Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the Quarterly Period Ended March 31, 2009
Commission
File Number 000-26025
U.S.
CONCRETE, INC.
(Exact
name of registrant as specified in its charter)
Delaware
(State or
other jurisdiction of incorporation or organization)
IRS
Employer Identification No. 76-0586680
2925
Briarpark, Suite 1050
Houston,
Texas 77042
(Address
of principal executive offices, including zip code)
(713)
499-6200
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes þ No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web Site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes ¨ No ¨
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company (as defined in Rule 12b-2 of the
Exchange Act).
Large
accelerated filer ¨ Accelerated
filer þ Non-accelerated
filer ¨ Smaller
Reporting Company ¨
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No þ
As of the
close of business on May 7, 2009, U.S. Concrete, Inc. had 37,173,699 shares of
its common stock, $0.001 par value, outstanding (excluding treasury shares of
546,003).
U.S.
CONCRETE, INC.
INDEX
|
Page
No.
|
Part
I – Financial Information
|
|
Item
1. Financial Statements
|
|
Condensed Consolidated Balance
Sheets
|
3
|
Condensed Consolidated Statements
of Operations
|
4
|
Condensed Consolidated Statement
of Changes in Equity
|
5
|
Condensed Consolidated Statements
of Cash Flows
|
6
|
Notes to Condensed Consolidated
Financial Statements
|
7
|
Item
2. Management’s Discussion and Analysis
of Financial Condition and Results of
Operations
|
19
|
Item
3. Quantitative and Qualitative
Disclosures About Market Risk
|
28
|
Item
4. Controls and
Procedures
|
28
|
|
|
Part
II – Other Information
|
|
Item
1. Legal Proceedings
|
29
|
Item
2. Unregistered Sales of Equity
Securities and Use of Proceeds
|
29
|
Item
6. Exhibits
|
30
|
|
|
SIGNATURE
|
31
|
INDEX
TO EXHIBITS
|
32
|
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements
U.S.
CONCRETE, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in
thousands)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
10,342 |
|
|
$ |
5,323 |
|
Trade
accounts receivable, net
|
|
|
76,645 |
|
|
|
100,269 |
|
Inventories
|
|
|
31,269 |
|
|
|
32,768 |
|
Deferred
income taxes
|
|
|
13,484 |
|
|
|
11,576 |
|
Prepaid
expenses
|
|
|
5,807 |
|
|
|
3,519 |
|
Other
current assets
|
|
|
10,518 |
|
|
|
13,801 |
|
Total
current assets
|
|
|
148,065 |
|
|
|
167,256 |
|
Property,
plant and equipment, net
|
|
|
270,270 |
|
|
|
272,769 |
|
Goodwill
|
|
|
59,197 |
|
|
|
59,197 |
|
Other
assets
|
|
|
7,926 |
|
|
|
8,588 |
|
Total
assets
|
|
$ |
485,458 |
|
|
$ |
507,810 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current
maturities of long-term debt
|
|
$ |
1,964 |
|
|
$ |
3,371 |
|
Accounts
payable
|
|
|
35,860 |
|
|
|
45,920 |
|
Accrued
liabilities
|
|
|
56,103 |
|
|
|
54,481 |
|
Total
current liabilities
|
|
|
93,927 |
|
|
|
103,772 |
|
Long-term
debt, net of current maturities
|
|
|
299,588 |
|
|
|
302,617 |
|
Other
long-term obligations and deferred credits
|
|
|
8,532 |
|
|
|
8,522 |
|
Deferred
income taxes
|
|
|
13,663 |
|
|
|
12,536 |
|
Total
liabilities
|
|
|
415,710 |
|
|
|
427,447 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
– |
|
|
|
– |
|
Common
stock
|
|
|
38 |
|
|
|
37 |
|
Additional
paid-in capital
|
|
|
266,004 |
|
|
|
265,453 |
|
Retained
deficit
|
|
|
(202,018 |
) |
|
|
(192,564 |
) |
Treasury
stock, at cost
|
|
|
(3,252 |
) |
|
|
(3,130 |
) |
Total
stockholders’ equity
|
|
|
60,772 |
|
|
|
69,796 |
|
Non-controlling
interest (Note 1)
|
|
|
8,976 |
|
|
|
10,567 |
|
Total
equity
|
|
|
69,748 |
|
|
|
80,363 |
|
Total
liabilities and equity
|
|
$ |
485,458 |
|
|
$ |
507,810 |
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
U.S.
CONCRETE, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in
thousands, except per share amounts)
|
|
Three Months
Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Revenue
|
|
$ |
117,300 |
|
|
$ |
162,107 |
|
Cost
of goods sold before depreciation, depletion and
amortization
|
|
|
103,522 |
|
|
|
141,291 |
|
Selling,
general and administrative expenses
|
|
|
16,078 |
|
|
|
18,131 |
|
Depreciation,
depletion and amortization
|
|
|
7,456 |
|
|
|
6,878 |
|
Loss
from operations
|
|
|
(9,756 |
) |
|
|
(4,193 |
) |
Interest
income
|
|
|
6 |
|
|
|
74 |
|
Interest
expense, net
|
|
|
6,774 |
|
|
|
6,780 |
|
Gain
on purchases of senior subordinated notes
|
|
|
4,493 |
|
|
|
– |
|
Other
income, net
|
|
|
349 |
|
|
|
622 |
|
Loss
from continuing operations before income tax benefit
|
|
|
(11,682 |
) |
|
|
(10,277 |
) |
Income
tax benefit
|
|
|
(637 |
) |
|
|
(3,104 |
) |
Loss
from continuing operations
|
|
|
(11,045 |
) |
|
|
(7,173 |
) |
Loss
from discontinued operations (net of tax benefit of $81 in
2008)
|
|
|
– |
|
|
|
(149 |
) |
Net
loss
|
|
|
(11,045 |
) |
|
|
(7,322 |
) |
Net
loss attributable to non-controlling interest
|
|
|
1,591 |
|
|
|
2,044 |
|
Net
loss attributable to stockholders
|
|
$ |
(9,454 |
) |
|
$ |
(5,278 |
) |
|
|
|
|
|
|
|
|
|
Loss
per share attributable to stockholders – Basic and
diluted:
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$ |
(0.26 |
) |
|
$ |
(0.13 |
) |
Loss
from discontinued operations, net of income tax benefit
|
|
|
– |
|
|
|
(0.01 |
) |
Net
loss
|
|
$ |
(0.26 |
) |
|
$ |
(0.14 |
) |
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted average shares outstanding
|
|
|
36,844 |
|
|
|
38,587 |
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
U.S.
CONCRETE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY
(Unaudited)
(in
thousands)
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
Shares
|
|
|
Par
Value
|
|
|
Paid-In
Capital
|
|
|
Retained
Deficit
|
|
|
Treasury
Stock
|
|
|
Controlling
Interest
|
|
|
Total Equity
|
|
BALANCE,
December 31, 2008
|
|
|
36,793 |
|
|
$ |
37 |
|
|
$ |
265,453 |
|
|
$ |
(192,564 |
) |
|
$ |
(3,130 |
) |
|
$ |
10,567 |
|
|
$ |
80,363 |
|
Stock-based
compensation
|
|
|
497 |
|
|
|
1 |
|
|
|
551 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
552 |
|
Purchase
of treasury shares
|
|
|
(77 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(122 |
) |
|
|
– |
|
|
|
(122 |
) |
Cancellation
of shares
|
|
|
(29 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Net
loss
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(9,454 |
) |
|
|
– |
|
|
|
(1,591 |
) |
|
|
(11,045 |
) |
BALANCE,
March 31, 2009
|
|
|
37,184 |
|
|
$ |
38 |
|
|
$ |
266,004 |
|
|
$ |
(202,018 |
) |
|
$ |
(3,252 |
) |
|
$ |
8,976 |
|
|
$ |
69,748 |
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
U.S.
CONCRETE, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in
thousands)
|
|
Three
Months
Ended
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(11,045 |
) |
|
$ |
(7,322 |
) |
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization
|
|
|
7,456 |
|
|
|
6,878 |
|
Debt
issuance cost amortization
|
|
|
411 |
|
|
|
398 |
|
Gain
on purchases of senior subordinated notes
|
|
|
(4,493 |
) |
|
|
– |
|
Net
gain on sale of assets
|
|
|
(463 |
) |
|
|
(437 |
) |
Deferred
income taxes
|
|
|
(781 |
) |
|
|
(3,315 |
) |
Provision
for doubtful accounts
|
|
|
268 |
|
|
|
458 |
|
Stock-based
compensation
|
|
|
552 |
|
|
|
697 |
|
Changes
in assets and liabilities, excluding effects of
acquisitions:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
23,356 |
|
|
|
10,401 |
|
Inventories
|
|
|
1,499 |
|
|
|
(327 |
) |
Prepaid
expenses and other current assets
|
|
|
995 |
|
|
|
2,449 |
|
Other
assets and liabilities
|
|
|
54 |
|
|
|
(137 |
) |
Accounts
payable and accrued liabilities
|
|
|
(7,678 |
) |
|
|
(5,276 |
) |
Net
cash provided by operations
|
|
|
10,131 |
|
|
|
4,467 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net of disposals
|
|
|
(4,427 |
) |
|
|
(5,561 |
) |
Payments
for acquisitions
|
|
|
(750 |
) |
|
|
(1,822 |
) |
Disposals
of business units
|
|
|
– |
|
|
|
7,583 |
|
Other
investing activities
|
|
|
– |
|
|
|
212 |
|
Net
cash provided by (used in) investing activities
|
|
|
(5,177 |
) |
|
|
412 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds
from borrowings
|
|
|
29,432 |
|
|
|
2,529 |
|
Repayments
of borrowings
|
|
|
(26,460 |
) |
|
|
(1,406 |
) |
Purchases
of senior subordinated notes
|
|
|
(2,785 |
) |
|
|
– |
|
Purchase
of treasury shares
|
|
|
(122 |
) |
|
|
(436 |
) |
Debt
issuance costs
|
|
|
– |
|
|
|
(11 |
) |
Net
cash provided by financing activities
|
|
|
65 |
|
|
|
676 |
|
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
5,019 |
|
|
|
5,555 |
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
5,323 |
|
|
|
14,850 |
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$ |
10,342 |
|
|
$ |
20,405 |
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS
OF PRESENTATION
The
accompanying condensed consolidated financial statements include the accounts of
U.S. Concrete, Inc. and its subsidiaries and have been prepared by us, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (the “SEC”). We include in our condensed consolidated
financial statements the results of operations, balance sheets and cash flows of
our 60%-owned Michigan subsidiary, Superior Materials Holdings,
LLC. We reflect the minority owner’s 40% interest in income, net
assets and cash flows of that subsidiary as non-controlling interest in
consolidated subsidiary in our condensed consolidated financial
statements. Some information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the SEC’s rules
and regulations. These unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes in our annual report on Form 10-K for the year
ended December 31, 2008 (the “2008 Form 10-K”). In the opinion of our
management, all adjustments necessary to state fairly the information in our
unaudited condensed consolidated financial statements have been
included. Operating results for the three-month period ended March
31, 2009 are not necessarily indicative of our results expected for the year
ending December 31, 2009. We have made certain reclassifications to prior period
amounts to conform to the current period presentation in accordance with
Statement of Financial Accounting Standard (“SFAS”) No. 160, “Noncontrolling
Interests in Consolidated Financial Statements”.
The
preparation of financial statements and accompanying notes in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions in determining the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities as
of the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates. Estimates and assumptions that we consider
significant in the preparation of our financial statements include those related
to our allowance for doubtful accounts, goodwill, accruals for self-insurance,
income taxes, reserves for inventory obsolescence and the valuation and useful
lives of property, plant and equipment.
2. SIGNIFICANT
ACCOUNTING POLICIES
For a
description of our accounting policies, see Note 1 of the consolidated financial
statements in the 2008 Form 10-K, as well as Note 12 below.
3. DISCONTINUED
OPERATIONS
In the first quarter of 2008, we sold
our ready-mix concrete business unit headquartered in Memphis,
Tennessee. This unit was part of our ready-mixed concrete and
concrete-related products segment. We classified this business unit
as discontinued operations beginning in the fourth quarter of 2007 and we have
presented the results of operations, net of tax, as discontinued operations in
the accompanying condensed consolidated statements of operations. The
results of discontinued operations included in the accompanying condensed
consolidated statements of operations were as follows for the three months ended
March 31, 2008 (in thousands):
|
|
Three Months Ended
March 31, 2008
|
|
|
|
|
|
Revenue
|
|
$ |
671 |
|
Operating
expenses
|
|
|
1,395 |
|
Gain
on disposal of assets
|
|
|
(494 |
) |
Loss
from discontinued operations, before income tax benefit
|
|
|
(230 |
) |
Income
tax benefits from discontinued operations
|
|
|
(81 |
) |
Loss
from discontinued operations, net of tax
|
|
$ |
(149 |
) |
4. BUSINESS
COMBINATIONS
In November 2008, we acquired a
ready-mixed concrete plant and related inventory in Brooklyn, New
York. We used borrowings under our revolving credit facility to fund
the cash purchase price of approximately $2.5 million.
In August 2008, we acquired a
ready-mixed concrete operation in Mount Vernon, New York and a precast concrete
product operation in San Diego, California. We used cash on hand to
fund the purchase prices of $2.0 million and $2.5 million,
respectively.
In June
2008, we acquired nine ready-mixed concrete plants, together with related real
property, rolling stock and working capital, in our west Texas market from
another ready-mixed concrete producer for approximately $13.5
million. We used cash on hand and borrowings under our existing
credit facility to fund the purchase price.
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
In May
2008, we paid $1.4 million of contingent purchase consideration related to real
estate acquired pursuant to the acquisition of Builders’ Redi-Mix, Inc. in
January 2003.
In
January 2008, we acquired a ready-mixed concrete operation in Staten Island, New
York. We used cash-on-hand to fund the purchase price of
approximately $1.8 million.
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 mid-Atlantic region, for approximately $14.5 million plus a
$1.5 million contingency payment based on the future earnings of
API. For the twelve-month period ended September 30, 2008, API
attained 50% of its established earnings target, and we made a $750,000 payment,
reduced for certain uncollected pre-acquisition accounts receivable, to the
sellers in the first quarter of 2009 in partial satisfaction of our contingent
payment obligation.
The pro forma impacts of our 2008
acquisitions have not been included due to the fact that they were immaterial to
our financial statements individually and in the aggregate.
5. INVENTORIES
Inventories consist of the following
(in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Raw
materials
|
|
$ |
17,154 |
|
|
$ |
18,100 |
|
Precast
products
|
|
|
7,897 |
|
|
|
8,353 |
|
Building
materials for resale
|
|
|
2,961 |
|
|
|
2,922 |
|
Repair
parts
|
|
|
3,257 |
|
|
|
3,393 |
|
|
|
$ |
31,269 |
|
|
$ |
32,768 |
|
6. DEBT
A summary of debt is as follows (in
thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Senior
secured credit facility due 2011
|
|
$ |
13,000
|
|
|
$ |
11,000 |
|
8⅜%
senior subordinated notes due 2014
|
|
|
276,638 |
|
|
|
283,998 |
|
Notes
payable
|
|
|
3,612 |
|
|
|
5,411 |
|
Superior
Materials Holdings, LLC secured credit facility due 2010
|
|
|
6,368 |
|
|
|
5,149 |
|
Superior
Materials Holding, LLC subordinated debt to minority
partner
|
|
|
1,608 |
|
|
|
– |
|
Capital
leases
|
|
|
326 |
|
|
|
430 |
|
|
|
|
301,552 |
|
|
|
305,988 |
|
Less: current
maturities
|
|
|
1,964 |
|
|
|
3,371 |
|
|
|
$ |
299,588 |
|
|
$ |
302,617 |
|
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
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 March 31,
2009, we had borrowings of $13.0 million under this facility. We pay interest on
borrowings at either the Eurodollar-based rate (“LIBOR”) plus 1.75% or the
domestic rate (3.75% at March 31, 2009) plus 0.25% per
annum. Commitment fees at an annual rate of 0.25% are payable on the
unused portion of the facility. The Credit Agreement provides that
the administrative agent may, on the bases specified, reduce the amount of the
available credit from time to time. Additionally, any “material
adverse change” of the Company could restrict our ability to borrow under the
senior secured credit facility. A material adverse change is defined
as a material adverse change in any of (a) the condition (financial or
otherwise), business, performance, prospects, operations or properties of us and
our Subsidiaries, taken as a whole, (b) our ability and the ability of our
guarantors, taken as a whole, to perform the respective obligations under the
Credit Agreement and ancillary documents or (c) the rights and remedies of the
administrative agent, the lenders or the issuers to enforce the Credit Agreement
and ancillary documents. At March 31, 2009, the amount of the
available credit was approximately $62.8 million, net of outstanding revolving
credit borrowings of $13.0 million and outstanding letters of credit of
approximately $11.6 million.
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
Our
subsidiaries, excluding our 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 our obligations under the Credit Agreement 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 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. As of March 31, 2009, we were in
compliance with our financial covenants under the Credit Agreement.
Senior
Subordinated Notes
On March
31, 2004, we issued $200 million of 8⅜% senior subordinated notes due April 1,
2014 (the “8⅜% Notes”). Interest on these notes is payable
semi-annually on April 1 and October 1 of each year. We used
the net proceeds of this financing to redeem our prior 12% senior subordinated
notes and prepay the outstanding debt under our credit facility. In
July 2006, we issued $85 million of additional 8⅜% Notes. During the
first quarter of 2009, we purchased $7.4 million aggregate principal amount of
our 8⅜% Notes in open market transactions for approximately $2.8 million plus
accrued interest of approximately $0.3 million through the dates of
purchase. We recorded a gain of approximately $4.5 million as a
result of these open market transactions after writing off $0.1 million of
previously deferred financing costs and original issue discount associated with
the pro-rata amount of the 8⅜% Notes purchased. Subsequent to March 31, 2009, we
purchased an additional $5.0 million principal amount of our 8⅜% Notes for
approximately $2.0 million. This resulted in a gain of approximately $2.9
million in April 2009.
All of
our subsidiaries, excluding our 60%-owned Michigan subsidiary and
minor subsidiaries, have jointly and severally and fully and unconditionally
guaranteed the repayment of the 8⅜% Notes.
The
indenture governing the 8⅜% Notes limits our ability
and the ability of our subsidiaries to pay dividends or repurchase common stock,
make certain investments, incur additional debt or sell preferred stock, create
liens, merge or transfer assets. After March 31, 2009, we may redeem
all or a part of the 8⅜% 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 8⅜% Notes equal to the
proceeds of certain asset sales that are not reinvested in the business or used
to pay senior debt, and (2) all the 8⅜% Notes following the
occurrence of a change of control. The Credit Agreement would
prohibit these repurchases.
As a
result of restrictions contained in the indenture relating to the 8⅜% Notes, our
ability to incur additional debt is primarily limited to the greater of (1)
borrowings available under the Credit Agreement, plus the greater of $15 million
or 7.5% of our tangible assets, or (2) additional debt if, after giving effect
to the incurrence of such additional debt, our earnings before interest, taxes,
depreciation, amortization and certain noncash items equal or exceed two times
our total interest expense.
Superior
Materials Holdings, LLC Credit Facility and Subordinated Debt
Superior
Materials Holdings, LLC has a separate credit agreement that provides for a
revolving credit facility. The credit agreement, as amended, allows
for borrowings of up to $17.5 million. Borrowings under this credit
facility are collateralized by substantially all the assets of Superior
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, certain inventories, certain rolling
stock and letters of credit. The credit agreement
provides that the lender may, on the bases specified, reduce the amount of the
available credit from time to time. As of March 31, 2009, there was $6.4
million in outstanding borrowings under the revolving credit facility, and the
amount of available credit was approximately $1.5 million. Letters of credit
outstanding at March 31, 2009 were $2.8 million which reduces the amount
available under the credit facility.
Currently, borrowings have an annual
interest rate at Superior Materials Holdings, LLC’s option of either, LIBOR plus
4.25% or prime rate plus 2.00%. Commitment fees at an annual rate of
0.25% are payable on the unused portion of the facility.
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
The
credit agreement contains covenants restricting, among other things, Superior
Materials Holdings, LLC’s distributions, dividends and repurchases of capital
stock and other equity interests, acquisitions and investments, mergers, asset
sales other than in the ordinary course of business, indebtedness, liens,
changes in business, changes to charter documents and affiliate
transactions. It also generally limits Superior 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 meet
certain minimum thresholds quarterly. During the trailing twelve
months ended March 31, 2009, the credit agreement required a threshold EBITDA of
$(4.0) million. As of March 31, 2009, Superior Materials Holdings, LLC was in
compliance with its financial covenants under the credit agreement.
U.S. Concrete and its 100%-owned
subsidiaries are not obligors under the terms of the Superior Materials
Holdings, LLC credit agreement. However, in connection with the recent amendment
of the revolving credit facility, Superior Materials Holdings, LLC’s credit
agreement provides that an event of default beyond a 30-day grace period under
either U.S. Concrete’s or Edw. C. Levy’s credit agreement would constitute an
event of default. Furthermore, U.S. Concrete agreed to provide or
obtain additional equity or subordinated debt capital not to exceed $6.75
million through the term of the revolving credit facility to fund any future
cash flow deficits, as defined in the credit agreement, of Superior Materials
Holdings, LLC. In the first quarter of 2009, U.S. Concrete provided
subordinated debt capital in the amount of $2.4 million under this agreement in
lieu of payment of related party payables. Additionally, the minority partner,
Edw. C. Levy, provided $1.6 million of subordinated debt capital to fund
operations. The subordinated debt with U.S. Concrete is eliminated in
consolidation. There is no interest due on each note and each note
matures on May 1, 2010.
7.
INCOME TAXES
There
were no income tax payments made during the first three months of 2009. For the
three months ended March 31, 2008 our income tax payments were approximately
$0.1 million.
In
accordance with applicable generally accepted accounting principles, we estimate
the effective tax rate expected to be applicable for the full
year. We use this estimate in providing for income taxes on a
year-to-date basis, which may vary in subsequent interim periods if our
estimates change. Our effective tax benefit rate for the three months
ended March 31, 2009 was approximately 5.5%, compared to 30.2% for the
three months ended March 31, 2008. Although we are in a taxable loss
position, certain state taxes are calculated on bases different than pre-tax
loss (such as gross receipts). This results in us recording income tax expense
for these states, which lowered the effective benefit rate for the three months
ended March 31, 2009 compared to the statutory rate. The effect of
these state taxes is more profound given the small annual tax loss benefits we
expect based on our projected level of pre-tax loss for 2009.
8. STOCKHOLDERS’
EQUITY
Common
Stock and Preferred Stock
The following table presents
information regarding U.S. Concrete’s common stock (in
thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Shares
authorized
|
|
|
60,000 |
|
|
|
60,000 |
|
Shares
outstanding at end of period
|
|
|
37,184 |
|
|
|
36,793 |
|
Shares
held in treasury
|
|
|
536 |
|
|
|
459 |
|
Under our restated certificate of
incorporation, we are authorized to issue 10,000,000 shares of preferred stock,
$0.001 par value, none of which were issued or outstanding as of March 31, 2009
and December 31, 2008.
Treasury
Stock
Employees
may elect to satisfy their tax obligations on the vesting of their restricted
stock by having us make the required tax payments and withhold a number of
vested shares having an aggregate value on the date of vesting equal to the tax
obligation. As a result of such employee elections, we withheld
approximately 77,000 shares during the three months ended March 31,
2009, at a total value of $0.1 million, and we accounted for those shares
as treasury stock.
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
Share
Repurchase Plan
On
January 7, 2008, our Board of Directors approved a plan to repurchase up to an
aggregate of three million shares of our common stock. The Board
modified the repurchase plan in October 2008 to slightly increase the aggregate
number of shares authorized for repurchase. The plan permitted the
stock repurchases to be made on the open market or in privately negotiated
transactions in compliance with applicable securities and other
laws. As of December 31, 2008, we had repurchased and subsequently
cancelled 3,148,405 shares with an aggregate value of $6.6 million and completed
the repurchase program. Based on restrictions contained in our indenture
governing our 8⅜% Notes, we are currently prohibited from making additional
share repurchases.
9. SHARES
USED IN COMPUTING NET LOSS PER SHARE
The following table summarizes the
number of shares (in thousands) of common stock we have used, on a
weighted-average basis, in calculating basic and diluted net loss per share
attributable to stockholders:
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
|
2008
|
|
Basic
weighted average common shares outstanding
|
|
|
36,844 |
|
|
|
38,587 |
|
Effect
of dilutive stock options and awards
|
|
|
— |
|
|
|
— |
|
Diluted
weighted average common shares outstanding
|
|
|
36,844 |
|
|
|
38,587 |
|
For the three-month period ended March
31, we excluded stock options and awards covering 3.5 million shares in 2009 and
2.0 million shares in 2008 from the computation of the net loss per share
because their effect would have been antidilutive.
10.
COMMITMENTS AND CONTINGENCIES
From time to time, and currently, we
are subject to various claims and litigation brought by employees, customers and
other third parties for, among other matters, personal injuries, property
damages, product defects and delay damages that have, or allegedly have,
resulted from the conduct of our operations. As a result of these
types of claims and litigation, we must periodically evaluate the probability of
damages being assessed against us and the range of possible
outcomes. In each reporting period, if we determine that the
likelihood of damages being assessed against us is probable, and, if we believe
we can estimate a range of possible outcomes, then we record a liability
reflecting either the low end of our range or a specific estimate, if we believe
a specific estimate to be likely based on current information. At
March 31, 2009, we have accrued $4.1 million for potential damages associated
with four separate class actions pending against us in Alameda Superior Court
(California). The class actions were filed between April 6, 2007 and September
27, 2007 on behalf of various Central Concrete Supply Company, Inc. (“Central”)
ready-mixed concrete and transport drivers, alleging primarily that Central
failed to provide meal and rest breaks as required under California law. We have
entered into settlements with one of the classes and a number of individual
drivers. Our accrual is based on those prior settlement values. While
there can be no assurance that we will be able to fully resolve the remaining
class actions without exceeding this existing accrual, based on information
available to us as of March 31, 2009, we believe our existing accrual for these
matters is reasonable.
We
received a letter from a multi-employer pension plan to which one of our
subsidiaries is a contributing employer, providing notice that the Internal
Revenue Service had denied applications by the plan for waivers of the minimum
funding deficiency from prior years, and requesting payment of approximately
$1.3 million in May 2008 as our allocable share of the minimum funding
deficiencies. We are evaluating several options to minimize our
exposure, including transferring our assets and liabilities into another
plan. We may receive future funding deficiency demands from this
particular multi-employer pension plan, or other multi-employer plans to which
we contribute. We are unable to estimate the amount of any potential
future funding deficiency demands, because the actions of each of the other
contributing employers in the plans has an effect on each of the other
contributing employers, the development of a rehabilitation plan by the trustees
and subsequent submittal to and approval by the Internal Revenue Service is not
predictable, and the allocation of fund assets and return assumptions by
trustees, are variable, as are actual investment returns relative to the plan
assumptions.
Currently, there are no material
product defects claims pending against us. Accordingly, our existing
accruals for claims against us do not reflect any material amounts relating to
products defects claims. While our management is not aware of any
facts that would reasonably be expected to lead to material product defects
claims against us that would have a material adverse effect on our business,
financial condition or results of operations, it is possible that claims could
be asserted against us in the future. We do not maintain insurance
that would cover all damages resulting from product defects
claims. In particular, we generally do not maintain insurance
coverage for the cost of removing and rebuilding structures, or so-called “rip
and tear” coverage. In addition, our indemnification arrangements
with contractors or others, when obtained, generally provide only limited
protection against product defects claims. Due to inherent
uncertainties associated with estimating unasserted claims in our business, we
cannot estimate the amount of any future loss that may be attributable to
unasserted product defects claims related to ready-mixed concrete we have
delivered prior to March 31, 2009.
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
We believe that the resolution of all
litigation currently pending or threatened against us or any of our subsidiaries
will not materially exceed our existing accruals for those
matters. However, because of the inherent uncertainty of litigation,
there is a risk that we may have to increase our accruals for one or more claims
or proceedings to which we or any of our subsidiaries is a party as more
information becomes available or proceedings progress, and any such increase in
accruals could have a material adverse effect on our consolidated financial
condition or results of operations. We expect in the future that we
and our operating subsidiaries will from time to time be a party to litigation
or administrative proceedings that arise in the normal course of our
business.
We
are subject to federal, state and local environmental laws and regulations
concerning, among other matters, air emissions and wastewater discharge. Our
management believes we are in substantial compliance with applicable
environmental laws and regulations. From time to time, we receive claims from
federal and state environmental regulatory agencies and entities asserting that
we may be in violation of environmental laws and regulations. Based on
experience and the information currently available, our management believes the
possibility that these claims could materially exceed our related accrual is
remote. Despite compliance and experience, it is possible that we
could be held liable for future charges, which might be material, but are not
currently known to us or cannot be estimated by us. In addition,
changes in federal or state laws, regulations or requirements, or discovery of
currently unknown conditions, could require additional
expenditures.
As
permitted under Delaware law, we have agreements that provide indemnification of
officers and directors for certain events or occurrences while the officer or
director is or was serving at our request in such capacity. The maximum
potential amount of future payments that we could be required to make under
these indemnification agreements is not limited; however, we have a director and
officer insurance policy that potentially limits our exposure and enables us to
recover a portion of future amounts that may be paid. As a result of
the insurance policy coverage, we believe the estimated fair value of these
indemnification agreements is minimal. Accordingly, we have not recorded any
liabilities for these agreements as of March 31, 2009.
We and
our subsidiaries are parties to agreements that require us to provide
indemnification in certain instances when we acquire businesses and real estate
and in the ordinary course of business with our customers, suppliers, lessors
and service providers.
Insurance
Programs
We
maintain third-party insurance coverage against certain risks. Under
certain components of our insurance program, we share the risk of loss with our
insurance underwriters by maintaining high deductibles subject to aggregate
annual loss limitations. Generally, our deductible
retentions per occurrence for auto, workers’ compensation and general liability
insurance programs are $1.0 million, although certain of our operations are
self-insured for workers’ compensation. We fund these deductibles and
record an expense for expected losses under the programs. The
expected losses are determined using a combination of our historical loss
experience and subjective assessments of our future loss exposure. The estimated
losses are subject to uncertainty from various sources, including changes in
claims reporting patterns, claims settlement patterns, judicial decisions,
legislation and economic conditions. Although we believe that the
estimated losses we have recorded are reasonable, significant differences
related to the items noted above could materially affect our insurance
obligations and future expense.
Performance
Bonds
In the
normal course of business, we and our subsidiaries are contingently liable for
performance under $32.4 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.
11. SEGMENT
INFORMATION
We have
two segments that serve our principal markets in the United
States. Our ready-mixed concrete and concrete-related products
segment produces and sells ready-mixed concrete, aggregates (crushed stone, sand
and gravel), concrete masonry and building materials. This segment serves
the following principal markets: north and west Texas, northern California, New
Jersey, New York, Washington, D.C., Michigan and Oklahoma. Our precast
concrete products segment produces and sells precast concrete products in select
markets in the western United States and the mid-Atlantic region.
We
account for inter-segment revenue at market prices. Segment operating
profit consists of net revenue less operating expense, including certain
operating overhead directly related to the operation of the specific
segment. Corporate includes executive, administrative, financial, legal,
human resources, business development and risk management activities which are
not allocated to operations and are excluded from segment operating
profit.
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
The following table sets forth certain
financial information relating to our continuing operations by reportable
segment (in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Revenue:
|
|
|
|
|
|
|
Ready-mixed
concrete and concrete-related products
|
|
$ |
106,997 |
|
|
$ |
148,826 |
|
Precast
concrete products
|
|
|
13,508 |
|
|
|
16,561 |
|
Inter-segment
revenue
|
|
|
(3,205 |
) |
|
|
(3,280 |
) |
Total
revenue
|
|
$ |
117,300 |
|
|
$ |
162,107 |
|
|
|
|
|
|
|
|
|
|
Segment Operating
Loss:
|
|
|
|
|
|
|
|
|
Ready-mixed
concrete and concrete-related products
|
|
$ |
(5,245 |
) |
|
$ |
(424 |
) |
Precast
concrete products
|
|
|
(9 |
) |
|
|
1,809 |
|
Gain
on purchases of senior subordinated notes
|
|
|
4,493 |
|
|
|
– |
|
Unallocated
overhead and other income
|
|
|
807 |
|
|
|
612 |
|
Corporate:
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
4,960 |
|
|
|
5,568 |
|
Interest
expense, net
|
|
|
6,768 |
|
|
|
6,706 |
|
Loss
before income taxes and non-controlling interest
|
|
$ |
(11,682 |
) |
|
$ |
(10,277 |
) |
|
|
|
|
|
|
|
|
|
Depreciation,
Depletion and Amortization:
|
|
|
|
|
|
|
|
|
Ready-mixed
concrete and concrete-related products
|
|
$ |
6,223 |
|
|
$ |
6,229 |
|
Precast
concrete products
|
|
|
727 |
|
|
|
524 |
|
Corporate
|
|
|
506 |
|
|
|
125 |
|
Total
depreciation, depletion and amortization
|
|
$ |
7,456 |
|
|
$ |
6,878 |
|
|
|
|
|
|
|
|
|
|
Sales by
Product:
|
|
|
|
|
|
|
|
|
Ready-mixed
concrete
|
|
$ |
95,504 |
|
|
$ |
131,007 |
|
Precast
concrete products
|
|
|
13,559 |
|
|
|
16,764 |
|
Building
materials
|
|
|
1,814 |
|
|
|
3,259 |
|
Aggregates
|
|
|
3,427 |
|
|
|
6,594 |
|
Other
|
|
|
2,996 |
|
|
|
4,483 |
|
Total
sales
|
|
$ |
117,300 |
|
|
$ |
162,107 |
|
|
|
|
|
|
|
|
|
|
Capital
Expenditures:
|
|
|
|
|
|
|
|
|
Ready-mixed
concrete and concrete-related products
|
|
$ |
6,627 |
|
|
$ |
4,811 |
|
Precast
concrete products
|
|
|
39 |
|
|
|
935 |
|
Total
capital expenditures
|
|
$ |
6,666 |
|
|
$ |
5,746 |
|
|
|
As of
March 31,
2009
|
|
|
As of
December 31,
2008
|
|
Total
Assets:
|
|
|
|
|
|
|
|
|
Ready-mixed
concrete and concrete-related products
|
|
$ |
362,546 |
|
|
$ |
390,843 |
|
Precast
concrete products
|
|
|
56,254 |
|
|
|
58,600 |
|
Corporate
|
|
|
66,658 |
|
|
|
58,367 |
|
Total
assets
|
|
$ |
485,458 |
|
|
$ |
507,810 |
|
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
12. RECENT
ACCOUNTING PRONOUNCEMENTS
In June
2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff
Position EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
(“FSP EITF 03-6-1”). This FSP addresses whether instruments granted
in share-based payment transactions are participating securities prior to
vesting and, therefore, need to be included in computing earnings per share
under the two-class method described in SFAS No. 128, “Earnings Per
Share.” This FSP is effective for fiscal years beginning after
December 15, 2008 and is applied retrospectively. The adoption of FSP
EITF 03-6-1 did not have a material effect on our financial
statements.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles
(“GAAP”). SFAS No. 162 directs the GAAP hierarchy to the entity, not the
independent auditors, as the entity is responsible for selecting accounting
principles for financial statements that are presented in conformity with
GAAP. SFAS No. 162 is effective 60 days following the Securities and
Exchange Commission approval of the Public Company Accounting Oversight Board
amendments to remove the GAAP hierarchy from the auditing standards. We do
not expect the adoption of SFAS No. 162 to have any effect on our
consolidated financial statements.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities.” The new standard is intended to improve financial
reporting about derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand their effects on
an entity’s financial position, financial performance and cash flows. It is
effective for our first quarter 2009 financial statements. The
adoption of SFAS No. 161 did not have a material impact on our consolidated
financial statements.
In
September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“FAS
157”). FAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurement. The initial application of
FAS 157 is limited to financial assets and liabilities and became effective on
January 1, 2008. The impact of the initial application of FAS 157 was
not material. On January 1, 2009, we adopted FAS 157 on a prospective
basis for non-financial assets and liabilities that are not measured at fair
value on a recurring basis. The application of FAS 157 to our
non-financial assets and liabilities will primarily be limited to assets
acquired and liabilities assumed in a business combination, asset retirement
obligations and asset impairments, including goodwill and long-lived
assets. The application of FAS 157 did not have a material impact on
our consolidated financial statements.
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
non-controlling interest in the entity acquired 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.
The adoption of SFAS 141(R) did not have a material impact on our
consolidated financial statements.
In December 2007, the FASB issued
SFAS No. 160, “Non-controlling 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 non-controlling interest, changes in a
parent’s ownership interest and the valuation of retained non-controlling 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 non-controlling owners. SFAS No. 160 is effective for
fiscal years beginning after December 15, 2008. We adopted SFAS No. 160 in
the first quarter of 2009 and have included the non-controlling interest in our
60% owned Michigan subsidiary as a component of equity on the condensed
consolidated balance sheets and have included net loss attributable to
non-controlling interest in our consolidated net loss.
13. FINANCIAL
STATEMENTS OF SUBSIDIARY GUARANTORS
All of
our subsidiaries, excluding our Michigan 60%-owned subsidiary, Superior
Materials Holdings, LLC and minor subsidiaries, have jointly and severally and
fully and unconditionally guaranteed the repayment of our long-term
debt. We directly or indirectly own 100% of each subsidiary
guarantor. The following supplemental financial information sets
forth, on a condensed consolidating basis, the financial statements for U.S.
Concrete, Inc., the parent company and its subsidiary guarantors (including
minor subsidiaries), our 60%-owned Michigan non-guarantor subsidiary and our
total company, as of and for the three months ended March 31, 2009.
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
(Unaudited)
Condensed
Consolidating Balance Sheet
As
of March 31, 2009:
|
|
U.S.
Concrete
Parent
|
|
|
Subsidiary
Guarantors1
|
|
|
Superior
Material
Holdings,
LLC
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in
thousands)
|
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
– |
|
|
$ |
10,338 |
|
|
$ |
4 |
|
|
$ |
– |
|
|
$ |
10,342 |
|
Trade
accounts receivable, net.
|
|
|
– |
|
|
|
69,898 |
|
|
|
6,747 |
|
|
|
– |
|
|
|
76,645 |
|
Inventories
|
|
|
– |
|
|
|
27,308 |
|
|
|
3,961 |
|
|
|
– |
|
|
|
31,269 |
|
Deferred
income taxes
|
|
|
– |
|
|
|
13,484 |
|
|
|
– |
|
|
|
– |
|
|
|
13,484 |
|
Prepaid
expenses
|
|
|
– |
|
|
|
4,646 |
|
|
|
1,161 |
|
|
|
– |
|
|
|
5,807 |
|
Other
current assets
|
|
|
4,886 |
|
|
|
5,455 |
|
|
|
177 |
|
|
|
– |
|
|
|
10,518 |
|
Total
current assets
|
|
|
4,886 |
|
|
|
131,129 |
|
|
|
12,050 |
|
|
|
– |
|
|
|
148,065 |
|
Property,
plant and equipment, net
|
|
|
– |
|
|
|
240,818 |
|
|
|
29,452 |
|
|
|
– |
|
|
|
270,270 |
|
Goodwill
|
|
|
– |
|
|
|
59,197 |
|
|
|
– |
|
|
|
– |
|
|
|
59,197 |
|
Investment
in Subsidiaries
|
|
|
361,189 |
|
|
|
22,357 |
|
|
|
– |
|
|
|
(383,546 |
) |
|
|
– |
|
Other
assets
|
|
|
6,158 |
|
|
|
1,691 |
|
|
|
77 |
|
|
|
– |
|
|
|
7,926 |
|
Total
assets
|
|
$ |
372,233 |
|
|
$ |
455,192 |
|
|
$ |
41,579 |
|
|
$ |
(383,546 |
) |
|
$ |
485,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
maturities of long-term debt
|
|
$ |
829 |
|
|
$ |
874 |
|
|
$ |
261 |
|
|
$ |
– |
|
|
$ |
1,964 |
|
Accounts
payable
|
|
|
– |
|
|
|
30,241 |
|
|
|
5,619 |
|
|
|
– |
|
|
|
35,860 |
|
Accrued
liabilities
|
|
|
12,308 |
|
|
|
40,907 |
|
|
|
2,888 |
|
|
|
– |
|
|
|
56,103 |
|
Total
current liabilities
|
|
|
13,137 |
|
|
|
72,022 |
|
|
|
8,768 |
|
|
|
– |
|
|
|
93,927 |
|
Long-term
debt, net of current maturities
|
|
|
290,360 |
|
|
|
(1,226 |
) |
|
|
10,454 |
|
|
|
– |
|
|
|
299,588 |
|
Other
long-term obligations and deferred credits
|
|
|
7,964 |
|
|
|
568 |
|
|
|
– |
|
|
|
– |
|
|
|
8,532 |
|
Deferred
income taxes
|
|
|
– |
|
|
|
13,663 |
|
|
|
– |
|
|
|
– |
|
|
|
13,663 |
|
Total
liabilities
|
|
|
311,461 |
|
|
|
85,027 |
|
|
|
19,222 |
|
|
|
– |
|
|
|
415,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
38 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
38 |
|
Additional
paid-in capital
|
|
|
266,004 |
|
|
|
541,620 |
|
|
|
38,736 |
|
|
|
(580,356 |
) |
|
|
266,004 |
|
Retained
deficit
|
|
|
(202,018 |
) |
|
|
(180,431 |
) |
|
|
(16,379 |
) |
|
|
196,810 |
|
|
|
(202,018 |
) |
Treasury
stock, at cost
|
|
|
(3,252 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(3,252 |
) |
Total
stockholders’ equity
|
|
|
60,772 |
|
|
|
361,189 |
|
|
|
22,357 |
|
|
|
(383,546 |
) |
|
|
60,772 |
|
Non-controlling
interest
|
|
|
– |
|
|
|
8,976 |
|
|
|
– |
|
|
|
– |
|
|
|
8,976 |
|
Total
equity
|
|
|
60,772 |
|
|
|
370,165 |
|
|
|
22,357 |
|
|
|
(383,546 |
) |
|
|
69,748 |
|
Total
liabilities and equity
|
|
$ |
372,233 |
|
|
$ |
455,192 |
|
|
$ |
41,579 |
|
|
$ |
(383,546 |
) |
|
$ |
485,458 |
|
1
Including minor subsidiaries without operations or material assets.
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
(Unaudited)
Condensed
Consolidating Statement of Operations
Three
months ended March 31, 2009:
|
|
U.S.
Concrete
Parent
|
|
|
Subsidiary
Guarantors1
|
|
|
Superior
Materials
Holdings,
LLC
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
– |
|
|
$ |
111,977 |
|
|
$ |
5,323 |
|
|
$ |
– |
|
|
$ |
117,300 |
|
Cost
of goods sold before depreciation, depletion and amortization
|
|
|
– |
|
|
|
96,516 |
|
|
|
7,006 |
|
|
|
– |
|
|
|
103,522 |
|
Selling,
general and administrative expenses
|
|
|
– |
|
|
|
14,908 |
|
|
|
1,170 |
|
|
|
– |
|
|
|
16,078 |
|
Depreciation,
depletion and amortization
|
|
|
– |
|
|
|
6,500 |
|
|
|
956 |
|
|
|
– |
|
|
|
7,456 |
|
Loss
from operations
|
|
|
– |
|
|
|
(5,947 |
) |
|
|
(3,809 |
) |
|
|
– |
|
|
|
(9,756 |
) |
Interest
income
|
|
|
3 |
|
|
|
3 |
|
|
|
– |
|
|
|
– |
|
|
|
6 |
|
Interest
expense
|
|
|
6,594 |
|
|
|
59 |
|
|
|
121 |
|
|
|
– |
|
|
|
6,774 |
|
Gain
on purchase of senior subordinated notes
|
|
|
4,493 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
4,493 |
|
Other
income, net
|
|
|
– |
|
|
|
321 |
|
|
|
28 |
|
|
|
– |
|
|
|
349 |
|
Loss
before income tax provision (benefit)
|
|
|
(2,098 |
) |
|
|
(5,682 |
) |
|
|
(3,902 |
) |
|
|
– |
|
|
|
(11,682 |
) |
Income
tax provision (benefit)
|
|
|
(734 |
) |
|
|
22 |
|
|
|
75 |
|
|
|
– |
|
|
|
(637 |
) |
Equity
earnings in subsidiary
|
|
|
(8,090 |
) |
|
|
(3,977 |
) |
|
|
– |
|
|
|
12,067 |
|
|
|
– |
|
Loss
from continuing operations
|
|
|
(9,454 |
) |
|
|
(9,681 |
) |
|
|
(3,977 |
) |
|
|
12,067 |
|
|
|
(11,045 |
) |
Loss
from discontinued operations, net of tax
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Net
loss
|
|
|
(9,454 |
) |
|
|
(9,681 |
) |
|
|
(3,977 |
) |
|
|
12,067 |
|
|
|
(11,045 |
) |
Net
loss attributable to non-controlling interest
|
|
|
– |
|
|
|
(1,591 |
) |
|
|
– |
|
|
|
– |
|
|
|
(1,591 |
) |
Net
loss attributable to stockholders
|
|
$ |
(9,454 |
) |
|
$ |
(8,090 |
) |
|
$ |
(3,977 |
) |
|
$ |
12,067 |
|
|
$ |
(9,454 |
) |
1Including
minor subsidiaries without operations or material assets.
Condensed
Consolidating Statement of Cash Flows
Three
months ended March 31, 2009:
|
|
U.S.
Concrete
Parent
|
|
|
Subsidiary
Guarantors1
|
|
|
Superior
Materials
Holdings,
LLC
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in
thousands)
|
|
Net
cash provided by (used in) operating activities
|
|
$ |
5,682 |
|
|
$ |
10,530 |
|
|
$ |
(6,081 |
) |
|
$ |
– |
|
|
$ |
10,131 |
|
Net
cash provided by (used in) investing activities
|
|
|
– |
|
|
|
(5,487 |
) |
|
|
310 |
|
|
|
– |
|
|
|
(5,177 |
) |
Net
cash provided by (used in) financing activities
|
|
|
(5,682 |
) |
|
|
610 |
|
|
|
5,137 |
|
|
|
– |
|
|
|
65 |
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
– |
|
|
|
5,653 |
|
|
|
(634 |
) |
|
|
– |
|
|
|
5,019 |
|
Cash
and cash equivalents at the beginning of the period
|
|
|
– |
|
|
|
4,685 |
|
|
|
638 |
|
|
|
– |
|
|
|
5,323 |
|
Cash
and cash equivalents at the end of the period
|
|
$ |
– |
|
|
$ |
10,338 |
|
|
$ |
4 |
|
|
$ |
– |
|
|
$ |
10,342 |
|
1
Including minor subsidiaries without operations or material assets.
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
Condensed
Consolidating Balance Sheet
As
of December 31, 2008:
|
|
U.S.
Concrete
Parent
|
|
|
Subsidiary
Guarantors1
|
|
|
Superior
Material
Holdings,
LLC
|
|
|
Eliminations
|
|
|
Consolidated
|
|
ASSETS
|
|
(in
thousands)
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
– |
|
|
$ |
4,685 |
|
|
$ |
638 |
|
|
$ |
– |
|
|
$ |
5,323 |
|
Trade
accounts receivable, net.
|
|
|
– |
|
|
|
89,483 |
|
|
|
10,786 |
|
|
|
– |
|
|
|
100,269 |
|
Inventories
|
|
|
– |
|
|
|
28,438 |
|
|
|
4,330 |
|
|
|
– |
|
|
|
32,768 |
|
Deferred
income taxes
|
|
|
– |
|
|
|
11,576 |
|
|
|
– |
|
|
|
– |
|
|
|
11,576 |
|
Prepaid
expenses
|
|
|
– |
|
|
|
3,178 |
|
|
|
341 |
|
|
|
– |
|
|
|
3,519 |
|
Other
current assets
|
|
|
4,886 |
|
|
|
7,977 |
|
|
|
938 |
|
|
|
– |
|
|
|
13,801 |
|
Assets
held for sale
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Total
current assets
|
|
|
4,886 |
|
|
|
145,337 |
|
|
|
17,033 |
|
|
|
– |
|
|
|
167,256 |
|
Property,
plant and equipment, net
|
|
|
– |
|
|
|
242,371 |
|
|
|
30,398 |
|
|
|
– |
|
|
|
272,769 |
|
Goodwill
|
|
|
– |
|
|
|
59,197 |
|
|
|
– |
|
|
|
– |
|
|
|
59,197 |
|
Investment
in Subsidiaries
|
|
|
369,853 |
|
|
|
26,334 |
|
|
|
– |
|
|
|
(396,187 |
) |
|
|
– |
|
Other
assets
|
|
|
6,751 |
|
|
|
1,747 |
|
|
|
90 |
|
|
|
– |
|
|
|
8,588 |
|
Total
assets
|
|
$ |
381,490 |
|
|
$ |
474,986 |
|
|
$ |
47,521 |
|
|
$ |
(396,187 |
) |
|
$ |
507,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
maturities of long-term debt
|
|
$ |
819 |
|
|
$ |
2,291 |
|
|
$ |
261 |
|
|
$ |
– |
|
|
$ |
3,371 |
|
Accounts
payable
|
|
|
– |
|
|
|
32,870 |
|
|
|
13,050 |
|
|
|
– |
|
|
|
45,920 |
|
Accrued
liabilities
|
|
|
7,000 |
|
|
|
44,922 |
|
|
|
2,559 |
|
|
|
– |
|
|
|
54,481 |
|
Total
current liabilities
|
|
|
7,819 |
|
|
|
80,083 |
|
|
|
15,870 |
|
|
|
– |
|
|
|
103,772 |
|
Long-term
debt, net of current maturities
|
|
|
295,931 |
|
|
|
1,369 |
|
|
|
5,317 |
|
|
|
– |
|
|
|
302,617 |
|
Other
long-term obligations and deferred credits
|
|
|
7,944 |
|
|
|
578 |
|
|
|
– |
|
|
|
– |
|
|
|
8,522 |
|
Deferred
income taxes
|
|
|
– |
|
|
|
12,536 |
|
|
|
– |
|
|
|
– |
|
|
|
12,536 |
|
Total
liabilities
|
|
|
311,694 |
|
|
|
94,566 |
|
|
|
21,187 |
|
|
|
– |
|
|
|
427,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
37 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
37 |
|
Additional
paid-in capital
|
|
|
265,453 |
|
|
|
542,194 |
|
|
|
38,736 |
|
|
|
(580,930 |
) |
|
|
265,453 |
|
Retained
deficit
|
|
|
(192,564 |
) |
|
|
(172,341 |
) |
|
|
(12,402 |
) |
|
|
184,743 |
|
|
|
(192,564 |
) |
Treasury
stock, at cost
|
|
|
(3,130 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(3,130 |
) |
Total
stockholders’ equity
|
|
|
69,796 |
|
|
|
369,853 |
|
|
|
26,334 |
|
|
|
(396,187 |
) |
|
|
69,796 |
|
Non-controlling
interest
|
|
|
– |
|
|
|
10,567 |
|
|
|
– |
|
|
|
– |
|
|
|
10,567 |
|
Total
equity
|
|
|
69,796 |
|
|
|
380,420 |
|
|
|
26,334 |
|
|
|
(396,187 |
) |
|
|
80,363 |
|
Total
liabilities and equity
|
|
$ |
381,490 |
|
|
$ |
474,986 |
|
|
$ |
47,521 |
|
|
$ |
(396,187 |
) |
|
$ |
507,810 |
|
1
Including minor subsidiaries without operations or material
assets.
U.S.
CONCRETE, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Condensed
Consolidating Statement of Operations
Three
months ended March 31, 2008:
|
|
U.S.
Concrete
Parent
|
|
|
Subsidiary
Guarantors1
|
|
|
Superior
Materials
Holdings,
LLC
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in
thousands)
|
|
Revenue
|
|
$ |
– |
|
|
$ |
155,649 |
|
|
$ |
6,458 |
|
|
$ |
– |
|
|
$ |
162,107 |
|
Cost
of goods sold before depreciation, depletion and
amortization
|
|
|
– |
|
|
|
132,408 |
|
|
|
8,883 |
|
|
|
– |
|
|
|
141,291 |
|
Selling,
general and administrative expenses
|
|
|
– |
|
|
|
16,734 |
|
|
|
1,397 |
|
|
|
– |
|
|
|
18,131 |
|
Depreciation,
depletion and amortization
|
|
|
– |
|
|
|
5,760 |
|
|
|
1,118 |
|
|
|
– |
|
|
|
6,878 |
|
Loss
from operations
|
|
|
– |
|
|
|
747 |
|
|
|
(4,940 |
) |
|
|
– |
|
|
|
(4,193 |
) |
Interest
income
|
|
|
72 |
|
|
|
2 |
|
|
|
– |
|
|
|
– |
|
|
|
74 |
|
Interest
expense
|
|
|
6,502 |
|
|
|
130 |
|
|
|
148 |
|
|
|
– |
|
|
|
6,780 |
|
Gain
on purchase of senior subordinated notes
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Other
income, net
|
|
|
– |
|
|
|
570 |
|
|
|
52 |
|
|
|
|
|
|
|
622 |
|
Loss
before income tax provision (benefit)
|
|
|
(6,430 |
) |
|
|
1,189 |
|
|
|
(5,036 |
) |
|
|
– |
|
|
|
(10,277 |
) |
Income
tax provision (benefit)
|
|
|
(2,251 |
) |
|
|
(928 |
) |
|
|
75 |
|
|
|
– |
|
|
|
(3,104 |
) |
Equity
earnings in subsidiary
|
|
|
(1,099 |
) |
|
|
(5,111 |
) |
|
|
– |
|
|
|
6,210 |
|
|
|
– |
|
Loss
from continuing operations
|
|
|
(5,278 |
) |
|
|
(2,994 |
) |
|
|
(5,111 |
) |
|
|
6,210 |
|
|
|
(7,173 |
) |
Loss
from discontinued operations, net of tax
|
|
|
– |
|
|
|
(149 |
) |
|
|
– |
|
|
|
– |
|
|
|
(149 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(5,278 |
) |
|
|
(3,143 |
) |
|
|
(5,111 |
) |
|
|
6,210 |
|
|
|
(7,322 |
) |
Net
loss attributable to non-controlling interest
|
|
|
– |
|
|
|
(2,044 |
) |
|
|
– |
|
|
|
– |
|
|
|
(2,044 |
) |
Net
loss attributable to stockholders
|
|
$ |
(5,278 |
) |
|
$ |
(1,099 |
) |
|
$ |
(5,111 |
) |
|
$ |
6,210 |
|
|
$ |
(5,278 |
) |
1
Including minor subsidiaries without operations or material assets.
Condensed
Consolidating Statement of Cash Flows
Three
months ended March 31, 2008:
|
|
U.S.
Concrete
Parent
|
|
|
Subsidiary
Guarantors1
|
|
|
Superior
Materials
Holdings,
LLC
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in
thousands)
|
|
Net
cash provided by (used in) operating activities
|
|
$ |
(1,953 |
) |
|
$ |
7,592 |
|
|
$ |
(1,172 |
) |
|
$ |
– |
|
|
$ |
4,467 |
|
Net
cash provided by (used in) investing activities
|
|
|
– |
|
|
|
127 |
|
|
|
285 |
|
|
|
– |
|
|
|
412 |
|
Net
cash provided by (used in) financing activities
|
|
|
1,953 |
|
|
|
(692 |
) |
|
|
(585 |
) |
|
|
– |
|
|
|
676 |
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
– |
|
|
|
7,027 |
|
|
|
(1,472 |
) |
|
|
– |
|
|
|
5,555 |
|
Cash
and cash equivalents at the beginning of the period
|
|
|
– |
|
|
|
13,368 |
|
|
|
1,482 |
|
|
|
– |
|
|
|
14,850 |
|
Cash
and cash equivalents at the end of the period
|
|
$ |
– |
|
|
$ |
20,395 |
|
|
$ |
10 |
|
|
$ |
– |
|
|
$ |
20,405 |
|
1
Including minor subsidiaries without operations or material
assets.
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Statements
we make in the following discussion which express a belief, expectation or
intention, as well as those that are not historical fact, are forward-looking
statements that are subject to various risks, uncertainties and assumptions. Our
actual results, performance or achievements, or market conditions or industry
results, could differ materially from the forward-looking statements in the
following discussion as a result of a variety of factors, including the risks
and uncertainties we have referred to under the headings “Risk Factors” in Item
1A of Part I in the 2008 Form 10-K, and “—Risks and Uncertainties” below. For a
discussion of our commitments not discussed below, related-party transactions,
and our critical accounting policies, see “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” in Item 7 of Part I in the
2008 Form 10-K. We assume no obligation to update these forward-looking
statement,; except as required by applicable law.
Our
Business
We
operate our business in two business segments: ready-mixed concrete and
concrete-related products; and precast concrete products.
Ready-Mixed
Concrete and Concrete-Related Products. Our ready-mixed concrete
and concrete-related products segment is engaged primarily in the production,
sale and delivery of ready-mixed concrete to our customers’ job
sites. To a lesser extent, this segment is engaged in the mining and
sale of aggregates, and the resale of building materials, primarily to our
ready-mixed concrete customers. We provide these products and
services from our operations in north and west Texas, northern California, New
Jersey, New York, Washington, D.C., Michigan and Oklahoma.
Precast Concrete
Products. Our precast concrete
products segment engages principally in the production, distribution and sale of
precast concrete products from our seven plants located in California, Arizona
and Pennsylvania. From these facilities, we produce precast concrete
structures such as utility vaults, manholes and other wastewater management
products, specialty engineered structures, pre-stressed bridge girders, concrete
piles, curb-inlets, catch basins, retaining and other wall systems, custom
designed architectural products and other precast concrete
products.
Our
Markets: Pricing and Demand Trends
The
markets for our products are generally local, and our operating results are
subject to fluctuations in the level and mix of construction activity that occur
in our markets. The level of activity affects the demand for our
products, while the product mix of activity among the various segments of the
construction industry affects both our relative competitive strengths and our
operating margins. Commercial and industrial projects generally
provide more opportunities to sell value-added products 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, including the ongoing credit and U.S. recessionary conditions
impacting all our markets. In addition, our business is impacted by
seasonal variations in weather conditions, which vary by regional
market. Accordingly, demand for our products and services during the
winter months is typically lower than other months of the year because of
inclement weather. Also, sustained periods of inclement weather could
cause the delay of construction projects during other times of the
year.
For the
first three months of 2009, our average sales price increased 2.5% compared to
the same time period in 2008. We experienced notable pricing improvements in our
north Texas, west Texas, Michigan and Washington, D.C. markets, and a pricing
decline in our New Jersey market, as compared to the first quarter of 2008.
Pricing in our northern California market was flat compared to the three months
ended March 31, 2008. Certain price increases we previously announced
were realized in the first quarter of 2009; however, the sustainability of the
benefits from these or any future increases will depend on market conditions and
whether such increases exceed any raw material and other cost
increases.
We
continued to experience declines in the demand for our products during the first
quarter of 2009, primarily in our residential and commercial end-use
markets. Ready-mixed concrete sales volumes generally began to
decline during the early summer of 2006 and continued to decline throughout 2007
and 2008. This decline reflects a sustained downward trend in
residential construction activity and commercial projects in many of our
markets. The overall construction downturn, in both residential and
commercial end-use markets, resulted in ready-mixed concrete sales volumes being
down on a same-plant-sales basis in our major markets, as compared to the first
quarter of 2008. We expect ready-mixed concrete sales volumes in 2009
to be lower than sales volumes achieved in 2008 because of continued
sluggishness in the residential and commercial end-use construction markets,
which continues to be exacerbated by the financial crisis and U.S.
recession.
Demand
for our products in our precast concrete products segment also decreased in the
first quarter of 2009 as compared to the first quarter of 2008. 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. Additionally, lower commercial construction spending in the
mid-Atlantic market has affected this segment.
Sustaining
or improving our operating margins in the future will depend on market
conditions, including the impact of continued weakness in the residential and
commercial construction sectors and the uncertainty of public works projects in
light of state budgetary shortfalls and the U.S. economic
recession. The impact of the American Recovery and Reinvestment Act
passed by the U.S. government in 2009 on our sales volumes, operating margins
and liquidity remains uncertain.
Cement
and Other Raw Materials
We obtain
most of the raw materials necessary to manufacture ready-mixed concrete and
precast concrete products on a daily basis. These materials include cement,
other cementitious materials (generally, fly ash and blast furnace slag) and
aggregates (stone, gravel and sand), in addition to certain chemical admixtures.
With the exception of chemical admixtures, each plant typically maintains an
inventory level of these materials sufficient to satisfy its operating needs for
a few days. Typically, cement, other cementitious materials and
aggregates represent the highest-cost materials used in manufacturing a cubic
yard of ready-mixed concrete. In each of our markets, we purchase
each of these materials from several suppliers. Admixtures are generally
purchased from suppliers under national purchasing agreements.
We
negotiate cement and aggregates pricing with suppliers both on a company-wide
basis and at the local market level in an effort to obtain the most competitive
pricing available. Due to the severe slowdown in residential housing starts and
decreased demand in other construction activity, combined with increased U.S.
cement capacity, we did not experience cement shortages during the first quarter
of 2009 and we do not expect to experience cement shortages for the remainder of
the year. Cement price increases for 2009 that our suppliers announced in late
2008 have not occurred in many of our markets, and price increases in certain
markets realized by our cement suppliers have been significantly lower than
previous changes. We have realized cement cost decreases in certain markets in
the first quarter of 2009 and expect cement prices to be flat or lower
throughout 2009.
Overall,
aggregates pricing in the first quarter of 2009 remained relatively flat with
the first quarter of 2008. However, prices by market and for specific types of
aggregates varied. Currently, in most of our markets, we believe
there is an adequate supply of aggregates. Should demand for
aggregates increase significantly, we could experience escalating prices or
shortages of aggregates. On average, we expect our aggregates costs
to be flat or up modestly over 2008 aggregates costs. Fuel charges have declined
substantially for the first three months of 2009, compared to the first three
months of 2008, due to lower diesel fuel prices.
Acquisitions
Since our
inception in 1999, our growth strategy has contemplated
acquisitions. The rate and extent to which appropriate further
acquisition opportunities are available, and the extent to which acquired
businesses are integrated and anticipated synergies and cost savings are
achieved, can affect our operations and results. We expect the rate
of our acquisitions in 2009 to be significantly lower than in prior years due to
the global credit crisis, our limited available capital and ongoing recessionary
conditions in the United States. Our recent acquisitions are
discussed briefly below.
Ready-Mixed
Concrete and Concrete-Related Products Segment
New York Acquisitions. In
November 2008, we paid $2.5 million to acquire a ready-mixed concrete operation
in Brooklyn, New York. We used borrowings under our existing credit
facility to fund the payment of the purchase price. In August 2008,
we paid $2.0 million to acquire a ready-mixed concrete operation in Mount
Vernon, New York. We used borrowings under our existing credit
facility to fund the purchase price. In
January 2008, we acquired a ready-mixed concrete operation in Staten Island, New
York. The purchase price was approximately $1.8 million in
cash.
West Texas Acquisition. In
June 2008, we acquired nine ready-mixed concrete plants, together with related
real property, rolling stock and working capital, in our west Texas market for
approximately $13.5 million. In June 2007, we acquired two
ready-mixed concrete plants, including real property and certain raw material
inventories, in our west Texas market for approximately $3.6
million.
Superior Materials Joint
Venture. In
April 2007, we formed a jointly owned company (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. 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.
Precast
Concrete Products Segment
Pomeroy. In August
2008, we paid $2.5 million to acquire a precast operation to augment our
existing precast operations in San Diego, California. We used
borrowings under our existing credit facility to fund the payment of the
purchase price.
Architectural Precast, LLC
(“API”). In October 2007, we acquired the operating assets,
including working capital and real property, of API, a leading designer and
manufacturer of premium quality architectural and structural precast concrete
products serving the mid-Atlantic region, for approximately $14.5 million plus a
$1.5 million contingent payment based on the future earnings of
API. For the twelve-month period ended September 30, 2008, API
attained 50% of its established earnings target, and we made a $750,000 payment,
reduced for certain uncollected pre-acquisition accounts receivable, to the
sellers in the first quarter of 2009 in partial satisfaction of our contingent
payment obligation.
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 or fit our long-term strategic objectives. We
sold our Knoxville, Tennessee and Wyoming, Delaware operations in November 2007
for $16.5 million, plus certain adjustments for working capital. In
addition, we sold our Memphis, Tennessee operations for $7.2 million, plus the
payment for certain inventory-on-hand at closing in January 2008 (See Note 3 to
our condensed consolidated financial statements included in this
report).
Risks
and Uncertainties
Numerous
factors could affect our future operating results, including those discussed
under the heading “Risk Factors” in Item 1A of Part I of the 2008 Form 10-K 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 of 2007, a plan of implementation
was approved which included a phased implementation across our regions during
the course of 2008 and into early 2009. This implementation was
substantially completed during the first quarter of 2009. System
problems or failures related to the finalization of this implementation could
adversely affect our financial reporting.
Tax Liabilities. We are
subject to federal, state and local income taxes, applicable to corporations
generally, as well as other taxes not based on income. 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
We have
outlined our critical accounting policies in Item 7 of Part II of the 2008 Form
10-K. Our critical accounting policies involve the use of estimates
in the recording of the allowance for doubtful accounts, realization of
goodwill, accruals for self-insurance, accruals for income taxes, inventory
obsolescence reserves and the valuation and useful lives of property, plant and
equipment. See Note 1 to our consolidated financial statements included in
Item 8 of Part II of the 2008 Form 10-K for a discussion of these accounting
policies. See Note 12 to the condensed consolidated financial
statements in Part I of this report for a discussion of recent accounting
pronouncements and accounting changes.
Results
of Operations
The
following table sets forth selected historical statement of operations
information (in thousands, except for selling prices) and that information as a
percentage of sales for each of the periods indicated.
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(unaudited)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ready-mixed
concrete and concrete-related products
|
|
$ |
106,997 |
|
|
|
91.2 |
% |
|
$ |
148,826 |
|
|
|
91.8 |
% |
Precast
concrete products
|
|
|
13,508 |
|
|
|
11.5 |
|
|
|
16,561 |
|
|
|
10.2 |
|
Inter-segment
revenue
|
|
|
(3,205 |
) |
|
|
(2.7 |
) |
|
|
(3,280 |
) |
|
|
(2.0 |
) |
Total
revenue
|
|
$ |
117,300 |
|
|
|
100.0 |
% |
|
$ |
162,107 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold before depreciation, depletion and
amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ready-mixed
concrete and concrete-related products
|
|
$ |
92,852 |
|
|
|
79.2 |
|
|
$ |
129,041 |
|
|
|
79.6 |
|
Precast
concrete products
|
|
|
10,670 |
|
|
|
9.1 |
|
|
|
12,250 |
|
|
|
7.6 |
|
Selling,
general and administrative expenses
|
|
|
16,078 |
|
|
|
13.7 |
|
|
|
18,131 |
|
|
|
11.2 |
|
Depreciation,
depletion and amortization
|
|
|
7,456 |
|
|
|
6.3 |
|
|
|
6,878 |
|
|
|
4.2 |
|
Loss
from operations
|
|
|
(9,756 |
) |
|
|
(8.3 |
) |
|
|
(4,193 |
) |
|
|
(2.6 |
) |
Interest
expense, net
|
|
|
6,768 |
|
|
|
5.8 |
|
|
|
6,706 |
|
|
|
4.1 |
|
Gain
on purchase of senior subordinated notes
|
|
|
4,493 |
|
|
|
3.8 |
|
|
|
– |
|
|
|
– |
|
Other
income, net
|
|
|
349 |
|
|
|
0.3 |
|
|
|
622 |
|
|
|
0.4 |
|
Loss
before income tax benefit
|
|
|
(11,682 |
) |
|
|
(10.0 |
) |
|
|
(10,277 |
) |
|
|
(6.3 |
) |
Income
tax benefit
|
|
|
(637 |
) |
|
|
(0.6 |
) |
|
|
(3,104 |
) |
|
|
(1.9 |
) |
Loss
from continuing operations
|
|
|
(11,045 |
) |
|
|
(9.4 |
) |
|
|
(7,173 |
) |
|
|
(4.4 |
) |
Loss
from discontinued operations, net of tax
|
|
|
– |
|
|
|
– |
|
|
|
(149 |
) |
|
|
(0.1 |
) |
Net
loss
|
|
|
(11,045 |
) |
|
|
(9.4 |
) |
|
|
(7,322 |
) |
|
|
(4.5 |
) |
Net
loss attributable to non-controlling interest
|
|
|
(1,591 |
) |
|
|
(1.4 |
) |
|
|
(2,044 |
) |
|
|
(1.3 |
) |
Net
loss attributable to stockholders
|
|
$ |
(9,454 |
) |
|
|
(8.0 |
)% |
|
$ |
(5,278 |
) |
|
|
(3.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ready-mixed
Concrete Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
selling price per cubic yard
|
|
$ |
97.99 |
|
|
|
|
|
|
$ |
95.61 |
|
|
|
|
|
Sales
volume in cubic yards
|
|
|
975 |
|
|
|
|
|
|
|
1,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Precast
Concrete Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
selling price per cubic yard of concrete used in
production
|
|
$ |
865.66 |
|
|
|
|
|
|
$ |
663.87 |
|
|
|
|
|
Ready-mixed
concrete used in production in cubic yards
|
|
|
16 |
|
|
|
|
|
|
|
25 |
|
|
|
|
|
Revenue
Ready-mixed concrete and concrete-related products.
Revenue from our ready-mixed concrete and concrete-related products
segment decreased $41.8 million, or 28.1%, to $107.0 million for the three
months ended March 31, 2009, from $148.8 million in the corresponding
period of 2008. Our ready-mixed sales volumes for the first quarter
of 2009 were approximately 1.0 million cubic yards, down 28.8% from the 1.4
million cubic yards of ready-mixed concrete we sold in the first quarter of
2008. Excluding the volumes associated with acquired operations, on a
same-plant-sales basis, our ready-mixed volumes in the first quarter of 2009
were down approximately 33.5% compared to the first quarter of 2008. The decline
reflected the continuing downturn in residential home construction activity that
began in the second half of 2006 in all our markets, and the downturn in
commercial construction and public works spending due to the ongoing credit
crisis and the economic recession in the United States. Partially
offsetting the effects of lower sales volumes was the approximate 2.6% rise in
the average sales price per cubic yard of ready-mixed concrete during the first
quarter of 2009, as compared to the corresponding period in
2008.
Precast concrete products.
Revenue from our precast concrete products segment was down $3.1 million,
or 18.4%, to $13.5 million for the first three months of 2009 from $16.6 million
during the corresponding period of 2008. This decrease reflected the
continued downturn primarily in residential construction in our northern
California and Phoenix, Arizona markets and lower commercial construction
spending in the mid-Atlantic market. The decrease in revenue was
partially offset by higher revenue in 2009 from the acquisition of the assets of
Pomeroy in August 2008.
Cost of goods sold before
depreciation, depletion and amortization.
Ready-mixed concrete and
concrete-related products. Cost of goods sold before depreciation,
depletion and amortization for our ready-mixed concrete and concrete-related
products segment decreased $36.2 million, or 28.0%, to $92.9 million for the
three months ended March 31, 2009 from $129.0 million for the three months ended
March 31, 2008. The decrease was primarily associated with lower
sales volumes in 2009. As a percentage of ready-mixed concrete and
concrete-related product revenue, cost of goods sold before depreciation,
depletion and amortization was 86.8% for the three months ended March 31, 2009,
as compared to 86.7% for the same period of 2008. While this percentage was
relatively flat year-over-year, we experienced slightly higher production costs,
per unit delivery costs, and had decreased efficiency from lower volumes.
However, this was partially offset by higher average selling
prices.
Precast concrete
products. Cost
of goods sold before depreciation, depletion and amortization for our precast
concrete products segment declined $1.6 million, or 12.9%, to $10.7 million for
the quarter ended March 31, 2009 from $12.3 million for the corresponding period
of 2008. This decrease was primarily related to the declining residential
construction market that has been impacting our northern California and Phoenix,
Arizona precast markets and lower commercial construction spending in the
mid-Atlantic market. As a percentage of precast concrete revenue,
cost of goods sold before depreciation, depletion and amortization for precast
concrete products rose to 79.0% for the three months ended March 31, 2009 from
74.0% during the three months ended March 31, 2008. This was affected by the
decreased efficiency in our plant operations in northern California and Phoenix,
Arizona, resulting from lower demand for our primarily residential product
offerings in these markets. This increase was also attributable to decreased
efficiency in primarily commercial construction projects in the mid-Atlantic
market due to project delays and lower overall activity.
Selling, general and administrative
expenses. Selling, general and administrative expenses for the three
months ended March 31, 2009 decreased $2.0 million, or 11.3%, to $16.1 million
from $18.1 million during the corresponding period of 2008. This decrease was
primarily due to cost reductions implemented in the fourth quarter of 2008,
which included the reduction of our salaried workforce and certain contract
cancellations.
Depreciation, depletion and
amortization. Depreciation, depletion and amortization expense increased
$0.6 million, or 8.4%, to $7.5 million for the three months ended March 31, 2009
from $6.9 million in the corresponding period of 2008. The increase was
attributable primarily to higher depreciation expense related to our new
information technology system, which was placed in service during the second
half of 2008, and acquisitions completed after the first quarter of
2008.
Interest expense,
net. Net interest expense was relatively consistent in the
first quarter of 2009 compared to the first quarter of 2008. Lower interest
rates during the first quarter of 2009 offset increased expense associated with
the increased amounts outstanding under our Senior Secured Credit
Facility.
Gain on purchases of senior
subordinated notes. During the first quarter of 2009, we purchased $7.4
million principal amount of our 8⅜% Senior Subordinated Notes due April 1, 2014
(the “8⅜% Notes”) in open market transactions for $2.8 million plus accrued
interest of $0.3 million through the dates of purchase. We recorded a
gain of $4.5 million as a result of these transactions after writing off $0.1
million of previously deferred financing costs and original issue discount
associated with the pro-rata amount of the 8⅜% Notes purchased.
Income tax
benefit. We recorded an income tax benefit from continuing
operations of $0.6 million for the three months ended March 31, 2009, as
compared to $3.1 million for the corresponding period in 2008. At the end of
each interim reporting period, we estimate the effective income tax rate
expected to be applicable for the full year. We use this estimate in
providing for income taxes on a year-to-date basis, and it may vary in
subsequent interim periods if our estimate of the full year income or loss
changes. Our estimated annualized effective tax benefit rate was 5.5%
and 30.2% for the three months ended March 31, 2009 and 2008, respectively.
Although we are in a taxable loss position, certain state taxes are calculated
on bases different than pre-tax loss (such as gross receipts). This results in
us recording income tax expense for these states, which lowered the effective
benefit rate for the three months ended March 31, 2009 compared to the statutory
rate. The effects of these state taxes are more profound given the small annual
tax loss benefits we expect based on our projected level of pre-tax loss for
2009.
Non-controlling
interest. The non-controlling interest of $(1.6) million and
$(2.0) million reflected in the first quarter of 2009 and 2008, respectively,
related to the allocable share of net loss from our Michigan joint venture to
the minority interest owner.
Liquidity
and Capital Resources
Our primary short-term liquidity needs
consist of financing seasonal working capital requirements, purchasing property
and equipment, acquiring new businesses under our acquisition program and paying
cash interest expense under the 8⅜% Notes and cash interest expense on
borrowings under our senior secured revolving credit facility that is scheduled
to expire in March 2011. In addition to cash and cash equivalents of
$10.3 million at March 31, 2009 and cash from operations, our senior secured
revolving credit facility provides us with a significant source of
liquidity. At March 31, 2009, we had $62.8 million of available
credit, net of outstanding revolving credit borrowings of $13.0 million and
outstanding letters of credit of $11.6 million. Our working capital needs are
typically at their lowest level in the first quarter and increase in the second
and third quarters to fund the increases in accounts receivable and inventories
during those periods and the cash interest payment on the 8⅜% Notes on
April 1 and October 1 of each year. Generally, in the fourth quarter of each
year, our working capital borrowings decline and are at their lowest annual
levels in the first quarter of the following year. Current market conditions
have limited the availability of new sources of financing and capital which will
clearly have an impact on our ability to obtain financing for our acquisition
program and developmental capital.
The
principal factors that could adversely affect the amount of and availability of
our internally generated funds include:
|
§
|
any
deterioration of revenue because of weakness in the markets in which we
operate;
|
|
§
|
any
decline in gross margins due to shifts in our project mix or increases in
the cost of our raw materials;
|
|
§
|
any
deterioration in our ability to collect our accounts receivable from
customers as a result of further weakening in residential and other
construction demand or as a result of payment difficulties experienced by
our customers relating to the global financial crisis;
and
|
|
§
|
the
extent to which we are unable to generate internal growth through
integration of additional businesses or capital expansions of our existing
business.
|
Covenants
contained in the Credit Agreement governing our senior revolving credit facility
(the “Credit Agreement”) and the indenture governing the 8⅜% Notes could
adversely affect our ability to obtain cash from external sources. Specifically,
the Credit Agreement limits capital expenditures (excluding permitted
acquisitions) to the greater of $45 million or 5% of consolidated revenues in
the prior 12 months, and will require us to maintain a minimum fixed-charge
coverage ratio of 1.0 to 1.0 on a rolling 12-month basis if the available credit
under the facility falls below $25 million. Under the indenture
governing the 8⅜% Notes, there are restrictions on our ability to incur
additional debt primarily limited to the greater of (1) borrowings available
under the Credit Agreement, plus the greater of $15 million or 7.5% of our
tangible assets, or (2) additional debt if, after giving effect to the
incurrence of such additional debt, our earnings before interest, taxes,
depreciation, amortization and certain noncash items equal or exceed two times
our total interest expense. Based on our March 31, 2009 balance
sheet, generally this restriction in the indenture limits our borrowing
availability to approximately $28.6 million, in addition to our borrowings
available under our existing Credit Agreement. Additionally, our ability to
obtain cash from external sources could be adversely affected by volatility in
the markets for corporate debt, fluctuations in the market price of our common
stock or 8⅜% Notes and any additional market instability, unavailability of
credit or inability to access the capital markets which may result from the
effect of the global financial crisis..
The
following key financial measurements reflect our financial position and capital
resources as of March 31, 2009 and December 31, 2008 (dollars in
thousands):
|
|
March 31, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
10,342 |
|
|
$ |
5,323 |
|
Working
capital
|
|
$ |
54,138 |
|
|
$ |
63,484 |
|
Total
debt
|
|
$ |
301,552 |
|
|
$ |
305,988 |
|
Available
credit
|
|
$ |
62,800 |
|
|
$ |
91,100 |
|
Debt
as a percent of capital employed
|
|
|
81.2 |
% |
|
|
79.2 |
% |
Our cash
and cash equivalents consist of highly liquid investments in deposits we hold at
major financial institutions.
Senior
Secured Credit Facility
On June
30, 2006, we entered into the Credit Agreement, which amended and restated our
senior secured credit agreement dated as of March 12, 2004. The
Credit Agreement, as amended to date, provides for a revolving credit facility
of up to $150 million, with borrowings limited based on a portion of the net
amounts of eligible accounts receivable, inventory and mixer trucks. The
facility is scheduled to mature in March 2011. At March 31, 2009, we had
borrowings of $13.0 million under this facility. We pay interest on borrowings
at either the Eurodollar-based rate (“LIBOR”) plus 1.75% or the domestic rate
(3.75% at March 31, 2009) plus 0.25% per annum. Commitment fees at an
annual rate of 0.25% are payable on the unused portion of the
facility. The Credit Agreement provides that the administrative agent
may, on the bases specified, reduce the amount of the available credit from time
to time. Additionally, any “material adverse change” of the Company
could restrict our ability to borrow under the senior secured credit
facility. A material adverse change is defined as a material adverse
change in any of (a) the condition (financial or otherwise), business,
performance, prospects, operations or properties of us and our Subsidiaries,
taken as a whole, (b) our ability and the ability of our guarantors, taken as a
whole, to perform the respective obligations under the Credit Agreement and
ancillary documents or (c) the rights and remedies of the administrative agent,
the lenders or the issuers to enforce the Credit Agreement and ancillary
documents. At March 31, 2009, the amount of the available credit was
approximately $62.8 million, net of outstanding revolving credit borrowings of
$13.0 million and outstanding letters of credit of approximately $11.6
million.
Our
subsidiaries, excluding our 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 have
collateralized our obligations under the Credit Agreement 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 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. As of March 31, 2009, we were in
compliance with our financial covenants under the Credit Agreement.
Senior
Subordinated Notes
On March
31, 2004, we issued $200 million of 8⅜% Notes. Interest on these
notes is payable semi-annually on April 1 and October 1 of each
year. We used the net proceeds of this financing to redeem our
prior 12% senior subordinated notes and prepay the outstanding debt under our
credit facility. In July 2006, we issued $85 million of additional
8⅜% Notes.
During
the first quarter of 2009, we purchased $7.4 million aggregate principal amount
of the 8⅜% Notes in open market transactions for approximately $2.8 million
plus accrued interest of approximately $0.3 million through the dates of
purchase. We recorded a gain of approximately $4.5 million as a
result of these open market transactions after writing off $0.1 million of
previously deferred financing costs and original issue discount associated with
the pro-rata amount of the 8⅜% Notes purchased. Subsequent to March 31, 2009, we
purchased an additional $5.0 million principal amount of the 8⅜% Notes for
approximately $2.0 million. This resulted in a gain of approximately $2.9
million in April 2009. We used cash on hand and borrowings under our Credit
Agreement to fund these transactions. These purchases reduce the amount
outstanding under the 8⅜% Notes by $12.4 million and will reduce our
interest expense by approximately $0.7 million in 2009 and $0.9 million on an
annual basis thereafter.
All of
our subsidiaries, excluding our 60%-owned Michigan subsidiary and
minor subsidiaries, have jointly and severally and fully and unconditionally
guaranteed the repayment of the 8⅜% Notes.
The
indenture governing the 8⅜% Notes limits our ability
and the ability of our subsidiaries to pay dividends or repurchase common stock,
make certain investments, incur additional debt or sell preferred stock, create
liens, merge or transfer assets. We may redeem all or a part of the
8⅜% Notes at a
redemption price of 104.188% 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 8⅜% Notes equal to the
proceeds of certain asset sales that are not reinvested in the business or used
to pay senior debt, and (2) all the 8⅜% Notes following the
occurrence of a change of control. The Credit Agreement would
prohibit these repurchases.
As a
result of restrictions contained in the indenture relating to the 8⅜% Notes, our
ability to incur additional debt is primarily limited to the greater of (1)
borrowings available under the Credit Agreement, plus the greater of $15 million
or 7.5% of our tangible assets, or (2) additional debt if, after giving effect
to the incurrence of such additional debt, our earnings before interest, taxes,
depreciation, amortization and certain noncash items equal or exceed two times
our total interest expense. Based on our March 31, 2009 balance sheet, generally
this restriction in the indenture limits our borrowing availability to
approximately $28.6 million, in addition to our borrowings available under our
existing Credit Agreement.
Superior
Materials Holdings, LLC Credit Facility and Subordinated Debt
Superior
Materials Holdings, LLC has a separate credit agreement that provides for a
revolving credit facility. The credit agreement, as amended, allows
for borrowings of up to $17.5 million. Borrowings under this credit
facility are collateralized by substantially all the assets of Superior
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, certain inventories, certain rolling
stock and letters of credit. The credit agreement
provides that the lender may, on the bases specified, reduce the amount of the
available credit from time to time. As of March 31, 2009, there was $6.4
million in outstanding borrowings under the revolving credit facility, and the
remaining amount of the available credit was approximately $1.5 million. Letters
of credit outstanding at March 31, 2009 were $2.8 million which reduces the
amount available under the credit facility.
Currently, borrowings have an annual
interest rate at Superior Materials Holdings, LLC’s option of either LIBOR plus
4.25% or prime rate plus 2.00%. Commitment fees at an annual rate of
0.25% are payable on the unused portion of the facility.
The
credit agreement contains covenants restricting, among other things, Superior
Materials Holdings, LLC’s distributions, dividends and repurchases of capital
stock and other equity interests, acquisitions and investments, mergers, asset
sales other than in the ordinary course of business, indebtedness, liens,
changes in business, changes to charter documents and affiliate
transactions. It also generally limits Superior 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 meet
certain minimum thresholds quarterly. During the twelve months ended
March 31, 2009, the credit agreement required a threshold EBITDA of $(4.0)
million. As of March 31, 2009, Superior Materials Holdings, LLC was in
compliance with its financial covenants under the credit agreement.
U.S. Concrete and its 100%-owned
subsidiaries are not obligors under the terms of the Superior Materials
Holdings, LLC credit agreement. However, in connection with the recent amendment
of the revolving credit facility, Superior Materials Holdings, LLC’s credit
agreement provides that an event of default beyond a 30-day grace period under
either U.S. Concrete’s or Edw. C. Levy’s credit agreement would constitute an
event of default. Furthermore, U.S. Concrete has agreed to provide or
obtain additional equity or subordinated debt capital not to exceed $6.75
million through the term of the revolving credit facility to fund any future
cash flow deficits, as defined in the credit agreement, of Superior Materials
Holdings, LLC. In the first quarter of 2009, U.S. Concrete provided
subordinated debt capital in the amount of $2.4 million under this agreement in
lieu of payment of related party payables. Additionally, the minority partner,
Edw. C. Levy, provided $1.6 million of subordinated debt capital to fund
operations during the first quarter of 2009. The subordinated debt
with U.S. Concrete is eliminated in consolidation. There is no
interest due on each note, and each note matures on May 1, 2010.
Cash
Flow
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 was $10.1
million for the three months ended March 31, 2009, compared to $4.5 million
for the three months ended March 31, 2008. This change was
principally a result of a working capital contraction, primarily from the
monetization of accounts receivable and payments to vendors and suppliers, due
to decreased activity in the first quarter of 2009 when compared to the first
quarter of 2008.
Our cash
flows from investing activities included a $5.2 million use of cash for the
three months ended March 31, 2009 and provided cash of $0.4 million for the
three months ended March 31, 2008. This change was primarily attributable to
proceeds received from the disposition of a business unit that provided cash in
the first quarter of 2008, partially offset by lower capital expenditures
and lower payments related to acquisitions in the first quarter of
2009. For the twelve month period ended September 30, 2008, API attained 50% of
its established earnings target, and we made a $750,000 payment, reduced for
certain uncollected pre-acquisition accounts receivable, to the sellers in the
first quarter of 2009 in partial satisfaction of our contingent payment
obligation.
Our net
cash provided by financing activities was $0.1 million and $0.7 million for the
three months ended March 31, 2009 and 2008, respectively. This decrease was
primarily the result of the purchase of $7.4 million principal amount of our 8⅜%
Notes for $2.8 million during the first quarter of 2009, partially offset by
higher net borrowings under our Credit Agreement compared to the first quarter
of 2008.
We define
free cash flow as net cash provided by operating activities less purchases of
property, plant and equipment (net of disposals). Free cash flow is a
liquidity measure not prepared in accordance with GAAP. Our
management uses free cash flow in managing our business because we consider it
to be an important indicator of our ability to service our debt and generate
cash for acquisitions and other strategic investments. We believe
free cash flow may provide users of our financial information additional
meaningful comparisons between current results and results in prior operating
periods. As a non-GAAP financial measure, free cash flow should be
viewed in addition to, and not as an alternative for, our reported operating
results or cash flow from operations or any other measure of performance
prepared in accordance with GAAP.
A
reconciliation of our net cash provided by operations and free cash flow is
as follows (in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
Net
cash provided by operations
|
|
$ |
10,131 |
|
|
$ |
4,467 |
|
Less: purchases
of property and equipment (net of disposals)
|
|
|
(4,427 |
) |
|
|
(5,561 |
) |
Free
cash flow (as defined)
|
|
$ |
5,704 |
|
|
$ |
(1,094 |
) |
Future
Capital Requirements
For the
remaining nine months of 2009, we expect our capital expenditures will be in the
range of $5 million to $10 million, including maintenance capital, developmental
capital, rolling stock mixer/barrel replacement, costs associated with our
enterprise resource planning systems implementation and certain plant relocation
costs. We anticipate that our existing cash balance of $10.3 million, our
borrowing capacity of $62.8 million at March 31, 2009 under our Credit Agreement
and cash flow from operations will provide adequate liquidity for 2009 to pay
for all current obligations, including capital expenditures, debt service, lease
obligations and working capital requirements. There can be no
assurance, however, that we will be successful in obtaining sources of capital
that will be sufficient to support our requirements over the
long-term.
If the national and world-wide
financial crisis intensifies, potential disruptions in the capital and credit
markets may adversely affect us, including by adversely affecting the
availability and cost of short-term funds for our liquidity requirements and our
ability to meet long-term commitments, which in turn could adversely affect our
results of operations, cash flows and financial condition.
We rely on our Credit Agreement to fund
short-term liquidity needs if internal funds are not available from our
operations. We also use letters of credit issued under our revolving
credit facility to support our insurance policies in certain business
units. Disruptions in the capital and credit markets could adversely
affect our ability to draw on our bank revolving credit
facilities. Our access to funds under our credit facilities is
dependent on the ability of the banks that are parties to the facilities to meet
their funding commitments. Our banks may not be able to meet their
funding commitments to us if such banks experience shortages of capital and
liquidity or if they experience excessive volumes of borrowing requests from us
and other borrowers within a short period of time.
Longer-term disruptions in the capital
and credit markets as a result of uncertainty, changing or increased regulation,
reduced alternatives or failures of significant financial institutions could
adversely affect our access to liquidity needed in our
operations. Any disruption could require us to take measures to
conserve cash until the markets stabilize or until alternative credit
arrangements or other funding for our business needs can be
arranged. Such measures could include deferring capital expenditures,
as well as reducing or eliminating future share repurchases, bond repurchases or
other discretionary uses of cash.
Many of our customers and suppliers
also have exposure to risks that their businesses are adversely affected by the
worldwide financial crisis and resulting potential disruptions in the capital
and credit markets. In the event that any of our significant
customers or suppliers, or a significant number of smaller customers and
suppliers, are adversely affected by these risks, we may face disruptions in
supply, significant reductions in demand for our products and services,
inability of our customers to pay invoices when due and other adverse effects
that could negatively affect our financial conditions, results of operations or
cash flows.
Off-Balance
Sheet Arrangements
We do not
currently have any off-balance sheet arrangements that have or are
reasonably likely to have a material current or future effect on our financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources. From time to time, we may enter into
noncancelable operating leases that would not be reflected on our balance
sheet. At March 31, 2009, we and our 60%-owned Michigan joint venture had
$14.3 million of undrawn letters of credit outstanding. We are also
contingently liable for performance under $32.4 million in performance bonds
relating primarily to our ready-mixed concrete operations.
Share
Repurchase Plan
On
January 7, 2008, our Board of Directors approved a plan to repurchase up to an
aggregate of three million shares of our common stock. The Board modified the
repurchase plan in October 2008 to slightly increase the aggregate number of
shares authorized for repurchase. The plan permitted the stock
repurchases to be made on the open market or in privately negotiated
transactions in compliance with applicable securities and other
laws. As of December 31, 2008, we had repurchased and subsequently
cancelled 3,148,405 shares with an aggregate value of $6.6 million and completed
the repurchase program. Based on certain restrictions contained in our indenture
governing our Senior Subordinated Notes, we are currently prohibited from future
share repurchases.
Other
We
periodically evaluate our liquidity requirements, alternative uses of capital,
capital needs and availability of resources in view of, among other things, our
dividend policy, our debt service and capital expenditure requirements and
estimated future operating cash flows. As a result of this process,
in the past we have sought, and in the future we may seek, to: reduce,
refinance, repurchase or restructure indebtedness; raise additional capital;
issue additional securities; repurchase shares of our common stock; modify our
dividend policy; restructure ownership interests; sell interests in subsidiaries
or other assets; or take a combination of such steps or other steps to manage
our liquidity and capital resources. In the normal course of our
business, we may review opportunities for the acquisition, divestiture, joint
venture or other business combinations in the ready-mixed concrete or related
businesses. In the event of any acquisition or other business
combination transaction, we may consider using available cash, issuing equity
securities or increasing our indebtedness to the extent permitted by the
agreements governing our existing debt.
Inflation
We
experienced negligible increases in operating costs during the first quarter of
2009 related to inflation. However, cement prices and certain other
raw material prices, including aggregates and diesel fuel prices, have generally
risen faster than regional inflationary rates in recent years. When this
occurred, we were able to partially mitigate our cost increases with price
increases we obtained for our products. In 2007 and 2008, prices for our
products increased at a rate similar to, or greater than, the rate of increase
in our raw materials costs. During the fourth quarter of 2008, diesel fuel
prices declined substantially from the historically high levels reached in the
third quarter of 2008 and have remained relatively unchanged during the first
quarter of 2009.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
We do not
enter into derivatives or other financial instruments for trading or speculative
purposes, but we may utilize them to manage our fixed-to-variable-rate debt
ratio. All derivatives, whether designated as hedging relationships
or not, are required to be recorded on the balance sheet at their fair
values. Because of the short duration of our investments, changes in
market interest rates would not have a significant impact on their fair
values. As of March 31, 2009 and December 31, 2008, we were not a
party to any derivative financial instruments.
The
indebtedness evidenced by the 8⅜% Notes is fixed-rate debt, so we are not
exposed to cash-flow risk from market interest rate changes on these
notes. The fair value of that debt will vary as interest rates
change.
Borrowings
under our Credit Agreement and our Superior Materials Holdings, LLC separate
credit agreement expose us to certain market risks. Interest on
amounts drawn under the credit facilities varies based on either the prime rate
or one-, two-, three- or six-month Eurodollar rates. Based on the
$19.4 million outstanding under these facilities as of March 31, 2009, a one
percent change in the applicable rate would not materially change the amount of
interest expense for the three months ended March 31, 2009.
We
purchase commodities, such as cement, aggregates and diesel fuel, at market
prices and do not currently use financial instruments to hedge commodity
prices.
Our
operations are subject to factors affecting the overall strength of the U.S.
economy and economic conditions impacting financial institutions, including the
level of interest rates, availability of funds for construction, and the level
of general construction activity. A significant decrease in the level
of general construction activity in any of our market areas may have a material
adverse effect on our consolidated revenues and earnings.
Item
4. Controls and Procedures
In
accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of
1934, as amended (the “Exchange Act”), we carried out an evaluation, under the
supervision and with the participation of management, including our chief
executive officer and chief financial officer, of the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act) as of March 31, 2009. Based on that
evaluation, our chief executive officer and chief financial officer concluded
that our disclosure controls and procedures were effective as of March 31, 2009
to provide reasonable assurance that information required to be disclosed in our
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by
an issuer in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the issuer’s management, including its principal
executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure. During the three months ended March 31, 2009, there were
no changes in our internal control over financial reporting or in other factors
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART
II – OTHER INFORMATION
Item 1. Legal
Proceedings
For
information about litigation involving us, see Note 10 to the condensed
consolidated financial statements in Part I of this report, which we incorporate
by reference into this Item 1.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
The following table provides
information with respect to our repurchases of shares of our common stock during
the first quarter of 2009:
Calendar Month
|
|
Total Number of
Shares
Purchased(1)
|
|
|
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
|
|
January
2009
|
|
|
2,711 |
|
|
|
3.36 |
|
|
|
– |
|
|
|
– |
|
February
2009
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
March
2009
|
|
|
73,733 |
|
|
|
1.53 |
|
|
|
– |
|
|
|
– |
|
(1)
|
Represents shares of our common
stock repurchased during the three-month period ended March 31, 2009, from company
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.
|
Item
6. Exhibits
Exhibit
Number
|
|
|
Description
|
3.1*
|
|
— |
Restated
Certificate of Incorporation of U.S. Concrete, Inc. (Form 8-K filed on May
9, 2006 (File No. 000-26025), Exhibit 3.1).
|
3.2*
|
|
— |
Amended
and Restated Bylaws of U.S. Concrete, Inc., as amended (Post Effective
Amendment No. 1 to Form S-3 (Reg. No. 333-42860), Exhibit
4.2).
|
3.3*
|
|
— |
Restated
Certificate of Designation of Junior Participating Preferred Stock (Form
10-Q for the quarter ended June 30, 2000 (File No. 000-26025), Exhibit
3.3).
|
10.1
|
|
— |
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete, Inc.
and Curt M. Lindeman.
|
10.2
|
|
— |
First
Amendment to Severance Agreement, effective as of December 31, 2008, by
and between U.S. Concrete, Inc. and Curt M. Lindeman.
|
10.3
|
|
— |
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete, Inc.
and Gary J. Konnie.
|
10.4
|
|
— |
First
Amendment to Severance Agreement, effective as of December 31, 2008, by
and between U.S. Concrete, Inc. and Gary J. Konnie.
|
10.5
|
|
— |
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete, Inc.
and Michael L. Gentoso.
|
10.6
|
|
— |
First
Amendment to Severance Agreement, effective as of December 31, 2008, by
and between U.S. Concrete, Inc. and Michael L. Gentoso.
|
10.7*
|
|
— |
U.S.
Concrete, Inc. and Subsidiaries 2009 Annual Team Member Incentive Plan
(Form 10-K for the year ended December 31, 2008 (File No. 000-26025),
Exhibit 10.22).
|
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.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
U.S.
CONCRETE, INC.
|
|
|
Date:
May 8, 2009
|
By:
|
/s/ Robert D. Hardy
|
|
|
Robert
D. Hardy
|
|
|
Executive
Vice President and Chief Financial Officer
|
|
|
(Principal
Financial and Accounting
Officer)
|
INDEX
TO EXHIBITS
Exhibit
Number
|
|
|
Description
|
3.1*
|
|
— |
Restated
Certificate of Incorporation of U.S. Concrete, Inc. (Form 8-K filed on May
9, 2006 (File No. 000-26025), Exhibit 3.1).
|
3.2*
|
|
— |
Amended
and Restated Bylaws of U.S. Concrete, Inc., as amended (Post Effective
Amendment No. 1 to Form S-3 (Reg. No. 333-42860), Exhibit
4.2).
|
3.3*
|
|
— |
Restated
Certificate of Designation of Junior Participating Preferred Stock (Form
10-Q for the quarter ended June 30, 2000 (File No. 000-26025), Exhibit
3.3).
|
10.1
|
|
— |
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete, Inc.
and Curt M. Lindeman.
|
10.2
|
|
— |
First
Amendment to Severance Agreement, effective as of December 31, 2008, by
and between U.S. Concrete, Inc. and Curt M. Lindeman.
|
10.3
|
|
— |
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete, Inc.
and Gary J. Konnie.
|
10.4
|
|
— |
First
Amendment to Severance Agreement, effective as of December 31, 2008, by
and between U.S. Concrete, Inc. and Gary J. Konnie.
|
10.5
|
|
— |
Severance
Agreement, dated as of July 31, 2007, by and between U.S. Concrete, Inc.
and Michael L. Gentoso.
|
10.6
|
|
— |
First
Amendment to Severance Agreement, effective as of December 31, 2008, by
and between U.S. Concrete, Inc. and Michael L. Gentoso.
|
10.7*
|
|
— |
U.S.
Concrete, Inc. and Subsidiaries 2009 Annual Team Member Incentive Plan
(Form 10-K for the year ended December 31, 2008 (File No. 000-26025),
Exhibit 10.22).
|
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.