options and awards covering 2.8 million
shares in 2007, 2.9 million shares in 2006 and 0.8 million shares in 2005 were
excluded from the computation of diluted earnings (loss) per share because
their
effect would have been antidilutive.
Comprehensive
Income
Comprehensive
income represents all changes in equity of an entity during the reporting
period, except those resulting from investments by and distributions to
stockholders. For each of the three years in the period ended December 31,
2007
no differences existed between our historical consolidated net income and our
consolidated comprehensive income.
Segment
Information
We
have
adopted SFAS No. 131, “Disclosures About Segments of an Enterprise and Related
Information,” which establishes standards for the manner by which public
enterprises are to report information about operating segments in annual
financial statements and requires the reporting of selected information about
operating segments in interim financial reports issued to stockholders. During
the third quarter of 2006, we re-assessed our application of SFAS No. 131,
and,
based on the expected variation in the long-term margins of our operating
segments, determined that it would be more appropriate to present our previously
aggregated six geographic reporting units as two reportable segments, primarily
along the following product lines: ready-mixed concrete and concrete-related
products; and precast concrete products. In conjunction with this re-assessment,
we have revised our prior period presentation to correspond with this revision.
See Note 12 for additional segment disclosures.
Stock-based
Compensation
Effective
January 1, 2006, we adopted SFAS No. 123-R, “Share-Based Payment”
(“SFAS 123R”), using the modified prospective method and, accordingly, we
have not restated prior period results. SFAS 123R establishes the accounting
for
equity instruments exchanged for employee services. Under SFAS 123R, share-based
compensation cost is measured at the grant date based on the calculated fair
value of the award. The expense is recognized over the employee’s requisite
service period, generally the vesting period of the award. SFAS 123R also
requires the related excess tax benefit received upon exercise of stock options
or vesting of restricted stock, if any, to be reflected in the statement of
cash
flows as a financing activity rather than an operating activity.
Prior
to
the adoption of SFAS 123R, we accounted for stock options issued to employees
in
accordance with Accounting Principles Board Opinion (“APB”) No. 25,
“Accounting for Stock Issued to Employees,” and related interpretations. We also
provided the disclosures required under SFAS No. 123, “Accounting for
Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for
Stock-Based Compensation - Transition and Disclosures.” As a result, no expense
was reflected in our consolidated statement of operations in 2006 for stock
options, as all options granted had an exercise price equal to the market value
of the underlying common stock on the date of grant. However, we recognized
stock-based compensation expense for restricted stock awards.
The
following table illustrates the pro forma effect on net income and earnings
per
share as if we were applying the fair value recognition provisions of SFAS
123R
to our stock-based compensation plans for the year ended December 31, 2005
(in
thousands, except per share amounts):
|
|
2005
|
|
Net
income
|
|
$
|
12,612
|
|
Add:
Total stock-based employee compensation expense included in reported
net
income, net of related tax effects
|
|
|
1,050
|
|
Deduct:
Total stock-based employee compensation expense determined under
fair
value method for all awards vested during the year, net of any tax
effects
|
|
|
(1,468
|
)
|
Pro
forma net income
|
|
$
|
12,194
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
Reported
basic
|
|
$
|
0.44
|
|
Reported
diluted
|
|
$
|
0.43
|
|
Pro
forma basic
|
|
$
|
0.43
|
|
Pro
forma diluted
|
|
$
|
0.42
|
|
The
weighted average fair values of stock options at their grant date for 2005,
where the exercise price equaled the market price on the grant date,
was
$1.94.
The
estimated fair values for options granted in 2005 was calculated using a
Black-Scholes option pricing model, with the following weighted-average
assumptions: risk-free interest rate of 4.35%; no dividend yield; volatility
factor of 0.282; and an expected option life of five years.
For
additional discussion related to stock-based compensation, see Note
5.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS
No. 157 clarifies
the principle that fair value should be based on the assumptions market
participants would use when pricing an asset or liability and establishes a
fair-value hierarchy that prioritizes the information used to develop those
assumptions. Under SFAS No. 157, fair-value measurements would be separately
disclosed by level within the fair-value hierarchy. SFAS No. 157 is effective
for fiscal years beginning after November 15, 2007. We do not believe the
adoption of SFAS No. 157 will have a material impact on our consolidated
financial position, results of operations or cash flows.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities - Including an Amendment of FASB
Statement No. 115.” SFAS No. 159 amends SFAS No. 115, “Accounting for Certain
Investments in Debt and Equity Securities.” This statement permits, but does not
require, entities to measure many financial instruments and certain other items
at fair value. Unrealized gains and losses on items for which the fair value
option has been elected should be recognized in earnings at each subsequent
reporting date. SFAS No. 159 is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years, and cannot be adopted early unless SFAS No. 157,
Fair Value Measurements, is also adopted. We
do not
believe the adoption of SFAS No. 159 will have a material impact on our
consolidated financial position, results of operations or cash
flows.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” which
replaces SFAS No. 141. SFAS No. 141(R) establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired. SFAS
No. 141(R) also establishes disclosure requirements which will enable users
to
evaluate the nature and financial effects of the business combination. SFAS
No.
141(R) is effective for fiscal years beginning after December 15, 2008. We
have not yet completed our evaluation of the potential impact of this standard
on our financial statements.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51,” which 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 noncontrolling
interest, changes in a parent’s ownership interest and the valuation of retained
noncontrolling equity investments when a subsidiary is deconsolidated.
SFAS No. 160 also establishes reporting requirements that provide
sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners.
SFAS No. 160 is effective for fiscal years beginning after December 15,
2008. We have not completed our evaluation of the potential impact of this
standard.
2. GOODWILL
AND OTHER INTANGIBLE ASSETS
In
accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” we perform
an annual impairment test (or more frequently if impairment indicators arise)
for goodwill and other intangibles with indefinite lives. We allocate goodwill
to various reporting units to perform our impairment test. SFAS No. 142 requires
that the fair value of the reporting unit be compared with its carrying amount
on an annual basis to determine if there is a potential impairment. If the
fair
value of the reporting unit is less than its carrying value, we would record
an
impairment loss to the extent of that difference. The impairment test for
intangible assets with indefinite lives consists of comparing the fair value
of
the intangible asset to its carrying amount. If the carrying amount of the
intangible asset exceeds its fair value, we would recognize impairment. We
base
the fair values of our reporting units on a combination of valuation approaches,
including discounted cash flows, multiples of sales and earnings before
interest, taxes, depreciation, depletion and amortization and comparisons of
recent transactions. In the fourth quarter of each of 2007, 2006 and 2005,
we
conducted our annual valuation test.
In
2005,
no goodwill impairment was required. However, in 2007 and in 2006, as a result
of the outlook for our company and others in our industry, which is driven
primarily by the factors impacting the construction industry, and its resulting
impact on business valuations in our sector, a noncash goodwill impairment
charge was required to be recorded in the fourth quarter of each year. In 2006,
we determined that an impairment of $38.8 million was required related to our
Michigan reporting unit. In 2007, our goodwill impairment of $81.9 million
included a write-off of the remaining Michigan goodwill on our books and also
expanded to include a goodwill impairment of our South Central region and
northern California precast business.
In
the
fourth quarter of 2007, we decided to dispose of certain business units. In
connection with the impairment or sale of the units in the fourth quarter,
we
wrote off associated goodwill of $7.2 million, which is reflected as a component
of loss from discontinued operations for the year ended December 31, 2007.
As
of
December 31, 2007 and 2006, U.S. Concrete had no intangible assets with
indefinite lives other than goodwill.
The
changes in the carrying amount of goodwill for 2007 and 2006 were as follows
(in
thousands):
|
|
Ready-Mixed
Concrete and Concrete-Related Products
|
|
Precast
Concrete Products
|
|
Total
|
|
Balance
at December 31, 2005
|
|
$
|
151,482
|
|
$
|
30,339
|
|
$
|
181,821
|
|
Acquisitions
|
|
|
107,411
|
|
|
4,421
|
|
|
111,832
|
|
Impairments
|
|
|
(38,811
|
)
|
|
—
|
|
|
(38,811
|
)
|
Adjustments
|
|
|
(3,484
|
)
|
|
141
|
|
|
(3,343
|
)
|
Balance
at December 31, 2006
|
|
$
|
216,598
|
|
$
|
34,901
|
|
$
|
251,499
|
|
Acquisitions
|
|
|
3,549
|
|
|
10,888
|
|
|
14,437
|
|
Impairments
|
|
|
(72,817
|
)
|
|
(9,074
|
)
|
|
(81,891
|
)
|
Dispositions
|
|
|
(7,199
|
)
|
|
—
|
|
|
(7,199
|
)
|
Adjustments
|
|
|
7,985
|
|
|
168
|
|
|
8,153
|
|
Balance
at December 31, 2007
|
|
$
|
148,116
|
|
$
|
36,883
|
|
$
|
184,999
|
|
Our
intangible assets with definite lives primarily consist of covenants
not-to-compete established in business combinations and are recorded in other
noncurrent assets. We amortize covenants not-to-compete ratably over the life
of
the agreement, which is generally five years. Aggregate amortization expense
associated with covenants not-to-compete was $0.6 million for 2007, $0.6 million
for 2006 and $0.1 million for 2005. Amortization expense associated with our
covenants not-to-compete at December 31, 2007, is expected to be $0.2 million
in
each of 2008, 2009 and 2010, and $0 thereafter.
The
changes in the carrying amount of the other intangible assets for 2007 and
2006
were as follows (in thousands):
Balance
at January 1, 2006
|
|
$
|
2,683
|
|
Amortization
of covenants not-to-compete
|
|
|
(572
|
)
|
Balance
at December 31, 2006
|
|
$
|
2,111
|
|
Write-off
of covenant not-to-compete related to disposed business
unit
|
|
|
(987
|
)
|
Amortization
of covenants not-to-compete
|
|
|
(572
|
)
|
Balance
at December 31, 2007
|
|
$
|
552
|
|
3. DISCONTINUED
OPERATIONS
In
the
fourth quarter of 2007 we entered into definitive agreements to dispose of
three
of our ready-mixed concrete business units. On November 19, 2007, we sold our
Knoxville, Tennessee and Wyoming, Delaware business units. The
sale
of our third unit, headquartered in Memphis, Tennessee, occurred on January
31,
2008. We classified all three business units sold or held for sale as
discontinued operations as of December 31, 2007 and presented the results of
operations, net of tax, as discontinued operations in the accompanying
consolidated statements of operations for all periods presented. The assets
and
liabilities of the discontinued units which remained unsold as of the balance
sheet date were classified as “held for sale” in our consolidated balance sheets
at December 31, 2007 and 2006. The results of discontinued operations included
in the accompanying consolidated statements of operations were as
follows for the years ended December 31 (in thousands):
|
|
2007
|
|
2006
|
|
2005
|
|
Sales
|
|
$
|
43,606
|
|
$
|
61,012
|
|
$
|
50,018
|
|
Operating
expenses
|
|
|
47,241
|
|
|
62,337
|
|
|
53,102
|
|
Loss
on disposal of assets
|
|
|
5,517
|
|
|
—
|
|
|
—
|
|
Loss
from discontinued operations, before income tax benefit
|
|
|
(9,152
|
)
|
|
(1,325
|
)
|
|
(3,084
|
)
|
Income
tax benefits from discontinued operations
|
|
|
(3,911
|
)
|
|
(538
|
)
|
|
(1,265
|
)
|
Loss
from discontinued operations, net of tax
|
|
$
|
(5,241
|
)
|
$
|
(787
|
)
|
$
|
(1,819
|
)
|
The
following table summarizes the carrying amount as of December 31, 2007 and
December 31, 2006 of the major classes of assets and liabilities we classified
as held for sale (in thousands):
|
|
December
31, 2007
|
|
December
31, 2006
|
|
Assets
held for sale:
|
|
|
|
|
|
Trade
accounts receivable
|
|
$
|
—
|
|
$
|
4,173
|
|
Inventories
|
|
|
401
|
|
|
2,490
|
|
Prepaid
expenses
|
|
|
—
|
|
|
85
|
|
Property,
plant and equipment, net
|
|
|
6,872
|
|
|
18,210
|
|
Other
current assets
|
|
|
—
|
|
|
16
|
|
Total
assets held for sale
|
|
$
|
7,273
|
|
$
|
24,974
|
|
|
|
|
|
|
|
|
|
Liabilities
held for sale
|
|
$
|
—
|
|
$
|
2,900
|
|
The
three
business units classified as discontinued operations were all part of our
ready-mixed concrete and concrete-related products segment.
4.
BUSINESS
COMBINATIONS
In
October 2007, we completed the acquisition of the operating assets, including
working capital and real property of Architectural Precast, LLC (“API”), a
leading designer and manufacturer of premium quality architectural and
structural precast concrete products serving the Atlantic region. We used
borrowings under our revolving credit facility to fund the cash purchase price
of $14.5 million. The purchase agreement provides for up to $1.5 million in
additional purchase consideration, which is contingent on API attaining
established earnings targets in each of 2008 and 2009.
In
April
2007, several of our subsidiaries entered into agreements with the Edw. C.
Levy
Co. relating to the formation of a ready-mixed concrete company that operates
in
Michigan. We contributed our Michigan ready-mixed concrete and
concrete-related products assets, excluding our quarry assets and working
capital, in exchange for an aggregate 60% ownership interest, and Levy
contributed all of its ready-mixed concrete and concrete-related products
assets, a cement terminal and cash of $1.0 million for a 40% ownership interest
in the new company. Under the contribution agreement, the newly
formed subsidiary, Superior Materials Holdings, LLC, also purchased at closing,
the then carrying amount of Levy’s inventory and prepaid assets, totaling
approximately $3.0 million. Superior Materials Holdings, LLC, which operates
primarily under the trade name Superior Materials, owns and operates 27
ready-mixed concrete plants, a cement terminal and approximately 290 ready-mixed
concrete trucks.
The
following table presents our allocation, based on the fair values at the
acquisition date (in thousands) of the consideration exchanged in the
transaction:
Estimated
Purchase Price
|
|
|
|
Net
assets of our Michigan operations reduced to 40%
|
|
$
|
8,272
|
|
Acquisition
costs
|
|
|
649
|
|
Total
estimated purchase price
|
|
$
|
8,921
|
|
|
|
|
|
|
Purchase
Price Allocation
|
|
|
|
|
Cash
|
|
$
|
1,000
|
|
Property,
plant and equipment
|
|
|
17,158
|
|
Goodwill
|
|
|
1,303
|
|
Total
assets acquired
|
|
|
19,461
|
|
Capital
lease liability.
|
|
|
108
|
|
Deferred
tax liability
|
|
|
3,211
|
|
Total
liabilities assumed
|
|
|
3,319
|
|
Minority
interest
|
|
|
7,221
|
|
Net
assets acquired
|
|
$
|
8,921
|
|
For
financial reporting purposes, we are including Superior Materials Holdings,
LLC
in our consolidated accounts.
The
following unaudited pro forma financial information reflects our historical
results, as adjusted on a pro forma basis to give effect to the disposition
of
40% of our Michigan operations (excluding quarry assets and working capital)
through our contribution of those operations to the newly formed Michigan
subsidiary, Superior Materials Holdings, LLC, in return for a 60% interest
in
that company, which includes the Michigan ready-mixed concrete operations
contributed by the Edw. C. Levy Co., as if it occurred on January 1, 2006 (in
thousands, except per share amounts):
|
|
For
the Years
Ended
December 31,
|
|
|
|
2007
|
|
2006
|
|
Revenues
|
|
$
|
807,035
|
|
$
|
760,552
|
|
Net
income (loss)
|
|
|
(66,628
|
)
|
|
5,549
|
|
Basic
earnings (loss) per share
|
|
$
|
(1.74
|
)
|
$
|
0.15
|
|
Diluted earnings
(loss) per share
|
|
$
|
(1.74
|
)
|
$
|
0.15
|
|
The
pro
forma financial information does not purport to represent what the combined
financial results of operations of our company and Superior Materials Holdings,
LLC actually would have been if these transactions and events had in fact
occurred when assumed and are not necessarily representative of our results
of
operations for any future period.
We
completed two other acquisitions, which are discussed in this footnote, during
the year ended December 31, 2007. The proforma impact of the other acquisitions
have not been included due to the fact that they are immaterial to our financial
statements individually and in the aggregate.
In
other
business acquisitions during the periods presented, we acquired two ready-mix
concrete plants, including real property and raw material inventories, in our
west Texas market for approximately $3.6 million in June 2007.
In
November 2006, we acquired a ready-mixed concrete and sand and gravel quarry
operation in Breckenridge, Texas. The purchase price was $3.0 million in cash
and the assumption of approximately $0.4 million in debt.
In
October 2006, we acquired a granite quarry and a natural sand pit located in
New
Jersey from Pinnacle Materials, Inc. for $12.5 million in cash.
In
July
2006, we acquired all of the equity interests of Alberta Investments, Inc.
and
Alliance Haulers, Inc. for $165.0 million and a post-closing payment of $0.3
million . We funded the payment of the purchase price with net proceeds from
the
private placement of $85.0 million in senior subordinated notes due 2014, issued
in July 2006; a borrowing under the revolving credit facility provided by our
Amended and Restated Senior Secured Credit Agreement (the “Credit Agreement”);
and cash on hand. We also effectively assumed, in connection with this
acquisition, equipment financing loans of approximately $10.6 million. Alberta
Investments conducted the substantial majority of its operations through two
subsidiaries: Redi-Mix, L.P. and Ingram Enterprises, L.P. At the time of the
acquisition, Redi-Mix operated 13 ready-mixed concrete plants in the Dallas/Fort
Worth Metroplex and in areas north of the Metroplex, and Ingram Enterprises
operated 17 ready-mixed concrete plants and three sand and gravel plants in
west
Texas. Redi-Mix and Ingram operated a combined fleet of approximately 310 mixer
trucks and produced approximately 2.4 million cubic yards of ready-mixed
concrete and 1.1 million tons of aggregates in 2005. Alliance Haulers provided
cement and aggregates hauling services with a fleet of approximately 260 hauling
trucks owned by Redi-Mix and third-party haulers.
In
June
2006, we acquired the operating assets, including real property, of Olson
Precast Company used in the production of precast concrete products in northern
California, for $4.8 million in cash.
In
April
2006, we acquired Kurtz Gravel Company and the Phoenix, Arizona operating assets
of Pre-Cast Mfg., Inc. Kurtz produced ready-mixed concrete from six plants
and
mined aggregates from a quarry, all located in or near our existing operations
in the metropolitan Detroit area. We purchased Kurtz for approximately $13.0
million in cash and assumed certain capital lease liabilities with a net present
value of approximately $1.5 million. We purchased the Pre-Cast Mfg. assets
for
approximately $5.0 million in cash.
5.
STOCK-BASED COMPENSATION
Effective
January 1, 2006, we adopted SFAS 123R, using the modified prospective
method and, accordingly, have not restated prior period results. SFAS
123R
establishes new principles for the accounting for equity instruments exchanged
for employee services. Under SFAS 123R, share-based compensation cost is
measured at the grant date based on the calculated fair value of the award.
The
expense is recognized over the employee’s requisite service period, generally
the vesting period of the award. We have elected to use the long-form method
of
determining our pool of windfall tax benefits as prescribed under SFAS
123R.
Prior
to
the adoption of SFAS 123R, we accounted for stock options issued to employees
in
accordance with Accounting Principles Board Opinion (“APB”) No. 25,
“Accounting for Stock Issued to Employees,” and related interpretations. We also
provided the disclosures required under SFAS No. 123, as amended by SFAS
No. 148. As a result, no expense was reflected in our consolidated
statement of operations in 2005 for stock options, as all options granted had
an
exercise price equal to the market value of the underlying common stock on
the
date of grant. However, we recognized stock-based compensation expense for
restricted stock awards.
For
the
years ended December 31, we recognized stock-based compensation expense related
to restricted stock and stock options of approximately $3.0 million ($1.9
million, net of tax) in 2007, $2.8 million ($1.7 million, net of tax) in 2006
and $1.7 million ($1.1 million, net of tax) in 2005. Stock-based compensation
expense is reflected in selling, general and administrative expenses in our
consolidated statements of operations.
As
of
December 31, 2007, there was approximately $5.1 million of unrecognized
compensation cost related to unvested restricted stock awards and stock options
which we expect to recognize over a weighted average period of 1.8
years.
SFAS
123R
requires tax benefits attributable to stock-based compensation transactions
to
be
classified as financing cash flows. Prior to the adoption of SFAS 123R, we
presented excess tax benefits from stock-based compensation transactions as
an
operating cash flow in our consolidated statements of cash flows.
Restricted
Stock
We
issue
restricted stock awards under our incentive compensation plans. These awards
vest over specified periods of time, generally four years. The shares of
restricted common stock are subject to restrictions on transfer and certain
conditions to vesting. During the restriction period, the holders of restricted
shares are entitled to vote and receive dividends, if any, on those shares.
Restricted
stock activity for 2007 was as follows (shares in thousands):
|
|
Number
of
Shares
|
|
Weighted-Average
Grant Date Fair Value
|
|
Unvested
restricted shares outstanding at December 31, 2006
|
|
|
730
|
|
$
|
7.09
|
|
Granted
|
|
|
311
|
|
|
8.23
|
|
Vested
|
|
|
(201
|
)
|
|
8.07
|
|
Canceled
|
|
|
(35
|
)
|
|
8.54
|
|
Unvested
restricted shares outstanding at December 31, 2007
|
|
|
805
|
|
$
|
8.07
|
|
Compensation
expense associated with awards of restricted stock under our incentive
compensation plans was $2.7 million in 2007, $2.4 million in 2006 and $1.6
million in 2005.
Stock
Options
Our
1999
Incentive Plan and 2001 Employee Incentive Plan enable us to grant nonqualified
and incentive options, restricted stock, stock appreciation rights and other
long-term incentive awards to our employees and nonemployee directors, as well
as nonemployee consultants and other independent contractors who provide
services to us (except that none of our officers or directors are eligible
to
participate in our 2001 Employee Incentive Plan). Option grants under these
plans generally vest over a four-year period and expire if not exercised prior
to the tenth anniversary following the applicable grant date. Proceeds from
the
exercise of stock options are credited to common stock at par value, and the
excess is credited to additional paid-in capital. The aggregate number of shares
available for awards under these plans was approximately 1.2 million as of
December 31, 2007 and 1.5 million as of December 31, 2006. Our board of
directors may, in its discretion, grant additional awards or establish other
compensation plans.
We
estimated the fair value of each of our stock option awards on the date of
grant
using a Black-Scholes option pricing model. We determined the expected
volatility using our common stock’s historic volatility. For each option
awarded, the risk-free interest rate was based on the U.S. Treasury yield in
effect at the time of grant for periods corresponding with the expected life
of
the option. The expected life of an option represents the weighted average
period of time that an option granted is expected to be outstanding, giving
consideration to its vesting schedule and historical exercise patterns. The
significant weighted-average assumptions relating to the valuation of our stock
options were as follows:
|
|
2007
|
|
2006
|
|
Dividend
yield
|
|
|
0.0
|
%
|
|
0.0
|
%
|
Volatility
rate
|
|
|
37.3
|
%
|
|
34.9
|
%
|
Risk-free
interest rate
|
|
|
3.5
|
%
|
|
4.7
|
%
|
Expected
option life (years)
|
|
|
5.0
|
|
|
5.0
|
|
We
granted 63,000 and 50,000 stock options in 2007 and 2006, respectively. As
a
result of adopting SFAS 123R, compensation expense related to stock options
was
approximately $185,000 ($116,920, net of tax) in 2007 and $198,000 ($161,000,
net of tax) in 2006. Stock option activity information for 2007 was as follows
(shares in thousands):
|
|
Number
of
Shares Underlying
Options
|
|
Weighted-Average
Exercise
Price
|
|
Options
outstanding at December 31, 2006
|
|
|
2,072
|
|
$
|
7.10
|
|
Granted
|
|
|
63
|
|
|
8.96
|
|
Exercised
|
|
|
(153
|
)
|
|
6.39
|
|
Canceled
|
|
|
(4
|
)
|
|
6.49
|
|
Options
outstanding at December 31, 2007
|
|
|
1,978
|
|
$
|
7.21
|
|
Options
exercisable at December 31, 2007
|
|
|
1,978
|
|
$
|
7.21
|
|
The
aggregate intrinsic value of outstanding options and exercisable options at
December 31, 2007 was less than $0.1 million. The total intrinsic value of
options exercised in 2007 was $0.3 million. The weighted average remaining
contractual term for outstanding options and exercisable options at December
31
2007 was 2.9 years. The total fair value of shares vested during 2007 and 2006
was $0.6 million and $1.9 million, respectively.
Stock
option information related to the nonvested options for the year ended December
31, 2007 was as follows (shares in thousands):
|
|
Number
of
Shares Underlying Options
|
|
Weighted-Average
Grant Date Fair Value
|
|
Nonvested
options outstanding at December 31, 2006
|
|
|
4
|
|
$
|
4.58
|
|
Granted
|
|
|
63
|
|
|
8.96
|
|
Vested
|
|
|
63
|
|
|
8.83
|
|
Canceled
|
|
|
(4
|
)
|
|
6.49
|
|
Nonvested
options outstanding at December 31, 2007
|
|
|
—
|
|
$
|
—
|
|
Share
Price Performance Units
In
August
2005, the compensation committee of our board of directors awarded approximately
163,000 share price performance units to certain salaried employees, other
than
executive officers and senior management. Those awards vest in four equal annual
installments, beginning in May 2006. Each share price performance unit is equal
in value to one share of our common stock. Upon vesting, a holder of share
price
performance units will receive a cash payment from us equal to the number of
vested share price performance units multiplied by the closing price of a share
of our common stock on the vesting date. During the period prior to vesting,
holders of share price performance units would be entitled to receive a cash
amount equal to dividends paid, if any, on shares of our common stock equal
to
the number of then unvested share price performance units. The value of these
awards is accrued and charged to expense over the performance period of the
units. We recognized compensation expense from the units of less than $(0.1)
million, approximately $(0.6) million, and $0.4 million as selling, general
and
administrative expense during 2007, 2006 and 2005, respectively. No share price
performance units were granted in 2007 or 2006.
6. INVENTORIES
Inventory
available for sale at December 31 consists of the following (in
thousands):
|
|
December
31
|
|
|
|
2007
|
|
2006
|
|
Raw
materials
|
|
$
|
17,374
|
|
$
|
15,587
|
|
Precast
products
|
|
|
7,495
|
|
|
7,819
|
|
Building
materials for resale
|
|
|
3,520
|
|
|
4,008
|
|
Repair
parts
|
|
|
4,168
|
|
|
3,873
|
|
|
|
$
|
32,557
|
|
$
|
31,287
|
|
7. PROPERTIES,
PLANT AND EQUIPMENT
A
summary
of properties, plant and equipment is as follows (in thousands):
|
|
December
31
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Land
and mineral deposits
|
|
$
|
82,075
|
|
$
|
81,457
|
|
Buildings
and improvements
|
|
|
28,204
|
|
|
27,672
|
|
Machinery
and equipment
|
|
|
124,992
|
|
|
110,200
|
|
Mixers,
trucks and other vehicles
|
|
|
101,486
|
|
|
104,885
|
|
Other,
including construction in progress
|
|
|
15,347
|
|
|
11,861
|
|
|
|
|
352,104
|
|
|
336,075
|
|
Less:
accumulated depreciation and depletion
|
|
|
(85,094
|
)
|
|
(73,264
|
)
|
|
|
$
|
267,010
|
|
$
|
262,811
|
|
As
of
December 31, the carrying amounts of mineral deposits were $28.6 million in
2007
and $42.6 million in 2006.
8. DETAIL
OF CERTAIN BALANCE SHEET ACCOUNTS
Activity
in our allowance for doubtful accounts receivable consists of the following
(in
thousands):
|
|
December
31
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Balance,
beginning of period
|
|
$
|
2,551
|
|
$
|
2,949
|
|
$
|
1,742
|
|
Provision
for doubtful accounts
|
|
|
2,057
|
|
|
2,143
|
|
|
1,576
|
|
Uncollectible
receivables written off, net of recoveries
|
|
|
(1,506
|
)
|
|
(2,541
|
)
|
|
(369
|
)
|
Balance,
end of period
|
|
$
|
3,102
|
|
$
|
2,551
|
|
$
|
2,949
|
|
Accrued
liabilities consist of the following (in thousands):
|
|
December
31
|
|
|
|
2007
|
|
2006
|
|
Accrued
compensation and benefits
|
|
$
|
4,877
|
|
$
|
9,525
|
|
Accrued
interest
|
|
|
6,069
|
|
|
6,199
|
|
Accrued
income taxes
|
|
|
447
|
|
|
4,028
|
|
Accrued
insurance
|
|
|
14,102
|
|
|
11,139
|
|
Other
|
|
|
19,916
|
|
|
21,995
|
|
|
|
$
|
45,411
|
|
$
|
52,886
|
|
9. DEBT
A
summary
of our debt and capital leases is as follows (in thousands):
|
|
December
31
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Senior
secured credit facility due 2011
|
|
$
|
—
|
|
$
|
9,100
|
|
8⅜%
senior subordinated notes due 2014
|
|
|
283,807
|
|
|
283,616
|
|
Capital
leases
|
|
|
763
|
|
|
1,533
|
|
Superior
Materials Holdings, LLC secured credit facility
due 2010
|
|
|
7,816
|
|
|
—
|
|
Notes
payable
|
|
|
6,114
|
|
|
9,043
|
|
|
|
|
298,500
|
|
|
303,292
|
|
Less:
current maturities
|
|
|
3,172
|
|
|
3,764
|
|
|
|
$
|
295,328
|
|
$
|
299,528
|
|
Senior
Secured Credit Facility
On
June
30, 2006, we entered into a credit agreement (“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 $150 million
revolving credit facility, with borrowings limited based on a portion of the
net
amounts of eligible accounts receivable, inventory and mixer trucks. The
facility matures in March 2011. At December 31, 2007, there were no new
borrowings under this facility and new borrowings under the facility would
have
borne annual interest at the Eurodollar-based rate (“LIBOR”) plus 1.75% or the
domestic rate of 7.25% plus 0.25%. 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. At December 31, 2007, the
amount of the available credit was approximately $112.6 million, net of
outstanding letters of credit of approximately $11.8 million.
Our
subsidiaries, excluding our recently formed 60%-owned
Michigan
subsidiary and minor subsidiaries without operations or material assets, have
guaranteed the repayment of all amounts owing under the Credit Agreement (see
Notes 4 and 17). In addition, we collateralized our obligations under the Credit
Agreement with the capital stock of our subsidiaries, excluding our recently
formed 60%-owned
Michigan
subsidiary 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 our 60%-owned
Michigan
subsidiary. 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.
Senior
Subordinated Notes
On
March
31, 2004, we issued $200 million of 8⅜% senior subordinated notes due April 1,
2014. 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 the outstanding debt under our credit facility. In July 2006, we
issued $85 million of additional 8⅜% senior subordinated notes due April 1, 2014
to fund a portion of the purchase price for the acquisition of Alberta
Investments and Alliance Haulers.
All
of
our subsidiaries, excluding our recently formed 60%-owned Michigan
subsidiary and minor subsidiaries, have jointly and severally and fully and
unconditionally guaranteed the repayment of the 8⅜%
senior
subordinated notes.
The
indenture governing the 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. After March 31, 2009, we may redeem all or a part of the
notes at a redemption price of 104.188% in 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 subordinated 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 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% senior
subordinated 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 non cash items
equal or exceed two times our total interest expense.
Superior
Materials Holdings, LLC Credit Facility
Superior
Materials Holdings, LLC has a separate credit agreement which provides for
a
revolving credit facility. The credit agreement was amended on February 29,
2008
and allows for borrowings of up to $20 million. Borrowings under this
credit facility are collateralized by substantially all the assets of Superior
Materials Holdings, LLC 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 and inventory and $5 million plus $1.5
million for the period January 1 and ending May 31 of
each
year. The
credit agreement provides that the administrative agent may, on the bases
specified, reduce the amount of the available credit from time to time. As
of December 31, 2007, there were $7.8 million in outstanding borrowings under
the revolving credit facility, and the remaining amount of the available credit
was approximately $8.6 million (see Note 4).
Currently,
borrowings under the facility are subject to an interest pricing grid ranging
from LIBOR plus 125 basis points to LIBOR plus 250 basis points. The
interest rate margins vary inversely with the ratio of funded debt to
EBITDA. Commitment fees at an annual rate of 25 basis points are payable
on the unused portion of the facility.
The
credit agreement contains covenants restricting, among other things, Superior
Materials Holdings’ 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 Materials Holdings, LLC’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 be at least $6.0 million
for the nine months ended December 31, 2007. Superior Materials Holdings,
LLC was not in compliance with the EBITDA financial covenant for the quarter
ended December 31, 2007. However, the lender has agreed to waive their
default rights under the credit facility with respect to this
covenant.
10. STOCKHOLDERS’
EQUITY
Common
Stock and Preferred Stock
The
following table presents information regarding our common stock (in
thousands):
|
|
December
31
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Shares
authorized
|
|
|
60,000
|
|
|
60,000
|
|
Shares
outstanding at end of period
|
|
|
39,361
|
|
|
38,795
|
|
Shares
held in treasury
|
|
|
315
|
|
|
231
|
|
Under
our
restated certificate of incorporation, we are authorized to issue 10,000,000
shares of preferred stock, $0.001 par value, of which none were issued or
outstanding as of December 31, 2007 and 2006.
Restricted
Stock
Shares
of
restricted common stock issued under our 1999 Incentive Plan and 2001 Employee
Incentive Plan are subject to restrictions on transfer and certain other
conditions. On issuance of the stock, an unamortized compensation expense
equivalent to the market value of the shares on the date of grant is charged
to
stockholders’ equity and is amortized over the restriction period. During the
restriction period, the holders of restricted shares are entitled to vote and
receive dividends, if any, on those shares.
During
the years ended December 31, we awarded approximately 311,000 shares in
2007, 340,000 shares in 2006 and 244,000 shares in 2005 of restricted stock
under those plans to employees and retired employees, at a total value of $2.7
million in 2007, $3.8 million in 2006 and $1.7 million in 2005, as part of
the
2007, 2006 and 2005 annual grants or as grants issued for promotions and new
hires. The awards are subject to vesting requirements. Under SFAS 123R,
share-based compensation is measured at the grant date based on the closing
price of our stock on the date preceding the grant date. The expense is
recognized over the employee’s requisite service period, generally, the vesting
period of the award.
During
the years ended December 31, approximately 35,000 shares of restricted stock
were canceled in 2007, 54,000 shares of restricted stock were canceled in 2006
and 45,000 shares of restricted stock were canceled in 2005.
As
of
December 31, the outstanding shares of restricted stock totaled approximately
805,000 in 2007, 730,000 in 2006 and approximately 722,000 in 2005. We
recognized stock-based compensation expense related to restricted stock and
stock options of approximately $3.0 million ($1.9 million, net of tax) in 2007,
$2.8 million ($1.7
million, net of tax) in
2006 and
$1.7 million ($1.1
million, net of tax) in
2005.
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 a value on the date of vesting equal to the
tax
obligation. As a result of such employee elections, during the years ended
December 31, we withheld approximately 84,000 shares at a total value of $0.8
million in 2007, 92,000 shares at a total value of $0.9 million in 2006 and
approximately 80,000 shares at a total value of $0.5 million in 2005,
and those shares were accounted for as treasury stock.
Employee
Stock Purchase Plan
In
January 2000, our board of directors adopted, and its stockholders approved
our
2000 Employee Stock Purchase Plan (the “ESPP”). The ESPP is intended to qualify
as an “employee stock purchase plan” under Section 423 of the Internal Revenue
Code of 1986. All personnel employed by us for at least 20 hours per week and
five months per calendar year are eligible to participate in the ESPP. For
any
offering period ending on or prior to December 31, 2005, eligible employees
electing to participate were granted the right to purchase shares of our common
stock at a price generally equal to 85% of the lower of the fair market value
of
a share of our common stock on the first or last day of the offering period.
For
any offering period beginning on or after January 1, 2006, eligible employees
electing to participate will be granted the right to purchase shares of our
common stock at a price equal to 85% of the fair market value of a share of
our
common stock on the last day of the offering period. We issued approximately
221,000 shares in 2007, 135,000 shares in 2006 and 154,000 shares in
2005.
Public
Offering of Common Stock
In
February 2006, we received $90.6 million in gross proceeds from an underwritten
public offering of 8,050,000 shares of U.S. Concrete common stock. After
deducting the underwriters’ commission and offering expenses, net proceeds were
approximately $84.8 million.
11. INCOME
TAXES
Our
consolidated federal and state tax returns include the results of operations
of
acquired businesses from their dates of acquisition.
A
reconciliation of our effective income tax rate to the amounts calculated by
applying the federal statutory corporate tax rate of 35% during the years ended
December 31, 2007, 2006 and 2005 is as follows (in thousands):
|
|
2007
|
|
2006
|
|
2005
|
|
Tax
at statutory rate
|
|
$
|
(22,300
|
)
|
$
|
(2,084
|
)
|
$
|
8,336
|
|
Add
(deduct):
|
|
|
|
|
|
|
|
|
|
|
State
income taxes
|
|
|
867
|
|
|
92
|
|
|
946
|
|
Manufacturing
deduction
|
|
|
(270
|
)
|
|
(191
|
)
|
|
(102
|
)
|
Settlement
income
|
|
|
(291
|
)
|
|
—
|
|
|
—
|
|
Tax
audit settlement
|
|
|
(1,611
|
)
|
|
6
|
|
|
—
|
|
Goodwill
impairment
|
|
|
23,751
|
|
|
3,332
|
|
|
—
|
|
Other
|
|
|
(98
|
)
|
|
193
|
|
|
206
|
|
Income
tax provision
|
|
$
|
48
|
|
$
|
1,348
|
|
$
|
9,386
|
|
Effective
income tax rate
|
|
|
(0.1
|
)%
|
|
(22.6
|
%)
|
|
39.4
|
%
|
The
amounts of our consolidated federal and state income tax provision (benefit)
from continuing operations during the years ended December 31, 2007, 2006 and
2005 are as follows (in thousands):
|
|
2007
|
|
2006
|
|
2005
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
4,446
|
|
$
|
8,398
|
|
$
|
2,440
|
|
State
|
|
|
1,042
|
|
|
907
|
|
|
610
|
|
|
|
|
5,488
|
|
|
9,305
|
|
|
3,050
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(4,799
|
)
|
$
|
(6,934
|
)
|
$
|
5,892
|
|
State
|
|
|
(641
|
)
|
|
(1,023
|
)
|
|
444
|
|
|
|
|
(5,440
|
)
|
|
(7,957
|
)
|
|
6,336
|
|
Income
tax provision from continuing operations
|
|
$
|
48
|
|
$
|
1,348
|
|
$
|
9,386
|
|
Deferred
income tax provisions result from temporary differences in the recognition
of
expenses for financial reporting purposes and for tax reporting purposes. We
present the effects of those differences as deferred income tax liabilities
and
assets, as follows (in thousands):
|
|
December
31
|
|
|
|
2007
|
|
2006
|
|
Deferred
income tax liabilities:
|
|
|
|
|
|
Properties,
plant and equipment, net
|
|
$
|
45,226
|
|
$
|
49,564
|
|
Other
|
|
|
318
|
|
|
—
|
|
Total
deferred tax liabilities
|
|
$
|
45,544
|
|
|
49,564
|
|
Deferred
income tax assets:
|
|
|
|
|
|
|
|
Goodwill
and other intangibles
|
|
$
|
16,909
|
|
$
|
15,087
|
|
Receivables
|
|
|
1,129
|
|
|
1,156
|
|
Inventory
|
|
|
1,839
|
|
|
1,402
|
|
Accrued
insurance
|
|
|
4,485
|
|
|
4,025
|
|
Other
accrued expenses
|
|
|
4,964
|
|
|
3,456
|
|
Net
operating loss carryforwards
|
|
|
113
|
|
|
113
|
|
Other
|
|
|
279
|
|
|
274
|
|
Total
deferred tax assets
|
|
$
|
29,718
|
|
$
|
25,513
|
|
Net
deferred tax liabilities
|
|
|
15,826
|
|
|
24,051
|
|
Current
deferred tax assets
|
|
|
10,937
|
|
|
9,461
|
|
Long-term
deferred income tax liabilities
|
|
$
|
26,763
|
|
$
|
33,512
|
|
In
assessing the value of deferred tax assets at December 31, 2007 and 2006,
we considered whether it was more likely than not that some or all of the
deferred tax assets would not be realized. The ultimate realization of deferred
tax assets depends on the generation of future taxable income during the periods
in which those temporary differences become deductible. We consider the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. Based on these
considerations, we determined that our deferred tax assets would be realized
and
a valuation allowance was not required at December 31, 2007 and
2006.
As
disclosed in Note 1, we adopted the provisions of FIN 48 as of January 1,
2007. At December 31, 2007, we had unrecognized tax benefits of $6.4
million of which $2.2 million, if recognized, would impact the effective
tax
rate. It is reasonably possible that a reduction of $1.4 million of unrecognized
tax benefits may occur within 12 months. The unrecognized tax benefits are
included as a component of Other long-term obligations. During the years
ended
December 31, 2007 and 2006, we recorded interest and penalties related to
unrecognized tax benefits of approximately $0.4 million and $0.3 million,
respectively. Total accrued and penalties interest at December 31, 2007 and
2006 was approximately $0.5 million and $0.8 million, respectively. A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows (in thousands):
|
|
2007
|
|
Balance
as of January 1, 2007
|
|
$
|
8,090
|
|
Additions
for tax positions related to the current year
|
|
|
1,920
|
|
Additions
for tax positions related of prior years
|
|
|
680
|
|
Reductions
for tax positions of prior years
|
|
|
(426
|
)
|
Settlements
|
|
|
(3,843
|
)
|
Balance
as of December 31, 2007
|
|
$
|
6,421
|
|
We
conduct business domestically and, as a result, U.S. Concrete, Inc. or one
or
more of our subsidiaries file income tax returns in the U.S. federal
jurisdiction and various state and local jurisdictions. In the normal course
of
business, we are subject to examination in U.S. federal jurisdiction, and
generally in state jurisdictions. With few exceptions, we are no longer
subject to U.S. federal, state and local tax examinations for years before
2004.
12.
BUSINESS SEGMENTS
Operating
segments are defined under the guidance of SFAS No. 131, “Disclosures about
Segments of an Enterprise and Related Information,” as components of an
enterprise that engage in business activities that earn revenue, incur expenses
and prepare financial information that is evaluated regularly by the chief
operating decision maker in order to allocate resources and assess performance.
We have six operating segments based upon our six geographic reporting units
that serve our principal markets in the United States and have historically
aggregated those operating segments into one reportable segment based upon
the
guidance in SFAS No. 131.
During
the third quarter of 2006, we re-assessed our application of SFAS No. 131 and,
based on the expected variation in the long-term margins of our operating
segments, determined that it would be appropriate to begin presenting previously
aggregated six geographic reporting units as two reportable segments, primarily
along the following product lines: ready-mixed concrete and concrete-related
products; and precast concrete products. In conjunction with this re-assessment,
U.S. Concrete has revised its prior period presentation to correspond with
the
revision.
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,
Washington, D.C., and Michigan. Our precast concrete products segment
produces and sells precast concrete products in select markets in the western
United States and the mid-Atlantic region.
We
account for inter-segment sales at market prices. Segment operating profit
consists of net sales less operating expense, including certain operating
overhead directly related to the operation of the specific segment.
Corporate includes administrative, financial, legal, human resources and risk
management activities which are not allocated to operations and are excluded
from segment operating profit.
The
following table sets forth certain financial information relating to our
continuing operations by reportable segment (in thousands):
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Sales:
|
|
|
|
|
|
|
|
Ready-mixed
concrete and concrete-related products
|
|
$
|
745,384
|
|
$
|
655,724
|
|
$
|
455,808
|
|
Precast
concrete products
|
|
|
73,300
|
|
|
80,915
|
|
|
71,900
|
|
Inter-segment
sales
|
|
|
(14,881
|
)
|
|
(8,129
|
)
|
|
(2,071
|
)
|
Total
sales
|
|
$
|
803,803
|
|
$
|
728,510
|
|
$
|
525,637
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Operating Income:
|
|
|
|
|
|
|
|
|
|
|
Ready-mixed
concrete and concrete-related products
|
|
$
|
(32,129
|
)
|
$
|
11,910
|
|
$
|
37,428
|
|
Precast
concrete products
|
|
|
(1,454
|
)
|
|
11,669
|
|
|
12,568
|
|
Unallocated
overhead and other income
|
|
|
12,503
|
|
|
8,763
|
|
|
5,209
|
|
Corporate:
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expense
|
|
|
15,955
|
|
|
16,709
|
|
|
14,069
|
|
Interest
income
|
|
|
114
|
|
|
1,601
|
|
|
853
|
|
Interest
expense
|
|
|
28,092
|
|
|
23,189
|
|
|
18,172
|
|
Minority
interest in net loss of subsidiary
|
|
|
(1,301
|
)
|
|
—
|
|
|
—
|
|
Income
(loss) before income taxes
|
|
$
|
(63,712
|
)
|
$
|
(5,955
|
)
|
$
|
23,817
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation,
Depletion and Amortization:
|
|
|
|
|
|
|
|
|
|
|
Ready-mixed
concrete and concrete-related products
|
|
$
|
26,539
|
|
$
|
18,445
|
|
$
|
10,818
|
|
Precast
concrete products
|
|
|
1,940
|
|
|
1,284
|
|
|
794
|
|
Corporate
|
|
|
403
|
|
|
412
|
|
|
490
|
|
Total
depreciation, depletion and amortization
|
|
$
|
28,882
|
|
$
|
20,141
|
|
$
|
12,102
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Expenditures:
|
|
|
|
|
|
|
|
|
|
|
Ready-mixed
concrete and concrete-related products
|
|
$
|
21,060
|
|
$
|
34,738
|
|
$
|
12,036
|
|
Precast
concrete products
|
|
|
7,786
|
|
|
3,798
|
|
|
4,131
|
|
Total
capital expenditures
|
|
$
|
28,846
|
|
$
|
38,536
|
|
$
|
16,167
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Sales
by Product:
|
|
|
|
|
|
|
|
Ready-mixed
concrete
|
|
$
|
658,128
|
|
$
|
589,285
|
|
$
|
409,112
|
|
Precast
concrete products
|
|
|
75,153
|
|
|
83,111
|
|
|
73,923
|
|
Building
materials
|
|
|
19,427
|
|
|
21,912
|
|
|
21,582
|
|
Aggregates
|
|
|
26,490
|
|
|
19,913
|
|
|
8,698
|
|
Other
|
|
|
24,605
|
|
|
14,289
|
|
|
12,322
|
|
Total
sales
|
|
$
|
803,803
|
|
$
|
728,510
|
|
$
|
525,637
|
|
Identifiable
Assets (as of December 31):
|
|
|
|
|
|
|
|
Ready-mixed
concrete and concrete-related products
|
|
$
|
506,999
|
|
$
|
598,328
|
|
$
|
379,843
|
|
Precast
concrete products
|
|
|
79,557
|
|
|
70,654
|
|
|
57,508
|
|
Corporate
|
|
|
60,700
|
|
|
47,664
|
|
|
56,692
|
|
Total
assets
|
|
$
|
647,256
|
|
$
|
716,646
|
|
$
|
494,043
|
|
13. RISK
CONCENTRATION
We
grant
credit, generally without collateral, to our customers, which include general
contractors, municipalities and commercial companies located primarily in Texas,
California, New Jersey/New York, Michigan and Tennessee. Consequently, we are
subject to potential credit risk related to changes in business and economic
factors in those states. We generally have lien rights in the work we perform,
and concentrations of credit risk are limited because of the diversity of our
customer base. Further, our management believes that our contract acceptance,
billing and collection policies are adequate to limit any potential credit
risk.
Our
cash
deposits are distributed among various banks in areas where we have operations
in various regions of the United States as of December 31, 2007. In addition,
we
had money-market funds with a financial institution with a strong credit rating.
As a result, we believe that credit risk in such instruments is
minimal.
14. 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 the 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. During the year ended December 31, 2007, we
recorded a $2.3 million liability associated with certain ongoing litigation.
Based on information available to us as of December 31, 2007, we believe our
accruals for these matters are reasonable.
We
believe that the resolution of all litigation currently pending or threatened
against us or any of our subsidiaries should not have a material adverse effect
on our business consolidated financial condition, results of operations or
liquidity; however, because of the inherent uncertainty of litigation, we cannot
provide assurance that the resolution of any particular claim or proceeding
to
which we or any of our subsidiaries is a party will not have a material adverse
effect on our consolidated results of operations or liquidity for the fiscal
period in which that resolution occurs. 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
that
these claims should not have a material impact on our consolidated financial
condition, results of operations or liquidity. Despite compliance and
experience, it is possible that we could be held liable for future charges,
which might be material, but are not currently known to us or cannot be
estimated by us. In addition, changes in federal or state laws, regulations
or
requirements, or discovery of currently unknown conditions, could require
additional expenditures.
As
permitted under Delaware law, we have agreements that provide indemnification
of
officers and directors for certain events or occurrences while the officer
or
director is or was serving at our request in such capacity. The maximum
potential amount of future payments that we could be required to make under
these indemnification agreements is not limited; however, we have a director
and
officer insurance policy that potentially limits our exposure and enables us
to
recover a portion of future amounts that may be paid. As a result of the
insurance policy coverage, we believe the estimated fair value of these
indemnification agreements is minimal. Accordingly, we have not recorded any
liabilities for these agreements as of December 31, 2007.
We
and
our subsidiaries are parties to agreements that require us to provide
indemnification in certain instances when we acquire businesses and real estate
and in the ordinary course of business with our customers, suppliers, lessors
and service providers.
Lease
Payments
We
lease
certain mobile and other equipment, land, facilities, office space and other
items which, in the normal course of business, are renewed or replaced by
subsequent leases. Total expense for such operating leases amounted
to $17.8
million in 2007, $14.6 million in 2006 and $14.4 million in 2005.
Future
minimum rental payments with respect to our lease obligations as of December
31,
2007, were as follows:
|
|
Capital
Leases
|
|
Operating
Leases
|
|
|
|
(in
millions)
|
|
Year
ending December 31:
|
|
|
|
|
|
2008
|
|
$
|
0.3
|
|
$
|
14.1
|
|
2009
|
|
|
0.2
|
|
|
9.8
|
|
2010
|
|
|
0.2
|
|
|
6.6
|
|
2011
|
|
|
—
|
|
|
3.3
|
|
2012
|
|
|
—
|
|
|
2.4
|
|
Later
years
|
|
|
—
|
|
|
5.7
|
|
|
|
$
|
0.7
|
|
$
|
41.9
|
|
|
|
|
|
|
|
|
|
Total
future minimum rental payments
|
|
$
|
0.8
|
|
|
|
|
Less
amounts representing imputed interest
|
|
|
0.1
|
|
|
|
|
Present
value of future minimum rental payments under capital leases
|
|
|
0.7
|
|
|
|
|
Less
current portion
|
|
|
0.3
|
|
|
|
|
Long-term
capital lease obligations
|
|
$
|
0.4
|
|
|
|
|
Insurance
Programs
We
maintain third-party insurance coverage in amounts and against the risks we
believe are reasonable. 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, we believe
our deductible retentions per occurrence for auto, general liability and
workers’ compensation insurance programs are consistent with industry practices
and, although thee are variations among our business units. We fund these
deductibles and record an expense for expected losses under the programs. The
expected losses are determined using a combination of our historical loss
experience and subjective assessments of our future loss exposure. The estimated
losses are subject to uncertainty from various sources, including changes in
claims reporting patterns, claims settlement patterns, judicial decisions,
legislation and economic conditions. Although we believe that the estimated
losses we have recorded are reasonable, significant differences related to
the
items noted above could materially affect our insurance obligations and future
expense.
In
March
2007, we settled a lawsuit with a third-party claims administrator responsible
for handling workers’ compensation claims related to 2002 and 2003. The
settlement relieves us of any future responsibility relating to certain workers’
compensation claims and required the payment of $225,000 in cash to us by the
third-party administrator. As a result, we recorded additional income of
approximately $1.4 million resulting from the reversal of accrued liabilities
relating to workers’ compensation claims associated with 2002 and 2003 and the
cash settlement amount. The additional income is reported in our financial
statements primarily as an offset to cost of sales in 2007.
Performance
Bonds
In
the
normal course of business, we and our subsidiaries are contingently liable
for
performance under $26.7 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.
15. SIGNIFICANT
CUSTOMERS AND SUPPLIERS
We
did
not have any customers that accounted for more than 10% of our revenues or
any
suppliers that accounted for more than 10% of our cost of goods sold in 2007,
2006 or 2005.
16. EMPLOYEE
BENEFIT PLANS
We
maintain a defined contribution 401(k) profit sharing plan for employees meeting
various employment requirements. Eligible employees may contribute amounts
up to
the lesser of 15% of their annual compensation or the maximum amount IRS
regulations permit. We match 100% of employee contributions up to a maximum
of
5% of their compensation. We paid matching contributions of $3.5 million in
2007, $2.6 million in 2006 and $2.1 million in 2005.
Several
of our subsidiaries are parties to various collective bargaining agreements
with
labor unions having multi-year terms that expire on a staggered basis. Under
these agreements, our applicable subsidiaries pay specified wages to covered
employees, observes designated workplace rules and makes payments to
multi-employer pension plans and employee benefit trusts rather than
administering the funds on behalf of these employees.
In
connection with our collective bargaining agreements, we participate with other
companies in the unions’ multi-employer pension plans. These plans cover
substantially all of U.S. Concrete’s employees who are members of such unions.
The Employee Retirement Income Security Act of 1974, as amended by the
Multi-Employer Pension Plan Amendments Act of 1980, imposes liabilities on
employers who are contributors to a multi-employer plan in the event of the
employer’s withdrawal from, or on termination of, that plan. In 2001, a
subsidiary of one of our subsidiaries withdrew from the multi-employer pension
plan of the union that represented several of its employees. That union
disclaimed interest in representing those employees. There are no plans to
withdraw from any other multi-employer plans. Our contributions to these plans
were $13.7 million in 2007, $15.1 million in 2006 and $13.9 million in
2005.
See
Note
10 for discussions of U.S. Concrete’s incentive plans and employee stock
purchase plan.
17.
FINANCIAL STATEMENTS OF SUBSIDIARY GUARANTORS
All
of
our subsidiaries, excluding our recently formed Michigan 60%-owned subsidiary,
Superior Materials Holdings, LLC (see Note 4) 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.
and the subsidiary guarantors (including minor subsidiaries), our 60%-owned
Michigan non-guarantor subsidiary and our total company as of and for the year
ended December 31, 2007.
Condensed
Consolidating Balance
Sheet
As
of December 31, 2007:
|
|
U.S.
Concrete
&
Subsidiary
Guarantors1
|
|
Superior
Material Holdings,
LLC
|
|
Eliminations
|
|
Consolidated
|
|
ASSETS
|
|
(in
thousands)
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
13,368
|
|
$
|
1,482
|
|
$
|
—
|
|
$
|
14,850
|
|
Trade
accounts receivable, net.
|
|
|
90,763
|
|
|
11,849
|
|
|
—
|
|
|
102,612
|
|
Inventories
|
|
|
28,182
|
|
|
4,375
|
|
|
—
|
|
|
32,557
|
|
Deferred
income taxes
|
|
|
10,937
|
|
|
|
|
|
—
|
|
|
10,937
|
|
Prepaid
expenses
|
|
|
4,625
|
|
|
631
|
|
|
—
|
|
|
5,256
|
|
Other
current assets
|
|
|
10,615
|
|
|
772
|
|
|
—
|
|
|
11,387
|
|
Assets
held for sale
|
|
|
7,273
|
|
|
|
|
|
—
|
|
|
7,273
|
|
Total
current assets
|
|
|
165,763
|
|
|
19,109
|
|
|
—
|
|
|
184,872
|
|
Properties,
plant and equipment, net
|
|
|
232,004
|
|
|
35,006
|
|
|
—
|
|
|
267,010
|
|
Goodwill
|
|
|
184,999
|
|
|
—
|
|
|
|
|
|
184,999
|
|
Other
assets
|
|
|
30,281
|
|
|
126
|
|
|
|
)
|
|
10,375
|
|
Total
assets
|
|
$
|
613,047
|
|
$
|
54,241
|
|
$
|
(20,032
|
)
|
$
|
647,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
maturities of long-term debt
|
|
$
|
2,816
|
|
$
|
356
|
|
$
|
—
|
|
$
|
3,172
|
|
Accounts
payable
|
|
|
40,801
|
|
|
7,359
|
|
|
—
|
|
|
48,160
|
|
Accrued
liabilities
|
|
|
42,591
|
|
|
2,820
|
|
|
—
|
|
|
45,411
|
|
Total
current liabilities
|
|
|
86,208
|
|
|
10,535
|
|
|
—
|
|
|
96,743
|
|
Long-term
debt, net of current maturities
|
|
|
287,106
|
|
|
8,222
|
|
|
—
|
|
|
295,328
|
|
Other
long-term obligations and deferred credits
|
|
|
5,914
|
|
|
—
|
|
|
3,211
|
|
|
9,125
|
|
Deferred
income taxes
|
|
|
26,763
|
|
|
—
|
|
|
—
|
|
|
26,763
|
|
Total
liabilities
|
|
|
405,991
|
|
|
18,757
|
|
|
3,211
|
|
|
427,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest in consolidated subsidiary
|
|
|
—
|
|
|
—
|
|
|
14,192
|
|
|
14,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
39
|
|
|
—
|
|
|
—
|
|
|
39
|
|
Additional
paid-in capital
|
|
|
267,817
|
|
|
38,736
|
|
|
(38,736
|
)
|
|
267,817
|
|
Retained
deficit
|
|
|
(58,167
|
)
|
|
(3,252
|
)
|
|
1,301
|
|
|
(60,118
|
)
|
Treasury
stock, at cost
|
|
|
(2,633
|
)
|
|
—
|
|
|
—
|
|
|
(2,633
|
)
|
Total
stockholders' equity
|
|
|
207,056
|
|
|
35,484
|
|
|
(37,435
|
)
|
|
205,105
|
|
Total
liabilities and stockholders' equity
|
|
$
|
613,047
|
|
$
|
54,241
|
|
$
|
(20,032
|
)
|
$
|
647,256
|
|
1
Including
minor subsidiaries without operations or material assets.
Condensed
Consolidating Statement of
Operations
Year
ended December 31, 2007:
|
|
U.S.
Concrete & Subsidiary Guarantors1
|
|
Superior
Materials Holdings, LLC
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(in
thousands)
|
|
Sales
|
|
$
|
721,777
|
|
$
|
82,026
|
|
$
|
—
|
|
$
|
803,803
|
|
Cost
of goods sold before depreciation, depletion and
amortization
|
|
|
588,115
|
|
|
75,517
|
|
|
—
|
|
|
663,632
|
|
Goodwill
and other asset impairments
|
|
|
81,993
|
|
|
249
|
|
|
—
|
|
|
82,242
|
|
Selling,
general and administrative expenses
|
|
|
64,678
|
|
|
4,991
|
|
|
—
|
|
|
69,669
|
|
Depreciation,
depletion and amortization
|
|
|
25,123
|
|
|
3,759
|
|
|
—
|
|
|
28,882
|
|
Loss
from operations
|
|
|
(38,132
|
)
|
|
(2,490
|
)
|
|
—
|
|
|
(40,622
|
)
|
Interest
income
|
|
|
114
|
|
|
—
|
|
|
—
|
|
|
114
|
|
Interest
expense
|
|
|
27,616
|
|
|
476
|
|
|
—
|
|
|
28,092
|
|
Other
income, net
|
|
|
3,514
|
|
|
73
|
|
|
—
|
|
|
3,587
|
|
Minority
interest in consolidated subsidiary
|
|
|
—
|
|
|
—
|
|
|
(1,301
|
)
|
|
(1,301
|
)
|
Loss
before income tax provision (benefit)
|
|
|
(62,120
|
)
|
|
(2,893
|
)
|
|
1,301
|
|
|
(63,712
|
)
|
Income
tax provision (benefit)
|
|
|
(311
|
)
|
|
359
|
|
|
—
|
|
|
48
|
|
Loss
from continuing operations
|
|
|
(61,809
|
)
|
|
(3,252
|
)
|
|
1,301
|
|
|
(63,760
|
)
|
Loss
from discontinued operations, net of tax benefit of $3,911
|
|
|
(5,241
|
)
|
|
—
|
|
|
—
|
|
|
(5,241
|
)
|
Net
loss
|
|
$
|
(67,050
|
)
|
$
|
(3,252
|
)
|
$
|
1,301
|
|
$
|
(69,001
|
)
|
1
Including
minor subsidiaries without operations or material assets.
Condensed
Consolidating Statement of Cash
Flows
Year
ended December 31, 2007:
|
|
U.S.
Concrete & Subsidiary Guarantors1
|
|
Superior
Materials Holdings, LLC
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(in
thousands)
|
|
Net
cash provided by (used in) operating activities
|
|
$
|
52,345
|
|
$
|
(8,007
|
)
|
$
|
—
|
|
$
|
44,338
|
|
Net
cash provided by (used in) investing activities
|
|
|
(34,232
|
)
|
|
148
|
|
|
—
|
|
|
(34,084
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
(12,549
|
)
|
|
8,341
|
|
|
—
|
|
|
(4,208
|
)
|
Net
increase in cash and cash equivalents
|
|
|
5,564
|
|
|
482
|
|
|
—
|
|
|
6,046
|
|
Cash
and cash equivalents at the beginning of the period
|
|
|
7,804
|
|
|
1,000
|
|
|
—
|
|
|
8,804
|
|
Cash
and cash equivalents at the end of the period
|
|
$
|
13,368
|
|
$
|
1,482
|
|
$
|
—
|
|
$
|
14,850
|
|
1
Including
minor subsidiaries without operations or material assets.
18. QUARTERLY
SUMMARY (unaudited)
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
|
|
(in
thousands, except per share data)
|
|
2007
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
157,494
|
|
$
|
209,507
|
|
$
|
238,086
|
|
$
|
198,716
|
|
Income
(loss) from continuing operations (2)
|
|
|
(5,224
|
)
|
|
7,044
|
|
|
10,127
|
|
|
(75,707
|
)
|
Loss
from discontinued operations (3)
|
|
|
(505
|
)
|
|
(220
|
)
|
|
(83
|
)
|
|
(4,433
|
)
|
Net
income (loss)
|
|
|
(5,729
|
)
|
|
6,824
|
|
|
10,044
|
|
|
(80,140
|
)
|
Basic
and diluted earnings (loss) per share(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
$
|
(0.14
|
)
|
$
|
0.18
|
|
$
|
0.26
|
|
$
|
(1.97
|
)
|
From
discontinued operations
|
|
$
|
(0.01
|
)
|
$
|
0.00
|
|
$
|
0.00
|
|
$
|
(0.12
|
)
|
Net
income (loss)
|
|
$
|
(0.15
|
)
|
$
|
0.18
|
|
$
|
0.26
|
|
$
|
(2.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
124,920
|
|
$
|
171,692
|
|
$
|
234,700
|
|
$
|
197,198
|
|
Income
(loss) from continuing operations (2)
|
|
|
(2,290
|
)
|
|
7,309
|
|
|
11,206
|
|
|
(23,528
|
)
|
Income
(loss) from discontinued operations
|
|
|
(411
|
)
|
|
(106
|
)
|
|
18
|
|
|
(288
|
)
|
Net
income (loss)
|
|
|
(2,701
|
)
|
|
7,203
|
|
|
11,224
|
|
|
(23,816
|
)
|
Basic
earnings (loss) per share(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
$
|
(0.07
|
)
|
$
|
0.19
|
|
$
|
0.30
|
|
$
|
(0.61
|
)
|
From
discontinued operations
|
|
$
|
(0.01
|
)
|
$
|
0.00
|
|
$
|
0.00
|
|
$
|
(0.01
|
)
|
Net
income (loss)
|
|
$
|
(0.08
|
)
|
$
|
0.19
|
|
$
|
0.30
|
|
$
|
(0.62
|
)
|
Diluted
earnings (loss) per share (1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
$
|
(0.07
|
)
|
$
|
0.19
|
|
$
|
0.29
|
|
$
|
(0.61
|
)
|
From
discontinued operations
|
|
$
|
(0.01
|
)
|
$
|
0.00
|
|
$
|
0.00
|
|
$
|
(0.01
|
)
|
Net
income (loss)
|
|
$
|
(0.08
|
)
|
$
|
0.19
|
|
$
|
0.29
|
|
$
|
(0.62
|
)
|
(1) |
We
completed earnings (loss) per share (“EPS”) for each quarter using the
weighted-average number of shares outstanding during the quarter,
while
EPS for the fiscal year is computed using the weighted-average number
of
shares outstanding during the year. Thus, the sum of the EPS for
each of
the four quarters may not equal the EPS for the fiscal year.
|
(2) |
The
fourth quarter results include an impairment charge of $76.4 million,
net
of tax, in 2007 and $26.8 million, net of tax in 2006, pursuant to
our
annual review of goodwill in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible
Assets”.
|
(3) |
In
the fourth quarter of 2007, we discontinued the operations of three
business units in certain markets. The financial data for prior quarters
of 2007 and 2006 have been restated to segregate the effects of the
operations of those discontinued
units.
|
19. SUBSEQUENT
EVENTS
Divestitures
On
February 4, 2008 we sold our Memphis, Tennessee operations for approximately
$7.2 million, plus payment for certain inventory on hand at closing. The
financial results of this operation were reflected under the caption, “Loss from
discontinued operations” and we recorded a $4.6 million pretax loss on the sale
of these assets.
Stock
Repurchase Plan
On
January 7, 2008 our Board of Directors approved a plan to repurchase an
aggregate three million shares of our own common stock. Based on the $2.87
closing market price at the time of the announcement, this represents the use
of
approximately $9.0 million of available cash on hand as of December 31, 2007.
The plan permits the stock repurchases to be made on the open market or in
privately negotiated transactions in compliance with securities and other
applicable laws, subject to market and business conditions, levels of cash
generated from operations, and other relevant factors. We intend to retire
the
shares as soon as practicable following repurchase. Our stock repurchase plan
does not obligate us to purchase any particular number of shares and we may
suspend or discontinue the program at any time. As of March 3, 2008, we had
not
begun to repurchase shares of our own stock under this plan.
Not
applicable.
Disclosure
Controls and Procedures
In
accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of
1934, as amended (the “Exchange Act”), we carried out an evaluation, under the
supervision and with the participation of management, including our chief
executive officer and chief financial officer, of the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act) as of December 31, 2007. Based on that evaluation,
our chief executive officer and chief financial officer concluded that our
disclosure controls and procedures were effective as of December 31, 2007 to
provide reasonable assurance that information required to be disclosed in our
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by an issuer in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the issuer’s management,
including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure. During
the three months ended December 31, 2007, there
were
no changes in our internal control over financial reporting or in other factors
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as that term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal
control over financial reporting is a process designed to provide reasonable,
but not absolute, assurance regarding the reliability of financial reporting
and
the preparation of financial statements for external reporting purposes in
accordance with generally accepted accounting principles. Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements or acts of fraud. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies and procedures may
deteriorate.
We
completed the purchase of all operating assets of Architectural Precast, L.L.C.
(“API”), on October 1, 2007. Net sales from the acquired business are less
than 1% percent of consolidated revenues for the year ended December 31,
2007. Total assets of the acquired company are approximately 2% of our
consolidated total assets as of December 31, 2007. Because API was
acquired in 2007, our management did not include the internal controls over
the
acquired company in its assessment of the effectiveness of internal control
over
financial reporting as of December 31, 2007.
Under
the
supervision and with the participation of our management, including our
principal executive, financial and accounting officers, we have conducted an
evaluation of the effectiveness of our internal control over financial reporting
based on the framework in “Internal Control - Integrated Framework” issued by
the Committee of Sponsoring Organizations of the Treadway Commission. This
evaluation included a review of the documentation surrounding our internal
control over financial reporting, an evaluation of the design effectiveness
of
those controls and testing of the operating effectiveness of those controls.
Based on that evaluation, our management has concluded that our internal control
over financial reporting was effective as of December 31, 2007.
The
effectiveness of our control over financial reporting as of December 31, 2007
has been audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which is included
herein.
Item
9B. Other
Information
Not
applicable.
PART
III
In
Items
10, 11, 12, 13 and 14 below, we are incorporating by reference the information
we refer to in those Items from the definitive proxy statement for our 2008
Annual Meeting of Stockholders (the “2008 Annual Proxy Statement”). We intend to
file that definitive proxy statement with the SEC by April 30,
2008.
For
the
information this Item requires, please see the information under the headings
“Proposal No. 1—Election of Directors,” “Executive Officers,” “Information
Concerning the Board of Directors and Committees” and “Section 16(a) Beneficial
Ownership Reporting Compliance” in the 2008 Annual Proxy Statement, which is
incorporated in this Item by this reference.
We
have a
code of ethics applicable to all our employees and directors. In addition,
our
principal executive, financial and accounting officers are subject to the
provisions of the Code of Ethics of U.S. Concrete, Inc. for chief executive
officer and senior financial officers, a copy of which is available on our
Web
site at www.us-concrete.com.
In the
event that we amend or waive any of the provisions of these codes of ethics
applicable to our principal executive, financial and accounting officers, we
intend to disclose that action on our website.
For
the
information this Item requires, please see the information under the headings
“Compensation Discussion and Analysis,” “Compensation of Directors,”
“Compensation of Executive Officers,” “Compensation Committee Interlocks and
Insider Participation” and “Compensation Committee Report” in the 2008 Annual
Proxy Statement, which is incorporated in this Item by this
reference.
Item
12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
For
the
information this Item requires, please see the information (1) under the heading
“Equity Compensation Plan Information” in Item 5 of this report and (2) under
the heading “Security Ownership of Certain Beneficial Owners and Management” in
the 2008 Annual Proxy Statement, which is incorporated in this Item by this
reference.
All
shares of common stock issuable under our compensation plans are subject to
adjustment to reflect any increase or decrease in the number of shares
outstanding as a result of stock splits, combination of shares,
recapitalizations, mergers or consolidations.
For
the
information this Item requires, please see the information under the heading
“Certain Relationships and Related Transactions” in the 2008 Annual Proxy
Statement, which is incorporated in this Item by this reference.
For
the
information this Item requires, please see the information appearing under
the
heading “Fees Incurred by U.S. Concrete to Independent Registered Public
Accounting Firm” in the 2008 Annual Proxy Statement, which is incorporated in
this Item by this reference.
PART
IV
(a)(1)
Financial Statements.
For
the
information this item requires, please see Index to Consolidated Financial
Statements on page 42 of this report.
(2)
Financial Statement Schedules.
All
financial statement schedules are omitted because they are not required or
the
required information is shown in our Consolidated Financial Statements or the
notes thereto.
INDEX
TO EXHIBITS
(3)
Exhibits.
Exhibit
Number
|
|
Description
|
|
|
|
|
2.1
|
*
|
—
|
Asset
Purchase Agreement dated as of December 5, 2005 by and among U.S.
Concrete, Inc., Beall Concrete Enterprises, Ltd., Go-Crete, South
Loop
Development Corporation and John D. Yowell, Jr. (Form 10-K for
year ended
December 31, 2005 (File No. 000-26025), Exhibit 2.1).
|
|
|
|
|
2.2
|
*
|
—
|
Stock
Purchase Agreement dated as of June 27, 2006 by and among U.S.
Concrete,
Alliance Haulers, Inc., Alberta Investments, Inc., Atlas Concrete
Inc. and
Wild Rose Holdings Ltd. (Form 8-K dated June 28, 2006 (File No.
000-26025), Exhibit 2.1).
|
|
|
|
|
3.1
|
*
|
—
|
Restated
Certificate of Incorporation of U.S. Concrete dated May 9, 2006
(Form 8-K
dated May 9, 2006 (File No. 000-26025), Exhibit 3.1).
|
|
|
|
|
3.2
|
*
|
—
|
Amended
and Restated Bylaws of U.S. Concrete, as amended (Post Effective
Amendment
No. 1 to Form S-3 (Reg. No. 333-42860), Exhibit 4.2).
|
|
|
|
|
4.1
|
*
|
—
|
Certificate
of Designation of Junior Participating Preferred Stock (Form 10-Q
for the
quarter ended June 30, 2000 (File No. 000-26025), Exhibit
3.3).
|
|
|
|
|
4.2
|
*
|
—
|
Form
of certificate representing common stock (Form S-1 (Reg. No. 333-74855),
Exhibit 4.3).
|
|
|
|
|
4.3
|
*
|
—
|
Rights
Agreement by and between U.S. Concrete and American Stock Transfer
&
Trust Company, including form of Rights Certificate attached as
Exhibit B
thereto (Form S-1 (Reg. No. 333-74855), Exhibit 4.4).
|
|
|
|
|
4.4
|
*
|
—
|
Indenture
among U.S. Concrete, the Subsidiary Guarantors party thereto and
Wells
Fargo Bank, National
Association,
as Trustee, dated as of March 31, 2004, for the 8⅜% Senior Subordinated
Notes due 2014 (Form 10-Q for the quarter ended March 31, 2004
(File No.
000-26025), Exhibit 4.5).
|
|
|
|
|
4.5
|
*
|
—
|
Form
of Note (Form 10-Q for the quarter ended March 31, 2004 (File No.
000-26025), included as Exhibit A to
Exhibit
4.7).
|
|
|
|
|
4.6
|
*
|
—
|
Notation
of Guarantee by the Subsidiary Guarantors dated March 31, 2004
(Form 10-Q
for the quarter ended March
31,
2004 (File No. 000-26025), Exhibit 4.7).
|
|
|
|
|
4.7
|
*
|
—
|
First
Supplemental Indenture among U.S. Concrete, the Existing Guarantors
party
thereto, the Additional Guarantors party thereto and Wells Fargo
Bank,
National Association, as Trustee, dated as of July 5, 2006, for
the 8⅜%
Senior Subordinated Notes due 2014 (Form 8-K dated June 29, 2006
(File No.
000-26025), Exhibit 4.1).
|
|
|
|
|
4.8
|
*
|
—
|
Amended
and Restated Credit Agreement dated as of June 30, 2006 among U.S.
Concrete, the Lenders and Issuers named therein and Citicorp North
America, Inc. as administrative agent (Form 8-K dated June 29,
2006 (File
No. 000-26025), Exhibit 4.3).
|
|
|
|
|
4.9
|
*
|
—
|
Amendment
No. 1 to Amended and Restated Credit Agreement, effective as of
March 2,
2007, among U.S. Concrete,
Inc.,
Citicorp North America, Inc., Bank of America, N.A., JP Morgan
Chase Bank
and the Lenders and Issuers named therein (Form 10-Q for the quarter
ended
March 31, 2007 (file No. 000-20025), Exhibit 4.1).
|
|
|
|
|
4.10
|
*
|
—
|
Amendment
No. 2 to Amended and Restated Credit Agreement, effective as of
November
9, 2007, among U.S. Concrete, Inc., Citicorp North America Inc.,
Bank of
America, N.A., JPMorgan Chase Bank and the Lenders and Issuers
named
therein (Form 8-K dated November 9, 2007 (File No. 000-26025),
Exhibit
4.1).
|
|
|
|
|
4.11
|
*
|
—
|
Credit
Agreement, dated as of April 6, 2007, by and between Superior Materials,
LLC, BWB, LLC and Comerica Bank (Form 10-Q for the quarter ended
March 31, 2007 (File No. 000-26025),
Exhibit 4.2).
|
|
|
|
|
4.12
|
|
—
|
First
Amendment to Credit Agreement, dated February 29, 2008, by and between
Superior Materials, LLC, BWB, LLC and Comerica Bank. |
|
|
|
|
10.1
|
*†
|
—
|
1999
Incentive Plan of U.S. Concrete (Form S-1 (Reg. No. 333-74855),
Exhibit
10.1).
|
|
|
|
|
10.2
|
*†
|
—
|
Amendment
No. 1 to 1999 Incentive Plan of U.S. Concrete, Inc. dated January
9, 2003
(Form S-8 dated December 20, 2004 (Reg. No. 333-121458), Exhibit
10.2).
|
|
|
|
|
10.3
|
*†
|
—
|
Amendment
No. 2 to 1999 Incentive Plan of U.S. Concrete, Inc. dated December
17,
2004 (Form S-8 dated December 20, 2004 (Reg. No. 333-121458), Exhibit
10.3).
|
|
|
|
|
10.4
|
*†
|
—
|
Amendment
No. 3 to 1999 Incentive Plan of U.S. Concrete, Inc. effective May
17, 2005
(Proxy Statement relating to 2005 annual meeting of stockholders,
Appendix
B).
|
|
|
|
|
10.5
|
*†
|
—
|
Amendment
No. 4 to 1999 Incentive Plan of U.S. Concrete, Inc. dated February
13,
2006 (Form 10-K dated March 16, 2006 (File No. 000-26025), Exhibit
10.5).
|
|
|
|
|
10.6
|
*†
|
—
|
Amendment
No. 5 to 1999 Incentive Plan of U.S. Concrete, Inc. dated March
7, 2007;
effective January 1, 1999. (Form
10-K dated March 13, 2007 (File No. 000-26025), Exhibit
10.8).
|
Exhibit
Number
|
|
Description
|
|
|
|
|
10.7
|
*
|
—
|
U.S.
Concrete 2000 Employee Stock Purchase Plan effective May 16, 2000
(Proxy
Statement relating to 2000 annual meeting of stockholders, Appendix
A).
|
|
|
|
|
10.8
|
*
|
—
|
Amendment
No. 1 to 2000 Employee Stock Purchase Plan of U.S. Concrete, Inc.
effective December 16, 2005 (Form 8-K dated December 16, 2005 (File
No.
000-26025), Exhibit 10.1).
|
|
|
|
|
10.9
|
*
|
—
|
2001
Employee Incentive Plan of U.S. Concrete, Inc. (Form S-8 dated
May 11,
2001 (Reg. No. 333-60710), Exhibit 4.6).
|
|
|
|
|
10.10
|
*
|
—
|
Amendment
No. 1 to 2001 Employee Incentive Plan of U.S. Concrete, Inc. dated
December 17, 2004 (Form S-8 dated December 20, 2004 (Reg. No. 333-121458),
Exhibit 10.6).
|
|
|
|
|
10.11
|
*†
|
—
|
Consulting
Agreement dated February 23, 2007 by and between U.S. Concrete
and Eugene
P. Martineau (Form 8-K dated February 23, 2007 (File No. 000-26025),
Exhibit 10.1).
|
|
|
|
|
10.12
|
*
|
—
|
Contribution
Agreement, dated as of March 26, 2007, by and among, BWB, Inc.
of Michigan
Builders’, Redi-Mix, LLC, Kurtz Gravel Company, Superior Materials, Inc.
USC Michigan, Inc., Edw. C. Levy Co. and Superior Joint Venture
LLC (Form
8-K dated March 26, 2007 (File No. 000-26025), Exhibit
10.1).
|
|
|
|
|
10.13
|
*
|
—
|
Operating
Agreement of Superior Materials, LLC dated effective as of April
1, 2007,
by and between Kurtz Gravel Company, Superior Materials, Inc. and
Edw. C.
Levy Co., together with related Joinder Agreement dated effective
April 2,
2007 by BWB, Inc. of Michigan Builders’, Redi-Mix, LLC, USC Michigan, Inc.
and Superior Material Holdings LLC (Form 8-K dated April 1, 2007
(File No.
000-26025), Exhibit 10.1).
|
|
|
|
|
10.14
|
*
|
—
|
Guaranty
dated as of April 1, 2007 by U.S. Concrete, Inc. in favor of Edw.
C. Levy
Co. and Superior Materials Holdings, LLC (Form 8-K dated April
1, 2007
(File No. 000-26025), Exhibit 10.2).
|
|
|
|
|
10.15
|
*†
|
—
|
Form
of Indemnification Agreement between U.S. Concrete and each of
its
directors and officers (Form 10K dated March 16, 2006 (File No.
000-26025)
Exhibit 10.22).
|
|
|
|
|
10.16
|
*†
|
—
|
Summary
of annual fees paid by U.S. Concrete, Inc. to its nonemployee directors
(Form 10-K for the year ended December 31, 2004 (File No. 000-26025),
Exhibit 10.20).
|
|
|
|
|
10.17
|
*†
|
—
|
Form
of U.S. Concrete, Inc. Restricted Stock Award Agreement for employees
(Form 10-K for the year ended December 31, 2004 (File No. 000-26025),
Exhibit 10.21).
|
|
|
|
|
10.18
|
*†
|
—
|
Form
of U.S. Concrete, Inc. Non-Qualified Stock Option Award Agreement
for
nonemployee directors (Form 10-K for the year ended December 31,
2004
(File No. 000-26025), Exhibit 10.22)
|
|
|
|
|
10.19
|
*†
|
—
|
Form
of U.S. Concrete, Inc. Non-Qualified Stock Option Award Agreement
for
employees (Form 10-K for the year ended December 31, 2004 (File
No.
000-26025), Exhibit 10.23).
|
|
|
|
|
10.20
|
*†
|
—
|
U.S.
Concrete, Inc. and Subsidiaries 2005 Annual Salaried Team Member
Incentive
Plan, effective April 8, 2005 (Form 8-K dated April 8, 2005 (File
No.
000-26025), Exhibit 10.1).
|
|
|
|
|
10.21
|
*†
|
—
|
U.S.
Concrete, Inc. and Subsidiaries 2007 Annual Salaried Team Member
Incentive
Plan (Form 8-K dated June 4, 2007 (File No. 000-26025), Exhibit
10.1).
|
|
|
|
|
10.22
|
*†
|
—
|
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete,
Inc.
and Michael W. Harlan (Form 8-K dated July 31, 2007 (File No. 000-26025),
Exhibit 10.1).
|
|
|
|
|
10.23
|
*†
|
—
|
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete,
Inc.
and Robert D. Hardy (Form 8-K dated July 31, 2007 (File No. 000-26025),
Exhibit 10.2).
|
|
|
|
|
10.24
|
*†
|
—
|
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete,
Inc.
and Thomas J. Albanes (Form 8-K dated July 31, 2007 (File No. 000-26025),
Exhibit 10.3).
|
|
|
|
|
10.25
|
*†
|
—
|
Severance
Agreement, dated as of January 18, 2008, by and between U.S. Concrete,
Inc. and William T. Albanese (Form 8-K dated January 18, 2008 (File
No.
000-26025), Exhibit 10.1).
|
|
|
|
|
12
|
*
|
—
|
Statement
regarding computation of ratios. (Form
10-K dated March 13, 2007 (File No. 000-26025), Exhibit
10.8).
|
|
|
|
|
14
|
*
|
—
|
U.S.
Concrete, Inc. Code of Ethics for Chief Executive and Senior Financial
Officers (Form 10-K for the year ended December 31, 2003 (File
No.
000-26025), Exhibit 14).
|
|
|
|
|
21
|
|
—
|
Subsidiaries.
|
|
|
|
|
23
|
|
—
|
Consent
of independent registered public accounting firm.
|
|
|
|
|
31.1
|
|
—
|
Rule
13a-14(a)/15d-14(a) Certification of Michael W. Harlan.
|
|
|
|
|
31.2
|
|
—
|
Rule
13a-14(a)/15d-14(a) Certification of Robert D. Hardy.
|
|
|
|
|
32.1
|
|
—
|
Section
1350 Certification of Michael W. Harlan.
|
|
|
|
|
32.2
|
|
—
|
Section
1350 Certification of Robert D.
Hardy.
|
_____________
* Incorporated
by reference to the filing indicated.
† Management
contract or compensatory plan or arrangement.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
|
U.S.
CONCRETE,
INC.
|
|
|
|
|
|
|
Date:
March 13, 2008
|
By:
|
/s/
Michael W. Harlan
|
|
|
Michael
W. Harlan
President
and Chief Executive
Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated on March 13, 2008.
Signature
|
Title
|
|
|
/s/
Michael W. Harlan
|
President
and Chief Executive Officer and Director (Principal Executive
Officer)
|
Michael
W. Harlan
|
|
|
/s/
Robert D. Hardy
|
Executive
Vice President and Chief Financial Officer (Principal Financial and
Accounting Officer)
|
Robert
D. Hardy
|
|
|
|
|
/s/
William T. Albanese
|
Regional
Vice President - Northern California Region and
Director
|
William
T. Albanese
|
|
|
|
|
/s/
Vincent D. Foster
|
Director
|
Vincent
D. Foster
|
|
|
|
|
|
/s/
T. William Porter
|
Director
|
T.
William Porter
|
|
|
|
|
|
/s/
Mary P. Ricciardello
|
Director
|
Mary
P. Ricciardello
|
|
|
|
|
|
/s/
Murray S. Simpson
|
Director
|
Murray
S. Simpson
|
|
|
|
|
|
/s/
John M. Piecuch
|
Director
|
John
M. Piecuch
|
|
|
|
INDEX
TO EXHIBITS
(3)
Exhibits.
Exhibit
Number
|
|
Description
|
|
|
|
|
2.1
|
*
|
—
|
Asset
Purchase Agreement dated as of December 5, 2005 by and among
U.S.
Concrete, Inc., Beall Concrete Enterprises, Ltd., Go-Crete, South
Loop
Development Corporation and John D. Yowell, Jr. (Form 10-K for
year ended
December 31, 2005 (File No. 000-26025), Exhibit 2.1).
|
|
|
|
|
2.2
|
*
|
—
|
Stock
Purchase Agreement dated as of June 27, 2006 by and among U.S.
Concrete,
Alliance Haulers, Inc., Alberta Investments, Inc., Atlas Concrete
Inc. and
Wild Rose Holdings Ltd. (Form 8-K dated June 28, 2006 (File No.
000-26025), Exhibit 2.1).
|
|
|
|
|
3.1
|
*
|
—
|
Restated
Certificate of Incorporation of U.S. Concrete dated May 9, 2006
(Form 8-K
dated May 9, 2006 (File No. 000-26025), Exhibit 3.1).
|
|
|
|
|
3.2
|
*
|
—
|
Amended
and Restated Bylaws of U.S. Concrete, as amended (Post Effective
Amendment
No. 1 to Form S-3 (Reg. No. 333-42860), Exhibit 4.2).
|
|
|
|
|
4.1
|
*
|
—
|
Certificate
of Designation of Junior Participating Preferred Stock (Form
10-Q for the
quarter ended June 30, 2000 (File No. 000-26025), Exhibit
3.3).
|
|
|
|
|
4.2
|
*
|
—
|
Form
of certificate representing common stock (Form S-1 (Reg. No.
333-74855),
Exhibit 4.3).
|
|
|
|
|
4.3
|
*
|
—
|
Rights
Agreement by and between U.S. Concrete and American Stock Transfer
&
Trust Company, including form of Rights Certificate attached
as Exhibit B
thereto (Form S-1 (Reg. No. 333-74855), Exhibit 4.4).
|
|
|
|
|
4.4
|
*
|
—
|
Indenture
among U.S. Concrete, the Subsidiary Guarantors party thereto
and Wells
Fargo Bank, National
Association,
as Trustee, dated as of March 31, 2004, for the 8⅜% Senior Subordinated
Notes due 2014 (Form 10-Q for the quarter ended March 31, 2004
(File No.
000-26025), Exhibit 4.5).
|
|
|
|
|
4.5
|
*
|
—
|
Form
of Note (Form 10-Q for the quarter ended March 31, 2004 (File
No.
000-26025), included as Exhibit A to
Exhibit
4.7).
|
|
|
|
|
4.6
|
*
|
—
|
Notation
of Guarantee by the Subsidiary Guarantors dated March 31, 2004
(Form 10-Q
for the quarter ended March
31,
2004 (File No. 000-26025), Exhibit 4.7).
|
|
|
|
|
4.7
|
*
|
—
|
First
Supplemental Indenture among U.S. Concrete, the Existing Guarantors
party
thereto, the Additional Guarantors party thereto and Wells Fargo
Bank,
National Association, as Trustee, dated as of July 5, 2006, for
the 8⅜%
Senior Subordinated Notes due 2014 (Form 8-K dated June 29, 2006
(File No.
000-26025), Exhibit 4.1).
|
|
|
|
|
4.8
|
*
|
—
|
Amended
and Restated Credit Agreement dated as of June 30, 2006 among
U.S.
Concrete, the Lenders and Issuers named therein and Citicorp
North
America, Inc. as administrative agent (Form 8-K dated June 29,
2006 (File
No. 000-26025), Exhibit 4.3).
|
|
|
|
|
4.9
|
*
|
—
|
Amendment
No. 1 to Amended and Restated Credit Agreement, effective as
of March 2,
2007, among U.S. Concrete,
Inc.,
Citicorp North America, Inc., Bank of America, N.A., JP Morgan
Chase Bank
and the Lenders and Issuers named therein (Form 10-Q for the
quarter ended
March 31, 2007 (file No. 000-20025), Exhibit 4.1).
|
|
|
|
|
4.10
|
*
|
—
|
Amendment
No. 2 to Amended and Restated Credit Agreement, effective as
of November
9, 2007, among U.S. Concrete, Inc., Citicorp North America Inc.,
Bank of
America, N.A., JPMorgan Chase Bank and the Lenders and Issuers
named
therein (Form 8-K dated November 9, 2007 (File No. 000-26025),
Exhibit
4.1).
|
|
|
|
|
4.11
|
*
|
—
|
Credit
Agreement, dated as of April 6, 2007, by and between Superior
Materials,
LLC, BWB, LLC and Comerica Bank (Form 10-Q for the quarter ended
March 31, 2007 (File No. 000-26025),
Exhibit 4.2).
|
|
|
|
|
4.12
|
|
—
|
First
Amendment to
Credit Agreement, dated February 29, 2008, by and between Superior
Materials, LLC, BWB, LLC and Comerica Bank. |
|
|
|
|
10.1
|
*†
|
—
|
1999
Incentive Plan of U.S. Concrete (Form S-1 (Reg. No. 333-74855),
Exhibit
10.1).
|
|
|
|
|
10.2
|
*†
|
—
|
Amendment
No. 1 to 1999 Incentive Plan of U.S. Concrete, Inc. dated January
9, 2003
(Form S-8 dated December 20, 2004 (Reg. No. 333-121458), Exhibit
10.2).
|
|
|
|
|
10.3
|
*†
|
—
|
Amendment
No. 2 to 1999 Incentive Plan of U.S. Concrete, Inc. dated December
17,
2004 (Form S-8 dated December 20, 2004 (Reg. No. 333-121458),
Exhibit
10.3).
|
|
|
|
|
10.4
|
*†
|
—
|
Amendment
No. 3 to 1999 Incentive Plan of U.S. Concrete, Inc. effective
May 17, 2005
(Proxy Statement relating to 2005 annual meeting of stockholders,
Appendix
B).
|
|
|
|
|
10.5
|
*†
|
—
|
Amendment
No. 4 to 1999 Incentive Plan of U.S. Concrete, Inc. dated February
13,
2006 (Form 10-K dated March 16, 2006 (File No. 000-26025), Exhibit
10.5).
|
|
|
|
|
10.6
|
*†
|
—
|
Amendment
No. 5 to 1999 Incentive Plan of U.S. Concrete, Inc. dated March
7, 2007;
effective January 1, 1999. (Form
10-K dated March 13, 2007 (File No. 000-26025), Exhibit
10.8).
|
Exhibit
Number
|
|
Description
|
|
|
|
|
10.7
|
*
|
—
|
U.S.
Concrete 2000 Employee Stock Purchase Plan effective May 16,
2000 (Proxy
Statement relating to 2000 annual meeting of stockholders, Appendix
A).
|
|
|
|
|
10.8
|
*
|
—
|
Amendment
No. 1 to 2000 Employee Stock Purchase Plan of U.S. Concrete,
Inc.
effective December 16, 2005 (Form 8-K dated December 16, 2005
(File No.
000-26025), Exhibit 10.1).
|
|
|
|
|
10.9
|
*
|
—
|
2001
Employee Incentive Plan of U.S. Concrete, Inc. (Form S-8 dated
May 11,
2001 (Reg. No. 333-60710), Exhibit 4.6).
|
|
|
|
|
10.10
|
*
|
—
|
Amendment
No. 1 to 2001 Employee Incentive Plan of U.S. Concrete, Inc.
dated
December 17, 2004 (Form S-8 dated December 20, 2004 (Reg. No.
333-121458),
Exhibit 10.6).
|
|
|
|
|
10.11
|
*†
|
—
|
Consulting
Agreement dated February 23, 2007 by and between U.S. Concrete
and Eugene
P. Martineau (Form 8-K dated February 23, 2007 (File No. 000-26025),
Exhibit 10.1).
|
|
|
|
|
10.12
|
*
|
—
|
Contribution
Agreement, dated as of March 26, 2007, by and among, BWB, Inc.
of Michigan
Builders’, Redi-Mix, LLC, Kurtz Gravel Company, Superior Materials, Inc.
USC Michigan, Inc., Edw. C. Levy Co. and Superior Joint Venture
LLC (Form
8-K dated March 26, 2007 (File No. 000-26025), Exhibit
10.1).
|
|
|
|
|
10.13
|
*
|
—
|
Operating
Agreement of Superior Materials, LLC dated effective as of April
1, 2007,
by and between Kurtz Gravel Company, Superior Materials, Inc.
and Edw. C.
Levy Co., together with related Joinder Agreement dated effective
April 2,
2007 by BWB, Inc. of Michigan Builders’, Redi-Mix, LLC, USC Michigan, Inc.
and Superior Material Holdings LLC (Form 8-K dated April 1, 2007
(File No.
000-26025), Exhibit 10.1).
|
|
|
|
|
10.14
|
*
|
—
|
Guaranty
dated as of April 1, 2007 by U.S. Concrete, Inc. in favor of
Edw. C. Levy
Co. and Superior Materials Holdings, LLC (Form 8-K dated April
1, 2007
(File No. 000-26025), Exhibit 10.2).
|
|
|
|
|
10.15
|
*†
|
—
|
Form
of Indemnification Agreement between U.S. Concrete and each of
its
directors and officers (Form 10K dated March 16, 2006 (File No.
000-26025)
Exhibit 10.22).
|
|
|
|
|
10.16
|
*†
|
—
|
Summary
of annual fees paid by U.S. Concrete, Inc. to its nonemployee
directors
(Form 10-K for the year ended December 31, 2004 (File No. 000-26025),
Exhibit 10.20).
|
|
|
|
|
10.17
|
*†
|
—
|
Form
of U.S. Concrete, Inc. Restricted Stock Award Agreement for employees
(Form 10-K for the year ended December 31, 2004 (File No. 000-26025),
Exhibit 10.21).
|
|
|
|
|
10.18
|
*†
|
—
|
Form
of U.S. Concrete, Inc. Non-Qualified Stock Option Award Agreement
for
nonemployee directors (Form 10-K for the year ended December
31, 2004
(File No. 000-26025), Exhibit 10.22)
|
|
|
|
|
10.19
|
*†
|
—
|
Form
of U.S. Concrete, Inc. Non-Qualified Stock Option Award Agreement
for
employees (Form 10-K for the year ended December 31, 2004 (File
No.
000-26025), Exhibit 10.23).
|
|
|
|
|
10.20
|
*†
|
—
|
U.S.
Concrete, Inc. and Subsidiaries 2005 Annual Salaried Team Member
Incentive
Plan, effective April 8, 2005 (Form 8-K dated April 8, 2005 (File
No.
000-26025), Exhibit 10.1).
|
|
|
|
|
10.21
|
*†
|
—
|
U.S.
Concrete, Inc. and Subsidiaries 2007 Annual Salaried Team Member
Incentive
Plan (Form 8-K dated June 4, 2007 (File No. 000-26025), Exhibit
10.1).
|
|
|
|
|
10.22
|
*†
|
—
|
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete,
Inc.
and Michael W. Harlan (Form 8-K dated July 31, 2007 (File No.
000-26025),
Exhibit 10.1).
|
|
|
|
|
10.23
|
*†
|
—
|
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete,
Inc.
and Robert D. Hardy (Form 8-K dated July 31, 2007 (File No. 000-26025),
Exhibit 10.2).
|
|
|
|
|
10.24
|
*†
|
—
|
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete,
Inc.
and Thomas J. Albanes (Form 8-K dated July 31, 2007 (File No.
000-26025),
Exhibit 10.3).
|
|
|
|
|
10.25
|
*†
|
—
|
Severance
Agreement, dated as of January 18, 2008, by and between U.S.
Concrete,
Inc. and William T. Albanese (Form 8-K dated January 18, 2008
(File No.
000-26025), Exhibit 10.1).
|
|
|
|
|
12
|
*
|
—
|
Statement
regarding computation of ratios. (Form
10-K dated March 13, 2007 (File No. 000-26025), Exhibit
10.8).
|
|
|
|
|
14
|
*
|
—
|
U.S.
Concrete, Inc. Code of Ethics for Chief Executive and Senior
Financial
Officers (Form 10-K for the year ended December 31, 2003 (File
No.
000-26025), Exhibit 14).
|
|
|
|
|
21
|
|
—
|
Subsidiaries.
|
|
|
|
|
23
|
|
—
|
Consent
of independent registered public accounting firm.
|
|
|
|
|
31.1
|
|
—
|
Rule
13a-14(a)/15d-14(a) Certification of Michael W. Harlan.
|
|
|
|
|
31.2
|
|
—
|
Rule
13a-14(a)/15d-14(a) Certification of Robert D. Hardy.
|
|
|
|
|
32.1
|
|
—
|
Section
1350 Certification of Michael W. Harlan.
|
|
|
|
|
32.2
|
|
—
|
Section
1350 Certification of Robert D.
Hardy.
|
_____________
* Incorporated
by reference to the filing indicated.
† Management
contract or compensatory plan or arrangement.