-----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, T02y+hGUjlABbCc6b6bm1tQ5z84i/8kkkVmV3+O8RSEIgzWAYGkzsHjWES0dEY3b NpK7oZVxaYRgqUhcKKN2Ow== 0000899243-01-501255.txt : 20010815 0000899243-01-501255.hdr.sgml : 20010815 ACCESSION NUMBER: 0000899243-01-501255 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: US CONCRETE INC CENTRAL INDEX KEY: 0001073429 STANDARD INDUSTRIAL CLASSIFICATION: CONCRETE PRODUCTS, EXCEPT BLOCK & BRICK [3272] IRS NUMBER: 760588680 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26025 FILM NUMBER: 1710693 BUSINESS ADDRESS: STREET 1: 1360 POST OAK BLVD STREET 2: SUITE 800 CITY: HOUSTON STATE: TX ZIP: 77056 BUSINESS PHONE: 7133506000 MAIL ADDRESS: STREET 1: 1360 POST OAK BLVD STREET 2: SUITE 800 CITY: HOUSTON STATE: TX ZIP: 77056 FORMER COMPANY: FORMER CONFORMED NAME: RMX INDUSTRIES INC DATE OF NAME CHANGE: 19981113 10-Q 1 d10q.txt QTR. REPORT FOR THE PERIOD JUNE 30, 2001 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q --------- (MARK ONE) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 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 000-26025 U.S. CONCRETE, INC. (exact name of registrant as specified in its charter) Delaware 76-0586680 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2925 Briarpark, Suite 500, Houston, Texas 77042 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (713) 499-6200 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 ----- ------- U.S. Concrete, Inc. 25,788,365 shares of its Common Stock, par value $.001 per share, outstanding at August 14, 2001. ================================================================================ U.S. CONCRETE, INC. AND SUBSIDIARIES INDEX
Page ---- Part I - Financial Information Item 1. Financial Statements U.S. CONCRETE, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets.......................................... 1 Condensed Consolidated Statements of Operations................................ 2 Condensed Consolidated Statements of Cash Flows................................ 3 Notes to Condensed Consolidated Financial Statements........................... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................................... 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk................ 12 Part II - Other Information Item 1. Legal Proceedings......................................................... 13 Item 2. Changes in Securities and Use of Proceeds................................. 13 Item 4. Submission of Matters to a Vote of Security Holders....................... 13 Item 6. Exhibits and Reports on Form 8-K.......................................... 14
PART I -- FINANCIAL INFORMATION Item 1. Financial Statements U.S. CONCRETE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, DECEMBER 31, 2001 2000 --------------------- -------------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 4,606 $ 711 Trade accounts receivable, net 87,600 62,641 Inventories 12,203 9,494 Prepaid expenses and other current assets 6,880 5,106 --------- -------- Total current assets 111,289 77,952 --------- -------- Property, plant and equipment, net 96,564 82,993 Goodwill, net 211,348 188,921 Other assets 5,597 5,971 --------- -------- Total assets $424,798 $355,837 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 90,939 $ 107 Accounts payable and accrued liabilities 61,139 36,313 -------- -------- Total current liabilities 152,078 36,420 -------- -------- Long-term debt, net of current maturities 95,000 157,027 Deferred income taxes 14,581 11,835 -------- -------- Total liabilities 261,659 205,282 -------- -------- Commitments and contingencies Stockholders' equity Common stock 24 22 Additional paid-in capital 136,597 127,170 Retained earnings 26,518 23,363 -------- -------- Total stockholders' equity 163,139 150,555 -------- -------- Total liabilities and stockholders' equity $424,798 $355,837 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 1 U.S. CONCRETE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts; unaudited)
THREE MONTHS SIX MONTHS ENDED JUNE 30 ENDED JUNE 30 ---------------------------------- --------------------------------- 2001 2000 2001 2000 ----------- --------- ---------- --------- Sales $136,299 $106,463 $226,177 $174,396 Cost of goods sold 106,981 83,474 183,208 139,222 ----------- --------- ---------- --------- Gross profit 29,318 22,989 42,969 35,174 Selling, general and administrative expenses 10,420 5,946 19,163 11,223 Special compensation charge 2,124 -- 2,124 -- Depreciation and amortization 3,366 3,064 6,607 5,418 ----------- --------- ---------- --------- Income from operations 13,408 13,979 15,075 18,533 Interest expense, net 5,081 3,399 10,051 5,650 Other income, net 163 661 369 895 ----------- --------- ---------- --------- Income before income tax provision 8,490 11,241 5,393 13,778 Income tax provision 3,508 4,585 2,238 5,605 ----------- --------- ---------- --------- Net income $ 4,982 $ 6,656 $ 3,155 $ 8,173 =========== ========= ========== ========= Net income per share: Basic $ 0.21 $ 0.31 $ 0.14 $ 0.39 =========== ========= ========== ========= Diluted $ 0.21 $ 0.31 $ 0.14 $ 0.39 =========== ========= ========== ========= Number of shares used in calculating net income per share: Basic 23,413 21,696 23,010 20,951 =========== ========= ========== ========= Diluted 23,585 21,756 23,095 20,982 =========== ========= ========== =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 2 U.S. CONCRETE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands; unaudited)
SIX MONTHS ENDED JUNE 30 ------------------------------------- 2001 2000 ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,155 $ 8,173 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,607 5,418 Debt issuance cost amortization 939 405 Net loss (gain) on sale of property, plant and equipment 25 (336) Deferred income tax provision 846 1,300 Provision for doubtful accounts 1,156 103 Stock compensation charge 737 -- Changes in assets and liabilities, excluding effects of acquisitions: Receivables (13,006) (8,794) Prepaid expenses and other current assets (1,231) 77 Accounts payable and accrued liabilities 16,961 (3,898) -------- -------- Net cash provided by operating activities 16,189 2,448 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (6,157) (4,657) Payments for acquisitions, net of cash received of $1,817 and $3,848 (35,425) (82,179) Payment of direct costs in connection with acquisitions (1,718) (8,230) Proceeds from disposals of property, plant and equipment 1,880 1,251 -------- -------- Net cash used in investing activities (41,420) (93,815) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 28,880 95,982 Repayments of borrowings (75) (72) Debt issuance costs (322) (1,815) Proceeds from issuances of common stock 643 -- -------- -------- Net cash provided by financing activities 29,126 94,095 -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 3,895 2,728 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 711 627 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,606 $ 3,355 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 9,048 $ 4,900 Cash paid for income taxes $ 258 $ 3,481
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 U.S. CONCRETE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND BASIS OF PRESENTATION U.S. Concrete, Inc., a Delaware corporation, was founded in July 1997 to create a leading provider of ready-mixed concrete and related products and services to the construction industry in major markets in the United States. It did not conduct any operations prior to May 1999. On May 28, 1999, it completed the initial public offering of its common stock and concurrently acquired six operating businesses. From the date of its IPO through June 30, 2001, U.S. Concrete acquired 20 additional operating businesses and intends to acquire additional companies to expand its operations. Our financial statements reflect the operations of the businesses we acquired after May 31, 1999 from their respective dates of acquisition. U.S. Concrete's future success depends on a number of factors, which include integrating operations successfully, identifying and acquiring satisfactory acquisition candidates, obtaining acquisition financing, managing growth, attracting and retaining qualified management and employees, complying with government regulations and other regulatory requirements or contract specifications and addressing risks associated with competition, seasonality and quarterly fluctuations. Under applicable regulations of the SEC, the historical condensed consolidated financial statements in this report are unaudited and omit information and footnote disclosures that financial statements prepared in accordance with generally accepted accounting principles normally would include. In the opinion of management, (1) the disclosures herein are adequate to make the information presented not misleading and (2) the condensed consolidated financial statements reflect all elimination entries and normal adjustments that are necessary for a fair presentation of the results for the interim periods presented. The preparation of these condensed consolidated financial statements requires us to use estimates and assumptions in determining the amounts of assets and liabilities we report and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Our actual results could differ from those estimates. We have made certain reclassifications to some amounts in the prior period presentations to conform with the current period presentation. Operating results for interim periods are not necessarily indicative of the results for full years. You should read these condensed consolidated financial statements together with the audited financial statements and related notes in U.S. Concrete's annual report on Form 10-K for the year ended December 31, 2000. 2. SIGNIFICANT ACCOUNTING POLICIES U.S. Concrete has not added to or changed its accounting policies significantly since December 31, 2000. For a description of these policies, refer to note 2 to the consolidated financial statements in U.S. Concrete's annual report on Form 10-K for the year ended December 31, 2000. In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," SFAS No. 142, "Goodwill and Other Intangible Assets" and SFAS No. 143 "Accounting for Asset Retirement Obligations." SFAS No. 141 requires use of the purchase method of accounting for all business combinations initiated after June 30, 2001 and prohibits use of the pooling of interests method for those transactions. SFAS No. 141 also specifies criteria intangible assets must meet to be recognized and reported apart from goodwill. SFAS No. 142 changes the accounting method for goodwill from an amortization to an impairment-only approach. SFAS No. 142 is effective for acquisitions consummated after June 30, 2001, and will be effective for all previously recorded goodwill beginning as of January 1, 2002. As a result, U.S. Concrete will continue to amortize its existing goodwill and other intangible assets under the previous accounting pronouncements until December 31, 2001. SFAS No. 143 requires measuring and recognizing legal obligations to retire long-lived assets that are identifiable upon acquisition, construction and during the operating life of the assets. SFAS No. 143 is effective for periods beginning after June 15, 2002. U.S. Concrete is currently evaluating the potential impact of the adoption of these statements on its financial position, results of operations and cash flows. 4 3. BUSINESS COMBINATIONS U.S. Concrete completed six acquisitions in the first half of 2001 and six during 2000, all of which we accounted for as purchases. The accompanying balance sheet at June 30, 2001 includes our preliminary allocations of the purchase prices of acquisitions made subsequent to June 30, 2000 and is subject to final adjustment. Six Months Ended Year Ended June 30, December 31, 2001 2000 ----------------- ------------ Acquisitions completed: Ready-mixed businesses................ 4 5 Pre-cast businesses................... 2 1 ---- ---- Total................................ 6 6 ==== ==== The following table summarizes the aggregate consideration we paid in these transactions (in thousands): SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2001 2000 ---------------- ------------ (unaudited) Cash.................................... $37,242 $ 98,918 Fair value of common stock issued....... 8,048 22,357 ------- -------- Total.................................. $45,290 $121,275 ======= ======== The following summarized unaudited pro forma financial information adjusts the historical financial information by assuming that all the 2000 and 2001 acquisitions occurred on January 1, 2000 (in thousands, except per share amounts): Six Months Ended June 30 ------------------------ 2001 2000 --------- ------- (unaudited) Revenues....................................... $239,633 $231,069 Net income..................................... $ 3,480 $ 8,094 Basic earnings per share....................... $ 0.14 $ 0.37 Diluted earnings per share..................... $ 0.14 $ 0.37 Pro forma adjustments in these amounts primarily relate to: . contractual reductions in salaries, bonuses and benefits to former owners of the businesses; . elimination of legal, accounting and other professional fees incurred in connection with the acquisitions; . amortization of goodwill resulting from the acquisitions; . reduction in interest expense, net of interest expense on borrowings to fund acquisitions; and . adjustments to the federal and state income tax provision based on pro forma operating results. The pro forma financial information includes $2.7 million of special charges in the period ended June 30, 2001 as discussed in footnote 4 and does not purport to represent what the combined financial results of operations of U.S. Concrete actually would have been if these transactions and events had in fact occurred when assumed and are not necessarily representative of its financial results of operations for any future period. 5 In connection with the acquisitions, we have determined the resulting goodwill as follows (in thousands):
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2001 2000 ---------------- ------------ Cash consideration................................................................. $ 37,242 $ 98,918 Less: Cash received from acquired companies....................................... (1,817) (3,961) -------- -------- Cash paid, net of cash acquired.................................................... 35,425 94,957 Fair value of common stock issued.................................................. 8,048 22,357 Direct acquisition costs incurred.................................................. 1,718 3,261 -------- -------- Total purchase costs incurred, net of cash acquired............................ 45,191 120,575 -------- -------- Fair value of assets acquired, net of cash......................................... 52,679 48,546 Less: Fair value of assumed liabilities........................................... (32,527) (15,700) -------- -------- Fair value of net assets acquired, net of cash..................................... 20,152 32,846 -------- -------- Costs incurred in excess of net assets acquired................................ $ 25,039 $ 87,729 ======== ========
4. SPECIAL CHARGES SPECIAL COMPENSATION CHARGES Effective April 10, 2001, U.S. Concrete granted incentive compensation to members of its management team and some of its key employees in recognition of the overall contribution made by those employees to its various 2001 capital raising initiatives. This one-time capital raising incentive compensation award is in addition to U.S. Concrete's recurring annual incentive compensation program. The total incentive compensation for all recipients is summarized as follows (in thousands):
STOCK AWARDS CASH AWARDS (SENIOR MANAGEMENT) (FIELD PERSONNEL) TOTAL ------------------- ----------------- ---------- Shares of common stock granted 103 -- 103 Value of common stock granted $ 737 $ -- $ 737 Cash payments 670 717 1,387 ------ ----- ------ Charge before income tax benefit 1,407 717 2,124 Income tax benefit (584) (298) (882) ------ ----- ------ Charge after benefit from income taxes $ 823 $ 419 $1,242 ====== ===== ====== Cash charge after benefit from income taxes $ 86 $ 419 $ 505 ====== ===== ======
The shares of common stock issued as incentive compensation to the stock award recipients are not subject to any vesting requirements or transfer restrictions, other than any applicable transfer restrictions under federal or state securities laws. The fair market value of our common stock on the incentive compensation grant date was $7.19 per share. The one-time capital raising incentive compensation charge was $2.1 million on a pretax basis, $1.2 million on an after tax basis and $505,000 on an after tax cash basis. U.S. Concrete recognized this charge as an expense in the second quarter of 2001. LITIGATION CHARGES U.S. Concrete recorded a pretax charge of $608,000 in selling, general and administrative expenses to reserve a portion of an account receivable related to the Del Webb project as a result of litigation. Please see note 8. 6 5. SHARES USED IN COMPUTING EARNINGS 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 earnings per share:
THREE MONTHS SIX MONTHS ENDED JUNE 30 ENDED JUNE 30 ----------------- ----------------- 2001 2000 2001 2000 (unaudited) Shares issued prior to 2000 18,639 18,639 18,639 18,639 Shares issued in acquisitions 4,579 3,057 4,221 2,312 Shares issued under: Employee stock purchase plan 103 -- 103 -- Special compensation awards 91 -- 46 -- Exercise of employee stock options 1 -- -- -- ------ ------ ------ ------ Number of shares used in calculating basic earnings per share 23,413 21,696 23,009 20,951 Effect of shares issuable under stock options and warrants based on the treasury stock method 172 60 86 31 ------ ------ ------ ------ Number of shares used in calculating diluted earnings per share 23,585 21,756 23,095 20,982 ====== ====== ====== ======
6. LONG-TERM DEBT A summary of long-term debt is as follows (dollars in thousands):
JUNE 30, DECEMBER 31, 2001 2000 ------------ ------------- (unaudited) Secured revolving credit facility $ 90,880 $ 62,000 12.00% senior subordinated notes 95,000 95,000 Other 59 134 -------- -------- 185,939 157,134 Less: current maturities (90,939) (107) -------- -------- Long-term debt, net of current maturities $ 95,000 $157,027 ======== ========
U.S. Concrete has a $200 million secured revolving credit facility that extends through May 2002. It may use this facility for working capital, to finance acquisitions and for other general corporate purposes. Availability under the facility is tied to various affirmative and negative financial covenants, including leverage ratios, an asset coverage ratio, a minimum net worth calculation, a limitation on additional indebtedness, lender consent for acquisitions and a prohibition of cash dividends on U.S. Concrete's common stock. Subsidiary guarantees and pledges of substantially all U.S. Concrete's fixed assets and subsidiary capital stock secure the payment of all obligations owing under the facility. Advances bear interest at the prime rate or LIBOR, at U.S. Concrete's option, in each case plus a margin keyed to the ratio of consolidated indebtedness to cash flow. A commitment fee, based on the ratio of consolidated indebtedness to cash flow, is paid on any unused borrowing capacity. At June 30, 2001, U.S. Concrete had borrowings totaling $90.9 million outstanding under this facility at a weighted average interest cost of 6.8%. At June 30, 2001, U.S. Concrete had $109.1 million of remaining capacity under this facility, of which it could borrow $5.3 million based on its leverage ratio at that date. Its ability to borrow additional amounts would increase to the extent that the facility was utilized to fund the acquisition of additional businesses with positive cash flow. 7 On November 10, 2000, U.S. Concrete issued and sold to institutional investors in a private placement $95 million aggregate principal amount of its 12.00% senior subordinated notes due November 10, 2010 for $95 million in cash. The terms of these notes require quarterly interest payments on the 10th day of February, May, August and November and repayments of principal in equal annual installments of approximately $13.6 million on November 10 in each of the years 2004 through 2010. These notes are subordinated in right of payment to the credit facility and are guaranteed by the subsidiaries of U.S. Concrete. The notes require U.S. Concrete to comply with affirmative and financial covenants generally consistent with those the credit facility contains. U.S. Concrete used the net proceeds from the sale of these notes to repay borrowings under the credit facility. 7. INCOME TAXES Prior to their acquisitions, various acquired businesses were S corporations and were not subject to federal income taxes. Effective with their acquisitions, they became subject to those taxes, and U.S. Concrete has recorded an estimated deferred tax liability to provide for its estimated future income tax liability as a result of the difference between the book and tax bases of the net assets of these corporations as of the dates of their acquisitions. These consolidated financial statements reflect the federal and state income taxes of these corporations since their dates of acquisition. 8. COMMITMENTS AND CONTINGENCIES Bay-Crete Transportation & Materials, LLC alleges in a lawsuit it filed on July 11, 2000 in a California state court, against U.S. Concrete and its subsidiary, Central Concrete Supply Co., Inc., that it possesses beneficiary rights under a 1983 contract to purchase annually up to 200,000 cubic yards of ready-mixed concrete from Central until March 30, 2082. Under that contract, the purchase price would consist of Central's direct materials costs and an overhead fee. Bay-Crete alleges that U.S. Concrete breached that contract by refusing to acknowledge Bay-Crete's rights as a beneficiary of that contract. It is seeking damages of $500 million of lost profits spread over the next 82 years. U.S. Concrete and Central each filed an answer and cross-complaint in August 2000 which seeks declaratory relief for a determination that Bay-Crete is not entitled to use the contract. In addition, the cross-complaints seek damages for improper conduct by Bay-Crete, the general manager of Bay-Crete and a member of Bay-Crete for making demands under the contract in violation of an order of a United States bankruptcy court. A predecessor to Central previously prevailed in the defense of a similar action brought by the general manager of Bay-Crete under a related agreement, and U.S. Concrete and Central believe they have meritorious defenses to Bay-Crete's claim and intend to vigorously defend this suit. The ultimate resolution of this matter, however, could materially and adversely affect our financial condition and results of operations. On June 29, 2001, Del Webb California Corp. filed a complaint in the Superior Court of the State of California for the County of Sacramento against one of our subsidiaries, Central, and two other defendants, Cedar Valley Concrete and Capital Engineering Laboratories, Inc. The complaint relates to concrete produced by Central and delivered for use in a large, single-family home tract- construction project in northern California. Cedar Valley, a concrete subcontractor for this project, arranged for Central to provide concrete for foundations and floor slabs for the new homes. Capital Engineering tested the compressive strength of the floor slabs for Del Webb. The complaint alleges various causes of action relating to concrete that Central manufactured using a batch mix that did not meet Del Webb's specifications and failed to meet Del Webb's requirements for compressive strength at 7 and 28 days after placement. The complaint further alleges that Del Webb was required to remove and replace the concrete and other construction improvements, components and materials that were placed on the concrete at 76 homes in the project. The complaint seeks relief including damages of at least $7 million, restitution, unspecified punitive damages and awards for interest, costs and expenses, including attorneys' fees. The complaint alleges negligence, negligent interference with prospective economic advantage, deceit and unjust enrichment causes of action against Central. We believe Central has valid defenses to these claims based on, among other things, Del Webb's failure to mitigate damages, and we intend to defend against these claims vigorously. The ultimate resolution of this matter, however, could materially and adversely affect our financial condition and results of operations. 8 From time to time, and currently, we are subject to various other claims and litigation brought by employees, customers and third parties for, among other matters, personal injuries, property damages, product defects and delay damages that have, or allegedly have, resulted from the conduct of our operations. We believe it is unlikely that the final outcome of any of such claims or litigation will have a material adverse effect on our business, financial condition or results of operations; however, because of the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding to which we are a party will not have a material adverse effect on our results of operations for the fiscal period in which that resolution occurs. We expect in the future we will from time to time be a party to litigation or administrative proceedings which arise in the normal course of our business. 9. SUBSEQUENT EVENTS On July 18, 2001, we issued in a public offering 1,820,000 shares of our common stock at a price to the public of $8.00 per share. We used the net proceeds of $13.8 million to repay borrowings under our credit facility. 9 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 risks, uncertainties and assumptions. Our actual results, performance or achievements, or industry results, could differ materially from those we express in the following discussion as a result of a variety of factors, including the risks and uncertainties we have referred to under the heading "Cautionary Statement Concerning Forward-looking Statements" following Items 1 and 2 of Part I of our annual report on Form 10-K for the year ended December 31, 2000 and under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Factors That May Affect Our Future Operating Results" in Item 7 of Part II of that annual report on Form 10-K. RESULTS OF OPERATIONS The following table sets forth for us selected historical statements of operations information and that information as a percentage of sales for the periods indicated. Except as we note below, our acquisitions in 2000 and the first two quarters of 2001 principally account for the changes in 2001 from 2000.
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30 --------------------------------------------------- ----------------------------------------------- 2001 2000 2001 2000 ----------------------- ------------------------ ---------------------- --------------------- (dollars in thousands; unaudited) Sales $136,299 100.0% $106,463 100.0% $226,177 100.0% $174,396 100.0% Cost of goods sold 106,981 78.5 83,474 78.4 183,208 81.0 139,222 79.8 ---------------------------------------------------------------------------------------------------- Gross profit 29,318 21.5 22,989 21.6 42,969 19.0 35,174 20.2 Selling, general and administrative expenses 10,420 7.6 5,946 5.6 19,163 8.5 11,223 6.4 Special compensation charge 2,124 1.6 -- -- 2,124 0.9 -- -- Depreciation and amortization 3,366 2.5 3,064 2.9 6,607 2.9 5,418 3.1 ---------------------------------------------------------------------------------------------------- Income from operations 13,408 9.8 13,979 13.1 15,075 6.7 18,533 10.7 Interest expense, net 5,081 3.7 3,399 3.2 10,051 4.4 5,650 3.2 Other income, net 163 0.1 661 0.6 369 0.2 895 0.5 ---------------------------------------------------------------------------------------------------- Income before income tax provision 8,490 6.2 11,241 10.5 5,393 2.4 13,778 8.0 Income tax provision 3,508 2.6 4,585 4.3 2,238 1.0 5,605 3.2 ---------------------------------------------------------------------------------------------------- Net income $ 4,982 3.7% $ 6,656 6.2% $ 3,155 1.4% $ 8,173 4.8% ====================================================================================================
SALES. Sales increased $29.8 million, or 28.0%, and $51.8 million, or 29.7%, for the three- and six-month periods ended June 30, 2001, respectively, as compared with the corresponding periods in 2000. GROSS PROFIT. Gross profit increased $6.3 million, or 27.5%, and $7.8 million, or 22.2%, for the three- and six-month periods ended June 30, 2001, respectively, as compared with the corresponding periods in 2000. Gross margins decreased from 21.6% in the three months ended June 30, 2000 to 21.5% in the three months ended June 30, 2001 and decreased from 20.2% in the six months ended June 30, 2000 to 19.0% in the six months ended June 30, 2001. These declines are due to decreases in sales volume in several of our primary markets resulting from a slowdown in construction activity. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased $4.5 million, or 75.2%, and $7.9 million, or 70.8%, for the three- and six-month periods ended June 30, 2001, respectively, as compared with the corresponding periods in 2000. The increase in selling, general and administrative expenses as a percentage of sales for the three- and six-month periods is attributable to management additions in some of our markets and a pretax charge of $608,000 we recorded in the second quarter of 2001 to reserve a portion of our accounts receivable related to the Del Webb project. 10 SPECIAL COMPENSATION CHARGE. We granted additional compensation to members of our management team and some of our key employees in recognition of the overall contribution made by those employees to our various 2001 capital-raising initiatives. This one-time award is in addition to our recurring annual incentive compensation program. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased $0.3 million, or 9.9%, and $1.2 million, or 21.9%, for the three- and six-month periods ended June 30, 2001, respectively, as compared with the corresponding periods in 2000. This increase includes amortization of the goodwill attributable to our acquisition activity. We have been amortizing this goodwill over 40 years for each acquisition. At June 30, 2001, the annualized amount of this noncash expense was $5.5 million. As presented in the footnotes to our condensed consolidated financial statements, the Financial Accounting Standards Board recently issued Statements of Financial Accounting Standards Nos. 141 and 142. These statements change the method of accounting for business combinations, amortization of goodwill and other intangible assets. We are currently evaluating the potential impact on our financial position, results of operations and cash flows as a result of the adoption of these statements. INTEREST EXPENSE, NET. Interest expense, net, increased $1.7 million, or 49.5%, and $4.4 million, or 77.9%, for the three- and six-month periods ended June 30, 2001, respectively, as compared with the corresponding periods in 2000. This increase was attributable to borrowings we made to pay the cash portion of the purchase prices for our acquisitions and the issuance of $95 million of 12.00% senior subordinated notes in November 2000. At June 30, 2001, we had borrowings totaling $90.9 million outstanding under our credit facility at a weighted average interest cost of 6.8% per annum. Based on this weighted average interest rate, the impact of the senior subordinated notes on interest expense is an increase of $4.9 million, or $0.12 per share, on an annualized after-tax basis. OTHER INCOME, NET. Other income, net decreased $0.5 million, or 75.3% and 58.7%, respectively, for the three- and six-month periods ended June 30, 2001, as compared with the corresponding periods in 2000. These decreases were attributable to gains realized in the comparable reporting periods on the sale of a customer contract, the involuntary conversion of property and other items of income and expense that were not replicated in the current periods. INCOME TAX PROVISION. We provided for income taxes of $3.5 million and $2.2 million for the three- and six-month periods ended June 30, 2001, respectively, as compared with a provision of $4.6 million and $5.6 million during the corresponding periods in 2000. The decrease in income taxes is principally the result of lower taxable income generated from our operations during the three- and six-month periods ended June 30, 2001. LIQUIDITY AND CAPITAL RESOURCES Our acquisitions since December 31, 2000 principally account for the changes in our working capital accounts and our property, plant and equipment account from December 31, 2000 to June 30, 2001. During the first two quarters of 2001, we purchased six operating businesses that we have accounted for in accordance with the purchase method of accounting. The aggregate consideration we paid in these transactions consists of $37.2 million in cash and 1.3 million shares of common stock. On July 18, 2001, we issued in a public offering 1,820,000 shares of our common stock at a price to the public of $8.00 per share. We used the net proceeds of $13.8 million to repay borrowings under our credit facility. We are currently negotiating the terms of an amendment and restatement of our $200 million secured revolving credit facility with the banks that are parties to that facility and other potential lenders. We expect the terms and amount of the amended and restated credit facility to be substantially the same as the existing facility, except the maturity will be extended through May 2004. As of August 13, 2001 we have received commitments from eight of our existing nine lenders and one new lender totaling $188 million, subject only to completion of documentation. We are confident that we will be successful in refinancing the current credit facility prior to its maturity. 11 We had $90.9 million of outstanding borrowings under our credit facility at June 30, 2001. Our borrowing capacity under the facility varies from time to time depending on our satisfaction of several financial tests. We may use the facility for the following purposes: . financing acquisitions (with the approval of our lenders); . funding the internal expansion of our operations; . working capital; and . general corporate purposes. Our subsidiaries have guaranteed the repayment of all amounts owing under the facility, and we secured the facility with the capital stock and assets of our subsidiaries. The facility: . requires the consent of the lenders for all acquisitions; . prohibits the payment of cash dividends on our common stock; . limits our ability to incur additional indebtedness; and . requires us to comply with financial covenants. The failure to comply with these covenants and restrictions would constitute an event of default under the facility. At June 30, 2001, we had $109.1 million of remaining capacity under this facility, of which we could borrow $5.3 million based on our leverage ratio at that date. Our ability to borrow additional amounts would increase to the extent that the facility was utilized to fund the acquisition of additional businesses with positive cash flow. On November 10, 2000, we issued and sold to institutional investors in a private placement $95 million aggregate principal amount of our 12.00% senior subordinated notes due November 10, 2010 for $95 million in cash. The terms of these notes require us to repay them in equal annual installments of approximately $13.6 million on November 10 in each of the years 2004 through 2010. We used the net proceeds from our sale of the notes to reduce amounts outstanding under our credit facility. We anticipate that our consolidated cash flow from our operations will exceed our normal working capital needs, debt service requirements and the amount of our planned capital expenditures, excluding acquisitions, for at least the next 12 months. The continuation of our growth strategy will require substantial capital. We currently intend to finance future acquisitions through issuances of our equity or debt securities, including convertible securities, and borrowings under our credit facility. Using debt to complete acquisitions could substantially limit our operational and financial flexibility. The extent to which we will be able or willing to use our common stock to make acquisitions will depend on its market value from time to time and the willingness of potential sellers to accept it as full or partial payment. Using our common stock or convertible securities for this purpose may result in dilution to our then existing stockholders. To the extent we are unable to use our common stock to make future acquisitions, our ability to grow will be limited by the extent to which we are able to raise capital for this purpose, as well as to expand existing operations, through debt or additional equity financings. If we are unable to obtain additional capital on acceptable terms, we may be required to reduce the scope of our presently anticipated expansion, which could materially adversely affect our business and the value of our common stock. We cannot accurately predict the timing, size and success of our acquisition efforts or our associated potential capital commitments. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Borrowings under our credit facility expose us to market risks. Outstanding borrowings under this facility were $90.9 million at June 30, 2001. A change of one percent in the interest rate would cause a change in interest expense on these outstanding borrowings of approximately $0.9 million, or $0.02 per share, on an annualized after-tax basis. We did not enter into the facility for trading purposes, and the facility carries interest at a pre-agreed percentage point spread from either a prime interest rate or a LIBOR interest rate. 12 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS For information about litigation involving us, see note 8 to the condensed consolidated financial statements in Part I of this report, which we incorporate by reference into this Item 1. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (c) Unregistered Sales of Securities. Between April 1, 2001 and June 30, 2001, U.S. Concrete issued 504,361 shares of common stock as part of the consideration we paid to the former owners of the three businesses we acquired in that period. We issued those shares without registration under the Securities Act in reliance on the exemption Section 4(2) of the Securities Act provides for transactions not involving any public offering. Each acquisition involved a small number of owners who received shares of our common stock. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 1. Our stockholders voted on the following matters at their annual meeting held on May 17, 2001: (a) The following were elected to serve new terms as directors and received the number of votes set opposite their respective names: Votes For Votes Withheld ----------- ---------------- Vincent D. Foster 19,215,952 12,078 Michael D. Mitschele 19,030,616 197,414 John R. Colson 19,215,952 12,078 (b) The following persons are directors whose terms of office as director continued after the meeting: Eugene P. Martineau William T. Albanese Murray S. Simpson Michael W. Harlan Robert S. Walker Peter T. Dameris Neil J. Vanucci On June 15, 2001, Mr. Dameris resigned as a member of our board of directors. 2. A proposal to ratify the appointment of Arthur Andersen LLP as our independent public accountants received 19,216,903 votes FOR and 3,862 votes AGAINST, with 7,265 abstentions. 13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits.
EXHIBIT NUMBER DESCRIPTION - --------- ----------- 3.1* -- Restated Certificate of Incorporation of U.S. Concrete (Form S-1 (Reg. No. 333-74855), Exhibit 3.1). 3.2* -- Bylaws of U.S. Concrete (Form 10-Q for the quarter ended September 30, 2000 (File No. 000-26025), Exhibit 3.2). 3.3* -- Certificate of Designations of Series A Junior Participating Preferred Stock (Form 10-Q for the quarter ended June 30, 2000 (File No. 000-26025), Exhibit 3.3. 4.1* -- Amended and Restated Credit Agreement dated as of February 9, 2000 among U.S. Concrete, the Guarantors named therein, the Lenders named therein, Bankers Trust Company, as syndication agent, First Union Nation Bank, as documentation agent, Bank One, Texas, NA, Branch Banking & Trust Company, Credit Lyonnais New York Branch and The Bank of Nova Scotia, as co-managing agents and Chase Bank of Texas, N.A., as the Administrative Agent, and Chase Securities, Inc. as sole book manager and lead arranger (Form 10-K for the year ended December 31, 1999 (File No. 000-26025), Exhibit 4.6). 4.2* -- First Amendment to Amended and Restated Credit Agreement, dated July 7, 2000, among U.S. Concrete, the Guarantors named therein, the Lenders named therein, Bankers Trust Company, as syndication agent, First Union National Bank, as documentation agent, Bank One, Texas, N.A., Branch Banking & Trust Company, Credit Lyonnais New York Branch and The Bank of Nova Scotia, as co-managing agents and Chase Bank of Texas, N.A., as the Administrative Agent, and Chase Securities, Inc., as sole book manager and lead arranger. (Form 10-K for the year ended December 31, 2000 (File No. 000-26025), Exhibit 4.2). 4.3* -- Second Amendment to Amended and Restated Credit Agreement, dated September 30, 2000, among U.S. Concrete, the Guarantors named therein, the Lenders named therein, Bankers Trust Company, as syndication agent, First Union National Bank, as documentation agent, Bank One, Texas, N.A., Branch Banking & Trust Company, Credit Lyonnais New York Branch and The Bank of Nova Scotia, as co-managing agents and Chase Bank of Texas, N.A., as the Administrative Agent, and Chase Securities, Inc., as sole book manager and lead arranger. (Form 10-K for the year ended December 31, 2000 (File No. 000-26025), Exhibit 4.3). 4.4* -- Note Purchase Agreement, dated November 10, 2000, among U.S. Concrete, Inc., The Prudential Insurance Company of America, Metropolitan Life Insurance Company, Teachers Insurance & Annuity Association, Connecticut General Life Insurance Company, Allstate Life Insurance Company, Allstate Life Insurance Company of New York and Southern Farm Bureau Life Insurance Company. (Form 10-K for the year ended December 31, 2000 (File No. 000-26025), Exhibit 4.4). 4.5* -- Third Amendment to Amended and Restated Credit Agreement, effective March 31, 2001 among U.S. Concrete, the Guarantors named therein, the Lenders named therein, Bankers Trust Company, as syndication agent, First Union National Bank, as documentation agent, Bank One, Texas, N.A., Branch Banking & Trust Company, Credit Lyonnais New York Branch and The Bank of Nova Scotia, as co-managing agents and The Chase Manhattan Bank, as the Administrative Agent, and Chase Securities, Inc., as sole book manager and lead arranger (Form 10-Q for the quarter ended March 31, 2001 (File No. 000-26025), Exhibit 4.5). U.S. Concrete and some of its subsidiaries are parties to debt instruments under which the total amount of securities authorized does not exceed 10% of the total assets of U.S. Concrete and its subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii)(A) of Item 601(b) of Regulation S-K, U.S. Concrete agrees to furnish a copy of those instruments to the SEC on request. 10.1* --Underwriting agreement, dated July 12, 2001, between U.S. Concrete and BB&T Capital Markets, a division of Scott & Stringfellow, Inc. (Form 8-K dated July 13, 2001 (File No. 000-26025), Exhibit 1.1). - ----------
* Incorporated by reference to the filing indicated. 14 (b) Reports on Form 8-K. On July 11, 2001, we reported on Form 8-K a summary of events relating to our operations that occurred subsequent to March 31, 2001. The events reported include: (1) acquisitions we completed from April 1, 2001 through June 29, 2001; (2) the 2001 capital raising incentive compensation charge; (3) recently instituted litigation; (4) the resignation of one of our directors; and (5) our inclusion in the Russell 2000 index. On July 13, 2001, we reported on Form 8-K our entering into an underwriting agreement with BB&T Capital Markets, a division of Scott & Stringfellow, Inc. for the purchase from us of 1,820,000 shares of our common stock. 15 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. CONCRETE, INC. Date: August 14, 2001 By: /s/ Michael W. Harlan ------------------------ Michael W. Harlan Senior Vice President -- Chief Financial Officer 16 -----END PRIVACY-ENHANCED MESSAGE-----