-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CehFI9oHcc9T/zZYq7n2ygeqwcUV+eyx11l6MNHzVvoA1XJy315aS8VkclhHY4I0 YoKFsmebd/UTM+byAd8bfw== 0001054422-01-500016.txt : 20010910 0001054422-01-500016.hdr.sgml : 20010910 ACCESSION NUMBER: 0001054422-01-500016 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010907 FILER: COMPANY DATA: COMPANY CONFORMED NAME: U S AGGREGATES INC CENTRAL INDEX KEY: 0001054422 STANDARD INDUSTRIAL CLASSIFICATION: MINING, QUARRYING OF NONMETALLIC MINERALS (NO FUELS) [1400] IRS NUMBER: 570990958 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-15217 FILM NUMBER: 1733337 BUSINESS ADDRESS: STREET 1: 400 SOUTH EL CAMINO REAL, SUITE 500 CITY: SAN MATEO STATE: CA ZIP: 94402 BUSINESS PHONE: 6506854880 10-Q/A 1 doc1.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Amendment No. 1 on FORM 10-Q/A (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 001-15217 ---------------- U.S. AGGREGATES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 57-0990958 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 400 South El Camino Real, Suite 500, San Mateo, California 94402 ----------------------------------------------------- (Address, of principal executive offices) (Zip Code) (650) 685-4880 ---------------------------------------------------- (Registrant's telephone number, including area code) None --------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Class Shares outstanding as of April 30, 2001 - ---------------------------- --------------------------------------- Common stock, $.01 par value 14,900,593 INTRODUCTION The purpose of this amendment is to amend (i) Note 2 (Risk Factors), (ii) Note 3 (Long-Term Debt), (iii) Note 10 (Sale of Northern Utah Assets), (iv) Note 11 (Litigation), (v) the Introduction and the Liquidity and Capital Resources section of the Management Discussion and Analysis and (vi) Item 1 (Legal Proceedings). - -------------------------------------------------------------------------------- U.S. AGGREGATES, INC. AND SUBSIDIARIES FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2001 CONTENTS PART I. FINANCIAL INFORMATION PAGE NO. -------- Item 1. Financial Statements Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Operations 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 17 EXHIBIT INDEX 18 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
U.S. AGGREGATES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) MARCH 31, DECEMBER 31, 2001 2000 ----------- -------------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . $ 1,688 $ 5,021 Trade accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . 32,085 34,860 Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,828 29,795 Net assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . - 23,880 Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . 6,567 7,357 Receivable from asset sale . . . . . . . . . . . . . . . . . . . . . . . . 22,220 - ----------- -------------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 90,388 100,913 ----------- -------------- PROPERTY, PLANT AND EQUIPMENT. . . . . . . . . . . . . . . . . . . . . . . . 332,034 333,901 Less: Accumulated depreciation and depletion . . . . . . . . . . . . . . . . (42,717) (41,835) ----------- -------------- Net property, plant and equipment. . . . . . . . . . . . . . . . . . . 289,317 292,066 ----------- -------------- INTANGIBLE ASSETS, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,377 18,823 OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,933 15,404 ----------- -------------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 414,015 $ 427,206 =========== ============== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 76,181 $ 64,850 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, net of current portion . . . . 183,952 190,673 DEFERRED INCOME TAXES, net . . . . . . . . . . . . . . . . . . . . . . . . . 40,481 47,377 OTHER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,527 330 ----------- -------------- Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 302,141 303,230 ----------- -------------- MINORITY INTEREST, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 11 ----------- -------------- SHAREHOLDERS' EQUITY: Common stock, $.01 par value, 100,000,000 shares authorized, 14,908,222 shares outstanding, including 7,629 shares of treasury stock. 149 149 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 123,648 123,648 Notes receivable from sale of stock. . . . . . . . . . . . . . . . . . . . (1,267) (1,243) Treasury stock, at cost. . . . . . . . . . . . . . . . . . . . . . . . . . (2) (2) Retained earnings (deficit). . . . . . . . . . . . . . . . . . . . . . . . (10,665) 1,413 ----------- -------------- Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . 111,863 123,965 ----------- -------------- Total liabilities, minority interest and shareholders' equity. . . . . $ 414,015 $ 427,206 =========== ==============
The accompanying notes are an integral part of these statements. 3
U.S. AGGREGATES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share amounts) THREE MONTHS ENDED MARCH 31, -------------------------- 2001 2000 ------------ ------------ (UNAUDITED) NET SALES. . . . . . . . . . . . . . . . . . $ 43,732 $ 54,586 COST OF PRODUCTS SOLD. . . . . . . . . . . . 40,746 45,332 ------------ ------------ Gross profit . . . . . . . . . . . . . 2,986 9,254 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 8,037 8,995 DEPRECIATION, DEPLETION AND AMORTIZATION . . 4,418 4,013 (GAIN) ON DISPOSAL OF ASSETS . . . . . . . . (49) - RESTRUCTURING COSTS. . . . . . . . . . . . . 1,190 - ------------ ------------ Loss from operations . . . . . . . . . (10,610) (3,754) OTHER INCOME (EXPENSES): Interest and financing, net. . . . . . . . (7,870) (4,078) Other, net . . . . . . . . . . . . . . . . (102) 6 ------------ ------------ Loss before income taxes . . . . . . . (18,582) (7,826) BENEFIT FROM INCOME TAXES. . . . . . . . . . 6,504 2,739 ------------ ------------ Net loss . . . . . . . . . . . . . . . $ (12,078) $ (5,087) ============ ============ Loss per common share-basic Net loss available for common shareholders $ (0.81) $ (0.34) ============ ============ Weighted average common shares outstanding 14,900,593 14,900,593 Loss per common share-diluted Net loss available for common shareholders $ (0.81) $ (0.34) ============ ============ Weighted average common shares outstanding 14,900,593 14,900,593
The accompanying notes are an integral part of these statements. 4
U.S. AGGREGATES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) THREE MONTHS ENDED MARCH 31, ------------------- 2001 2000 --------- -------- (UNAUDITED) NET CASH USED IN OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . $(12,003) $(6,731) --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment. . . . . . . . . . . . . . . . . . (1,857) (9,480) Proceeds from sale of assets. . . . . . . . . . . . . . . . . . . . . . . . . 2,390 77 --------- -------- Net cash provided by (used in) investing activities . . . . . . . . . 533 (9,403) --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt. . . . . . . . . . . . . . . . . . . . . (10,263) (7,810) New borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,400 24,000 Dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (447) Debt issuance cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 36 --------- -------- Net cash provided by financing activities . . . . . . . . . . . . . . 8,137 15,779 --------- -------- NET DECREASE IN CASH. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,333) (355) CASH AND CASH EQUIVALENTS, beginning of period. . . . . . . . . . . . . . . . . 5,021 4,478 --------- -------- CASH AND CASH EQUIVALENTS, end of period. . . . . . . . . . . . . . . . . . . . $ 1,688 $ 4,123 ========= ======== DISCLOSURE OF SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,204 $ 4,677 Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 693 NON-CASH TRANSACTIONS: Dividends declared but not paid . . . . . . . . . . . . . . . . . . . . . . . - 447 Addition of capital lease obligations . . . . . . . . . . . . . . . . . . . . - 14,224 Termination of capital lease obligation . . . . . . . . . . . . . . . . . . . 520 - Net inventory sold as part of sale of Northern Utah assets. . . . . . . . . . 1,416 - Net other assets sold as part of sale of Northern Utah assets . . . . . . . . 223 - Debt assumed by buyers as part of sale of Northern Utah assets. . . . . . . . 1,849 - Notes receivable for sale of Northern Utah assets . . . . . . . . . . . . . . 22,220 - Transfer of assets held for sale as part of the sale of Northern Utah Assets. 22,381 -
The accompanying notes are an integral part of these statements. 5 U.S. AGGREGATES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Organization and Basis of Presentation Founded in 1994, U.S. Aggregates, Inc. ("USAI" or the "Company") is a producer of aggregates. Aggregates consist of crushed stone, sand and gravel. The Company's products are used primarily for construction and maintenance of highways, other infrastructure projects, and for commercial and residential construction. USAI serves local markets in nine states in two regions of the United States, the Mountain states and the Southeast. The accompanying unaudited condensed consolidated financial statements of U.S. Aggregates, Inc. and subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and to Article 10 of Regulation S-X. In the opinion of management, the interim financial information provided herein reflects all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results of operations for the interim periods. The results of operations for the three months ended March 31, 2001, are not necessarily indicative of the results to be expected for the full year. These condensed consolidated financial statements and the notes thereto should be read in conjunction with the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. 2. Risk Factors The Company's business is seasonal with peak revenue and profits occurring primarily in the months of April through November. Bad weather conditions during this period could adversely affect operating income and cash flow and could therefore have a disproportionate impact on the Company's results for the full year. Quarterly results have varied significantly in the past and are likely to vary significantly from quarter to quarter in the future. A majority of the Company's revenues are from customers who are in industries and businesses that are cyclical in nature and subject to changes in general economic conditions. In addition, since operations occur in a variety of geographic markets, the Company's business is subject to the economic conditions in each such geographic market. General economic downturns or localized downturns in the regions where the Company has operations, including any downturns in the construction industry, could have a material adverse effect on the Company's business, financial condition and results of operations. The Company's operations are subject to and affected by federal, state and local laws and regulations including such matters as land usage, street and highway usage, noise level and health, safety and environmental matters. In many instances, various permits are required. Although management believes that the Company is in compliance with regulatory requirements, there can be no assurance that the Company will not incur material costs or liabilities in connection with regulatory requirements. Certain of the Company's operations may from time to time involve the use of substances that are classified as toxic or hazardous substances within the meaning of these laws and regulations. Risk of environmental liability is inherent in the operation of the Company's business. As a result, it is possible that environmental liabilities will have a material adverse effect on the Company in the future. The Company markets its aggregates products to customers in a variety of industries, including public infrastructure, commercial and residential construction contractors; producers of asphaltic concrete, ready-mix concrete, concrete blocks, and concrete pipes; and railroads. A substantial amount of the aggregates is used in publicly funded projects. A decrease or delay in government funding of highway construction and maintenance and other infrastructure projects could reduce sales and profits. A material rise in the price or a material decrease in the availability of oil could and did adversely affect operating results. The cost of asphalt is correlated to the price of oil. Any increase in the price of oil might result in the Company's customers using less asphalt. A material increase in the price of oil could also lead to higher gasoline costs, which could increase the Company's operating costs. These increases may not be accepted by customers in the form of higher prices. 6 The Company believes that its internally generated cash flow, including the net proceeds from sales of assets, and borrowings under existing credit facilities is sufficient to meet short-term liquidity requirements necessary to fund operations, capital requirements and debt service. To the extent the Company is not able to achieve certain asset sales or the net proceeds from these asset sales fall short of expectations, the Company may need to obtain additional sources of financing. There can be no assurance that such financing will be available or, if available, on terms favorable to the Company. If the Company is unable to obtain such additional financing, there could be a material adverse effect on the Company's business, financial condition and results of operation. In the longer term, the Company's ability to maintain sufficient liquidity is dependent upon achieving and maintaining profitable operations, restructuring or refinancing its debt, selling additional non-strategic assets to reduce debt, conversion of debt to equity or raising additional equity. There is no assurance that the Company will be able to achieve any of the foregoing. 3. Long-Term Debt A summary of long-term debt is as follows:
MARCH 31, DECEMBER 31, 2001 2000 ----------- -------------- (dollars in thousands) Prudential Insurance subordinated notes, net of discount of $553 and $575, respectively . . . . . . . . . . . . $ 44,447 $ 44,425 Bank of America term loan A. . . . . . . . . . . . . . . 29,947 30,900 Bank of America term loan B. . . . . . . . . . . . . . . 41,704 43,004 Bank of America revolving loan . . . . . . . . . . . . . 89,000 77,600 Notes payable to former shareholders . . . . . . . . . . 1,645 1,890 Capital lease obligations. . . . . . . . . . . . . . . . 9,532 11,240 Other. . . . . . . . . . . . . . . . . . . . . . . . . . 3,120 4,456 ----------- -------------- Total long-term debt and capital lease obligations . 219,395 213,515 Less: Current portion. . . . . . . . . . . . . . . . . . (35,443) (22,842) ----------- -------------- Long-term debt and capital lease obligations, net of current portion . . . . . . . . . . . . . $ 183,952 $ 190,673 =========== ==============
On April 18, 2001, the Company entered into a Sixth Amendment with its senior secured lenders which waived all existing covenant defaults, adjusted future financial covenants, deferred certain principal payments until March 31, 2002, modified the debt repayment schedule, established a borrowing base on the revolver, provided the Company with additional liquidity from the sale of certain assets, established monthly interest payment schedules and provided for increased interest rates to Alternate Base Rate plus 5.00% or Eurodollar Rate plus 6.00%, of which 2.00% is capitalized and added to principal for the period through March 31, 2002. The Sixth Amendment also provided for a fee of $1.25 million if the senior credit facility is not paid in full by March 31, 2002. On April 18, 2001, the Company also entered into an amendment with its subordinated note holder to waive existing covenant defaults and to accept deferral of interest payments through May 22, 2002 in exchange for a 2.00% increase in interest rates, a deferred fee of $0.9 million and warrants for 671,582 shares with a nominal exercise price. In connection with the amendments of the senior secured credit facility and the subordinated notes, an agreement was entered into with GTCR Fund IV to loan to the Company $2 million as junior subordinated debt at an interest rate of 18.00%. The junior subordinated debt does not mature until 120 days after senior secured 7 facilities and subordinated notes are paid in full. GTCR Fund IV will receive a deferred fee of $0.45 million and warrants for 435,469 shares with a nominal exercise price in exchange for its agreement to provide the Company with the junior subordinated debt. This loan was funded on April 30, 2001. On May 30, 2001, the Company entered into a Seventh Amendment to its Credit Agreement with its existing senior secured lenders to provide $6.0 million of additional liquidity to the Company. The Company borrowed the $6.0 million available under the agreement during the quarter ended June 30, 2001. This agreement was subsequently supplemented and currently provides for an interest rate of Alternate Base Rate plus 7.00%, a success fee of $1.15 million is payable upon the earlier of September 28, 2001 or the consummation of the sale of certain assets. An amendment fee of 25 basis points, or approximately $0.4 million is payable upon the earlier of September 30, 2001 (expiration of this short-term agreement) or the consummation of certain asset sales. Based upon the above amendments, the Company has reduced its scheduled debt repayment for the next 12 months from $35.4 million at March 31, 2001 to $14.2 million (including the $6.0 million borrowed under the Seventh Amendment). In addition, the Company is required to pay fees to its senior secured lenders in the sum of $1.15 million and $0.4 million on the earlier of September 28, 2001 and September 30, 2001, respectively, or the consummation of certain asset sales. The Sixth Amendment of the Company's senior secured credit facility also provides for a fee of $1.25 million if the senior secured credit facility is not paid in full by March 31, 2002. 4. Shareholders' Equity The following Statement of Changes in Shareholders' Equity summarizes the Company's equity transactions between December 31, 2000 and March 31, 2001:
NOTES TREASURY STOCK ----------------- ADDITIONAL RECEIVABLE SHARES RETAINED TOTAL COMMON STOCK PAID-IN FROM SALE HELD IN EARNINGS SHAREHOLDERS' ------------------- SHARES AMOUNT CAPITAL OF STOCK TREASURY AMOUNT (DEFICIT) EQUITY ---------- ------- ----------- ------------ -------- -------- ---------- --------------- (in thousands, except share amounts) BALANCE AT DECEMBER 31, 2000. . . . 14,908,222 $ 149 $ 123,648 $ (1,243) 7,629 $ (2) $ 1,413 $ 123,965 Notes receivable, net of payments . . . . . . . - - - (24) - - - (24) Net loss . . . . . . . . - - - - - - (12,078) (12,078) ---------- ------- ----------- ------------ -------- -------- ---------- --------------- BALANCE AT MARCH 31, 2001 . . . . . 14,908,222 $ 149 $ 123,648 $ (1,267) 7,629 $ (2) $ (10,665) $ 111,863 ========== ======= =========== ============ ======== ======== ========== ===============
5. Restructuring Costs During the fourth quarter of 2000, the Company decided to restructure its business operations through a plan, which provided for the closure of an asphalt operation in Nevada, the disposition of certain operations in Idaho and the consolidation of facilities in Utah (the "Restructuring Plan"). The Restructuring Plan also includes actions intended to achieve an overall reduction in corporate overhead. The Company recorded restructuring charges of $1.2 million, of which, $0.5 million relates to the loss on sale of operations in Idaho. The cash charges of $0.7 million relate to severance benefits for terminated employees and lease obligations relating to the closure of one of its corporate offices. As of March 31, 2001, $0.1 million have been paid and an accrual in the amount of $0.6 million related to the restructuring plan is included in the Condensed Consolidated Balance Sheet. 8 6. Inventories Inventories consist of the following as of:
MARCH 31, DECEMBER 31, 2001 2000 ---------- -------------- (dollars in thousands) Finished products. $ 25,143 $ 26,835 Raw materials. . . 1,653 1,892 Supplies and parts 815 768 Fuel . . . . . . . 217 324 Less: Allowances . - (24) ---------- -------------- $ 27,828 $ 29,795 ========== ==============
Inventories are pledged as security under various debt agreements. 7. Income per Share
THREE MONTHS ENDED MARCH 31, --------------------------------------------------------------- 2001 2000 ------------------------------- ------------------------------ (in thousands, except share amounts) PER SHARE PER SHARE INCOME SHARES AMOUNT INCOME SHARES AMOUNT --------- ---------- -------- -------- ---------- -------- Basic net loss available for common shareholders $(12,078) 14,900,593 $ (0.81) $(5,087) 14,900,593 $ (0.34) Effect of dilutive securities . . . - - ---------- ---------- Dilutive net loss available for common shareholders $(12,078) 14,900,593 $ (0.81) $(5,087) 14,900,593 $ (0.34) ========= ========== ======== ======== ========== ========
8. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. In June 1999, the FASB issued SFAS No, 137, Accounting for Derivatives and Hedging Activities - Deferral of the Effective Date of SFAS No. 133. In June 2000, the FASB issued SFAS No, 138, Accounting for Certain Derivatives and Certain Hedging Activities, an amendment of FASB Statement No. 133. Statement 133, as amended, establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative instrument's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative instrument's gains and losses to offset related results on the hedged item in the income statement, to the extent effective, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. The Company has adopted Statement 133 effective January 1, 2001. The Company has applied Statement 133 to only those hybrid instruments that were issued, acquired, or substantively modified after December 31, 1998. The Company has variable rate borrowings tied to the LIBOR rate. To reduce its exposure to changes in the LIBOR rate, the Company has entered into a swap contract. The Company is a party to an interest rate swap under which it exchanges, at specified intervals, the difference between fixed and floating interest amounts calculated on an agreed-upon notional amount of $37 million. The interest rate swap contract has a two-year term 9 that ends on December 29, 2002. The swap contract requires the Company's counter party to pay it a floating rate of interest based on USD-LIBOR-BBA due quarterly beginning March 29, 2001. In return, the Company will pay its counter party a fixed rate of 6.11% interest due quarterly beginning March 29, 2001. The Company will report all changes in fair value of its swap contract in earnings. During the first quarter ended March 31, 2001, the Company recorded a decline in the value of this swap contract of $0.9 million in interest and financing expenses. The cumulative effect of adopting this standard effective January 1, 2001 was not significant. 9. Effective Tax Rate The Company uses an effective tax rate based on its best estimate of the tax rate expected to be applicable for the full fiscal year. This estimated rate is applied to the current year-to-date results to determine the interim provision for income taxes. 10. Sale of Northern Utah Assets In March 2001, the Company sold certain of its construction materials operations in Northern Utah to Oldcastle Materials, Inc. The proceeds were utilized to pay-down debt and certain operating leases and provide the Company with additional liquidity. The revenues and total assets related to the sold properties represented approximately 14% and 6%, respectively, of the Company's 2000 consolidated totals. The Company recorded a $22.2 million receivable in the Condensed Consolidated Balance Sheet at March 31, 2001 related to this sale. On April 2, 2001, the Company received the $22.2 million cash proceeds and applied $14.2 million to the pay-down of its senior credit facility. In addition, there are potential contingent proceeds in the amount of $6.0 million, which the Company has not recorded that relate to the Company obtaining zoning/permits for certain property sold to Oldcastle by March 31, 2003. There is no assurance the Company will be able to obtain the necessary zoning/permits. In connection with the sale, the Company entered into a long-term, royalty bearing lease of a quarry to Oldcastle. The lease term is for a 40-year period and requires Oldcastle to pay a minimum annual royalty of $0.1 million. Royalty rates are $0.05 per ton of aggregate utilized during the first two years of the agreement, $0.10 per ton for the third through the fifth years and $0.25 per ton thereafter. The carrying value of the assets leased to Oldcastle as of June 30, 2001 was approximately $47.6 million. 11. New Litigation During May 2001, three complaints were filed against the Company and certain of its offers and directors in the United States District Court for the Northern District of California. The suits purport to be class actions filed on behalf of the plaintiffs and others similarly situated, which allege certain violations of the federal securities laws, including violations of Sections 10(b) and 20 of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaints allege that the Company's press releases relating to its 2000 financial statements were false and misleading. The complaints seek unspecified damages and other relief. These cases have been consolidated before Judge Wilken. Eugene L. Loper has been name lead plaintiff, and his choice of counsel has been approved. The Company has retained counsel and intends to vigorously defend these complaints. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION We conduct our operations through the quarrying and distribution of aggregate products in nine states in two regions of the United States, the Mountain states and the Southeast. Our operations have the same general economic characteristics including the nature of the products, production processes, type and class of customers, methods of distribution and governmental regulations. The Company's business is seasonal, with peak sales and profits occurring primarily in the months of April through November. Accordingly, results of operations for any individual quarter are not necessarily indicative of results for the full year. RESULTS OF OPERATIONS The following Management's Discussion and Analysis should be read in conjunction with the MD&A included in our Annual Report on Form 10-K for the year ended December 31, 2000. First Quarter Ended March 31, 2001 Compared to Restated First Quarter Ended March 31, 2000 Net sales for the first quarter ended March 31, 2001 decreased 19.9 percent to $43.7 million, compared to $54.6 million for the same period in 2000. Sales in 2000 included sales from the Company's Alabama concrete operations sold under two separate transactions in April and December of 2000 and Eastern Idaho operations sold in December 2000 and sales from the Company's asphalt and construction operations in Nevada that were closed in November 2000. Excluding sales from operations that were sold or closed in 2000, the Company's sales were flat in the first quarter with an increase in sales in the Company's southeast operations (11%) offsetting a decline in the Company's western operations (7%). Excluding the effect of these sold or closed operations, aggregate sales increased $0.9 million. Asphalt, paving and construction sales in the first quarter of 2001 also increased $0.7 million or 12% over the same period of 2000. However, these increases were more than offset by a decrease in ready mix volumes of 9% and the shortfalls in transportation and other sales. For the first three months of 2001, the Company reported gross profit of $3.0 million, 6.8 percent of net sales, compared to $9.3 million, 17.0 percent of net sales, for the first three months of 2000. The decline in gross profit was due to several factors: $1.5 million relating to the sale and closure of operations in 2000; increases in fuel, liquid asphalt and energy costs of $1.2 million; increases in repair and maintenance costs; higher production and delivery costs for aggregates; and write downs of inventory. Selling, general and administrative expenses in the first quarter of 2001 decreased $1.0 million to $8.0 million compared with $9.0 million for the same period in 2000. This decrease resulted primarily from the sold or discontinued operations of $1.4 million offset in part by an increase in professional fees of $0.7 million. As a result of the continued investment in our business in 2000, depreciation and amortization grew by $0.4 million. During the first quarter of 2001, the Company recorded restructuring costs of $1.2 million, representing the loss on the sale of one of the Company's operations in Idaho of $0.5 million and cash charges of $0.7 million for severance benefits to terminated employees and lease obligations relating to the closure of one of its corporate offices. Net interest and financing expenses increased $3.8 million from $4.1 million in 2000 to $7.9 million in 2001. This increase was primarily due to an increase in debt levels, as well as an increase in interest rates on outstanding borrowings. The Company also recorded a reduction in the value of its interest rate swap contract in the amount of $0.9 million. Net loss for the first quarter was $12.1 million, or $0.81 per share, compared with $5.1 million, or $0.34 per share, for the same quarter of 2000. The effective tax rate for the quarters ended March 31, 2000 and 2001 was 35.0%. 11 LIQUIDITY AND CAPITAL RESOURCES At March 31, 2001, working capital, exclusive of current maturities of debt, assets held for sale, note receivable for the proceeds from sale of assets and cash items, totaled $25.7 million compared to $30.0 million at December 31, 2000. Net cash used in operating activities for the three months ended March 31, 2001 was $12.0 million, compared to the $6.7 million generated during the same period last year. The increase in the use of cash was due to the increase in operating loss offset by the reduction of working capital needs. Net cash provided by investing activities for the three months ended March 31, 2001 was $0.5 million compared to $9.4 million used in the same period in 2000 due to a reduction in capital expenditures and an increase in proceeds from sale of assets. Net cash provided by financing activities was $8.1 million for the three months ended March 31, 2001 compared to $15.8 million during the same period last year through increase borrowings under the Company's line of credit. In March 2001, the Company sold certain of its construction materials operations in Northern Utah to Oldcastle Materials, Inc. The proceeds were utilized to pay-down debt and certain operating leases and provide the Company with additional liquidity. The revenues and total assets related to the sold properties represented approximately 14% and 6%, respectively, of the Company's 2000 consolidated totals. The Company recorded a $22.2 million receivable in the Condensed Consolidated Balance Sheet at March 31, 2001 related to this sale. On April 2, 2001, the Company received the $22.2 million cash proceeds and applied $14.2 million to the pay-down of its senior credit facility. In addition, there are potential contingent proceeds in the amount of $6.0 million, which the Company has not recorded that relate to the Company obtaining zoning/permits for certain property sold to Oldcastle by March 31, 2003. There is no assurance the Company will be able to obtain the necessary zoning/permits. In connection with the sale, the Company entered into a long-term, royalty bearing lease of a quarry to Oldcastle. The lease term is for a 40-year period and requires Oldcastle to pay a minimum annual royalty of $0.1 million. Royalty rates are $0.05 per ton of aggregate utilized during the first two years of the agreement, $0.10 per ton for the third through the fifth years and $0.25 per ton thereafter. The carrying value of the assets leased to Oldcastle as of June 30, 2001 was approximately $47.6 million. On April 18, 2001, the Company entered into a Sixth Amendment with its senior secured lenders which waived all existing covenant defaults, adjusted future financial covenants, deferred certain principal payments until March 31, 2002, modified the debt repayment schedule, established a borrowing base on the revolver, provided the Company with additional liquidity from the sale of certain assets, established monthly interest payment schedules and provided for increased interest rates to Alternate Base Rate plus 5.00% or Eurodollar Rate plus 6.00% , of which 2.00% is capitalized and added to principal for the period through March 31, 2002. The Sixth Amendment also provided for a fee of $1.25 million if the senior credit facility is not paid in full by March 31, 2002. On April 18, 2001, the Company also entered into an amendment with its subordinated note holder to waive existing covenant defaults and to accept deferral of interest payments through May 22, 2002 in exchange for a 2.00% increase in interest rates, a deferred fee of $0.9 million and warrants for 671,582 shares with a nominal exercise price. In connection with the amendments of the senior secured credit facility and the subordinated notes, an agreement was entered into with GTCR Fund IV to loan to the Company $2 million as junior subordinated debt at an interest rate of 18.00%. The junior subordinated debt does not mature until 120 days after senior secured facilities and subordinated notes are paid in full. GTCR Fund IV will receive a deferred fee of $0.45 million and warrants for 435,469 shares with a nominal exercise price in exchange for its agreement to provide the Company with the junior subordinated debt. This loan was funded on April 30, 2001. On May 30, 2001, the Company entered into a Seventh Amendment to its Credit Agreement with its existing senior secured lenders to provide $6.0 million of additional liquidity to the Company. The Company borrowed the $6.0 million available under the agreement during the quarter ended June 30, 2001. This agreement was subsequently supplemented and currently provides for an interest rate of Alternate Base Rate plus 7.00%, a success fee of $1.15 million is payable upon the earlier of September 28, 2001 or the consummation of the sale of 12 certain assets. An amendment fee of 25 basis points, or approximately $0.4 million is payable upon the earlier of September 30, 2001 (expiration of this short-term agreement) or the consummation of certain asset sales. Based upon the above amendments, the Company has reduced its scheduled debt repayment for the next 12 months from $35.4 million at March 31, 2001 to $14.2 million (including the $6.0 million borrowed under the Seventh Amendment). In addition, the Company is required to pay fees to its senior secured lenders in the sum of $1.15 million and $0.4 million on the earlier of September 28, 2001 and September 30, 2001, respectively, or the consummation of certain asset sales. The Sixth Amendment of the Company's senior secured credit facility also provides for a fee of $1.25 million if the senior secured credit facility is not paid in full by March 31, 2002. The Company believes that its internally generated cash flow, including the net proceeds from sales of assets, and borrowings under existing credit facilities is sufficient to meet short-term liquidity requirements necessary to fund operations, capital requirements and debt service. To the extent the Company is not able to achieve certain asset sales or the net proceeds from these asset sales fall short of expectations, the Company may need to obtain additional sources of financing. There can be no assurance that such financing will be available or, if available, on terms favorable to the Company. If the Company is unable to obtain such additional financing, there could be a material adverse effect on the Company's business, financial condition and results of operation. In the longer term, the Company's ability to maintain sufficient liquidity is dependent upon achieving and maintaining profitable operations, restructuring or refinancing its debt, selling additional non-strategic assets to reduce debt, conversion of debt to equity or raising additional equity. There is no assurance that the Company will be able to achieve any of the foregoing. In addition the following could negatively impact the Company's short-term and/or long-term liquidity. 1. A material rise in the price or a material decrease in the availability of oil could adversely affect operating results. The cost of asphalt is correlated to the price of oil. Any increase in the price of oil might result in the Company's customers using less asphalt. A material increase in the price of oil could also lead to higher gasoline costs, which could increase the Company's operating costs. These increases may not be accepted by customers in the form of higher prices and thereby negatively impact liquidity of the Company. 2. The Company markets its aggregates products to customers in a variety of industries, including public infrastructure, commercial and residential construction; asphaltic concrete, ready-mix concrete, concrete blocks and concrete pipes; and railroads. A substantial amount of aggregate products is used in publicly funded projects. A decrease or delay in government funding of highway construction and maintenance or other infrastructure projects could reduce sales and profits and negatively impact liquidity of the Company. 3. Certain of the Company's operations may from time to time involve the use of substances that are classified as toxic or hazardous substances within the meaning of relevant laws and regulations. Risk of environmental liability is inherent in the operation of the Company's business. As a result, it is possible that environmental liabilities will have a material adverse effect on the Company in the future and thereby negatively impact liquidity of the Company 4. The Company's business is seasonal with peak revenue and profits occurring primarily in the months of April through November. Bad weather conditions during this period could adversely affect operating income and cash flow and could therefore have a disproportionate impact on the Company's results for the full year. Quarterly results have varied significantly in the past and are likely to vary significantly from quarter to quarter in the future. 5. A majority of the Company's revenues are from customers who are in industries and businesses that are cyclical in nature and subject to changes in general economic conditions. In addition, since operations occur in a variety of local geographic markets, the Company's business is subject to the economic conditions in each such geographic market. General economic downturns or localized downturns in the regions where the Company has operations, including any downturns in the construction industry, could have a material adverse effect on the Company's business, financial condition and results of operations. 13 6. The Company's operations are subject to and affected by federal, state and local laws and regulations including such matters as land usage, street and highway usage, noise level and health, safety and environmental matters. In many instances, various permits are required. Although management believes that the Company is in compliance with regulatory requirements, there can be no assurance that the Company will not incur material costs or liabilities in connection with regulatory requirements. FORWARD LOOKING STATEMENTS Certain matters discussed in this report contain forward-looking statements and information based on management's belief as well as assumptions made by and information currently available to management. Such statements are subject to risks, uncertainties and assumptions including, among other matters, future growth in the construction industry; the ability of U.S. Aggregates, Inc. to complete acquisitions and effective integration of acquired companies operations; and general risks related to the markets in which U.S. Aggregates, Inc. operates. Should one or more of these risks materialize, or should underlying assumptions prove incorrect, actual results may differ materially from those projected. Additional information regarding these risk factors and other uncertainties may be found in the Company's filings with the Securities and Exchange Commission. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to certain market risks arising from transactions that are entered into in the normal course of business. All of the Company's borrowings under its floating rate credit facilities are subject to interest rate risk. Borrowings under its syndicated credit facility bear interest, at its option, at either the Eurodollar rate or the Alternate Base Rate, plus margin. On December 22, 2000, the Company entered into a derivative in order to fix interest rate risks on $37 million of its senior credit facility borrowings. Each 1.0% increase in the interest rates on the total of its floating rate debt less the hedged amount would impact pretax earnings by approximately $1.2 million. 14 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In April 2000, an operating subsidiary of the Company received a notice of Violation regarding the removal and disposal of asbestos-containing insulation from two above ground asphalt storage tanks at one of the subsidiary's facilities and is the subject of several related state and federal civil and criminal investigations. The agencies involved include the Federal Environmental Protection Agency, the United States Department of Justice, the Occupational Safety and Health Administration and the Utah Department of Air Quality (DAQ).The site has been fully cleaned up under the supervision and with the approval of the Utah DAQ and costs related to the clean up have been recorded. In order to fully resolve the matter, the Company anticipates entering into settlements with the various governmental entities, which will involve the payment of fines and the establishment of certain environmental compliance procedures. The Company has accrued for these anticipated fines. In April 2001, the Company was served with a Civil Investigation Demand appending interrogatories and requests for the production of documents requested in connection with an antitrust investigation by the Utah Attorney General's Office related to the sale of asphalt, aggregate, ready-mix concrete, concrete block and related products and services. The Company has supplied the requested information to the satisfaction of the Utah Attorney General's Office and will continue to cooperate fully in the course of the investigation. The Company believes there is no merit to this investigation. During May 2001, three complaints were filed against the Company and certain of its offers and directors in the United States District Court for the Northern District of California. The suits purport to be class actions filed on behalf of the plaintiffs and others similarly situated, which allege certain violations of the federal securities laws, including violations of Sections 10(b) and 20 of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaints allege that the Company's press releases relating to its 2000 financial statements were false and misleading. The complaints seek unspecified damages and other relief. These cases have been consolidated before Judge Wilken. Eugene L. Loper has been name lead plaintiff, and his choice of counsel has been approved. The Company has retained counsel and intends to vigorously defend these complaints. From time to time, the Company and its subsidiaries have been involved in various legal proceedings relating to it and its subsidiaries' operations and properties which, except for the proceedings described in the previous paragraph, we believe are routine in nature and incidental to the conduct of it and its subsidiaries' business. The Company and its subsidiaries' ultimate legal and financial liability with respect to these matters cannot be estimated with certainty, but we believe, based on its examination of such matters, that none of these proceedings, if determined adversely, would have a material adverse effect on its business, financial condition or results of operations. ITEM 5. OTHER INFORMATION On April 23, 2001, the Company announced a change in the annual meeting date from May 17, 2001 to June 27, 2001. In connection with such change, the record date for this meeting was changed to April 30, 2001. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit No. Description - ----------- ----------- 3.1* Form of Restated Certificate of Incorporation of the Company (Amendment No. 1 to Form S-1 (Reg. No. 333-79209), Exhibit 3.1(vi), filed July 14, 1999) 3.2* Form of Restated By-laws of the Company (Amendment No. 1 to Form S-1 (Reg. No. 333-79209), Exhibit 3.2(ii), filed July 14, 1999) 15 4.1(vi)* Fifth Amendment to Third Amended and Restated Credit Agreement dated as of March 30, 2001 by and among the Company, various financial institutions and Bank of America National Trust and Savings Association, individually and as agent. (Form 10-Q for the Quarterly Period Ended March 31, 2001, Exhibit 4.1(vi), filed May 16, 2001) 4.1(vii)* Sixth Amendment to Third Amended and Restated Credit Agreement dated as of April 18, 2001 by and among the Company, various financial institutions and Bank of America National Trust and Savings Association, individually and as agent. (Form 10-Q for the Quarterly Period Ended March 31, 2001, Exhibit 4.1(vii), filed May 16, 2001) 4.7(vi)* Amendment No. 4 to Amended and Restated Note and Warrant Purchase Agreement dated as of April 18, 2001 by and between the Company and The Prudential Insurance Company of America. (Form 10-Q for the Quarterly Period Ended March 31, 2001, Exhibit 4.7(vi), filed May 16, 2001) 4.15* Junior Subordinated Loan Agreement dated as of April 27, 2001 by and between the Company and Golder, Thoma, Cressey, Rauner Fund, IV, L.P. (Form 10-Q for the Quarterly Period Ended March 31, 2001, Exhibit 4.15, filed May 16, 2001) 4.16* Warrant Agreement dated as of April 27, 2001 by and between the Company and Golder, Thoma, Cressey, Rauner Fund, IV, L.P. (Form 10-Q for the Quarterly Period Ended March 31, 2001, Exhibit 4.16, filed May 16, 2001) 4.17* Promissory Note dated as of April 27, 2001 by the Company in favor of Golder, Thoma, Cressey, Rauner Fund, IV, L.P. in the principal amount of $2,450,000. (Form 10-Q for the Quarterly Period Ended March 31, 2001, Exhibit 4.17, filed May 16, 2001) * Incorporated by reference to the filing indicated (b) Reports on Form 8-K On February 27, 2001, the Company filed a current report on Form 8-K reporting under item 5 the appointment of Daniel W. Yih as Interim Chief Financial Officer, Treasurer, Vice President and Board Member. No other reports on Form 8-K during the three months ended March 31, 2001. All other items specified by Part II of this report are inapplicable and accordingly have been omitted. 16 SIGNATURES 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. AGGREGATES, INC. Dated: September 7, 2001 /s/ James A. Harris --------------------- James A. Harris Chairman of the Board 17 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 3.1* Form of Restated Certificate of Incorporation of the Company (Amendment No. 1 to Form S-1 (Reg. No. 333-79209), Exhibit 3.1(vi), filed July 14, 1999) 3.2* Form of Restated By-laws of the Company (Amendment No. 1 to Form S-1 (Reg. No. 333-79209), Exhibit 3.2(ii), filed July 14, 1999) 4.1(vi)* Fifth Amendment to Third Amended and Restated Credit Agreement dated as of March 30, 2001 by and among the Company, various financial institutions and Bank of America National Trust and Savings Association, individually and as agent. (Form 10-Q for the Quarterly Period Ended March 31, 2001, Exhibit 4.1(vi), filed May 16, 2001) 4.1(vii)* Sixth Amendment to Third Amended and Restated Credit Agreement dated as of April 18, 2001 by and among the Company, various financial institutions and Bank of America National Trust and Savings Association, individually and as agent. (Form 10-Q for the Quarterly Period Ended March 31, 2001, Exhibit 4.1(vii), filed May 16, 2001) 4.7(vi)* Amendment No. 4 to Amended and Restated Note and Warrant Purchase Agreement dated as of April 18, 2001by and between the Company and The Prudential Insurance Company of America. (Form 10-Q for the Quarterly Period Ended March 31, 2001, Exhibit 4.7(vi), filed May 16, 2001) 4.15* Junior Subordinated Loan Agreement dated as of April 27, 2001 by and between the Company and Golder, Thoma, Cressey, Rauner Fund, IV, L.P. (Form 10-Q for the Quarterly Period Ended March 31, 2001, Exhibit 4.15, filed May 16, 2001) 4.16* Warrant Agreement dated as of April 27, 2001 by and between the Company and Golder, Thoma, Cressey, Rauner Fund, IV, L.P. (Form 10-Q for the Quarterly Period Ended March 31, 2001, Exhibit 4.16, filed May 16, 2001) 4.17* Promissory Note dated as of April 27, 2001 by the Company in favor of Golder, Thoma, Cressey, Rauner Fund, IV, L.P. in the principal amount of $2,450,000. (Form 10-Q for the Quarterly Period Ended March 31, 2001, Exhibit 4.17, filed May 16, 2001) * Incorporated by reference to the filing indicated 18 -----END PRIVACY-ENHANCED MESSAGE-----