<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12, 1999
REGISTRATION NO. 333-79209
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
U.S. AGGREGATES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1400 57-0990958
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
400 SOUTH EL CAMINO REAL, SUITE 500, SAN MATEO, CALIFORNIA 94402
TELEPHONE: (650) 685-4880
(Address, including zip code, and telephone number, including area code, of
Registrant's principal offices)
MICHAEL J. STONE
EXECUTIVE VICE PRESIDENT--DEVELOPMENT
CHIEF FINANCIAL OFFICER, TREASURER AND SECRETARY
U.S. AGGREGATES, INC.
400 SOUTH EL CAMINO REAL, SUITE 500
SAN MATEO, CALIFORNIA 94402
TELEPHONE: (650) 685-4880
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
WILLARD G. FRAUMANN, P.C. BRUCE A. TOTH
Kirkland & Ellis Winston & Strawn
200 East Randolph Drive 35 West Wacker Drive
Chicago, Illinois 60601 Chicago, Illinois 60601
(312) 861-2000 (312) 558-5600
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
--------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION,
DATED JULY 27, 1999
5,000,000 SHARES
[LOGO]
U.S. AGGREGATES, INC.
COMMON STOCK
---------
We anticipate that the initial public offering price will be between $14.00
and $16.00 per share.
Our common stock has been approved for trading on the New York Stock
Exchange under the symbol "AGA," subject to official notice of issuance.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 11.
-------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- -----------
<S> <C> <C>
Public offering price.................................................................... $ $
Underwriting discounts................................................................... $ $
Proceeds, before expenses, to U.S. Aggregates, Inc....................................... $ $
</TABLE>
Four of our stockholders have granted the underwriters the right to purchase
up to 750,000 additional shares to cover any over-allotments.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------
DEUTSCHE BANC ALEX. BROWN
SCHRODER & CO. INC.
THE ROBINSON-HUMPHREY COMPANY
, 1999
<PAGE>
[Photographs of U.S. Aggregates' quarries located in Alabama and Utah, with the
following captions: "New l million ton per year plant serving the fast growing
market near the new Mercedes Benz plant in Tuscaloosa, Alabama" and "New 2
million ton per year plant serving the fast growing Salt Lake City/Wasatch
Front, Utah market."]
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.............................. 4
Risk Factors.................................... 11
Forward-Looking Statements...................... 18
Use of Proceeds................................. 19
Dividend Policy................................. 19
Capitalization.................................. 21
Dilution........................................ 22
Selected Unaudited Pro Forma Financial Data..... 23
Selected Historical Financial Data.............. 30
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 32
Liquidity and Capital Resources............... 35
Industry Overview............................... 39
Business........................................ 44
Governmental and Environmental Regulation..... 49
Management...................................... 51
<CAPTION>
PAGE
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<S> <C>
Compensation of Directors..................... 52
Incentive Plan................................ 54
Principal and Selling Stockholders.............. 55
Certain Relationships and Related
Transactions.................................. 57
Description of Certain Indebtedness............. 60
Description of Capital Stock.................... 65
The Recapitalization.......................... 65
Shares Eligible for Future Sale................. 68
Material United States Federal Tax Consequences
to Non-United States Holders.................. 70
Underwriting.................................... 73
Experts......................................... 75
Legal Matters................................... 75
Where You Can Find More Information............. 75
Index to Financial Statements................... F-1
</TABLE>
--------------
All references to "tons" in this prospectus means "short" or "U.S." tons
equalling a weight of 2,000 pounds.
--------------
You may rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus is not an offer to sell, nor a
solicitation to buy shares of our common stock in any circumstances under which
the offer or solicitation is unlawful. Neither the delivery of this prospectus
nor sale of our common stock means that the information contained in this
prospectus is correct after the date of this prospectus.
--------------
Until , 1999, 25 days after the date of this prospectus, all
dealers that buy, sell or trade our common stock, whether or not participating
in the offering, may be required to deliver a prospectus. This is in addition to
the dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER
BEFORE DECIDING TO INVEST IN OUR COMMON STOCK. WE URGE YOU TO READ THIS ENTIRE
PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS" SECTION AND THE FINANCIAL
STATEMENTS AND THE NOTES TO THOSE STATEMENTS. UNLESS OTHERWISE NOTED, THE
INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES CONSUMMATION OF THE
RECAPITALIZATION, STOCK SPLIT AND CONVERSION OF OUR PREFERRED STOCK DESCRIBED ON
PAGE 7 AND NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
U.S. AGGREGATES
U.S. Aggregates, Inc. is a leading producer of aggregates. Aggregates
consist of crushed stone, sand and gravel. Our products are used primarily for
the construction and maintenance of highways and other infrastructure projects
and for commercial and residential construction. We serve local markets in nine
states in two fast growing regions of the United States, the Mountain states and
the Southeast. From our inception in January 1994 through 1998, our net sales
have increased to $228.7 million while operating profit has increased to $24.4
million.
Our growth has been driven by a number of factors, including:
- WE SERVE ATTRACTIVE, HIGH GROWTH MARKETS. According to the U.S. Geological
Survey, from 1993 to 1998, compound annual growth in consumption of
aggregates in the nine states we serve was 6.7%. During the same period,
the United States compound annual increase was 4.8%.
- WE ARE A MARKET LEADER IN MOST OF THE LOCAL MARKETS WE SERVE. We have
utilized our management and financial resources to strengthen our position
in our markets and to expand into contiguous markets.
- WE HAVE WELL LOCATED, LONG-TERM AGGREGATE RESERVES. Our long-term,
high-quality aggregate reserves located near our customers are key to our
success. In most of our markets we have a 20 to 40 year supply of
aggregates.
- WE HAVE INVESTED SIGNIFICANT CAPITAL IN OUR BUSINESS. We believe that our
plant and equipment are among the most modern and cost-competitive in our
industry and should enable us to take advantage of increasing demand in
our markets.
- WE HAVE A STRONG TRACK RECORD OF COMPLETING, INTEGRATING AND DEVELOPING
BUSINESS AND ASSET ACQUISITIONS. We have focused on the acquisition and
development of aggregate production sites and companies that are well
located to serve growing markets. Since our inception, we have completed
28 business and asset acquisitions in the aggregates industry and have
generally seen a substantial increase in revenues and profits relative to
their performance prior to our ownership.
Approximately 75% of the aggregates we produce are sold directly to
customers. We use the balance to produce asphalt, which contains approximately
90% aggregates by volume, and ready-mix concrete, which contains approximately
80% aggregates by volume. Generally, we are integrated into these
aggregate-based products in markets where our competitors also produce and
market these products.
INDUSTRY OVERVIEW
Aggregates are a basic construction material, approximately 50% of which are
used for highway and infrastructure construction and maintenance. Demand for
aggregates has historically been only moderately cyclical due to the stability
of federal and state spending on road maintenance and construction.
Additionally, the national average per ton market price for aggregates has not
experienced an annual decline between 1985 and 1998, experiencing an average
annual increase of 2.3%. The United
4
<PAGE>
States market for all aggregates was approximately 2.8 billion tons in 1998 with
a value of $13.5 billion. This represents an increase of 6.2% in volume and 9.6%
in dollar value above 1997 levels.
In 1998, the six year, $218 billion Transportation Equity Act for the 21st
Century, or TEA-21, was passed which designates a minimum of $158 billion
nationally for federal highway construction and maintenance projects. This
represents a 44% increase above average annual federal highway spending levels
under the predecessor six year federal program. In the nine states we serve,
average annual federal highway spending under the new program is projected to be
61% higher than under the predecessor program.
Due to the high cost of transportation relative to the value of the product,
competition within the aggregates industry favors producers with suitable
aggregate reserves closest to the market. Difficulty in obtaining the necessary
permits for new, economically viable aggregate production sites located near
customers has constrained, and will continue to constrain, the number of
competitors able to serve each market. Because of the local nature of the
aggregates industry and its historical development, the ownership within the
industry continues to be highly fragmented, with the top five producers combined
holding an estimated 25% market share in 1998.
MANAGEMENT
Our executive officers have an average of 26 years of experience in the
aggregates industry and have a strong track record of building profitable
aggregates businesses. Immediately after the offering, our management team will
own approximately 10.9% of our common stock.
--------------
Our corporate headquarters are located at 400 South El Camino Real, Suite
500, San Mateo, California 94402. Our telephone number is (650) 685-4880.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by U.S. 5,000,000 shares
Aggregates...........................
Common stock to be outstanding 15,123,573
immediately after the offering....... shares
</TABLE>
<TABLE>
<S> <C>
Use of proceeds........................ Our net proceeds from the offering will be used to
repay outstanding indebtedness. See "Use of
Proceeds" for a further description of the
application of the net proceeds of the offering.
Dividend Policy........................ Beginning in the fourth quarter of 1999, with
respect to earnings generated during the third
quarter of 1999, we intend to pay quarterly cash
dividends at an initial rate of $0.03 per share of
our common stock. Any determination to pay
dividends will be at the discretion of our board of
directors. For a further discussion of our dividend
policy, see "Dividend Policy."
New York Stock Exchange symbol......... "AGA"
</TABLE>
The number of shares of our common stock to be outstanding immediately after
the offering does not include approximately 280,336 shares of our common stock
that may be issued pursuant to stock options to be granted concurrently with the
offering. For a discussion of these stock options, see "Management--Incentive
Plan."
6
<PAGE>
RECAPITALIZATION
U.S. Aggregates currently owns 82.99% of the common stock of Western
Aggregates Holding Corp. and 90.84% of the common stock of SRM Holdings Corp.
with the remainder held primarily by officers and employees of Western
Aggregates and SRM. Immediately prior to the consummation of the offering, each
outstanding share of common stock of Western Aggregates not held by U.S.
Aggregates will be converted into 0.6227 shares of our common stock and each
outstanding share of common stock of SRM not held by U.S. Aggregates will be
converted into 8.0707 shares of our common stock. Each share of our common stock
will then be subject to an approximate 30.0347 to 1 stock split. In addition,
each share of our preferred stock will be converted into a number of shares of
our common stock based upon the initial public offering price. See "Certain
Relationships and Related Transactions" for a further discussion of these
events.
7
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table presents summary historical and unaudited pro forma
financial information for U.S. Aggregates. You should read this along with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Selected Unaudited Pro Forma Financial Data," "Selected Historical
Financial Data" and the financial statements and the accompanying notes included
elsewhere in this prospectus.
The summary unaudited pro forma financial data are derived from the
application of unaudited pro forma adjustments related to the 1998 acquisitions
and dispositions and the offering detailed below and in the notes to "Selected
Unaudited Pro Forma Financial Data" on page 25 and 27. The 1998 pro forma as
adjusted financial data give effect as if all 1998 acquisitions and dispositions
had occurred on January 1, 1998 and certain other pro forma adjustments to the
historical financial statements described in the notes to "Selected Unaudited
Pro Forma Financial Data" on page 25 and 27.
The 1998 pro forma as adjusted and 1999 pro forma as adjusted financial data
each give effect to the sale of 5,000,000 shares of our common stock in the
offering at the assumed public offering price of $15.00 per share, and the
application of the net proceeds, as well as certain other resulting pro forma
adjustments as described in the notes to "Selected Unaudited Pro Forma Financial
Data" on page 25, 27 and 29. See "Use of Proceeds" for a further description of
the application of the net proceeds from the offering.
8
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------------- -----------------------------------
1998 1999
PRO FORMA PRO FORMA
1996 1997 1998 AS ADJUSTED 1998 1999 AS ADJUSTED
--------- --------- --------- ------------- --------- --------- -------------
(UNAUDITED)
(UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales.......................... $131,710 $163,243 $228,739 $249,224 $83,042 $126,939 $126,939
Gross profit....................... 38,889 44,111 60,519 65,771 22,234 34,973 34,973
Selling, general and administrative
expenses......................... 16,571 18,275 25,001 27,052 10,920 14,898 14,898
Depreciation, depletion and
amortization(1).................. 6,301 7,830 11,098 12,103 4,549 5,694 5,727
Income from operations............. 16,017 18,006 24,420 26,616 6,765 14,381 14,348
Interest, net...................... (5,036) (8,344) (14,351) (10,021 ) (5,554) (8,841) (6,034 )
Other income and expense, net...... (150) (150) (1,104) (1,008 ) (718) (479) (479 )
Income from continuing operations
before provision for income
taxes, minority interest and
extraordinary item............... 10,831 9,512 8,965 15,587 493 5,061 7,835
Provision for income taxes......... (3,660) (3,384) (3,748) (6,297 ) (206) (1,898) (2,966 )
Income from continuing operations
before minority interest and
extraordinary item............... 7,171 6,128 5,217 9,290 287 3,163 4,869
Minority interest.................. (727) (623) (385) -- 100 (39) --
Income from continuing
operations....................... 6,444 5,505 4,832 9,290 387 3,124 4,869
Income from continuing operations
available to common shareholders
per common share(2)
--basic.......................... $0.57 $0.29 $0.12 $0.61 $(0.26) $0.15 $0.32
--diluted........................ $0.57 $0.28 $0.11 $0.61 $(0.26) $0.14 $0.32
Weighted average number of common
shares
--basic........................... 6,074,704 6,116,718 6,136,630 15,123,573 6,136,630 6,136,630 15,123,573
--diluted(3)(4).................. 6,095,472 6,306,747 6,382,094 15,123,573 6,136,630 6,423,011 15,123,573
SELECTED STATISTICAL AND OPERATING
DATA:
EBITDA(5).......................... $21,441 $25,063 $33,691 $37,711 $10,358 $19,557 $19,596
Capital expenditures (excluding
acquisitions).................... $20,945 $17,750 $27,330 $33,496 $19,124 $24,992 $24,992
Capital expenditures (including
acquisitions).................... $58,855 $21,788 $111,214 $117,380 $101,346 $24,992 $24,992
Tons of aggregates shipped (in
millions)........................ 7.2 9.5 15.8 21.6 6.1 9.0 9.0
Tons of asphalt sold (in
millions)........................ 0.9 1.3 1.6 1.6 0.4 0.8 0.8
Yards of ready-mix concrete sold
(in millions).................... 0.9 0.9 1.4 1.7 0.5 0.8 0.8
Estimated tons of aggregate
reserves (in millions)........... 635 863 1,357 1,357 1,357 1,360 1,360
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------------
PRO FORMA
HISTORICAL AS ADJUSTED
----------- -------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets........................................................................... $ 374,362 $ 379,033
Total debt............................................................................. 225,707 157,570
Minority interest...................................................................... 3,180 --
Mandatory redeemable preferred stock................................................... 45,768 --
Stockholders' equity................................................................... 12,440 134,198
</TABLE>
- ------------------------------
(1) In 1996, we began using a 20 percent salvage value in providing depreciation
on certain of our assets. In 1997, we also extended the estimated lives of
certain depreciable assets, resulting in an approximate $1,550 reduction of
1997 depreciation expense compared to what it would have been had the
estimated lives not been changed.
(2) Income from continuing operations available to common shareholders for all
periods except pro forma as adjusted results reflects income from continuing
operations reduced by the accretion of preferred stock dividends.
(3) For pro forma as adjusted purposes we assume the exercise of all warrants
outstanding, the conversion of minority stock into our common stock and the
conversion of preferred stock into our common stock prior to the closing of
the offering.
(4) We used the same weighted average shares for basic and diluted earnings per
share calculation for June 30, 1998 because the effect of common stock
equivalents in this period is antidilutive.
(5) EBITDA represents net income plus net interest expense, income taxes and
depreciation, depletion and amortization and is a supplemental financial
measurement we use to evaluate our business. However, EBITDA (which is not a
measure of financial performance under GAAP) should not be considered in
isolation or viewed as a substitute for cash flow from operations, net
income or other measures of performance as defined by GAAP or as a measure
of our profitability or liquidity. EBITDA does not give effect to the cash
we must use to service our debt or pay our income taxes and thus does not
reflect the funds actually available for capital expenditures, acquisitions,
or other discretionary uses. We understand that while EBITDA is frequently
used by security analysts, lenders and others in the evaluation of
companies, our presentation of EBITDA may not be comparable to other
similarly titled captions of other companies due to potential
inconsistencies in the method of calculation.
10
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER EACH OF THE FOLLOWING RISKS AND ALL OF THE
OTHER INFORMATION SET FORTH IN THIS PROSPECTUS BEFORE DECIDING TO INVEST IN
SHARES OF OUR COMMON STOCK. INVESTING IN OUR COMMON STOCK WILL PROVIDE YOU WITH
AN EQUITY OWNERSHIP INTEREST IN U.S AGGREGATES. AS A STOCKHOLDER OF U.S.
AGGREGATES, YOU MAY BE EXPOSED TO RISKS INHERENT IN OUR BUSINESS. THE
PERFORMANCE OF YOUR SHARES WILL REFLECT THE PERFORMANCE OF OUR BUSINESS RELATIVE
TO, AMONG OTHER THINGS, COMPETITION, INDUSTRY CONDITIONS AND GENERAL ECONOMIC
AND MARKET CONDITIONS. THE VALUE OF YOUR INVESTMENT MAY INCREASE OR DECREASE AND
COULD RESULT IN A LOSS.
IF ANY OF THE FOLLOWING RISKS AND UNCERTAINTIES DEVELOP INTO ACTUAL EVENTS,
OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY
ADVERSELY AFFECTED. IN SUCH CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD
DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
RISK FACTORS RELATING TO OUR BUSINESS AND INDUSTRY
OUR BUSINESS IS SUBJECT TO THE FOLLOWING RISKS, WHICH INCLUDE RISKS RELATING
TO THE INDUSTRY IN WHICH WE OPERATE.
BAD WEATHER IN OUR PEAK SEASON MAY RESULT IN LOWER SALES
Poor weather during the months of April through November could result in
lower sales of aggregates, which could reduce our net sales and profits. This is
because sales of aggregates are highest during this period and poor weather
conditions may reduce or delay highway construction and maintenance and other
infrastructure projects. In the past, significant changes in weather conditions
during this period have caused variations in demand for aggregates. In addition,
because we are not as geographically diverse as some of our competitors, we may
be more vulnerable than these competitors to poor weather conditions in the
regions in which we operate.
GENERAL AND LOCAL ECONOMIC DOWNTURNS MAY RESULT IN DECREASED SALES AND
PROFITS
General economic downturns or localized downturns in regions where we have
operations, including any downturns in the construction industry, could result
in a decrease in sales and profits. A majority of our sales are to customers who
are in industries and businesses that are cyclical in nature and subject to
changes in general economic conditions, such as the construction industry. Our
business is located in the Mountain states and the Southeast and is dependent
upon the economies of those regions. Because our business is more geographically
concentrated than some of our competitors, we may be more vulnerable to local
economic conditions.
A DECREASE IN GOVERNMENT FUNDING OF HIGHWAY CONSTRUCTION AND MAINTENANCE AND
OTHER INFRASTRUCTURE PROJECTS MAY REDUCE OUR SALES AND PROFITS
A decrease or delay in government funding of highway construction and
maintenance and other infrastructure projects could reduce our sales and
profits. This is because many of the customers we serve and intend to serve in
the future depend substantially on government funding of highway construction
and maintenance and other infrastructure projects. Unlike some of our
competitors, we operate in a limited number of states. As a result, we may be
more vulnerable than our more geographically diverse competitors to decreases in
state government highway spending in the states in which we operate.
11
<PAGE>
AN INCREASE IN THE PRICE OR DECREASE IN THE AVAILABILITY OF OIL MAY INCREASE
THE PRICE OF ASPHALT, RESULTING IN LESS ASPHALT USE BY OUR CUSTOMERS
A material rise in the price or a material decrease in the availability of
oil could adversely affect our operating results. Federal, state and municipal
government spending on roads is subject to appropriations by the particular
government entity. Asphalt prices are correlated to the price of oil. Therefore,
if there is a material rise in the price or a material decrease in the
availability of oil, there will be a resulting increase in the cost of producing
asphalt, which we would likely attempt to pass along to our customers. As a
result of any price increase, our customers may use less asphalt, which would
decrease our asphalt sales volumes. A material increase in the price or decrease
in the availability of oil could also lead to higher gasoline costs which would
also increase our operating costs. An increase in our operating costs could
adversely affect our operating results if we cannot pass these increased costs
through to our customers.
OUR SUCCESS DEPENDS SIGNIFICANTLY ON A LIMITED NUMBER OF KEY EXECUTIVES AND
WE MAY NOT BE ABLE TO ADEQUATELY REPLACE ANY ONE OF THOSE EXECUTIVES WITH
QUALIFIED INDIVIDUALS IN THE EVENT OF THE LOSS OF A KEY EXECUTIVE.
Several of our executive officers are of significant importance to our
business and operations, particularly:
- James A. Harris, the Chairman and Chief Executive Officer;
- Morris L. Bishop, Jr., the President and Chief Operating Officer; and
- Michael J. Stone, the Executive Vice President--Development, Chief
Financial Officer, Treasurer and Secretary.
The loss of the services of any of these executives could harm our business.
It is possible that we would not be able to find replacements for these people
with comparable business experience. Some of our competitors have a greater
number of key executives. As a result of our limited number of top executives,
we may suffer greater harm than our larger competitors from the loss of a
crucial executive. We do not maintain key man life insurance with respect to any
executive officer. See "Management-- Directors and Executive Officers" for a
further description of our management personnel.
OUR SUBSTANTIAL INDEBTEDNESS COULD LIMIT OUR GROWTH AND OUR ABILITY TO
RESPOND TO CHANGING CONDITIONS
After giving effect to the offering and the application of the net proceeds,
at June 30, 1999 we would have had approximately $157.6 million of indebtedness
outstanding. The fact that we have a significant amount of debt has important
consequences to you as a stockholder. The material risks include the following:
- Our ability to use operating cash flow in other areas of our business may
be limited because we must dedicate a substantial portion of these funds
to pay interest;
- We may be unable to obtain additional financing to fund our growth
strategy, working capital, capital expenditures, debt service requirements
or other purposes;
- Our ability to adjust to changing market conditions and our ability to
withstand competition may be hampered by the amount of debt we owe; and
- We may be more vulnerable in a market downturn or a recession than our
competitors with less debt.
We may incur additional indebtedness in the future to finance acquisitions,
capital expenditures, working capital and for other purposes.
12
<PAGE>
ACQUISITIONS, WHICH ARE A PART OF OUR GROWTH STRATEGY, INVOLVE RISKS THAT
COULD CAUSE OUR ACTUAL GROWTH OR OPERATING RESULTS TO DIFFER FROM OUR
EXPECTATIONS OR THE EXPECTATIONS OF SECURITY ANALYSTS
We intend to grow in part through the acquisition of additional aggregates
businesses. If we are not successful in integrating acquired businesses, we may
have difficulty operating our business. We may have greater difficulty
integrating acquired businesses and assets than our competitors because of our
size and our rapid growth. We have completed 28 business and asset acquisitions
since 1994. Our future success may be limited because of unforeseen expenses,
difficulties, complications, delays and other risks inherent in the integration
of acquired businesses, including the following:
- We may not be able to compete successfully for available acquisition
candidates, complete future acquisitions or accurately estimate the
financial effect on our company of any businesses we acquire;
- Future acquisitions may require us to spend significant cash amounts or
may decrease our operating income;
- We may have trouble integrating acquired businesses and retaining
personnel;
- We may ultimately fail to consummate an acquisition, even if we announce
that we plan to acquire a company;
- We may choose to acquire a company that is less profitable than we are or
has lower profit margins than we do;
- We may not be able to obtain the necessary financing, on favorable terms
or at all, to finance one or more of our potential acquisitions;
- Acquisitions may disrupt our business and distract our management from
other responsibilities;
- To the extent that any of the companies which we acquire fail, the growth
of our business could be harmed; and
- Future acquired companies may have unknown liabilities that could require
us to spend significant amounts of additional capital.
YOUR STOCK OWNERSHIP COULD BE DILUTED IF WE NEED TO SELL ADDITIONAL SHARES
OF OUR COMMON STOCK TO FINANCE FUTURE ACQUISITIONS
Part of our business strategy is to expand into new markets and enhance our
position in existing markets through the acquisition of aggregates companies. In
order to successfully complete targeted acquisitions, it may be necessary for us
to issue additional equity securities that could dilute your stock ownership.
WE MAY BE UNABLE TO COMPETE SUCCESSFULLY IN THE HIGHLY COMPETITIVE
AGGREGATES INDUSTRY
The following factors specific to the construction aggregates industry may
affect our business:
- Transporting aggregates over relatively short distances is costly in
relation to the value of the delivered materials. Therefore, if we cannot
maintain production sites close to our customers, our operating results
may be adversely affected.
- The cost and time involved in locating suitable mineral sources, obtaining
proper permits and establishing operations can be significant and if we do
not continue to be successful in these matters, we may lose growth
opportunities and our operating results may be adversely affected.
13
<PAGE>
- We have significant investment in fixed locations in specific geographic
areas. In the event one or more of our aggregate production sites loses
business in its market, it could have a material adverse effect on our
business, financial condition and results of operations.
- It is possible that we will encounter increased competition from existing
competitors or new market entrants that may be significantly larger and
have greater financial and marketing resources.
- To the extent existing or future competitors seek to gain or retain market
share by reducing prices, we may be required to lower our prices and
rates, which would adversely affect our operating results.
WE MAY BE ADVERSELY AFFECTED BY GOVERNMENTAL REGULATIONS
Our 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 levels and health, safety and environmental matters. In many instances, we
must have various permits. We cannot assure you that we will not incur material
costs or liabilities in connection with regulatory requirements.
Our 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. Despite our compliance efforts, risk of environmental liability is
inherent in the operation of our business. As a result, it is possible that
environmental liabilities will have a material adverse effect on us in the
future. In addition, future events, such as changes in existing laws or
regulations or enforcement policies, or further investigation or evaluation of
the potential health hazards of our products or business activities, may give
rise to additional compliance and other costs that could have a material adverse
effect on our business, financial condition and results of operations. See
"Business--Governmental and Environmental Regulation" for a further discussion
of the effects of regulation on our business.
GOLDER, THOMA, CRESSEY, RAUNER FUND IV, L.P. HAS SIGNIFICANT CONTROL OF OUR
COMMON STOCK AND HAS THE ABILITY TO MAKE DECISIONS THAT COULD ADVERSELY AFFECT
STOCKHOLDERS
As long as Golder, Thoma, Cressey, Rauner Fund IV, L.P. has significant
control of our outstanding common stock, Golder, Thoma, Cressey, Rauner Fund IV,
L.P. will continue to have the ability to influence the election of our board of
directors and the outcome of those corporate actions requiring stockholder
approval. After the completion of the offering and assuming no exercise of the
underwriters' over-allotment option, Golder, Thoma, Cressey, Rauner Fund IV,
L.P. will own approximately 53.6% of the outstanding shares of our common stock.
As a result, Golder, Thoma, Cressey, Rauner Fund IV, L.P. will be in a position
to continue to significantly control all matters affecting U.S. Aggregates,
including:
- the composition of our board of directors and, through it, any
determination with respect to our direction and policies, including the
appointment and removal of our officers;
- any determinations with respect to mergers or other business combinations
involving U.S. Aggregates;
- the acquisition or disposition of assets by U.S. Aggregates;
- future issuances of our common stock or other securities;
- the incurrence of debt by U.S. Aggregates; and
- the payment of dividends on our common stock.
14
<PAGE>
OUR OPERATIONS ARE SUBJECT TO RISKS THAT MAY RESULT IN CLAIMS OF PERSONAL
INJURY, PROPERTY DAMAGE OR OTHER LIABILITIES
The drivers of our heavy delivery trucks are subject to traffic and other
hazards associated with providing services on construction sites. Our plant
personnel are subject to the hazards associated with moving and storing large
quantities of heavy raw materials.
Our operating hazards can cause personal injury and death, damage to or
destruction of property and environmental damage. Our insurance coverage may not
be adequate to cover all losses or liabilities we may incur in our operations,
and we may not be able to maintain insurance of the types or at levels we deem
necessary or adequate or at rates we consider reasonable. Our failure to
maintain adequate insurance could have a material adverse effect on our
business, financial condition and results of operations.
WE MAY INCUR LIABILITIES IN CONNECTION WITH OUR AGGREGATE CERTIFICATION
ACTIVITIES
We operate independent material testing laboratories which determine and
certify aggregates for compliance with material specifications for ourselves and
for third parties. We may be subject to lawsuits alleging negligence or other
legal claims that could involve claims for substantial damages. For example, we
may become involved in litigation with a third party for whom we certified
aggregates if such certification was in error or did not otherwise meet a
particular project's specification. Damages assessed in connection with, and the
costs of defending, any such lawsuit could have a material adverse effect on our
business, financial condition and results of operations.
OUR QUARTERLY OPERATING RESULTS ARE LIKELY TO FLUCTUATE, WHICH MAY DECREASE
OUR STOCK PRICE
Our quarterly revenues, expenses and operating results have varied
significantly in the past and are likely to vary significantly from quarter to
quarter in the future. As a result, our operating results may fall below
security analysts' expectations in some future quarters, which could adversely
affect the market price of our common stock. The reasons our quarterly results
may fluctuate include:
- delays in customer orders;
- adverse weather conditions, particularly in our peak months of April
through November;
- increases in our operating expenses associated with the growth of our
operations;
- our ability to identify, complete and integrate acquisitions;
- downward price adjustments by our competitors; and
- general economic conditions and economic conditions specific to the
aggregates industry.
We believe that quarterly revenues, expenses and operating results are
likely to vary significantly in the future. Therefore, period-to-period
comparisons of such items are not necessarily meaningful and, as a result,
should not be relied upon as indications of future performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a further discussion of the fluctuation in our quarterly
operating results.
WE MAY NOT BE ABLE TO PAY DIVIDENDS, WHICH MAY REDUCE OUR SHARE VALUE
We will only be able to pay dividends if our credit facility, senior
subordinated notes, financial performance, general business conditions and our
management's business plans permit it. Our share value may be reduced if we are
not able to pay dividends. Following the offering, our credit facility and
15
<PAGE>
senior subordinated notes will only permit us to pay dividends subject to the
following restrictions and limitations:
- We are not in default under our credit agreement or senior subordinated
notes;
- We are in pro forma compliance with all financial covenants in our credit
agreement and senior subordinated notes;
- In the third and fourth quarters of 1999, we may pay dividends in an
amount not to exceed $600,000 per quarter; and
- For any year after 1999, we may pay dividends in an amount not to exceed
15% of consolidated net income, excluding extraordinary items, for the
prior year.
Because we have no history of dividend payments as a public company, we can
not assure you that dividends will be declared or, if dividends are declared,
what amount per share will be distributed to stockholders. We currently intend
to declare and pay a quarterly cash dividend of $0.03 per share in the fourth
quarter of 1999 with respect to earnings generated during the third quarter of
1999.
THERE WILL BE IMMEDIATE AND SUBSTANTIAL DILUTION TO NEW STOCKHOLDERS IN THE
OFFERING
The initial public offering price is substantially higher than the net
tangible book value per share of our common stock that will be applicable
immediately after the offering. The common stock you purchase in the offering
will have a post-offering net tangible book value per share of $8.08 less than
the assumed $15.00 per share price paid in the offering.
WE COULD SUFFER YEAR 2000 COMPUTER PROBLEMS THAT COULD DISRUPT OUR
OPERATIONS
Our business, financial condition and results of operations may be adversely
impacted by information technology issues related to the Year 2000. We have
completed our assessment of Year 2000 readiness of our information technology
computer hardware and software and non-information technology equipment and
systems. We are currently in the process of upgrading our hardware, software and
equipment systems, and we believe that the planned improvements will result in
these systems being substantially Year 2000 ready. However, we currently do not
have formal contingency plans in place if we do not complete our Year 2000
improvements, or the improvements fail to make our systems Year 2000 ready. We
may not be successful in implementing Year 2000 solutions at a cost that does
not materially adversely affect our business, financial condition and results of
operations. Any failure on our part to have Year 2000 compliant programs and
systems in place in a timely manner could disrupt our operations.
There is uncertainty about the broader scope of the Year 2000 issue as it
may affect third parties, including our suppliers and customers, which are
critical to our operations. In the event our suppliers and customers do not have
Year 2000 compliant programs and systems in place, our operations could also be
disrupted.
16
<PAGE>
RISK FACTORS RELATING TO SECURITIES MARKETS
THERE ARE RISKS RELATING TO SECURITIES MARKETS THAT YOU SHOULD CONSIDER IN
CONNECTION WITH YOUR INVESTMENT IN AND OWNERSHIP OF OUR COMMON STOCK.
OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY AFTER THE OFFERING AND YOU COULD
LOSE ALL OR PART OF YOUR INVESTMENT AS A RESULT
Prior to the offering, there has been no public market for our common stock.
We intend to list our common stock on the New York Stock Exchange. We do not
know how our common stock will trade in the future. The initial public offering
price will be determined through negotiations between the underwriters and us.
You may not be able to resell your shares at or above the initial public
offering price due to a number of factors, including:
- actual or anticipated fluctuations in our operating results;
- changes in expectations as to our future financial performance or changes
in financial estimates of securities analysts; and
- the operating and stock price performance of other comparable companies.
APPROXIMATELY 66.9% OF OUR TOTAL OUTSTANDING SHARES MAY BE SOLD IN THE
PUBLIC MARKET IN THE FUTURE WHICH COULD CAUSE THE MARKET PRICE OF OUR COMMON
STOCK TO DECLINE
After the offering, 15,123,573 shares of our common stock will be
outstanding. This includes the 5,000,000 shares we are selling in the offering,
which may be immediately resold in the public market. The remaining 10,123,573
shares of our total outstanding shares will become available for resale in the
public market as shown in the chart below, subject to the restrictions imposed
by Rule 144 of the Securities Act. The market price of our common stock could
decline significantly if the holders of these restricted shares sell them or are
perceived by the market as intending to sell them.
<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR RESALE INTO PUBLIC
NUMBER OF SHARES/% OF TOTAL OUTSTANDING MARKET
<S> <C>
6,423,001/42.5% 180 days after the date of this prospectus
due to an agreement these shareholders have
with the underwriters. However, the
underwriters can waive this restriction and
allow these shareholders to sell their shares
at any time.
3,700,572/24.5% One year after the date of this prospectus
due to the requirements of the federal
securities laws.
</TABLE>
For a more detailed description of the restrictions imposed by Rule 144 of
the Securities Act, see "Shares Eligible for Future Sale."
PROVISIONS IN OUR CORPORATE DOCUMENTS COULD DELAY OR PREVENT A CHANGE IN
CONTROL OF U.S. AGGREGATES, WHICH COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON
STOCK
Immediately following the offering, our restated certificate of
incorporation and bylaws will contain several provisions which may discourage,
delay or prevent a takeover attempt which could depress the market price of our
common stock. These provisions include:
- a classified board of directors;
- the authority of our board of directors to issue preferred stock without
stockholder approval with such terms as our board of directors may
determine;
17
<PAGE>
- with respect to annual stockholders' meetings, requirements that
stockholders must comply with the timing and procedural requirements of
the federal proxy rules in order for a stockholder proposal to be included
in our proxy statement; and
- the ability of our board to adopt a rights plan, more commonly called a
"poison pill," without shareholder approval.
We will also be subject to Delaware corporate law, which imposes some
restrictions on mergers and other business combinations between us and any
holder of 15% or more of our common stock. For a description of these
provisions, see "Description of Capital Stock."
IF WE ISSUE SHARES OF PREFERRED STOCK, THE RIGHTS OF HOLDERS OF COMMON STOCK
WILL BE SUBORDINATE TO THE RIGHTS OF HOLDERS OF PREFERRED STOCK
The rights of the holders of our common stock will be subordinate to, and
may be adversely affected by, the rights of the holders of any preferred stock
that may be issued in the future. Immediately following the offering, our
restated certificate of incorporation will authorize us to issue one or more
classes or series of preferred stock without the approval of our stockholders.
The issuance of the preferred stock could have the effect of making it more
difficult for a third party to acquire a majority of our outstanding voting
stock. Our board of directors has the authority to issue up to 10,000,000 shares
of preferred stock and to determine the price, rights, preferences, privileges
and restrictions, including voting rights, and other rights and preferences over
our common stock. See "Description of Capital Stock" for a further description
of our preferred stock.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements based on current
expectations which involve risks and uncertainties. These forward-looking
statements include statements about:
- our strategies;
- effects of government funding;
- cost of raw materials; and
- other statements that are not historical facts.
When used in this prospectus, the words "anticipate," "believe," "estimate,"
"should," "could" and similar expressions are generally intended to identify
forward-looking statements. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of the
following factors:
- changes in general economic and business conditions, including in the
aggregates industry;
- actions of competitors;
- the implementation of our acquisition strategy;
- changes in government funding; and
- other factors discussed under "Risk Factors."
We undertake no obligation to publicly update or revise any forward-looking
statements. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus may not occur.
18
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds we will receive from the sale of our
common stock in the offering will be approximately $68.1 million after deducting
estimated expenses of $1.8 million and underwriting discounts and commissions of
$5.1 million. We intend to use the net proceeds in the following manner:
- approximately $52.1 million to repay indebtedness outstanding under our
existing credit facility; and
- $16.0 million to repay the HTSB Note.
Our existing credit facility provides for a term loan in the aggregate
amount of $115.0 million and a revolving loan of up to $60.0 million. The term
loan consists of an "A" tranche and "B" tranche. The term loan A accrues
interest at a rate per annum based on the Eurodollar rate plus a spread of
0.875% to 2.125% and the term loan B accrues interest at a rate per annum based
on the Eurodollar rate plus a spread of 1.875% to 2.500%. The term loan A
matures in March 2004 and the term loan B matures in March 2006. The revolving
facility terminates in June 2004 and accrues interest at a rate per annum based
on the Eurodollar rate plus a spread of 0.875% to 2.125%. As of June 30, 1999,
we had borrowings of approximately $43.4 million outstanding under the revolving
facility, $52.3 million of term loan A outstanding and $58.4 million of term
loan B outstanding
We have obtained a $17.5 million revolving line of credit pursuant to which
the HTSB Note was issued. Interest on the note accrues quarterly at an announced
prime commercial rate which was 7.750% as of June 30, 1999. As of June 30, 1999,
there was $16.0 million outstanding on this note. The HTSB Note is due on demand
and is guaranteed by Golder, Thoma, Cressey, Rauner Fund IV, L.P. Upon repayment
of the HTSB Note, Golder, Thoma, Cressey, Rauner Fund IV, L.P. will be released
from the guaranty. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources," "Certain
Relationships and Related Transactions--The Recapitalization" and "Description
of Certain Indebtedness" for a further description of our credit facility, and
the HTSB Note.
DIVIDEND POLICY
Beginning in the fourth quarter of 1999, with respect to earnings generated
during the third quarter of 1999, we intend to pay quarterly cash dividends at
an initial rate of $0.03 per share of our common stock. Any determination to pay
dividends will be at the discretion of our board of directors. The determination
of the board of directors to pay dividends will depend upon, among other
factors:
- our results of operations;
- our financial condition;
- our capital requirements;
- our future prospects;
- restrictions contained in our contracts, including our credit facility and
senior subordinated notes; and
- other factors deemed relevant by our board of directors.
Following the offering, our credit facility and other debt documents will
permit us to pay dividends subject to the following restrictions and
limitations:
- We are not in default under our credit agreement or senior subordinated
notes;
19
<PAGE>
- We are in pro forma compliance with all financial covenants in our credit
agreement and senior subordinated notes;
- In the third and fourth quarters of 1999, we may pay dividends in an
amount not to exceed $600,000 per quarter; and
- For any year after 1999, we may pay dividends in an amount not to exceed
15% of consolidated net income, excluding extraordinary items, for the
prior year.
20
<PAGE>
CAPITALIZATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth, as of June 30, 1999, our: (1) unaudited
actual capitalization and (2) unaudited pro forma as adjusted capitalization,
after giving effect to the sale of 5,000,000 shares of our common stock in the
offering at an assumed offering price of $15.00 per share, and the application
of the net proceeds of $68,138. This table should be read in conjunction with
our financial statements and notes thereto included elsewhere in this
prospectus. See "Use of Proceeds" for a further description of the application
of the net proceeds of the offering.
<TABLE>
<CAPTION>
AT JUNE 30, 1999
-----------------------
PRO FORMA
HISTORICAL AS ADJUSTED
---------- -----------
(UNAUDITED)
<S> <C> <C>
Debt:
Revolving loan...................................................................... $43,400 $17,310
Term loan A......................................................................... 52,325 39,280
Term loan B......................................................................... 58,404 45,359
Notes payable to former stockholders................................................ 4,927 4,927
Other long-term debt................................................................ 6,403 6,403
10.34% senior subordinated notes.................................................... 30,000 30,000
10.09% senior subordinated notes.................................................... 15,000 15,000
Discount on the senior subordinated notes......................................... (709) (709 )
Demand note (the "HTSB Note")....................................................... 15,957 --
---------- -----------
Total debt(1)................................................................... 225,707 157,570
Minority interest..................................................................... 3,180 --
Mandatory redeemable preferred stock, $0.01 par value, 500,000 shares authorized;
300,842 shares initially issued and outstanding; none issued following the
offering............................................................................ 45,768 --
Stockholders' equity:
Common stock, $0.01 par value, 7,508,664 shares initially authorized; 6,144,250
shares issued and outstanding, including 7,629 shares of Treasury stock;
15,123,573 shares issued and outstanding, as adjusted(2).......................... 61 151
Additional paid-in capital.......................................................... 2,887 125,469
Notes receivable from sale of stock(3).............................................. (666) (1,155 )
Treasury stock, at cost............................................................. (2) (2 )
Retained earnings(4)................................................................ 10,160 9,735
---------- -----------
Total stockholders' equity........................................................ 12,440 134,198
---------- -----------
Total capitalization.............................................................. $287,095 $291,768
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Includes historical current maturities of $24,817 and pro forma as adjusted
current maturities of $7,365.
(2) Includes 6,144,250 shares outstanding less 7,629 shares of treasury stock,
5,000,000 shares issued in the offering, the conversion of 286,380 warrants
into shares, 649,363 shares issued to minority stockholders and the
conversion of preferred shares into 3,051,209 of our common shares in
connection with the recapitalization described on page 7.
(3) The pro forma as adjusted reflects notes receivable on the books of
subsidiaries that remain outstanding after the exchange of the minority
stockholders' stock of our subsidiaries for shares of our common stock prior
to the closing of the offering.
(4) The pro forma as adjusted retained earnings has been reduced by $425 to
reflect the write off of certain deferred financing costs related to debt
paid down using proceeds of the offering.
21
<PAGE>
DILUTION
As of June 30, 1999, our unaudited net tangible book value was approximately
$(12.4) million, or $(2.02) per share. Net tangible book value per share of our
common stock is determined by dividing our net tangible book value by the
aggregate number of shares of our common stock outstanding. After giving effect
to the offering and the application of the net proceeds from the offering, our
unaudited net tangible book value as of June 30, 1999, would be $104.6 million
or $6.92 per share. This represents an immediate increase in net tangible book
value of $8.94 per share to our existing stockholders and an immediate dilution
in net tangible book value of $8.08 per share to new stockholders. The net
tangible book value dilution per share is determined by subtracting adjusted net
tangible book value per share after the offering from the assumed $15.00 per
share initial public offering price. The following table illustrates the per
share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share............................................. $15.00
Net tangible book value per share before the offering....................................... $(2.02 )
Increase per share attributable to payments by new investors................................ $8.94
Adjusted net tangible book value per share after the offering............................... 6.92
---------- ----------
Dilution per share to new stockholders...................................................... $8.08
----------
----------
</TABLE>
The following table summarizes, on a pro forma basis, as of June 30, 1999,
the difference between our existing stockholders and the new stockholders
purchasing shares in the offering with respect to the number of shares of our
common stock purchased from U.S. Aggregates, the total consideration paid to
U.S. Aggregates and the average price per share paid by our existing
stockholders and new stockholders purchasing shares in the offering, before
deducting the estimated offering expenses and underwriting discounts and
commissions:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------------- -------------------------- AVERAGE
NUMBER AMOUNT PRICE PER
(IN THOUSANDS) PERCENT (IN THOUSANDS) PERCENT SHARE
-------------- ---------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................... 10,124 66.9% $51,895 40.9% $5.13
New stockholders.................................... 5,000 33.1 75,000 59.1 15.00
-------------- ----- -------------- -----
Total............................................. 15,124 100.0% $126,895 100.0% $8.39
-------------- ----- -------------- ----- ---------
</TABLE>
The preceding computations exclude 280,336 shares of our common stock that
may be issued pursuant to stock options to be granted concurrently with the
offering. See "Management--Incentive Plan" for a further description of these
shares.
22
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
In 1998, we acquired Falcon Ridge Quarry, Inc. on February 18th, Geodyne
Transport, Inc. on February 20th and Monroc, Inc. on June 5th in separate
transactions. These acquisitions constitute the 1998 acquired businesses.
Subsequently, we disposed of the precast division assets, a sand and gravel
deposit and a ready-mix plant site of Monroc, Inc. These assets constitute the
1998 dispositions. While these acquisitions and dispositions occurred at various
dates during 1998, the unaudited pro forma data are presented as if these
acquisitions and dispositions had occurred on January 1, 1998 and also include
the effect of certain pro forma adjustments to the historical financial
statements described below.
The selected unaudited pro forma financial data for the year ended December
31, 1998 have been derived from our financial information, the unaudited
financial statements and notes thereto of certain of the 1998 acquired
businesses and dispositions. Historical, pro forma and pro forma as adjusted
balance sheet data are reflected as of June 30, 1999. The unaudited pro forma
and unaudited pro forma as adjusted information presented below is not
necessarily indicative of what results of operations actually would have been if
the transactions had occurred on the date indicated.
PRO FORMA AS ADJUSTED
The selected unaudited pro forma as adjusted financial data for the year
ended December 31, 1998 and the six months ended June 30, 1999 gives effect to
the consummation of the offering as if it occurred on January 1, 1998 and
January 1, 1999, and also includes the effects of certain adjustments to the
unaudited pro forma statements as described below.
The selected unaudited pro forma and unaudited pro forma as adjusted
financial data should be read in conjunction with "Selected Historical Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The financial data included under the heading
"Pre-acquisition Operating Results--Acquisitions" reflect adjustments for the
operating results of the 1998 acquired businesses for the period of January 1,
1998 to the date of acquisition. The financial data under the heading
"Pre-acquisition Operating Results--Dispositions" reflect adjustments for the
operating results of the 1998 dispositions for the period of January 1, 1998 to
the date of disposition.
23
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------------------------------------------
HISTORICAL
----------- PRE-ACQUISITION OPERATING OTHER PRO PRO FORMA AS ADJUSTED PRO FORMA
RESULTS FORMA ----------- ADJUSTMENTS AS ADJUSTED
------------------------------ ADJUSTMENTS ----------- ------------
ACQUISITIONS DISPOSITIONS ----------- (UNAUDITED)
-------------- -------------- (UNAUDITED) (UNAUDITED) (UNAUDITED)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................... $228,739 $27,425 $(6,940) $-- $249,224 $-- $249,224
Cost of products sold....... 168,220 21,121 (5,888) -- 183,453 -- 183,453
----------- -------------- -------------- ----------- ----------- ----------- ------------
Gross profit................ 60,519 6,304 (1,052) -- 65,771 -- 65,771
Selling, general and
administrative expenses... 25,001 2,592 (541) -- 27,052 27,052
Depreciation, depletion and
amortization.............. 11,098 1,328 (152) (238)(1) 12,036 67(5) 12,103
----------- -------------- -------------- ----------- ----------- ----------- ------------
Income from operations...... 24,420 2,384 (359) 238 26,683 (67) 26,616
Interest, net............... (14,351) (714) -- (1,481)(2) (16,546) 6,525(6) (10,021)
Other income and expense,
net....................... (1,104) 96 -- -- (1,008) -- (1,008)(9)
----------- -------------- -------------- ----------- ----------- ----------- ------------
Income from continuing
operations before
provision for income
taxes, minority interest
and extraordinary item.... 8,965 1,766 (359) (1,243) 9,129 6,458 15,587
Provision for income taxes.. (3,748) (135) 138 (66)(3) (3,811) (2,486)(7) (6,297)
----------- -------------- -------------- ----------- ----------- ----------- ------------
Income from continuing
operations before minority
interest and extraordinary
item...................... 5,217 1,631 (221) (1,309) 5,318 3,972 9,290
Minority interest........... (385) -- -- (17)(4) (402) 402(8) --
----------- -------------- -------------- ----------- ----------- ----------- ------------
Income from continuing
operations................ $4,832 $1,631 $(221) $(1,326) $4,916 $4,374 $9,290
----------- -------------- -------------- ----------- ----------- ----------- ------------
----------- -------------- -------------- ----------- ----------- ----------- ------------
Income per common share -
basic
Income from continuing
operations available for
common
stockholders(10)........ $0.12 $0.13 $0.61
Weighted average common
shares outstanding...... 6,136,630 6,136,630 15,123,573
Income per common share -
diluted
Income from continuing
operations available for
common
stockholders(11)........ $0.11 $0.13 $0.61
Weighted average common
shares outstanding...... 6,382,094 6,382,094 15,123,573
</TABLE>
24
<PAGE>
NOTES TO SELECTED UNAUDITED PRO FORMA FINANCIAL DATA (DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS):
(1) Adjustment to reflect depreciation, depletion and amortization of fixed
assets, goodwill and other intangibles resulting from purchase accounting.
(2) Adjustment reflects interest expense on the debt incurred for the 1998
acquired businesses less the savings on interest expense from the 1998
dispositions, and the savings on interest expense related to the payoff of
certain debt of the 1998 acquired businesses, all assuming the 1998
acquisitions and dispositions occurred on January 1, 1998.
(3) Adjustment to provision for income taxes as if the 1998 acquired
businesses, excluding the disposition of assets held for sale, had been
combined with U.S. Aggregates for the period January 1, 1998 to their
respective dates of acquisition, and those additional earnings as adjusted
were subject to a blended federal and state statutory tax rate of 38.5%.
(4) Adjustment reflects the minority interest's share in all pro forma
adjustments.
(5) Adjustment reflects $128 of amortization of goodwill resulting from the
acquisition of minority interest shares concurrent with the offering in
exchange for shares of U.S. Aggregates assuming a per share value of $15.00
less a 10% discount; and the savings of amortization expense from the write
off of deferred finance charges of $61 as a result of the pay down of debt
with the proceeds.
(6) Adjustment reflects the interest savings from the application of proceeds
of the offering to repay indebtedness as if the offering occurred on
January 1, 1998.
(7) Adjustment to provision for income taxes as if the offering had occurred on
January 1, 1998, and the interest and other adjustments were subject to a
blended federal and state statutory tax rate of 38.5%.
(8) Adjustment reflects the exchange of the minority stockholders' stock for
U.S. Aggregates common stock prior to the closing of the offering and the
elimination of a minority interest charge.
(9) Amount includes $150 paid to Golder, Thoma, Cressey and Rauner, Inc. under
a professional services agreement, which will be discontinued post
offering.
(10) The accretion of the mandatory redeemable preferred stock dividend has
been deducted from Income from Continuing Operations in computing Income
per common share for historical and pro forma purposes. There is no
accretion of a mandatory redeemable preferred stock dividend for Pro Forma
as Adjusted purposes.
(11) Includes the conversion of 286,380 warrants into shares of our common
stock and the conversion of minority shares into 649,363 shares of our
common stock and the conversion of preferred shares into 3,051,209 shares
of our common stock upon closing of the offering and the sale of 5,000,000
shares of our common stock.
25
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
------------------------------------------------------------------------------------
HISTORICAL
-----------
PRE-ACQUISITION OPERATING OTHER PRO PRO FORMA AS ADJUSTED
RESULTS FORMA ----------- ADJUSTMENTS
---------------------------- ADJUSTMENTS -------------
ACQUISITIONS DISPOSITIONS ------------- (UNAUDITED)
------------- ------------- (UNAUDITED)
(UNAUDITED)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales......................... $ 83,042 $ 27,425 $ (6,940) $ -- $ 103,527 $ --
Cost of products sold............. 60,808 21,121 (5,888) 628(1) 76,671 --
----------- ------------- ------------- ------------- ----------- -------------
Gross profit...................... 22,234 6,304 (1,052) (628) 26,856 --
Selling, general and
administrative expenses......... 10,920 2,592 (541) -- 12,971 --
Depreciation, depletion and
amortization.................... 4,549 1,328 (152) (238)(2) 5,486 33(6)
----------- ------------- ------------- ------------- ----------- -------------
Income from operations............ 6,765 2,384 (359) (390) 8,399 (33)
Interest, net..................... (5,554) (714) -- (1,481)(3) (7,749) 3,257(7)
Other income and expense, net..... (718) 96 -- -- (622) --
----------- ------------- ------------- ------------- ----------- -------------
Income from continuing operations
before provision for income
taxes, minority interest and
extraordinary item.............. 493 1,766 (359) (1,871) 28 3,224
Provision for income taxes........ (206) (135) 138 176(4) (27) (1,241)(8)
----------- ------------- ------------- ------------- ----------- -------------
Income from continuing operations
before minority interest and
extraordinary item.............. 287 1,631 (221) (1,695) 1 1,983
Minority interest................. 100 -- -- 48(5) 149 (149)(9)
----------- ------------- ------------- ------------- ----------- -------------
Income from continuing
operations...................... $ 387 $ 1,631 $ (221) $ (1,647) $ 150 $ 1,834
----------- ------------- ------------- ------------- ----------- -------------
----------- ------------- ------------- ------------- ----------- -------------
Income per common share--basic
Income from continuing
operations available for
common stockholders(11)....... $ (0.26) $ (0.30)
Weighted average common shares
outstanding................... 6,136,630 6,136,630
Income per common share--diluted
Income from continuing
operations available for
common stockholders(12)....... $ (0.26) $ (0.30)
Weighted average common shares
outstanding................... 6,136,630 6,136,630
<CAPTION>
PRO FORMA
AS ADJUSTED
-----------
(UNAUDITED)
<S> <C>
Net sales......................... $ 103,527
Cost of products sold............. 76,671
-----------
Gross profit...................... 26,856
Selling, general and
administrative expenses......... 12,971
Depreciation, depletion and
amortization.................... 5,519
-----------
Income from operations............ 8,366
Interest, net..................... (4,492)
Other income and expense, net..... (622)(10)
-----------
Income from continuing operations
before provision for income
taxes, minority interest and
extraordinary item.............. 3,252
Provision for income taxes........ (1,268)
-----------
Income from continuing operations
before minority interest and
extraordinary item.............. 1,984
Minority interest................. --
-----------
Income from continuing
operations...................... $ 1,984
-----------
-----------
Income per common share--basic
Income from continuing
operations available for
common stockholders(11)....... $ 0.13
Weighted average common shares
outstanding................... 15,123,573
Income per common share--diluted
Income from continuing
operations available for
common stockholders(12)....... $ 0.13
Weighted average common shares
outstanding................... 15,123,573
</TABLE>
26
<PAGE>
NOTES TO SELECTED UNAUDITED PRO FORMA FINANCIAL DATA (DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS):
(1) Adjustment to reflect the straight line method of expensing operating
leases with skip payment provisions instead of expensing based on actual
payment date as done by the 1998 acquired businesses prior to U.S.
Aggregates' ownership.
(2) Adjustment to reflect depreciation, depletion and amortization of fixed
assets, goodwill and other intangibles resulting from purchase accounting.
(3) Adjustment reflects interest expense on the debt incurred for the 1998
acquired businesses less the savings on interest expense from the 1998
dispositions, and the savings on interest expense related to the payoff of
certain debt of the 1998 acquired businesses, all assuming the 1998
acquisitions and dispositions occurred on January 1, 1998.
(4) Adjustment to provision for income taxes as if the 1998 acquired
businesses, excluding the disposition of assets held for sale, had been
combined with U.S. Aggregates for the period January 1, 1998 to their
respective dates of acquisition, and those additional earnings as adjusted
were subject to a blended federal and state statutory tax rate of 38.5%.
(5) Adjustment reflects the minority interest's share in all pro forma
adjustments.
(6) Adjustment reflects $64 of amortization of goodwill resulting from the
acquisition of minority interest shares concurrent with the offering in
exchange for shares of U.S. Aggregates assuming a per share value of $15.00
less 10% discount; and the savings of amortization expense from the write
off of deferred finance charges of $31 as a result of the pay down of debt
with the proceeds.
(7) Adjustment reflects the interest savings from the application of proceeds
of the offering to repay indebtedness as if the offering occurred on
January 1, 1998.
(8) Adjustment to provision for income taxes as if the offering had occurred on
January 1, 1998, and the interest and other adjustments were subject to a
blended federal and state statutory tax rate of 38.5%.
(9) Adjustment reflects the exchange of the minority stockholders' stock for
U.S. Aggregates common stock prior to the closing of the offering and the
elimination of a minority interest charge.
(10) Amount includes $150 paid to Golder, Thoma, Cressey and Rauner, Inc. under
a professional services agreement, which will be discontinued post
offering.
(11) The accretion of the mandatory redeemable preferred stock dividend has
been deducted from Income from Continuing Operations in computing Income
per common share for historical and pro forma purposes. There is no
accretion of a mandatory redeemable preferred stock dividend for Pro Forma
as Adjusted purposes.
(12) Includes the conversion of 286,380 warrants into shares of our common
stock and the conversion of minority shares into 649,363 shares of our
common stock and the conversion of preferred shares into 3,051,209 shares
of our common stock upon closing of the offering and the sale of 5,000,000
shares of our common stock.
27
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
----------------------------------
HISTORICAL
---------
AS ADJUSTED PRO FORMA
ADJUSTMENTS AS
------------ ADJUSTED
---------
(UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C>
Net sales.................................................. $ 126,939 $ -- $ 126,939
Cost of products sold...................................... 91,966 -- 91,966
--------- ------ ---------
Gross profit............................................... 34,973 -- 34,973
Selling, general and administrative expenses............... 14,898 -- 14,898
Depreciation, depletion and amortization................... 5,694 33(1) 5,727
--------- ------ ---------
Income from operations..................................... 14,381 (33) 14,348
Interest, net.............................................. (8,841) 2,807(2) (6,034)
Other income and expense, net.............................. (479) -- (479)(5)
--------- ------ ---------
Income from continuing operations before provision for
income taxes, minority interest and extraordinary item... 5,061 2,774 7,835
Provision for income taxes................................. (1,898) (1,068)(3) (2,966)
--------- ------ ---------
Income from continuing operations before minority interest
and extraordinary item................................... 3,163 1,706 4,869
Minority interest.......................................... (39) 39(4) --
--------- ------ ---------
Income from continuing operations.......................... $ 3,124 $ 1,745 $ 4,869
--------- ------ ---------
--------- ------ ---------
Income per common share--basic
Income from continuing operations available for common
stockholders(6)........................................ $ 0.15 $ 0.32
Weighted average common shares outstanding............... 6,136,630 15,123,573
Income per common share--diluted
Income from continuing operations available for common
stockholders(7)........................................ $ 0.14 $ 0.32
Weighted average common shares outstanding............... 6,423,011 15,123,573
BALANCE SHEET DATA:
Total assets............................................... $ 374,362 $ 379,033
Total debt................................................. 225,707 157,570
Minority interest.......................................... 3,180 --
Mandatory redeemable preferred stock....................... 45,768 --
Stockholders' equity....................................... 12,440 134,198
</TABLE>
28
<PAGE>
NOTES TO SELECTED UNAUDITED PRO FORMA FINANCIAL DATA (DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS):
(1) Adjustment reflects $64 of amortization of goodwill resulting from the
acquisition of minority interest shares concurrent with the offering in
exchange for shares of U.S. Aggregates assuming a per share value of $15.00
less 10% discount; and the savings of amortization expense from the write
off of deferred finance charges of $31 as a result of the pay down of debt
with the proceeds.
(2) Adjustment reflects the interest savings from the application of proceeds
of the offering to repay indebtedness as if the offering occurred on
January 1, 1999.
(3) Adjustment to provision for income taxes as if the offering had occurred on
January 1, 1999, and the interest and other adjustments were subject to a
blended federal and state statutory tax rate of 38.5%.
(4) Adjustment reflects the exchange of the minority stockholders' stock for
U.S. Aggregates common stock prior to the closing of the Offering and the
elimination of a minority interest charge.
(5) Amount includes $150 paid to Golder, Thoma, Cressey and Rauner, Inc. under
a professional services agreement, which will be discontinued post
offering.
(6) The accretion of the mandatory redeemable preferred stock dividend has been
deducted from Income from Continuing Operations in computing Income per
common share for historical and pro forma purposes. There is no accretion
of a mandatory redeemable preferred stock dividend for Pro Forma as
Adjusted purposes.
(7) Includes the conversion of 286,380 warrants into shares of our common
stock, the conversion of minority shares into 649,363 shares of our common
stock and the conversion of preferred shares into 3,051,209 shares of our
common stock upon closing of the offering and the sale of 5,000,000 shares
of our common stock.
29
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The selected historical financial data for the year ended December 31, 1994
through the year ended December 31, 1998 have been derived from our audited
financial statements and notes thereto, which financial statements for the years
ended December 31, 1996, 1997 and 1998 appear elsewhere in this prospectus. The
following data represent historical results and include the results of the
business and asset acquisitions listed in footnote (1) below following their
acquisition by U.S. Aggregates.
The selected historical financial data should be read in conjunction with
the information contained in the "Selected Unaudited Pro Forma Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," our consolidated financial statements and notes thereto, and the
individual financial statements and notes thereto of Monroc, Inc. included
elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales............................................ $35,442 $97,527 $131,710 $163,243 $228,739
Cost of products sold................................ 24,653 70,006 92,821 119,132 168,220
---------- ---------- ---------- ---------- ----------
Gross profit......................................... 10,789 27,521 38,889 44,111 60,519
Selling, general and administrative expenses......... 6,448 12,977 16,571 18,275 25,001
Depreciation, depletion and amortization(2).......... 1,227 4,139 6,301 7,830 11,098
---------- ---------- ---------- ---------- ----------
Income from operations............................... 3,114 10,405 16,017 18,006 24,420
Interest, net........................................ (844) (2,828) (5,036) (8,344) (14,351)
Other income and expense, net........................ (112) 391 (150) (150) (1,104)
---------- ---------- ---------- ---------- ----------
Income from continuing operations before provision
for income taxes, minority interest, discontinued
operations and extraordinary item.................. 2,158 7,968 10,831 9,512 8,965
Provision for income taxes........................... (756) (2,630) (3,660) (3,384) (3,748)
---------- ---------- ---------- ---------- ----------
Income from continuing operations before minority
interest, discontinued operations and extraordinary
item............................................... 1,402 5,338 7,171 6,128 5,217
Minority interest.................................... (282) (759) (727) (623) (385)
---------- ---------- ---------- ---------- ----------
Income from continuing operations.................... 1,120 4,579 6,444 5,505 4,832
Operating income from discontinued operations, less
applicable income tax expense(3)................... 372 (5) -- -- --
Gain on disposal of discontinued operations and
income during phase out period, less applicable
income tax expense(3).............................. -- 247 -- -- --
---------- ---------- ---------- ---------- ----------
Income before extraordinary item..................... 1,492 4,821 6,444 5,505 4,832
Extraordinary item: loss on extinguishment of debt,
less applicable income tax benefit................. -- -- -- -- (338)
---------- ---------- ---------- ---------- ----------
Net income........................................... $1,492 $4,821 $6,444 $5,505 $4,494
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Income per common share--basic.......................
Income from continuing operations available for
common stockholders.............................. $0.07 $0.44 $0.57 $0.29 $0.12
Net income available for common stockholders....... $0.15 $0.48 $0.57 $0.29 $0.06
Weighted average common shares outstanding......... 4,416,968 6,065,688 6,074,704 6,116,718 6,136,630
Income per common share--diluted.....................
Income from continuing operations available for
common stockholders.............................. $0.07 $0.44 $0.57 $0.28 $0.11
Net income available for common stockholders....... $0.15 $0.48 $0.57 $0.28 $0.05
Weighted average common shares outstanding......... 4,416,968 6,065,688 6,095,472 6,306,747 6,382,094
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SELECTED STATISTICAL AND OPERATING DATA:
EBITDA(4)........................................................... $4,319 $14,418 $21,441 $25,063 $33,691
Capital expenditures (excluding acquisitions)....................... $1,801 $4,579 $20,945 $17,750 $27,330
Capital expenditures (including acquisitions)....................... $31,747 $24,096 $58,855 $21,788 $111,214
Tons of aggregates shipped (in millions)............................ 2.1 4.8 7.2 9.5 15.8
Tons of asphalt sold (in millions).................................. 0.1 0.6 0.9 1.3 1.6
Yards of ready-mix concrete sold (in millions)...................... 0.4 0.8 0.9 0.9 1.4
Estimated tons of aggregate reserves (in millions).................. 116 405 635 863 1,357
BALANCE SHEET DATA:
Total assets........................................................ $54,300 $83,560 $150,139 $172,266 $337,611
Total debt.......................................................... 22,269 37,992 78,475 92,788 200,591
Stockholders' equity(5)............................................. 18,473 26,271 9,336 10,897 11,547
</TABLE>
- ------------------------------
(1) In 1994, we acquired Southern Ready Mix, Inc., Western Rock Products Corp.,
DeKalb Stone, Inc. and G.M. Aldred & Sons, Inc. in separate transactions; in
1995, we acquired Cox Rock Products, Inc. and related businesses, Jensen
Construction and Development, Inc., Verlie quarry (Alabaster), Mulberry Rock
Corporation and certain assets of Ence Construction Company and related
businesses in separate transactions; in 1996, we acquired or started-up the
following: Vance Materials, L.L.C., BHY Ready Mix, Inc., Jasper Sand, Inc.,
New Hope Farms, Inc., the O'Neal quarry operations, Mohave Concrete and
Materials, Inc. and related businesses and Valley Asphalt, Inc. in separate
transactions; in 1997, we acquired or started-up the following: Southern
Sand, Inc., A-T Asphalt, Inc., Ekins quarry, and Lehi quarry in separate
transactions and certain assets of Southwest Stone, Inc. in separate
transactions; in 1998, we acquired or started-up the following: Pride
quarry, Fort Pearce aggregates, Geodyne Transport, Inc., Falcon Ridge
Quarry, Inc., Beck Paving, Inc., Monroc, Inc. and Sandia Construction, Inc.
in separate transactions.
(2) In 1996, we began assuming a 20 percent salvage value in providing
depreciation on certain of our assets. In 1997, we changed the estimated
lives of certain depreciable assets, resulting in an approximate $1,550
reduction of 1997 depreciation expense compared to what it would have been
had the estimated lives not been changed.
(3) Effective February 7, 1995, we disposed of the concrete pipe plant of
Southern Ready Mix, Inc.
(4) EBITDA represents net income plus net interest expense, income taxes and
depreciation, depletion and amortization and is a supplemental financial
measurement we use to evaluate our business. However, EBITDA, which is not a
measure of financial performance under GAAP, should not be considered in
isolation or viewed as a substitute for cash flow from operations, net
income or other measures of performance as defined by GAAP or as a measure
of our profitability or liquidity. EBITDA does not give effect to the cash
we must use to service our debt or pay our income taxes and thus does not
reflect the funds actually available for capital expenditures, acquisitions,
or other discretionary uses. We understand that while EBITDA is frequently
used by security analysts, lenders and others in the evaluation of
companies, our presentation of EBITDA may not be comparable to other
similarly titled captions of other companies due to potential
inconsistencies in the method of calculation.
(5) In 1996, we modified the terms of our preferred stock, making it mandatorily
redeemable. The liquidation value, at that date, of the preferred stock of
$32,795, including accrued dividends of $2,711, was removed from
Stockholders' Equity and classified as Mandatory Redeemable Preferred Stock.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR RESULTS OF OPERATIONS,
FINANCIAL CONDITION AND LIQUIDITY SHOULD BE READ IN CONJUNCTION WITH "SELECTED
HISTORICAL FINANCIAL DATA" AND THE FINANCIAL STATEMENTS AND NOTES THERETO
INCLUDED ELSEWHERE IN THIS PROSPECTUS.
GENERAL
We conduct our operations through the quarrying and distribution of
aggregate products in nine states in two fast growing 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.
Over the last three years, our net sales and profitability have increased as
a result of internal growth, the maturation of our recently developed aggregate
production sites and the completion of several business and asset acquisitions.
In February 1998, we completed the acquisition of Falcon Ridge Quarry, Inc. and
the acquisition of Geodyne Transport, Inc. In June 1998, we completed our
largest acquisition to date, Monroc, Inc. Collectively, these acquisitions are
referred to as the 1998 acquired businesses. The 1998 acquired businesses and
the start-up of several other operations significantly expanded our business in
the Mountain states and increased our presence in a number of local markets.
Since 1996, we have started eight major greenfield aggregate production
sites serving large metropolitan markets. The development of greenfield
aggregate production sites includes securing all necessary permits and zoning to
ensure that commercially economic quantities of aggregates can be produced.
These new sites include both sites which have never been permitted or mined, as
well as sites which may have been properly zoned, but were not operating at
sufficient volumes to be economically viable. Based on our experience, a new
aggregate production site's net sales, cash flow and profitability tend to
increase over the first five years of operation as production increases and the
site matures.
Our business is seasonal, with peak sales and profits occurring primarily in
the months of April through November. Accordingly, our results of operations for
any individual quarter are not indicative of our results for the full year.
RESULTS OF OPERATIONS
The following table presents net sales, gross profit, selling, general and
administrative expenses, depreciation, depletion and amortization, income from
operations, interest, net and minority interest for U.S. Aggregates:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------- -------------------------------
1996 1997 1998 1998 1999
--------------- --------------- --------------- -------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................................... $131,710 100.0% $163,243 100.0% $228,739 100.0% $83,042 100.0% $126,939 100.0%
Gross profit................................ 38,889 29.5 44,111 27.0 60,519 26.5 22,234 26.8 34,973 27.6
Selling, general and administrative
expenses................................... 16,571 12.6 18,275 11.2 25,001 10.9 10,920 13.1 14,898 11.7
Depreciation, depletion and amortization.... 6,301 4.8 7,830 4.8 11,098 4.9 4,549 5.5 5,694 4.5
Income from operations...................... 16,017 12.2 18,006 11.0 24,420 10.7 6,765 8.1 14,381 11.3
Interest, net............................... (5,036) 3.8 (8,344) 5.1 (14,351) 6.3 (5,554) 6.7 (8,841) 7.0
Minority interest........................... (727) 0.6 (623) 0.4 (385) 0.2 100 0.1 (39) 0.0
</TABLE>
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
NET SALES. Net sales for the six months ended June 30, 1999 increased by
52.9% to $126.9 million from $83.0 million for the six months ended June 30,
1998. This increase consists of $23.4 million additional net sales from the 1998
acquired businesses and an increase in net sales by our existing
32
<PAGE>
business of $20.4 million, a 26.7% increase. The increase in sales from our
existing business was due to strong demand for our aggregates and related
products and increased shipments from new and developing aggregate production
sites of 2.0 million tons. Total shipments of aggregates increased to 9.0
million tons for the six months ended June 30, 1999 from 6.0 million tons for
the six months ended June 30, 1998, a 50.0% increase. We also experienced an
increase in selling prices of 3.4% to 5.0% for our aggregates and related
products.
GROSS PROFIT. Gross profit for the six months ended June 30, 1999 increased
57.3% to $35.0 million from $22.2 million for the six months ended June 30,
1998. The increase consists of $5.0 million additional gross profit from our
acquired businesses and an increase in gross profit from our existing business
of $7.8 million, a 37.2% increase. The increase in gross profit at our existing
business was primarily due to our increased sales. Overall gross margins
increased to 27.6% in 1999 from 26.8% in 1998. Gross margins from our existing
business were 29.8% in 1999, compared to 27.5% in 1998, while gross margins from
acquired businesses were 20.3% in 1999 compared to 18.1% in 1998. Margins from
existing and acquired businesses increased due to higher selling prices as
previously discussed and the fixed nature of many of our costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $14.9 million for the six months ended June
30, 1999 from $10.9 million for the six months ended
June 30, 1998, primarily due to the inclusion of the 1998 acquired businesses.
As a percentage of net sales, selling, general and administrative expenses
decreased to 11.7% for the six months ended June 30, 1999 from 13.1% for the six
months ended June 30, 1998, due to the leveraging of fixed costs over a larger
sales base.
DEPRECIATION, DEPLETION AND AMORTIZATION. Depreciation, depletion and
amortization increased to $5.7 million for the six months ended June 30, 1999
from $4.5 million for the six months ended June 30, 1998 as a result of the
inclusion of the 1998 acquired businesses. As a percentage of net sales, our
depreciation, depletion and amortization expenses decreased to 4.5% from 5.5%
for the same periods primarily due to a 52.9% increase in sales.
INCOME FROM OPERATIONS. Income from operations for the six months ended
June 30, 1999 increased to $14.4 million compared to $6.8 million for the six
months ended June 30, 1998 because of the factors discussed above.
INTEREST, NET. Net interest expense increased to $8.8 million for the six
months ended June 30, 1999 from $5.6 million for the six months ended June 30,
1998 as a result of significantly increased borrowings used to fund the purchase
of the 1998 acquired businesses and other expansion and capital needs.
MINORITY INTEREST. Minority interest for the six months ended June 30, 1999
changed to a $0.04 million deduction for the six months ended June 30, 1999 from
an add back of $0.1 million for the six months ended June 30, 1998.
Profitability by legal entity and the level of management fees and interest
allocated to the subsidiaries impact the amount of minority interest. The amount
allocated for the six months ended June 30, 1999 was $13.2 million and $6.4
million for the six months ended June 30, 1998.
1998 COMPARED TO 1997
NET SALES. Net sales for 1998 increased by 40.1% to $228.7 million from
$163.2 million in 1997. This increase reflects the inclusion of $37.8 million of
net sales from 1998 acquired businesses since their date of acquisition. The
increase in 1998 net sales from our existing business of $27.7 million, a 16.9%
increase, resulted from increased sales demand in our established business plus
the start up of new aggregate production sites and related activity in both 1998
and 1997. Shipments of aggregates increased by 66% to 15.8 million tons in 1998
from 9.5 million tons in 1997. Although volumes increased, our mix of products
sold in 1998 included more lower priced aggregates than in 1997.
33
<PAGE>
Approximately one-half of this increase in volume came from the 1998 acquired
businesses. Our selling prices per ton also increased approximately 5% during
the period.
GROSS PROFIT. Gross profit for 1998 increased 37.2% to $60.5 million in
1998 from $44.1 million in 1997. The 1998 acquired businesses contributed $10.4
million to gross profit in 1998, with a gross margin of 27.4%. Gross profit at
our existing business increased 13.6% to $50.1 million from $44.1 million in
1997. Gross margins from our existing business were 26.5% in 1998 compared to
27.0% in 1997, continuing a slight down trend in gross margin since 1996 due to
our rapid expansion into the Mountain states markets which, because of product
mix, traditionally have lower gross margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $25.0 million in 1998 from $18.3 million in
1997 primarily due to the 1998 acquired businesses. As a percentage of net
sales, selling, general and administrative expenses decreased to 10.9% in 1998
from 11.2% in 1997, due to the leveraging of fixed costs over a larger sales
base.
DEPRECIATION, DEPLETION AND AMORTIZATION. Depreciation, depletion and
amortization increased 41.7% to $11.1 million in 1998 from $7.8 million in 1997.
The 1998 acquired businesses contributed $1.8 million of this increase. As a
percentage of net sales, our depreciation, depletion and amortization expenses
increased to 4.9% in 1998 from 4.8% in 1997.
INCOME FROM OPERATIONS. Income from operations increased 35.6% to $24.4
million in 1998 from $18.0 million in 1997 because of the above factors.
INTEREST, NET. Net interest expense increased to $14.4 million in 1998 from
$8.3 million in 1997 as a result of significantly increased borrowings used to
fund the purchase of the 1998 acquired businesses and other expansion and
capital needs.
MINORITY INTEREST. Minority interest for 1998 decreased 38.2% to $0.4
million from $0.6 million in 1997. Profitability by legal entity and the level
of management fees and interest allocated to the subsidiaries impact the amount
of minority interest. The amount allocated was $17.5 million in 1998 and $11.7
million in 1997.
1997 COMPARED TO 1996
NET SALES. Net sales for 1997 increased 23.9% to $163.2 million from $131.7
million in 1996. Shipments of aggregates increased to 9.5 million tons in 1997
from 7.2 million tons in 1996, a 32% increase. Although volumes increased, our
mix of products sold in 1997 was different than 1996. Although volumes of both
aggregates and associated products were up, the growth rate in associated
products was less than the growth rate of aggregates in 1997. The associated
products have a higher "per ton" sales price; accordingly the growth in total
tons shipped exceeded our growth in total sales. In 1997, we developed and
expanded three new aggregate production sites acquired in 1995 and started
operations at two new aggregate production sites acquired in late 1996. Our
selling prices per ton also increased approximately 11.4% during the period.
GROSS PROFIT. Gross profit for 1997 increased 13.4% to $44.1 million from
$38.9 million in 1996 due to increased sales. Gross profit margins decreased to
27.0% from 29.5% primarily due to our rapid expansion into Mountain states
markets which, because of product mix, traditionally have lower gross margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $18.3 million in 1997 and $16.6 million in
1996. As a percentage of net sales, selling, general and administrative expenses
decreased to 11.2% in 1997 from 12.6% in 1996, primarily due to the leveraging
of fixed costs over a larger sales base.
34
<PAGE>
DEPRECIATION, DEPLETION AND AMORTIZATION. Depreciation, depletion and
amortization increased 24.3% to $7.8 million in 1997 from $6.3 million in 1996.
As a percentage of net sales, our depreciation, depletion and amortization
expenses were 4.8% in 1997, the same as 1996.
INCOME FROM OPERATIONS. Income from operations increased 12.4% to $18.0
million in 1997 from $16.0 million in 1996.
INTEREST, NET. Net interest expense increased to $8.3 million in 1997 from
$5.0 million in 1996 as a result of a full year's interest on the additional
debt used to finance acquisitions made in mid to late 1996.
MINORITY INTEREST. Minority interest for 1997 decreased 14.3% to $0.6
million from $0.7 million in 1996. Profitability by legal entity and the level
of management fees and interest allocated to the subsidiaries impact the amount
of minority interest. The amount allocated was $11.7 million in 1997 and $7.0
million in 1996.
LIQUIDITY AND CAPITAL RESOURCES
From our inception in 1994, we have financed our operations and growth from
the issuance of preferred and common stock and debt. We have also used operating
leases to finance the acquisition of equipment used in the business.
Through December 31, 1998, we have sold $32.3 million of common and
preferred stock. Substantially all of this stock was issued before 1997.
At June 30, 1999, we had $225.7 million of debt outstanding. This level of
debt increased from $200.6 million as of December 31, 1998, $92.8 million as of
December 31, 1997 and $78.5 million as of December 31, 1996 primarily to finance
acquisitions and capital expansion. The terms of this debt are discussed further
below and in Notes 6 and 7 to the audited financial statements included herein
and "Use of Proceeds."
We lease aggregate production sites and equipment under operating leases
with terms generally ranging from 5 to 40 years. Our minimum commitment under
these leases was $42.9 million at December 31, 1998 versus $23.0 million in 1997
and $15.0 million in 1996.
Our primary capital requirements are for working capital, quarry
development, acquisitions and equipment purchases.
During 1997, operating activities provided net cash flow of $5.3 million
compared to $6.6 million in 1996. The decrease was due to a reduction in net
income of $0.9 million and increased working capital requirements due to growth
in the business. In 1998, we generated $3.2 million of net cash flow from
operating activities. Net income of $4.5 million in 1998 was $1.0 million less
than in 1997, and we again had increased working capital requirements due to
growth. For the six months ended June 30, 1999 we used $3.6 million of cash in
operating activities. Net income was $3.1 million in the period but working
capital requirements increased. As of December 31, 1996, 1997 and 1998, and June
30, 1999, working capital was $8.5 million, $14.2 million, $29.3 million, and
$26.0 million, respectively. Working capital needs will continue to increase
with growth in our business.
Net cash used in investing activities was $58.9 million in 1996. Of this
amount, $37.9 million was used for acquisitions and $21.0 million was used for
property, plant and equipment purchases as we expanded our operations. Net cash
used in investing activities was $20.5 million in 1997. Of this amount, $4.0
million was used for acquisitions and $16.5 million was used for the net
purchase of property, plant and equipment. Net cash used in investing activities
was $100.9 million in 1998. Of this amount, $83.9 million was used for
acquisitions, $67.8 million of which was for the purchase of Monroc and related
fees. Also of this amount, $27.3 million was for the purchase of property, plant
and equipment offset by proceeds of $10.4 million from the sale of certain
properties, including a sand and
35
<PAGE>
gravel deposit and a ready-mix plant site at Monroc. We do not believe that the
1998 dispositions will have a meaningful impact on our future liquidity.
Net cash used in investing activities for the six months ended June 30, 1999
was $22.1 million. We expended $25.0 million for the purchase of property, plant
and equipment, offset by proceeds of $2.9 million from the sale of assets. Our
planned capital expenditures for the remainder of the fiscal year are $19.0
million.
Cash provided by financing activities was $48.7 million in 1996, $14.3
million in 1997, $100.0 million in 1998 and $25.1 million for the six months
ended June 30, 1999. Of the cash provided by financing activities in 1996, $12.4
million was from common and preferred stock sales and $36.3 million was provided
by net borrowings. All of the cash provided by financing activities in 1997,
1998 and for the six months ended June 30, 1999 was from increased borrowings
under existing or restructured debt agreements.
In June 1998, we amended our existing credit facility with a syndicate of
lenders. The term portion of the facility was increased to an aggregate
principal amount of $115.0 million. The term loan consists of an "A" tranche and
a "B" tranche. The term loan A accrues interest at a rate per annum based on the
Eurodollar rate plus a spread of 0.875% to 2.125% and the term loan B accrues
interest at a rate per annum based on the Eurodollar rate plus a spread of
1.875% to 2.500%. The term loan A matures in March 2004 and the term loan B
matures in March 2006. The revolving portion of the facility was increased to
$60.0 million from $40.0 million in April 1999. The revolving facility
terminates in June 2004 and accrues interest quarterly based on the Eurodollar
rate plus a spread of 0.875% to 2.125%. As of June 30, 1999, we had borrowings
of $43.4 million outstanding under the revolving facility, $52.3 million of term
loan A outstanding, and $58.4 million of term loan B outstanding. The credit
facility is secured by all of our assets.
In March 1998, we entered into a $9.0 million revolving line of credit
facility with Harris Trust and Savings Bank. Interest accrues quarterly at an
announced prime commercial rate which was 7.75% as of June 30, 1999. Harris
Trust and Savings Bank increased the amount available under the HTSB Note to
$17.5 million in April 1999. The outstanding balance at June 30, 1999 was $16.0
million. The HTSB Note is due on demand and is guaranteed by one of our
stockholders.
In November 1996 and June 1998, we issued $30.0 million and $15.0 million of
senior subordinated notes to an institutional investor. Interest accrues
quarterly at an annual rate of 10.34% on the 1996 notes and 10.09% on the 1998
notes. The notes mature in November 2006 and November 2008 and are subject to
annual required principal payments beginning in 2003. In connection with this
debt, we issued warrants to purchase 286,380 shares of common stock.
We believe the proceeds of the offering, cash flow from operations, our
existing credit facility as amended prior to the offering and existing cash
balances will be sufficient to meet working capital requirements and fund future
acquisitions during the next twelve months. To the extent we pursue additional
acquisitions, or require additional working capital, we may need to obtain
additional sources of financing. There can be no assurance that such financing
will be commercially available through an increased commitment under our credit
facility or otherwise be obtained pursuant to favorable terms, if at all. If we
are unable to obtain additional financing to finance our future operations, we
may not be able to implement our business strategy which could have a material
adverse effect on our business, financial condition and results of operation.
There are no known trends, commitments, events or uncertainties which are
reasonably likely to result in our liquidity increasing or decreasing
materially.
All of our borrowings under our floating rate credit facilities are subject
to interest rate risk. Borrowings under our syndicated revolving credit facility
bear interest, at our option, at either the Eurodollar rate or the ABR rate,
plus a margin. The HTSB Note floats with the bank's commercial prime rate. Each
1.0% increase in interest rates on the total of our floating rate debt would
impact
36
<PAGE>
pretax earnings by approximately $1.7 million. We do not use interest rate swap
contracts to hedge the impact of interest rate fluctuations on certain variable
rate debt.
Prior to the completion of the offering, we will establish the U.S.
Aggregates, Inc. Long Term Incentive Plan. Options granted under this plan will
be accounted for in accordance with APB. No. 25 wherein no compensation expense
would be recognized for options issued to employees.
YEAR 2000 ISSUE
The past practice of computer programs being written using two digits rather
than four to define the applicable year has resulted in the "Year 2000 Issue."
Any of our computer programs or hardware that has date sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
Year 2000. This could result in a system failure or miscalculations causing
disruptions of operations or a temporary inability to engage in normal business
activities. In response to this issue, in 1998 we developed Year 2000 task
forces whose project scopes included the assessment and ongoing monitoring of
all information technology computer hardware and software and non-information
technology equipment affected by the Year 2000 issue. The task forces are
granted the authority and resources to address the Year 2000 issue and receive
supervisory support, as needed, from our Chief Financial Officer.
Our plan to resolve the Year 2000 issue involves the following four phases:
systems and hardware assessment, resolution, testing and implementation. To
date, the task forces have completed their assessment of all our systems that
could be significantly affected by the Year 2000 issue and are in the process of
resolving hardware and software shortfalls. We have installed or are in the
process of installing new hardware and system solutions.
We are also contacting various third parties to obtain representations and
assurances that their hardware, embedded technology systems and software which
we will use or will impact us are, or will be modified on a timely basis to be,
Year 2000 compliant. We identified approximately 50 third parties to be
contacted, based on our identification of those persons as being either
significant service providers or materials suppliers to our business. These
third parties include banks, cement and aggregates suppliers, gas, electricity
and water suppliers and telephone companies. We began contacting these third
parties in October 1998 and have received responses from most of them to date.
All the third parties that have responded have stated that they are or expect to
be Year 2000 compliant by the end of 1999. To date, our costs associated with
assessing and monitoring the progress of third parties in resolving their Year
2000 issues have not been significant, and we do not expect to incur any
material costs in the future relating to this aspect of our Year 2000 program.
In 1998 we spent $499,400 on system improvements and have budgeted $500,000
to complete the process in 1999. We believe these improvements will resolve our
Year 2000 issues. The results of ongoing system resolution and testing, however,
could result in additional costs to us.
Management believes it has an effective program in place to resolve the
impact of the Year 2000 issue in a timely manner and does not expect the Year
2000 issue to have a material adverse effect on our business, financial
condition and results of operations, but we cannot assure you that this will be
the case. We have not yet completed the conversion of all information
technologies identified in our Year 2000 program. We do not anticipate any
material adverse effect from Year 2000 failures, but you have no guarantee that
we will be able to achieve total compliance. Factors that give rise to this
uncertainty include our possible failure to identify all susceptible systems,
noncompliance by third parties whose systems and operations impact us and a
possible loss of technical resources to perform the work.
Our most likely worst case Year 2000 noncompliance scenarios are:
- loss of gas, electricity, water or phone services;
- failures or delays in the daily delivery of raw materials;
37
<PAGE>
- equipment failures;
- an interruption in our ability to collect amounts due from customers; and
- loss of accurate accounting records.
Depending on the length of any noncompliance or system failure, any of these
situations could have a material adverse impact on our ability to serve our
customers in a timely manner and result in lost business and revenues or
increased costs.
We currently have no formal contingency plans in place if we do not complete
all phases of the Year 2000 program. However, the progress of the Year 2000
program is being closely monitored, and additional measures will be taken as
risks are identified. We will continue to evaluate the status of completion
throughout 1999 and determine whether such a plan is necessary.
EFFECT OF INFLATION
Management believes that inflation has not had a material effect on U.S.
Aggregates.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Effective June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION ("FAS 131"), which superceded Statement
of Financial Accounting Standard No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A
BUSINESS ENTERPRISE. FAS 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. FAS 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers. We have determined that U.S. Aggregates
operates in a single reportable segment. Accordingly, the adoption of FAS 131
did not affect our net earnings or financial position, nor did it significantly
change the disclosure of segment information.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, REPORTING ON THE COSTS OF START-UP ACTIVITIES ("SOP
98-5"). Effective January 1, 1999, SOP 98-5 requires that all costs related to
start-up activities, including organizational costs, be expensed as incurred.
The cumulative effect of the adoption of SOP 98-5 impacted our net earnings by
$84, which has been recorded as a nonoperating expense in the first quarter of
1999.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE ("SOP 98-1"). We adopted SOP 98-1 on
January 1, 1999. SOP 98-1 requires the capitalization of certain costs incurred
after the date of adoption in connection with developing or obtaining software
for internal use. We expensed such costs as incurred through December 31, 1998.
We do not expect the impact of the adoption of SOP 98-1 to be material.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME, ("FAS
130"). FAS 130 requires all non-owner changes in equity that are excluded from
net earnings under existing Financial Accounting Standards Board standards be
included as comprehensive income. We presently do not have any material
transactions that directly affect equity other than those transactions with
owners in their capacity as owners. Therefore, the provisions of FAS 130 did not
materially affect our net earnings or financial position.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES ("FAS 133"), which is required to be adopted in years
beginning after June 15, 2000. Because of our minimal use of derivatives,
management does not anticipate that the adoption of FAS 133 will have a
significant impact on our net earnings or financial position.
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<PAGE>
INDUSTRY OVERVIEW
Aggregates are a basic construction material used extensively for highway
and infrastructure construction and maintenance as well as for commercial and
residential construction. For these purposes, aggregates have few, if any,
substitutes. The United States market for all aggregates was approximately 2.8
billion tons in 1998 with a value of $13.5 billion. This represents an increase
of 6.2% in volume and 9.6% in dollar value above 1997 levels.
The following chart sets forth data on the total production of aggregates
and value of annual shipments of aggregates in the United States for the periods
shown.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOTAL AGGREGATES PRODUCTION IN THE
<S> <C> <C>
UNITED STATES AND VALUE OF ANNUAL SHIPMENTS
Million Tons
Tons of Aggregates Production (left
scale)
1985 1800.9
1986 1906.2
1987 2096.33
1988 2171.2
1989 2110.73
1990 2132.6
1991 1879.44
1992 2076.75
1993 2192.5
1994 2338
1995 2388.71
1996 2473.59
1997 2614.68
1998 2777.82
Source: U.S. Geological Survey
$ Billion
Value of Aggregates Production (right
scale)
1985 6.5
1986 7.0
1987 8.3
1988 8.7
1989 8.8
1990 8.8
1991 8.0
1992 8.9
1993 9.5
1994 10.4
1995 10.6
1996 11.2
1997 12.3
1998 13.5
</TABLE>
Historically, demand for aggregates has been only moderately cyclical, as the
chart above illustrates, especially relative to other building materials such as
cement and gypsum wallboard. In addition to moderate cycles, the national per
ton average price for aggregates has not experienced an annual decline between
1985 and 1998 as indicated in the chart below.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AGGREGATE PRICES - NATIONAL AVERAGE
<S> <C>
$/ ton
DATE
1985 $3.60
1986 $3.67
1987 $3.94
1988 $4.00
1989 $4.15
1990 $4.15
1991 $4.25
1992 $4.30
1993 $4.31
1994 $4.43
1995 $4.45
1996 $4.52
1997 $4.72
1998 $4.86
Source: U.S. Geological Survey
</TABLE>
39
<PAGE>
Demand for aggregates is driven significantly by spending on highway and
infrastructure construction and maintenance. Spending levels are influenced by
public sector expenditures for construction and regional economic conditions.
Residential and commercial construction spending is influenced by general
economic conditions and prevailing interest rates and thus is generally more
cyclical than public construction spending. Demand is also seasonal because of
the impact of weather conditions on construction activity.
The table below illustrates total United States public infrastructure
spending over the periods shown.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
UNITED STATES PUBLIC INFRASTRUCTURE SPENDING
<S> <C>
SEASONALLY ADJUSTED, ANNUAL RATE
$ Billions
Through 3/99
DATE
01/1988 56.272
02/1988 56.694
03/1988 60.868
04/1988 60.491
05/1988 60.04
06/1988 58.772
07/1988 62.037
08/1988 57.041
09/1988 58.18
10/1988 59.478
11/1988 59.705
12/1988 63.42
01/1989 62.16
02/1989 59.039
03/1989 54.71
04/1989 59.642
05/1989 62.478
06/1989 59.28
07/1989 58.711
08/1989 59.278
09/1989 60.616
10/1989 59.1
11/1989 61.798
12/1989 62.503
01/1990 64.264
02/1990 66.522
03/1990 62.885
04/1990 62.567
05/1990 63.487
06/1990 62.186
07/1990 66.132
08/1990 63.553
09/1990 60.396
10/1990 65.071
11/1990 66.677
12/1990 64.24
01/1991 56.825
02/1991 63.316
03/1991 63.192
04/1991 61.052
05/1991 62.802
06/1991 63.195
07/1991 60.603
08/1991 62.863
09/1991 62.656
10/1991 65.441
11/1991 64.066
12/1991 64.496
01/1992 66.924
02/1992 69.694
03/1992 71.539
04/1992 68.248
05/1992 69.833
06/1992 65.205
07/1992 63.723
08/1992 63.64
09/1992 63.014
10/1992 61.846
11/1992 64.39
12/1992 67.619
01/1993 60.479
02/1993 66.204
03/1993 64.409
04/1993 68.543
05/1993 65.768
06/1993 69.772
07/1993 67.531
08/1993 65.822
09/1993 68.248
10/1993 65.618
11/1993 68.594
12/1993 71.794
01/1994 69.296
02/1994 67.222
03/1994 67.565
04/1994 68.32
05/1994 68.445
06/1994 70.566
07/1994 75.616
08/1994 71.809
09/1994 72.287
10/1994 72.552
11/1994 69.11
12/1994 71.485
01/1995 72.016
02/1995 69.609
03/1995 73.554
04/1995 72.849
05/1995 73.362
06/1995 75.531
07/1995 73.088
08/1995 76.088
09/1995 75.726
10/1995 77.316
11/1995 77.177
12/1995 77.23
01/1996 80.071
02/1996 78.313
03/1996 76.575
04/1996 81.671
05/1996 80.933
06/1996 77.911
07/1996 77.83
08/1996 75.882
09/1996 79.779
10/1996 79.441
11/1996 79.251
12/1996 75.788
01/1997 79
02/1997 84.68
03/1997 86.685
04/1997 82.806
05/1997 83.648
06/1997 83.187
07/1997 83.403
08/1997 84.722
09/1997 83.404
10/1997 82.499
11/1997 84.142
12/1997 83.416
01/1998 82.624
02/1998 82.764
03/1998 82.65
04/1998 81.962
05/1998 76.804
06/1998 82.344
07/1998 81.827
08/1998 81.573
09/1998 84.511
10/1998 81.383
11/1998 82.269
12/1998 83.433
01/1999 90.146
02/1999 93.228
03/1999 94.779
Source: U.S. Census Bureau
</TABLE>
TEA-21, the largest federal public works spending bill in the history of the
United States, became law in June 1998. This legislation will be a key driver of
federal highway and infrastructure spending and the resulting demand for
aggregates over the next six years. This bill provides for total federal
spending over the 1998 through 2003 period of $218 billion on highway and
infrastructure projects. This spending level represents a 41% increase in
funding above the prior federal highway and infrastructure program, the
Intermodel Surface Transportation Efficiency Act, or ISTEA, which covered the
1992 to 1997 period. TEA-21 authorizes average annual federal spending on
highways and roads of at least $26 billion, nearly 44% higher than the average
annual spending of $18 billion that was spent under ISTEA. In the nine states
that we serve, average annual federal highway spending through 2003 under TEA-21
is projected to be 61% higher than under ISTEA and should provide a strong
underpinning for future aggregates demand.
40
<PAGE>
The table below compares average annual federal highway spending under
TEA-21 relative to spending under ISTEA in the nine states that we serve.
U.S. AGGREGATES, INC.
FEDERAL HIGHWAY SPENDING IN STATES SERVED
<TABLE>
<CAPTION>
AVERAGE ANNUAL SPENDING
------------------------
ISTEA TEA-21
STATE 1992-1997 1998-2003 % INCREASE
- --------------------------------------------------------------------------- ------------ ---------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Alabama.................................................................... $330.3 $530.5 61%
Arizona.................................................................... 255.7 407.8 60
Florida.................................................................... 768.4 1,208.6 57
Georgia.................................................................... 541.4 918.8 69
Idaho...................................................................... 124.8 202.0 62
Mississippi................................................................ 202.3 319.0 58
Nevada..................................................................... 117.3 189.7 62
Tennessee.................................................................. 365.6 592.7 62
Utah....................................................................... 129.9 205.0 58
------------ ---------- ---
Total for states served by U.S. Aggregates............................... $2,835.7 $4,574.1 61%
Total United States...................................................... $18,162.5 $26,173.8 44%
</TABLE>
Source: United States Senate Environment and Public Works Committee
The aggregates industry is currently undergoing significant consolidation,
although generally the industry remains fragmented nationally as well as in many
regional areas. The estimated market share of the top five producers was 25% in
1998. From 1980 to 1998, the number of independent producers of crushed stone in
the United States declined by 22% from approximately 1,865 to approximately
1,450, although crushed stone consumption increased by 68%. From 1980 to 1998,
the number of independent sand and gravel producers declined by 19% from 4,512
to 3,642, although sand and gravel consumption increased by 47%.
Due to the high cost of transportation relative to the value of the product,
competition within the aggregates industry tends to be localized. Generally,
individual aggregate production sites compete for customers within a limited
geographic area, which may be as small as 20-30 miles depending on local
availability of suitable aggregates and the geographic density of demand. As a
result, the proximity of aggregate production sites to customers is an important
factor in competition for customers.
In some areas of the United States, including markets encompassing our Gulf
Coast operations, sources of aggegates may be located much further from
customers due to factors including a lack of suitable aggregates, local
permitting issues and zoning restrictions. In these areas, aggregates must be
transported from more distant sites and thus transportation becomes a greater
component of overall product cost. This has resulted in shipments into these
markets over long distances by rail and water, which favor large operators like
U.S. Aggregates that can invest in the infrastructure necessary to accommodate
these modes of transportation.
There are four primary factors which limit the availability of economically
viable aggregates reserves in a particular market:
- the geological existence of suitable aggregates within a particular
market;
- the physical characteristics of available aggregates and the difficulty in
satisfying increasingly rigorous specifications required by customers;
41
<PAGE>
- the difficulty in and increasingly higher cost of obtaining the necessary
permits for potential reserves; and
- the feasibility of cost-effectively extracting, processing and delivering
available reserves.
In addition to factors that limit the availability of suitable aggregates,
increasing levels of operational, technical and financial sophistication in the
aggregates industry have rewarded efficient producers with a competitive
advantage in terms of their ability to meet the increasing demand for quality
aggregates and to satisfy increasingly demanding and technically sophisticated
customers. Other factors that operate as constraints on competition in the
aggregates industry include:
- High transportation costs relative to the value of the product, which
generally result in very localized competition, with individual aggregate
production sites competing for customers within a limited geographical
area;
- The increasingly capital intensive nature of aggregate mining and
processing;
- Increasing demand for types of aggregates that can meet rigorous material
specifications and quality requirements, particularly the new federal
"SuperPave" program. This gives a competive advantage to efficient and
technically sophisticated producers such as U.S. Aggregates that have
access to and are able to make efficient use of suitable aggregate
reserves;
- Increasingly difficult and expensive zoning and regulatory compliance
requirements, such as obtaining the necessary permits for new aggregate
production sites and the reclamation of depleted sites; and
- Increasing levels of technical sophistication required to compete
effectively, including expertise in geological engineering and planning,
blasting technology, processing facility design, computer automation
technology and reclamation planning.
The difficulty and related expense of complying with environmental and other
regulations also make it difficult for small producers to open new aggregate
production sites, enter new markets and compete effectively. In ongoing
aggregate mining and processing, aggregates producers must adhere to various
mining regulations, including rules and regulations regarding:
- dust and water emissions;
- sediment and erosion control;
- noise limitations;
- wetlands protection;
- reclamation of depleted quarry sites; and
- the safety of blasting and other mining techniques.
Often new aggregate production sites require, among other things, zoning
changes and local, state and federal permits and plans regarding mining,
reclamation and air and water emissions. Once appropriate zoning is secured and
approved, it is permanent. Generally, permits must be renewed every five years.
Their renewal can only be denied, however, if the controlling agency is able to
prove that the permit holder has repeatedly violated the set guidelines and has
not taken remedial action when notified of violations. New site approval
procedures may require the preparation of archaeological surveys, endangered
species studies and other studies to assess the environmental impact of new
sites. Compliance with these regulatory requirements necessitates a significant
up-front investment and adds to the length of time to develop a new site.
While governmental compliance issues can be challenging, aggregates
producers often face opposition from the communities in which new aggregate
production sites are to be located. Public concerns
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center on noise levels and blasting safety, the visual impact of an aggregate
production site on neighboring properties and high volume of truck traffic. To
respond to these issues, producers must operate in a more sophisticated manner
such as developing blasting techniques to minimize surface vibrations and noise
and developing an effective community communications program. Producers are
often required to acquire larger tracts of property to allow for extended buffer
zones between aggregate production sites and surrounding properties and to
invest significant capital to improve road and highway access.
Regulatory requirements and public concerns typically add from one to two
years to the time required by us to develop a new site and, in extreme cases,
may require significantly longer time. In addition, at many locations regulatory
and community obstacles may prevent the development of an attractive site. We
anticipate that environmental compliance, operating considerations and community
relations issues will become more difficult in the future, enhancing the
competitive advantage of larger, more sophisticated producers such as U.S.
Aggregates, further encouraging consolidation in the industry and making entry
into the construction aggregates business increasingly expensive.
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<PAGE>
BUSINESS
U.S. AGGREGATES
U.S. Aggregates is a leading producer of aggregates. Aggregates consist of
crushed stone, sand and gravel. Our products are used primarily for the
construction and maintenance of highways and other infrastructure projects and
for commercial and residential construction. We serve local markets in nine
states in two fast growing regions of the United States, the Mountain states and
the Southeast. We believe that we are a market leader in most of the local
markets that we serve. Our current estimated aggregate reserve position exceeds
1.3 billion tons, which at most of our aggregate production sites represents in
excess of a 20 year supply. U.S. Aggregates was founded in January 1994 with the
goal of becoming a leading national producer of aggregates. From our inception
in January 1994 through 1998, through internal growth and acquisitions, our net
sales have increased to $228.7 million while operating profit has increased to
$24.4 million.
Our growth in sales and profitability has been driven by several factors. We
hold strong positions in a number of fast growing local markets in the Mountain
states and Southeast regions of the United States. A majority of our aggregate
sales are in the highway and infrastructure construction and maintenance
markets. During the 1990s, our markets benefitted from increased public sector
spending on highway projects and should continue to see significant growth in
the future as a result of a new, six year, $218 billion federal commitment to
highway and infrastructure projects. Through our management and technical
expertise, we have positioned ourselves as an efficient, low-cost producer and
supplier of high-quality aggregates. We have expanded into contiguous and new
markets by acquiring, integrating, developing and further strengthening
facilities, operations and aggregate sites. Additionally, we have enhanced the
performance of our acquired facilities through increased capital investment and
our management and technical expertise.
In the Mountain states, we serve markets in Utah, Idaho, Nevada and Arizona.
In the Southeast, we serve markets in Alabama, Tennessee, the Florida panhandle,
Mississippi and Georgia. We are well positioned to benefit from continued strong
economic activity in these states and in the local markets where we operate.
According to the Bureau of Labor Statistics, from 1993 to 1998, compound annual
growth in employment in these nine states was 3.7%. The United States compound
annual growth in employment over this period was 2.6%. According to the U.S.
Geological Survey, from 1993 to 1998, compound annual growth in consumption of
aggregates in the nine states we serve was 6.7%. The United States compound
annual growth in consumption of aggregates over this period was 4.8%.
Nationally, approximately 50% of aggregate production is used in highway and
infrastructure construction and maintenance. As a result, we will benefit from
the 1998 passage of the six year, $218 billion Transportation Equity Act for the
21st Century, or TEA-21. TEA-21 designates a minimum of $158 billion nationally
for federal highway construction and maintenance projects. This represents a 44%
increase above average annual federal highway spending levels under the
predecessor six year federal program. In the nine states we serve, average
annual federal highway spending under TEA-21 is projected to be 61% higher than
under the predecessor program. This federal spending, along with programs by
state and local governments, should provide strong underpinnings for our future
growth.
GROWTH STRATEGY
We believe that long-term, high-quality aggregate reserves located near
customers are central to our success. Accordingly, we have focused on the
acquisition and development of aggregate production sites and companies that are
well positioned to serve growing markets. Since our inception, we have completed
and integrated 28 business and asset acquisitions, including both operating
companies and aggregate production facilities. Our strategy is to utilize our
management and financial resources to strengthen our position in local markets
by:
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SERVING GROWTH IN EXISTING MARKET AREAS. Demand for aggregates in the
markets we serve has meaningfully outpaced overall United States demand for
aggregates over the past five years. We will continue to take advantage of our
established aggregate reserve capacity and the maturation of our newly developed
aggregate production sites to meet our customers' demands. We have increased our
annual production by 4.1 million tons to 21.6 million tons by opening eight new
major aggregate sites during the 1996 to 1998 period. We believe that our
financial performance does not yet fully reflect the benefit of these new
operations. Based on our experience, a new aggregate production site's sales,
cash flow and profitability usually increase over the first five years of
operation as production is increased and the new aggregate site matures.
EXPANDING CAPACITY AND MAINTAINING COST-COMPETITIVENESS. Where appropriate,
we will expand our production capacity and invest capital in additional plant
and equipment so that we can serve additional demand in our existing local and
remote markets. As we continue to increase capacity we will focus on maintaining
our cost-competitiveness.
MAKING ADD-ON ACQUISITIONS AND DEVELOPING NEW AGGREGATE RESERVES IN EXISTING
MARKETS. We will continue to make add-on acquisitions and to develop well
positioned aggregate reserves. Our primary objective is to increase our
competitive position within the local and remote markets we serve.
SERVING MARKETS IN CONTIGUOUS AREAS. We will use our access to existing and
additional reserves so that we can move into contiguous markets when
opportunities arise.
EXPANDING INTO NEW MARKETS PRIMARILY THROUGH ACQUISITIONS. We will evaluate
and may make acquisitions in new market areas. These potential acquisitions may
be made in the regions we currently serve or, where economically attractive, in
new regions. These acquisitions may entail further add-on acquisitions and
additional capital expenditures to expand our operations in these new areas.
OPERATIONS
We are a leading producer and marketer of aggregates and associated
aggregate-based materials and services. Approximately 75% of our aggregates
volume is sold directly to customers. The balance is used to produce asphalt,
which generally contains approximately 90% aggregates by volume; and ready-mix
concrete, which generally contains approximately 80% aggregates by volume. Our
integration into these aggregate-based materials and related services generally
occurs in markets where our main competitors are integrated into these products.
Our entries into markets in the fast growing Mountain states and Southeast
regions have provided the incremental market demand to justify the development
of a number of new aggregate production sites as well as upgrades of existing
facilities. Approximately 48% of our production in 1998 was produced at
aggregate production sites which are less than three years old. We are currently
developing these new aggregate production sites.
Our production capacity has increased to approximately 30 million tons per
year since 1994 while unit costs have been reduced substantially from the level
of costs incurred in individual operations at the time they were acquired or
started. This cost reduction is the result of comprehensive mining plans
combined with the installation of state of the art equipment permitting the
implementation of "best practices" throughout our operations. In addition,
asphalt plants and transportation infrastructure for delivery of asphalt and
concrete have been upgraded.
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The following table shows, for the periods indicated, our total shipments of
aggregates, asphalt and ready-mix concrete.
U.S. AGGREGATES, INC.
SHIPMENTS OF AGGREGATES, ASPHALT AND READY-MIX CONCRETE
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Tons of aggregates produced:
Sold directly to customers..................................... 1.5 3.1 5.1 6.6 11.9
Used internally................................................ 0.6 1.7 2.1 2.9 3.9
--- --- --- --- ---
Total tons of aggregates produced............................ 2.1 4.8 7.2 9.5 15.8
PERCENTAGE OF AGGREGATES PRODUCED USED INTERNALLY.......... 28.6% 35.4% 29.2% 30.5% 24.7%
Tons of asphalt sold............................................. 0.1 0.6 0.9 1.3 1.6
Yards of ready-mix concrete sold................................. 0.4 0.8 0.9 0.9 1.4
<CAPTION>
PRO FORMA
1998
-------------
<S> <C>
Tons of aggregates produced:
Sold directly to customers..................................... 17.6
Used internally................................................ 4.0
---
Total tons of aggregates produced............................ 21.6
PERCENTAGE OF AGGREGATES PRODUCED USED INTERNALLY.......... 18.5%
Tons of asphalt sold............................................. 1.6
Yards of ready-mix concrete sold................................. 1.7
</TABLE>
Pro Forma 1998 gives effect to the 1998 acquired businesses as if they were
acquired on January 1, 1998.
PRODUCT DESCRIPTION AND MANUFACTURING PROCESS
We manufacture and distribute aggregates as well as construction materials
with high aggregate content, including asphalt and ready-mix concrete.
We have also developed state of the art material quality control and
application design laboratories to ensure the highest levels of quality are
maintained. These laboratories permit us to provide aggregates customers with
the most cost effective and consistent materials for downstream applications,
ensuring their compliance with increasingly stringent specifications. We also
provide third party aggregates producers with these certification services. The
laboratories have also contributed to our record of achieving bonuses on
projects where control of variances in materials within a tight range can result
in additional profits.
AGGREGATES
We have developed extensive mining plans at key sites to ensure the long
term competitive position of our aggregate reserves. Typically, we mine raw
aggregates from an open aggregate production site, crush the material and
separate it by size for specific uses. Aggregates are then either shipped by
truck or rail to customers, stockpiled for customer pick-up or used in producing
asphalt, ready-mix concrete and related products.
ASPHALT
Asphalt generally has an aggregates content of approximately 90% by volume.
We produce paving asphalt by heating and mixing aggregates with hot liquid
asphalt in accordance with each customer's specifications. Once produced, we
transfer asphalt into trucks and deliver it directly to job sites for immediate
application. We produce asphalt in many of our markets in the Mountain states,
including throughout Utah and in Las Vegas and northwestern Arizona, where our
competitors are largely also integrated producers. Generally, we have expanded
our asphalt operations in the Mountain states in order to benefit from
government spending on highway construction and maintenance projects.
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READY-MIX CONCRETE
Ready-mix concrete generally has an aggregates content of approximately 80%
by volume. We produce ready-mix concrete by mixing aggregates with cement, water
and additives, which have the effect of controlling the concrete's strength,
drying speed and other characteristics. We deliver the concrete by mixer trucks
to construction sites for immediate use. We produce ready-mix concrete in a
number of markets including Chattanooga, Tennessee and throughout Alabama, Utah
and Idaho, among other areas. Generally, we have not expanded ready-mix
operations other than as a result of acquiring an operating company that had an
existing ready-mix business.
RESERVES
We estimate that our total recoverable aggregate reserves are in excess of
1.3 billion tons. The yield from the extraction of reserves is based on an
estimate of the volume of materials which can be economically extracted to meet
current market and product applications. Our mining plans are developed by
experienced mining and operating personnel based on internal and outside
drilling and geological studies and surveys. In some cases, zoned properties
must be extracted in phases as reserves in a particular area of the reserve are
exhausted.
We own approximately 600 million tons and lease approximately 700 million
tons of our aggregate reserves. Leases usually provide for royalty payments
based on revenues from aggregates sold at a specific location. Leases usually
expire after a specific time period and may be renewable for additional terms.
Most leases have extension options providing for at least 20 years of operation
based on 1998 extraction rates. With minor exceptions, where lease options total
less than 20 years, we have developed and zoned additional reserves that will
allow us to serve our markets on a competive basis and ensure long term
availability. Generally, reserves at our aggregate production sites are adequate
for in excess of 20 years production at 1998 rates of extraction. At one of our
quarries we are required to extract a minimum amount of 100,000 tons of
aggregate per year and at another quarry, 500,000 tons of aggregate per year in
order to maintain our rights to mine reserves on these leased properties. We
anticipate fulfilling these minimum extraction requirements during the lease
terms.
The following table presents our aggregate reserves by market area. The 50
million tons listed as zoned and unpermitted refers to one site where zoning is
approved for the entire property, but the permit for the second phase of the
mine plan is contingent on completion of the first phase.
U.S. AGGREGATES, INC.
AGGREGATE RESERVES BY MARKET AREA
<TABLE>
<CAPTION>
ZONED/ ZONED/
PERMITTED UNPERMITTED UNZONED TOTAL
----------- --------------- ----------- ---------
(IN MILLION TONS)
<S> <C> <C> <C> <C>
Alabama............................................................. 457 50 -- 507
Eastern Tennessee................................................... 73 -- -- 73
Northern Utah....................................................... 364 -- -- 364
Central Utah........................................................ 113 -- 54 167
So. Utah/SE Nevada/NW Arizona....................................... 129 -- 83 212
Idaho............................................................... 37 -- -- 37
----------- --- ----- ---------
TOTAL............................................................. 1,173 50 137 1,360
----------- --- ----- ---------
----------- --- ----- ---------
</TABLE>
We also have two aggregate production sites in Georgia, one of which is
leased to a major building materials producer under a long term lease. The other
aggregate production site is not anticipated to provide us with a base of
operations in Georgia in 1999.
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<PAGE>
Because transportation represents such a large component of overall cost of
aggregates delivered to the customer, we operate a large number of small to
medium size aggregate sites. In 1998, no single aggregate production site
accounted for more than 4.0% of consolidated net sales.
TRANSPORTATION
We have a modern transportation infrastructure that allows us to maintain
our competitive position. We have expanded our infrastructure to accommodate
rail shipments of aggregates to our remote markets and we will have the option
of shipping by water from one site by the end of 1999. We own approximately 450
trucks and lease approximately 300 trucks that we use primarily to deliver
aggregates and associated products such as ready-mix concrete and asphalt,
representing approximately 30% of our total volume of aggregates sold. We also
contract for additional trucks to transport aggregates and asphalt to meet short
term peak demand.
PROPERTIES
In 1998, 26 of our aggregate production sites each had shipments of greater
than 100,000 tons. We conducted mining operations in 1998 at all of these
aggregate production sites, of which 12 are located on property we own, two are
on land owned in part and leased in part, 11 are on leased property, and one is
on facilities leased on a job basis. We own 61 pieces of real property and lease
property at 62 locations. We have six pieces of property which are owned in part
and leased in part. Leases typically provide for royalty payments based on
revenues from material extracted from the facility, with specified minimum
monthly royalties. Our significant quarry leases expire from the year 2012 to
2039 and in some cases are renewable for a specified series of additional terms.
We have historically been successful in negotiating desired lease extensions.
Our aggregate production sites are generally small - to medium-sized by industry
standards and we believe that no single aggregate production site is of major
significance to our operations.
Our policy has been to obtain surveys and title opinions on many of our
owned and leased parcels. In addition, we evaluate on a case by case basis
whether to purchase title insurance in connection with real estate purchases and
did in fact obtain title insurance on many of our owned parcels.
RECLAMATION
We are required by the laws of various states to reclaim aggregate sites
after reserves have been depleted. Each site's mining plan includes a
reclamation plan which has been developed for that site to maximize the value of
the end use of the site. In some cases, depleted sites have been sold for
commercial or residential properties generating additional profits.
Historically, we have not incurred and do not anticipate incurring substantial
costs in excess of residual land values in connection with the closing of
aggregate operations due to depletion of reserves.
MANAGEMENT INFORMATION SYSTEMS
In general, we use networked management information systems for immediate
access to production and sales data from our production facilities, tracking
thousands of transactions each day. Automated sales and invoicing systems weigh
trucks at the aggregate production site and related facilities and immediately
generate customer invoicing and sales information. These streamlined procedures
reduce both transportation costs and customer turnaround-time at the aggregate
production site, increasing our productivity and providing us with a competitive
advantage over producers who do not use similar systems.
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<PAGE>
CUSTOMERS
We market our 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 our
aggregates is used in publicly funded projects. Currently, we do not have any
customers that account for more than 10% of our sales.
COMPETITION
Because of the impact of high transportation costs on the aggregates
business, competition in each of our markets tends to be limited to producers in
proximity to our production facilities. Although we experience competition in
all of our markets, we believe that we are generally a leading producer in the
market areas we serve. Competition is based primarily on aggregate production
site location and price, but quality of aggregates and level of customer service
are also important factors. We compete directly with a number of large and small
producers in the markets we serve. Some of our competitors have greater
financial resources than we have.
EMPLOYEES
We employ approximately 2,000 employees, of whom approximately 1,600 are
hourly, approximately 400 are salaried and 43 are part-time. Approximately 600
of our employees are represented by labor unions. The expiration dates of the
various labor union contracts are from July 1999 through July 2001. We consider
our relations with our employees to be good.
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
Our facilities are subject to various evolving federal, state and local laws
and regulations relating to the environment, including those relating to
discharges to air, water and land, the handling and disposal of solid and
hazardous waste and the cleanup of properties affected by hazardous substances.
Some environmental laws impose substantial penalties for noncompliance, and
others, such as the federal Comprehensive Environmental Response, Compensation,
and Liability Act, as amended, impose strict, retroactive, joint and several
liability upon persons responsible for releases of hazardous substances.
In connection with our corporate acquisitions, we usually obtain
environmental assessments from independent environmental consultants. These
assessments generally consist of a site visit, historical record review,
interviews with key personnel and preparation of a report. The purpose of the
consultant's work is to identify potential environmental conditions or
compliance issues associated with the subject property and operations. Some risk
of environmental liability is inherent in the nature of our business, however,
and we might incur future material costs to meet current or more stringent
compliance, cleanup or other obligations pursuant to environmental laws.
We continually evaluate whether we must take additional steps at our
locations to ensure compliance with environmental laws. We believe that our
operations are in substantial compliance with applicable laws and regulations
and that any noncompliance is not likely to have a material adverse effect on
our business, financial condition or results of operations. However, future
events, such as changes in or modified interpretations of existing laws and
regulations or enforcement policies, or further investigation or evaluation of
the potential health hazards of our products or business activities, may give
rise to additional compliance and other costs that could have a material adverse
effect on us.
U.S. Aggregates, as well as other companies in the aggregates industry,
produce some products containing varying amounts of crystalline silica.
Excessive and prolonged inhalation of very small particles of crystalline silica
has been associated with non-malignant lung disease. The carcinogenic potential
of excessive exposure to crystalline silica has been evaluated for over a decade
by a number of research
49
<PAGE>
groups including the International Agency for Research on Cancer, the National
Institute for Occupational Safety and Health and the National Toxicology
Program, a part of the Department of Health and Human Services. Results of
various studies have ranged from classifying crystalline silica as a probable to
a known carcinogen. Other studies concluded higher incidences of lung cancer in
some operations was due to cigarette smoking, not silica. Governmental agencies,
including the Occupational Safety and Health Administration and Mine Safety
Health Administration, coordinate to establish standards for controlling
permissible limits on crystalline silica. In the early 1990s, they considered
lowering silica exposure limits but decided to retain existing limits.
Monroc, Inc., one of our subsidiaries, previously owned approximately 9.9
acres of land located in Murray, Utah. This land, together with the surrounding
land, was proposed by the Environmental Protection Agency for listing on the
National Priorities List for clean-up. Mining slag containing certain heavy
metals had been deposited on all of these properties by a prior owner. Pursuant
to an agreement between U.S. Aggregates, surrounding landowners and the City of
Murray, and pursuant to a Remedial Design/Remedial Action Consent Decree entered
by the United States District Court for the District of Utah, Case Number 2:98CV
04158 on August 19, 1998, between the Environmental Protection Agency and the
landowners, we agreed to dedicate some of our property, approximately 1.8 acres,
for a roadway, to participate in a local improvement district and to institute
institutional controls, all of which have been accomplished. In return, we
received protection against claims for contribution for matters addressed by the
Consent Decree and a covenant not to sue from the United States.
Recently, the Occupational Safety and Health Administration has announced a
deadline of June 2000 for release of new rules to implement more stringent
regulations. We believe we currently meet government guidelines for crystalline
silica exposure and will continue to employ advanced technologies as they become
available to ensure worker safety and comply with regulations.
We believe that our compliance with environmental laws has not had a
material adverse effect on our business, financial condition or results of
operations. See "Risk Factors" for a further description for the effect of
environmental regulation on our business.
LEGAL PROCEEDINGS
From time to time, U.S. Aggregates and our subsidiaries have been involved
in various legal proceedings relating to our and our subsidiaries' operations
and properties, all of which we believe are routine in nature and incidental to
the conduct of our and our subsidiaries' business. Our and our subsidiaries'
ultimate legal and financial liability with respect to such proceedings cannot
be estimated with certainty, but we believe, based on our examination of such
matters, that none of these proceedings, if determined adversely, would have a
material adverse effect on our business, financial condition or results of
operations.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to our directors and
executive officers as of July 31, 1999. Our executive officers serve at the
discretion of our board of directors and may be terminated at any time without
notice.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ------------------------------ --- -------------------------------------------------
<S> <C> <C>
James A. Harris............... 65 Chief Executive Officer and Chairman of the Board
Morris L. Bishop, Jr.......... 54 President, Chief Operating Officer and Director
Michael J. Stone.............. 55 Executive Vice President--Development, Chief
Financial Officer, Treasurer, Secretary and
Director
Bruce V. Rauner............... 43 Director
David A. Donnini.............. 34 Director
Charles R. Pullin............. 75 Director
Edward A. Dougherty........... 41 Director
</TABLE>
JAMES A. HARRIS. Mr. Harris has been Chief Executive Officer and Chairman of
the Board since he founded U.S. Aggregates with Michael J. Stone and Golder,
Thoma, Cressey, Rauner Fund IV, L.P. in January 1994. Prior to 1994 Mr. Harris
held a number of senior executive positions at Koppers Co., Inc. including a ten
year period when he was responsible for acquisitions for its aggregates
division, Koppers Construction Materials and Services Group. This division of
Koppers grew from $32 million in sales and $4 million in operating income in
1967 to $900 million in sales and $117 million in operating income in 1987. This
growth positioned Koppers as the second largest producer of aggregates in the
United States in 1988.
MORRIS L. BISHOP, JR. Mr. Bishop has been President and Chief Operating
Officer of U.S. Aggregates since May 1997. Mr. Bishop has been a Director since
May 1999. Prior to joining us, Mr. Bishop was with Hoover, Inc., Koppers
Company, Inc. and Vulcan Materials Company serving in senior management
positions in their respective construction materials businesses.
MICHAEL J. STONE. Mr. Stone has been Executive Vice President--Development,
Chief Financial Officer, Treasurer, Secretary and Director since Mr. Harris and
he founded U.S. Aggregates with Golder, Thoma, Cressey, Rauner Fund IV, L.P. in
January 1994. Prior to joining us, Mr. Stone was Chief Financial Officer of
Genstar Building Materials and Services Group, a $1.0 billion division of
Genstar Corporation. This group included Genstar Stone Products, the tenth
largest crushed stone producer in the United States.
BRUCE V. RAUNER. Mr. Rauner has served as a director of U.S. Aggregates
since its founding in January 1994. Mr. Rauner is the Managing Principal of GTCR
Golder Rauner, LLC, a private equity investment company in Chicago, Illinois
formed in January 1998 as a successor to Golder, Thoma, Cressey, Rauner, Inc.,
where he has been a Principal since 1981. Mr. Rauner is also a director of
Coinmach Corporation, Lason, Inc., Province Healthcare Company and AnswerThink
Consulting Group, Inc.
DAVID A. DONNINI. Mr. Donnini has served as a director of U.S. Aggregates
since its founding in January 1994. Mr. Donnini is a Principal of GTCR Golder
Rauner, LLC, a private equity investment company in Chicago, Illinois formed in
January 1998 as a successor to Golder, Thoma, Cressey, Rauner, Inc., where he
has been a Principal since 1993. Mr. Donnini is also a director of Coinmach
Corporation and Polymer Group, Inc.
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<PAGE>
CHARLES R. PULLIN. Mr. Pullin has been a director of U.S. Aggregates since
August 1994. From 1967 until 1981, when he was appointed Vice Chairman of
Koppers Company, Inc., he served in a number of executive positions at Koppers.
Mr. Pullin was appointed Chief Executive Officer and Chairman of Koppers in 1982
and served in those positions until his retirement in June 1988. During Mr.
Pullin's tenure, Koppers Construction Materials and Services Group grew from a
small acquisition in 1966 to be the second largest producer of aggregates in the
United States in 1988.
EDWARD A. DOUGHERTY. Mr. Dougherty has served as a director of U.S.
Aggregates since July 1997. Mr. Dougherty has provided consulting services to us
since our founding in January 1994. Since 1991, Mr. Dougherty has been an
independent financial advisor, having previously been employed by Bear, Stearns
& Co. Inc., an investment banking firm. Mr. Dougherty is also a director of
Cardinal Logistics Management, Inc.
Our board of directors currently consists of seven directors, divided into
three classes. At each annual meeting of our stockholders, successors to the
class of directors whose term expires at such meeting will be elected to serve
for three-year terms or until their successors are duly elected and qualified.
Messrs. Dougherty and Stone are members of the class whose terms expire in 2000,
Messrs. Bishop, Pullin and Rauner are members of the class whose terms expire in
2001, and Messrs. Donnini and Harris are members of the class whose terms expire
in 2002. Our board of directors has the power to appoint our officers. Each
officer will hold office for such term as may be prescribed by our board of
directors and until such person's successor is chosen and qualified or until
such person's death, resignation or removal.
COMPENSATION OF DIRECTORS
Directors currently do not receive a salary or an annual retainer for their
services. Following the offering we expect however, that non-employee directors
not otherwise affiliated with us or our stockholders will be paid an annual cash
retainer of $3,000. We will also periodically grant these non-employee directors
options to purchase shares of common stock pursuant to our incentive plan. We
will not pay any additional compensation to our employees for serving as
directors, but we will reimburse all directors for out-of-pocket expenses they
incur in connection with attending board or board committee meetings or
otherwise in their capacity as directors. See "--Incentive Plan" for a further
discussion of director compensation.
COMPENSATION OF EXECUTIVE OFFICERS
The compensation of our executive officers will be determined by our board
of directors. The executive officers' bonuses are determined by the compensation
committee of the board of directors and are based on our overall profitability.
We have reserved 700,840 shares of common stock for issuance under a stock
option plan. Options will be issued to employees and executive officers based on
the recommendation of the compensation committee of the board of directors
according to the following:
- Employees holding positions of responsibility with us and whose
performance can have a significant effect on our success and individuals
who have agreed to become our employees within six months of the date of
grant; and
- Non-employee directors.
Awarded shares that we do not issue will again become available for awards.
For purposes of the Exchange Act, which could impose so-called short-swing
trading liabilities on our directors and executive officers in connection with
their purchases and sales of common stock within any six-month period, the
incentive plan will qualify for the exemptions provided under the Exchange Act.
The following table contains information regarding the compensation paid or
accrued by us to our chief executive officer and each of our other top executive
officers for services rendered to us in all capacities during the years
indicated.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------------
------------------------------------------------ RESTRICTED
OTHER ANNUAL STOCK STOCK ALL OTHER
SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($)
- ------------------------------------- --------- ---------- ---------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
James A. Harris...................... 1998 258,333 -- -- -- -- 2,500
Chief Executive Officer and 1997 200,000 75,000 -- -- -- 4,750
Chairman of the Board 1996 200,000 200,000 -- -- -- 4,750
Morris L. Bishop..................... 1998 220,833 -- -- -- -- 2,500
President, Chief Operating 1997 167,500 75,000 -- -- -- 2,375
Officer and Director 1996 150,000 100,000 -- -- -- 2,250
Michael J. Stone..................... 1998 208,333 -- -- -- -- 2,500
Executive Vice President-- 1997 150,000 75,000 -- -- -- 4,750
Development, Chief Financial 1996 150,000 150,000 -- -- -- 4,750
Officer,
Treasurer, Secretary
and Director
</TABLE>
In 1998, Messrs. Harris, Bishop and Stone did not receive bonuses. In May
1999, in recognition of the successful completion of our recent Southeast
expansion program, Mr. Harris was awarded a bonus of $200,000, Mr. Bishop was
awarded a bonus of $125,000 and Mr. Stone was awarded a bonus of $200,000.
MANAGEMENT EMPLOYMENT AGREEMENTS
JAMES A. HARRIS. On January 24, 1994, we entered into an employment
agreement with Mr. James A. Harris, our President and Chief Executive Officer.
Currently, Mr. Harris is entitled to a base salary of $300,000 and a bonus, as
determined from time to time by our board of directors, that is not to exceed
one-half of Mr. Harris' annual base salary for the year. If Mr. Harris'
employment is terminated without cause, or as a result of death or disability,
Mr. Harris is entitled to payment of $16,667 per month for a period of twelve
months following his termination. We plan to amend Mr. Harris' employment
agreement prior to the offering to provide for a three-year term, create a
discretionary bonus and revise the existing severance provisions.
MORRIS L. BISHOP, JR. On August 5, 1994, we entered into an employment
agreement with Mr. Morris Bishop, Jr., our President and Chief Operating
Officer. Under the terms of this agreement, Mr. Bishop is entitled to a base
salary of $250,000 and a bonus in such amount not exceeding one-half of Mr.
Bishop's base salary and based on such criteria as may be established from time
to time by our board of directors. If Mr. Bishop's employment is terminated
without cause, he is entitled to payment of $12,500 per month for twelve months
after termination. We plan to amend Mr. Bishop's employment agreement prior to
the offering to provide for a three-year term, create a discretionary bonus and
revise the existing severance provisions.
MICHAEL J. STONE. On January 24, 1994, we entered into an employment
agreement with Mr. Michael J. Stone, our Executive Vice President--Development,
Chief Financial Officer, Treasurer and Secretary. Under this agreement, Mr.
Stone is entitled to a base salary of $250,000 and a bonus, as determined from
time to time by our board of directors, which is not to exceed one-half of Mr.
Stone's base salary for the year. If Mr. Stone's employment is terminated
without cause, or as a result of death or disability, he is entitled to payment
of $12,500 per month for twelve months after his termination. We plan to amend
Mr. Stone's employment agreement prior to the offering to provide for a
three-year term, create a discretionary bonus and revise the existing severance
provisions.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1998, the compensation committee of our board of directors held no
meetings. Accordingly, decisions concerning compensation of our executive
officers were made by the entire board. Other than Messrs. Harris and Stone,
none of our officers or employees participated in deliberations concerning such
compensation matters.
401(k) PLAN
We maintain a savings plan qualified under Section 401(a) and 401(k) of the
Internal Revenue Code. Generally, all of our full-time employees other than
union employees are eligible to participate in the plan. Employees electing to
participate in the plan are fully vested in their contributions. In addition, we
may make discretionary contributions under the plan each year. Participating
employees increase their vested interest in the discretionary contributions
based upon years of employment in which a minimum of 1,000 hours are worked and
they become fully vested after seven years. The maximum contribution for any
participant for any year is the maximum amount permitted under the Internal
Revenue Code.
COMMITTEES OF THE BOARD OF DIRECTORS
We have two standing committees of our board of directors: the compensation
committee and the audit committee. The compensation committee, which currently
consists of Messrs. Rauner, Donnini and Pullin, makes recommendations regarding
the incentive plan and decisions concerning salaries and incentive compensation
for our executive officers, key employees and consultants. The audit committee,
which currently consists of Messrs. Rauner, Donnini and Pullin, is responsible
for making recommendations to our board regarding the selection of independent
auditors, reviewing the results and scope of the audit and other services
provided by our independent accountants and reviewing and evaluating our audit
and control functions. Our board may also create other committees.
INCENTIVE PLAN
Prior to the completion of the offering, we will establish the U.S.
Aggregates, Inc. Long Term Incentive Plan. A maximum of 700,840 shares of our
common stock, subject to adjustment, have been initially authorized for the
granting of stock options under the incentive plan. To date, no options have
been granted pursuant to the incentive plan. We plan to grant stock options to
purchase 280,336 shares of our common stock to key employees concurrently with
the offering. Options granted under the incentive plan may be either "incentive
stock options," which qualify for special tax treatment under the Internal
Revenue Code, or nonqualified stock options. The purposes of the incentive plan
are to advance the interests of U.S. Aggregates and our stockholders by
providing our employees with an additional incentive to continue their efforts
on our behalf, as well as to attract people of experience and ability to U.S.
Aggregates. The incentive plan is intended to comply with Rule 16b-3 of the
Exchange Act.
It is expected that all of our and our subsidiaries' officers, directors and
other employees and consultants will be eligible to participate under the
incentive plan, as deemed appropriate by our compensation committee. Eligible
employees will not pay any cash consideration to us to receive the options. The
incentive plan will be administered by our compensation committee. The exercise
price for incentive stock options must be no less than the fair market value of
our common stock on the date of grant. The exercise price of nonqualified stock
options is not subject to any limitation based upon the then current market
value of our common stock. Options will expire no later than the tenth
anniversary of the date of grant. An option holder will be able to exercise
options from time to time, subject to vesting. Options will vest immediately
upon death or disability of a participant and upon some change of control
events. Upon termination for cause or at will, the unvested portion of the
options will be forfeited. Subject to the above conditions, the exercise price,
duration of the options and vesting provisions will be set by our compensation
committee in its discretion.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The table below sets forth the following information regarding the equity
ownership of U.S. Aggregates:
- each person or entity who beneficially owns five percent or more of our
common stock;
- each of our directors and executive officers;
- each of the selling stockholders; and
- all of our directors and executive officers as a group.
Unless otherwise stated, each of the persons named in the table has sole
voting and investment power with respect to the securities beneficially owned by
it, him or her as set forth opposite its, his or her name. Beneficial ownership
of our common stock listed in the table has been determined in accordance with
the applicable rules and regulations under the Exchange Act.
The table assumes no exercise of the underwriters' over-allotment option and
does not give effect to any purchases, if any, by such persons named in the
table in the offering. In addition, unless otherwise indicated, the address for
each person listed in the table is in care of U.S. Aggregates, Inc., 400 South
El Camino Real, Suite 500, San Mateo, California 94402.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING OFFERING
----------------------- -----------------------
NUMBER OF NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES PERCENT SHARES PERCENT
- --------------------------------------------------------------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Golder, Thoma, Cressey, Rauner Fund IV, L.P.(1)(2)................... 5,105,891 72.2% 8,103,678 53.6%
James A. Harris(1)(3)................................................ 497,505 7.0% 522,416 3.5%
Morris L. Bishop, Jr................................................. 123,893 1.8% 123,893 0.8%
Michael J. Stone(1)(4)............................................... 339,784 4.8% 356,392 2.4%
Bruce V. Rauner(1)(2)................................................ 5,105,891 72.2% 8,103,678 53.6%
David A. Donnini(1)(2)............................................... 5,105,891 72.2% 8,103,678 53.6%
Charles R. Pullin.................................................... 14,837 * 14,837 *
Edward A. Dougherty.................................................. 20,424 * 30,522 *
The Prudential Insurance Company of America(1)(5).................... 286,380 4.0% 286,380 1.9%
All directors and executive officers as a group (7 persons).......... 6,102,334 86.3% 9,151,738 60.5%
</TABLE>
- ------------------------
* Represents less than one percent.
(1) Four of our stockholders have granted the underwriters the right to purchase
up to 750,000 shares to cover any over-allotments. If the over-allotment
option is exercised in full, Golder, Thoma, Cressey, Rauner Fund IV, L.P.
will beneficially own 7,600,675 shares or 50.3%, The Prudential Insurance
Company of America will beneficially own 250,380 shares or 1.7%, James A.
Harris will beneficially own 397,044 shares or 2.6% and Michael J. Stone
will beneficially own 270,767 shares or 1.8%.
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<PAGE>
(2) All of such shares are held of record by Golder, Thoma, Cressey, Rauner Fund
IV, L.P. Golder, Thoma, Cressey, Rauner, Inc. is the general partner of GTCR
IV, L.P., which is the general partner of Golder, Thoma, Cressey, Rauner
Fund IV, L.P. Messrs. Rauner and Donnini are Principals of Golder, Thoma,
Cressey, Rauner, Inc., and may be deemed to share the power to vote and
dispose of such shares. The address of Golder, Thoma, Cressey, Rauner Fund
IV, L.P. is 6100 Sears Tower, Chicago, Illinois 60606. Each of Messrs.
Rauner and Donnini disclaims beneficial ownership of the shares of our
common stock owned by Golder, Thoma, Cressey, Rauner Fund IV, L.P.
(3) Includes 49,737 shares held by a charitable remainder trust and 199,010
shares held by a grantor retained annuity trust for the benefit of Mr.
Harris' sons. Mr. Harris disclaims beneficial ownership of the shares of our
common stock owned by the trusts.
(4) All of such shares are held by a trust for the benefit of Mr. Stone and his
wife for which they also serve as trustees. Mr. Stone disclaims beneficial
ownership of the shares of our common stock held by the trust.
(5) The Prudential Insurance Company of America owns warrants to purchase up to
286,380 shares of our common stock and has indicated that it intends to
convert all of its warrants into common stock upon the consummation of the
offering. The address of Prudential is in care of Prudential Capital Group,
One Gateway Center, 11th Floor, 7-45 Raymond Boulevard West, Newark, New
Jersey 07102-5311.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following discussion describes a number of transactions we have entered
into with affiliates. We believe that the terms of these transactions are at
least as fair to us as we could have obtained from unaffiliated third parties.
THE RECAPITALIZATION
In connection with and immediately prior to the consummation of the
offering, each outstanding share of Western Aggregates Holding Corp. common
stock not held by us will be converted into approximately 0.6227 shares of our
common stock, and each outstanding share of SRM Holdings Corp. common stock not
held by us will be converted into approximately 8.0707 shares of our common
stock. Each share of our common stock will then be subject to an approximate
30.0347 to 1 stock split. Concurrent with the consummation of the offering, we
will convert 300,842 shares of our preferred stock owned by Golder, Thoma,
Cressey, Rauner Fund IV, L.P., Messrs. Harris and Dougherty, a trust for the
benefit of Mr. Stone and his wife for which they also serve as trustees and Mrs.
Jeanne T. Richey, into an aggregate of 3,051,209 shares of our common stock. The
outstanding preferred stock will be converted into our common stock based upon
the initial public offering price. As of June 30, 1999, our outstanding
preferred stock totaled approximately $30.1 million, excluding accrued and
unpaid dividends of approximately $15.7 million. Dividends have accrued daily at
an annual rate of 10% on the preferred stock since the date of issuance. See
"Use of Proceeds" and "Description of Capital Stock--The Recapitalization" for a
further description of these events.
CERTAIN LOANS TO EXECUTIVES
As of June 30, 1999, we have outstanding principal loans of approximately
$146,000 to James A. Harris, our Chief Executive Officer and Chairman of the
Board, $100,000 to Michael J. Stone, our Executive Vice President, Chief
Financial Officer, Treasurer and Secretary and a Director, $247,000 to Morris L.
Bishop, Jr., our President and Chief Operating Officer and a Director, pursuant
to promissory notes to finance their purchase of our securities. Each of the
notes is secured by a pledge of the securities purchased with the note pursuant
to a pledge agreement between us and each of Messrs. Harris, Stone and Bishop.
The notes bear interest at a rate per annum equal to 8%. The principal amount of
the notes and all interest accrued thereon mature in part on various dates
beginning in October 2001, with the remainder maturing in October 2005. The
notes may be prepaid in full or in part at any time.
PROFESSIONAL SERVICES AGREEMENT
We have a professional services agreement with Golder, Thoma, Cressey,
Rauner, Inc. pursuant to which it provides financial and management consulting
services to us. Under the professional services agreement, Golder, Thoma,
Cressey, Rauner, Inc. receives an annual management fee equal to 0.25% of the
aggregate purchase price paid by Golder, Thoma, Cressey, Rauner Fund IV, L.P. to
us for our common and preferred stock up to a maximum of $150,000 per year plus
reimbursement of out-of-pocket expenses and an investment fee payable at the
time of any purchase of our common or preferred stock by Golder, Thoma, Cressey,
Rauner Fund IV, L.P. equal to 1.0% of the amount of the purchase price paid to
us by Golder, Thoma, Cressey, Rauner Fund IV, L.P. for the common or preferred
stock. For the year ended December 31, 1997 and for the year ended December 31,
1998, we paid or accrued $153,477 and $196,508, respectively, in fees under the
professional services agreement. The professional services agreement will be
terminated immediately prior to the consummation of the offering, and no fee
will be payable to Golder, Thoma, Cressey, Rauner, Inc. with respect to the
issuance of our common stock in the offering. Messrs. Rauner and Donnini will
continue to serve as directors of U.S. Aggregates and they will be compensated
as non-employee directors. See "Management--Compensation of Directors."
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<PAGE>
STOCKHOLDERS AGREEMENT
U.S. Aggregates, Golder, Thoma, Cressey, Rauner Fund IV, L.P., James A.
Harris Grantor
Retained Annuity Trust, The James A. Harris Charitable Remainder Unitrust, a
trust for the benefit of Mr. Stone and his wife for which they also serve as
trustees, Mrs. Jeanne T. Richey and Messrs. Harris, Bishop, Dougherty and Pullin
are parties to a stockholders agreement. The stockholders agreement provides
that the parties will nominate and vote for a total of seven persons to our
board of directors, which will be comprised of:
- two representatives designated by Golder, Thoma, Cressey, Rauner Fund IV,
L.P.;
- two members of our management designated by Messrs. Harris, Stone and
Richey, determined by a majority vote of our common stock held by Messrs.
Harris, Stone and Richey; and
- three representatives chosen jointly by Golder, Thoma, Cressey, Rauner
Fund IV, L.P. and Mr. Harris provided that such representatives are not
members of our management or an employee or officer of us.
If the members of our board of directors are not selected as provided in the
stockholders agreement, then the members are selected in accordance with our
certificate of incorporation and by-laws. Members of our board of directors may
only be removed from the board, with or without cause, upon the written request
of the party originally entitled to designate the director. If either of Messrs.
Harris or Stone ceases to be employed by us or our subsidiaries, they shall be
removed from our board.
The stockholders agreement generally restricts the transfer of any shares of
our common stock held by James A. Harris Grantor Retained Annuity Trust, The
James A. Harris Charitable Remainder Unitrust, a trust for the benefit of Mr.
Stone and his wife for which they also serve as trustees, Mrs. Jeanne T. Richey,
and Messrs. Harris, Bishop, Dougherty and Pullin by granting Golder, Thoma,
Cressey, Rauner Fund IV, L.P. and us rights of first refusal. The transfer
restrictions of the stockholders agreement automatically terminate upon the sale
by us of our common stock in an underwritten public offering. In addition, the
stockholders agreement requires us to authorize and reserve for issuance to
additional members of our management and our subsidiaries shares of our common
stock in an amount equal to 3% of our common stock on a fully diluted basis. In
addition, each party to the stockholders agreement has agreed to consent to our
sale if such sale is approved by our board and the holders of a majority of our
outstanding common stock. The parties to the stockholders agreement plan to
amend the agreement prior to or concurrently with the offering.
REGISTRATION AGREEMENT
U.S. Aggregates, Golder, Thoma, Cressey, Rauner Fund IV, L.P., James A.
Harris Grantor Retained Annuity Trust, The James A. Harris Charitable Remainder
Unitrust, a trust for the benefit of Mr. Stone and his wife for which they also
serve as trustees, Mrs. Jeanne T. Richey and Messrs. Harris, Bishop, Dougherty
and Pullin are parties to a registration agreement. Pursuant to the registration
agreement, the holders of a majority of our common stock issued pursuant to an
equity purchase agreement, or issued or issuable in respect of the securities
may request, after the offering of our common stock, up to three registrations
of all or any part of their common stock on Form S-1 or any similar long-form
registration statement, if available, an unlimited number of registrations on
Form S-2 or S-3 or any similar short-form registration statement, each at our
expense. In the event the holders of a majority of our common stock make such a
request, all other parties to the registration agreement will be entitled to
participate in the registration. The registration agreement also grants the
parties piggyback registration rights with respect to registrations by us of our
securities, other than the offering. We will pay all expenses related to these
piggyback registrations.
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<PAGE>
FINANCIAL ADVISORY ARRANGEMENTS
Pursuant to financial advisory agreements between U.S. Aggregates and Edward
A. Dougherty, a Director of U.S. Aggregates, Mr. Dougherty has served as an
advisor to us with respect to strategic financial planning from time to time in
connection with our acquisition program and securing and completing specific
financing arrangements. We paid Mr. Dougherty a total of $404,000 in 1998 for
financial advisory services rendered to us. In 1999, to date, we have paid Mr.
Dougherty $268,705 and will pay him $140,000 upon the consummation of the
offering.
CERTAIN FAMILY RELATIONSHIPS
David Harris, the son of James A. Harris, our Chief Executive Officer and
Chairman, is a full-time employee of Southern Ready Mix, Inc., one of our
subsidiaries. David Harris receives a salary of approximately $90,000 for
performing services as an employee.
Christopher M. Bishop, the son of Morris L. Bishop, Jr., our President and
Chief Operating Officer and a Director, and Timothy K. Bishop, the brother of
Morris L. Bishop, Jr., are full-time employees of Southern Ready Mix, Inc., one
of our subsidiaries. Each receives a salary of approximately $60,000 for
services performed as an employee.
Ashia H. Stone, the wife of Michael J. Stone, our Executive Vice
President--Development, Chief Financial Officer, Treasurer and Secretary and a
Director, acts as one of our financial advisors. We paid Ms. Stone a total of
$151,180 in 1998 for financial advisory services provided to us.
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<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR CREDIT FACILITY
GENERAL. On June 5, 1998, U.S. Aggregates, Bank of America National Trust
and Savings Association, as agent, and other financial institutions entered into
a third amended and restated bank credit facility and, on April 14, 1999, U.S.
Aggregates, the agent and other financial institutions amended the credit
facility. The borrowings under our credit facility were used to refinance
indebtedness under our prior credit facility and to finance the acquisition of
Monroc, Inc. As of June 30, 1999, we had unused borrowing capacity under our
credit facility of $16.6 million. As of June 30, 1999, on a pro forma as
adjusted basis we would have had unused borrowing capacity under our credit
facility of $43.1 million.
The credit facility provides for two tranches of term loans to U.S.
Aggregates for $55.0 million and $60.0 million and revolving loans to U.S.
Aggregates for up to $60.0 million. Subject to restrictions, our credit facility
may be used for working capital and general corporate purposes of U.S.
Aggregates and our subsidiaries, including permitted acquisitions.
REPAYMENT. The revolving loans must be repaid on June 5, 2004. The
remaining principal repayment schedule for the $55.0 million term loan is:
- $3.525 million in 1999;
- $8.45 million in 2000;
- $11.2 million in 2001;
- $12.45 million in 2002;
- $14.2 million in 2003; and
- $3.675 million in 2004.
The remaining principal repayment schedule for the $60.0 million term loan
is:
- $0.29 million in 1999;
- $0.39 million in 2000;
- $0.39 million in 2001;
- $0.39 million in 2002;
- $0.39 million in 2003;
- $0.39 million in 2004;
- $0.39 million in 2005; and
- $55.89 million in 2006.
Loans made pursuant to our credit facility may be repaid and, in the case of
the revolving loans, borrowed and reborrowed, without premium or penalty, other
than prepayments of eurodollar loans which may be subject to customary breakage
costs from time to time until maturity, subject to the satisfaction of various
conditions on the date of borrowing. In addition, subject to exceptions, our
credit facility provides for mandatory repayments of any outstanding borrowings
out of the following:
- any net cash proceeds received from a sale of assets;
- net cash proceeds of permitted debt issuances;
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- 50.0% of net cash proceeds of permitted equity issuances, reducing to 0.0%
when our leverage ratio is less than 3.5:1.0;
- subject to reinvestment rights, net cash proceeds from insurance recovery
and condemnation events; and
- 50.0% of annual excess cash flow, reducing to 0.0% when our leverage ratio
is less than 3.5:1.0.
SECURITY; GUARANTY. Our obligations under our credit facility are
guaranteed by each of our existing subsidiaries and will be guaranteed by each
or our future subsidiaries. Our obligations under our credit facility and each
of our subsidiaries under its guarantee is or will be secured by:
- a first priority security interest in substantially all of the assets of
such person; and
- a pledge of all of the capital stock of each of our direct and indirect
domestic subsidiaries.
INTEREST. At our option, the interest rates per year applicable to the
loans under our credit facility are a fluctuating rate of interest measured by
reference to one or a combination of the following:
- the base rate, plus the applicable borrowing margin; or
- the relevant eurodollar rate, plus the applicable borrowing margin.
The applicable borrowing margins are subject to adjustment based on our
leverage ratio.
FEES. We have agreed to pay various fees in connection with our existing
credit facility, including:
- letter of credit fees;
- agency fees;
- arranger fees; and
- commitment fees.
Commitment fees are payable on the daily unused amount of the revolver.
COVENANTS. Our existing credit facility requires us to meet three material
financial tests, which are:
- a maximum leverage ratio;
- a minimum interest coverage ratio; and
- a minimum fixed charge coverage ratio.
Our credit facility also contains covenants which, among other things,
restrict our ability and the ability of our subsidiaries to:
- incur liens;
- transact with affiliates;
- incur indebtedness;
- declare dividends or redeem or repurchase capital stock;
- make loans and investments;
- engage in mergers, acquisitions, consolidations and asset sales;
- acquire assets, stock or debt securities of any person;
- have additional subsidiaries;
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- amend our or its certificate of incorporation; and
- make capital expenditures.
Our existing credit facility also requires us and our subsidiaries to
satisfy customary affirmative covenants and to make customary indemnifications
to the lenders and the administrative agent under our credit facility.
EVENTS OF DEFAULT. Our existing credit facility contains customary events
of default, including:
- payment defaults;
- breaches of representations and warranties;
- covenant defaults;
- events of bankruptcy and insolvency;
- ERISA violations;
- judgment defaults;
- cross-defaults to other material indebtedness; and
- a change in control.
THE SENIOR SUBORDINATED NOTES
GENERAL. On November 21, 1996, The Prudential Insurance Company of America
purchased $30.0 million principal amount of our 10.34% senior subordinated notes
due November 22, 2006 and on June 5, 1998, it purchased $15.0 million principal
amount of our 10.09% senior subordinated notes due November 22, 2008. The
proceeds of the 1998 senior subordinated notes were used for working capital and
other general corporate purposes and to finance the acquisition of Monroc, Inc.
WARRANTS. In connection with the issuance of the senior subordinated notes
in 1996, we issued warrants to purchase 190,030 shares of our common stock for
an aggregate purchase price of $63.27 to Prudential. In connection with the
issuance of the senior subordinated notes in 1998, we issued warrants to
purchase 96,350 shares of shares of our common stock for an aggregate purchase
price of $32.08 to Prudential. Prudential has registration rights with respect
to the warrants.
REPAYMENT. The principal repayment schedule for the senior subordinated
notes issued in 1996 is:
- $6.0 million in 2003;
- $6.0 million in 2004;
- $6.0 million in 2005; and
- $12.0 million in 2006.
The principal repayment schedule for the senior subordinated notes issued in
1998 is:
- $4.5 million in 2006;
- $4.5 million in 2007; and
- $6.0 million in 2008.
Subject to exceptions, the senior subordinated notes may not be prepaid
without premium or penalty.
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GUARANTY. Our obligations under the senior subordinated notes are
guaranteed by each of our existing subsidiaries and will be guaranteed by each
or our future subsidiaries.
INTEREST. The senior subordinated notes issued in 1996 bear interest at a
rate of 10.34% per year and the senior subordinated notes issued in 1998 bear
interest at a rate of 10.09% per year. Interest on the senior subordinated notes
is paid quarterly.
COVENANTS. Our senior subordinated notes require us to meet three material
financial tests, which are:
- a maximum leverage ratio;
- a minimum interest expense coverage ratio; and
- a minimum fixed charge coverage ratio.
Our senior subordinated notes also contain covenants which, among other
things, restrict our ability and the ability of our subsidiaries to:
- incur liens;
- transact with affiliates;
- incur indebtedness;
- declare dividends or redeem or repurchase capital stock;
- make loans and investments;
- engage in mergers, acquisitions, consolidations and asset sales;
- acquire assets, stock or debt securities of any person;
- have additional subsidiaries;
- amend our or their certificate of incorporation; and
- make capital expenditures.
Our senior subordinated notes also require us and our subsidiaries to
satisfy customary affirmative covenants and to make customary indemnifications
to Prudential.
EVENTS OF DEFAULT. Our senior subordinated note documents contain customary
events of default, including:
- payment defaults;
- breaches of representations and warranties;
- covenant defaults;
- events of bankruptcy and insolvency;
- ERISA violations;
- judgment defaults; and
- cross-defaults to other material indebtedness.
THE HTSB UNSECURED DEMAND NOTE
GENERAL. On April 15, 1999, Harris Trust and Savings Bank provided us with
a $17.5 million, floating rate, revolving line of credit evidenced by the HTSB
Note. We borrowed $7.5 million for
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working capital and other general corporate purposes and $8.2 million to repay
borrowings under an existing facility with Harris Trust and Savings Bank. As of
June 30, 1999, we had $16.0 million outstanding under the HTSB Note. The HTSB
Note is a general unsecured obligation of U.S. Aggregates.
REPAYMENT. The HTSB Note is due and payable on demand and may be repaid in
whole or in part without premium or penalty at any time.
INTEREST. The interest rate per year applicable to the HTSB Note is the
prime commercial rate announced by Harris Trust and Savings Bank. Interest is
payable quarterly and upon demand.
GUARANTY. Golder, Thoma, Cressey, Rauner Fund IV, L.P. has guaranteed the
repayment of the HTSB Note. In addition, we entered into a letter agreement
among Golder, Thoma, Cressey, Rauner Fund IV, L.P., Harris Trust and Savings
Bank, Bank of America Trust and National Association, and The Prudential
Insurance Company of America. Under the letter agreement, Golder, Thoma,
Cressey, Rauner Fund IV, L.P. has agreed to contribute capital to fund the
repayment of the HTSB Note upon the request of Harris Trust and Savings Bank.
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DESCRIPTION OF CAPITAL STOCK
GENERAL MATTERS
Immediately prior to the offering, the total amount of our authorized
capital stock will consist of 100,000,000 shares of our common stock, par value
$0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01 per
share. Upon completion of the offering, 15,123,573 shares of common stock will
be issued and outstanding and no shares of our preferred stock will be issued
and outstanding. The discussion below describes our capital stock, the restated
certificate of incorporation and by-laws as anticipated to be in effect upon
consummation of the offering. The following summary of the provisions of our
capital stock describes all material provisions of, but does not purport to be
complete and is subject to, and qualified in its entirety by, our restated
certificate of incorporation and by-laws that are included as exhibits to the
registration statement of which this prospectus forms a part and by the
provisions of applicable law.
Immediately following the offering, the restated certificate of
incorporation and by-laws will contain provisions that are intended to enhance
the likelihood of continuity and stability in the composition of our board of
directors. These provisions may have the effect of delaying, deferring or
preventing a future takeover or change in control of U.S. Aggregates unless such
takeover or change in control is approved by our board of directors.
THE RECAPITALIZATION
In connection with and immediately prior to the consummation of the
offering, each outstanding share of Western Aggregates Holding Corp. common
stock not held by us will be converted into approximately 0.6227 shares of our
common stock. Each outstanding share of SRM Holdings Corp. common stock not held
by us will be converted into approximately 8.0707 shares of our common stock.
Each share of our common stock will then be subject to an approximate 30.0347 to
1 stock split. In addition, each share of our preferred stock will be converted
into a number of shares of our common stock based upon the initial public
offering price. See "Certain Relationships and Related Transactions" for a
further description of these transactions.
COMMON STOCK
All outstanding shares of our common stock are fully paid and
non-assessable. Subject to the prior rights of the holders of our preferred
stock, the holders of our common stock are entitled to receive dividends at such
time and in such amounts as our board of directors may determine. See "Dividend
Policy" for a further description of your dividend rights.
The shares of our common stock are not convertible and the holders thereof
have no preemptive or subscription rights to purchase any of our securities.
Upon our liquidation, dissolution or winding up, the holders of our common stock
are entitled to receive pro rata all of our assets which are legally available
for distribution, after payment of all debts and other liabilities and subject
to the prior rights of any holders of our preferred stock which is then
outstanding. Each outstanding share of our common stock is entitled to one vote
on all matters submitted to a vote of stockholders. There is no cumulative
voting.
Our common stock has been approved for trading on the New York Stock
Exchange under the symbol "AGA," subject to official notice of issuance.
PREFERRED STOCK
Our board of directors may, without further action by our stockholders,
direct the issuance of up to 10,000,000 shares of our preferred stock. At the
time of issuance, they may determine the series and rights, preferences and
limitations of each series. Satisfaction of any dividend preferences of our
preferred stock would reduce the amount of funds available for the payment of
dividends on shares of our common stock. Holders of our preferred stock may be
entitled to receive a preference payment in the
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event of our liquidation, dissolution or winding-up before any payment is made
to the holders of our common stock. Under some circumstances, the issuance of
our preferred stock may render more difficult or tend to discourage a merger,
tender offer or proxy contest, the assumption of control by a holder of a large
block of our securities or the removal of incumbent management. Upon the
approval of a majority of the total number of our directors then in office, our
board of directors, without stockholder approval, may issue shares of our
preferred stock with voting and conversion rights which could adversely affect
the holders of shares of our common stock. Upon consummation of the offering,
there will be no shares of our preferred stock outstanding, and we have no
present intention to issue any additional shares of our preferred stock.
CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS
Our restated certificate of incorporation provides for our board of
directors to be divided into three classes, as nearly equal in number as
possible, serving staggered terms. Approximately one-third of our board will be
elected each year. Under Delaware law, directors serving on a classified board
can only be removed for cause. The provision for a classified board could
prevent a party who acquires control of a majority of our outstanding voting
stock from obtaining control of our board until the second annual stockholders
meeting following the date the acquiror obtains the controlling stock interest.
This provision could have the effect of discouraging a potential acquiror from
making a tender offer or otherwise attempting to obtain control of us and could
increase the likelihood that incumbent directors will retain their positions.
See "Management" for a further discussion of our directors.
Our restated certificate of incorporation provides that stockholder action
can be taken only at an annual or special meeting of stockholders and cannot be
taken by written consent in lieu of a meeting. Our restated certificate of
incorporation and the by-laws provide that, except as otherwise required by law,
special meetings of the stockholders can only be called pursuant to a resolution
adopted by a majority of our board or by our chief executive officer.
Stockholders will not be permitted to call a special meeting or to require our
board to call a special meeting.
The by-laws establish an advance notice procedure for stockholder proposals
to be brought before an annual meeting of our stockholders, including proposed
nominations of persons for election to our board.
Stockholders at an annual meeting may only consider proposals or nominations
specified in the notice of meeting or brought before the meeting by or at the
direction of our board or by a stockholder who was a stockholder of record on
the record date for the meeting, who is entitled to vote at the meeting and who
has given to our Secretary timely written notice, in proper form, of the
stockholder's intention to bring that business before the meeting. Although the
by-laws do not give our board the power to approve or disapprove stockholder
nominations of candidates or proposals regarding other business to be conducted
at a special or annual meeting, the by-laws may have the effect of precluding
the conduct of some business at a meeting if the proper procedures are not
followed or may discourage or defer a potential acquiror from conducting a
solicitation of proxies to elect its own slate of directors or otherwise
attempting to obtain control of U.S. Aggregates.
Our restated certificate of incorporation and by-laws provide that the
approval of holders of at least 80% of the total votes eligible to be cast in
the election of directors is required to amend, alter, change or repeal some of
their provisions. This requirement of a super-majority vote to approve
amendments to our restated certificate of incorporation and by-laws could enable
a minority of our stockholders to exercise veto power over any such amendments.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
We are a Delaware corporation and subject to Section 203 of the Delaware
corporate law. Generally, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the time such stockholder
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became an interested stockholder unless, as described below, some conditions are
satisfied. Thus, it may make acquisition of control of our company more
difficult. The prohibitions in Section 203 do not apply if:
- prior to the time the stockholder became an interested stockholder, the
board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming
an interested stockholder;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced; or
- at or subsequent to the time the stockholder became an interested
stockholder, the business combination is approved by the board of
directors and authorized by the affirmative vote of at least 66 2/3% of
the outstanding voting stock that is not owned by the interested
stockholder.
Under Section 203, a "business combination" includes:
- any merger or consolidation of the corporation with the interested
stockholder;
- any sale, lease, exchange or other disposition, except proportionately as
a stockholder of such corporation, to or with the interested stockholder
of assets of the corporation having an aggregate market value equal to 10%
or more of either the aggregate market value of all the assets of the
corporation or the aggregate market value of all the outstanding stock of
the corporation;
- transactions resulting in the issuance or transfer by the corporation of
stock of the corporation to the interested stockholder;
- transactions involving the corporation which have the effect of increasing
the proportionate share of the stock of any class or series of the
corporation which is owned by the interested stockholder; or
- transactions in which the interested stockholder receives financial
benefits provided by the corporation.
Under Section 203, an "interested stockholder" generally is:
- any person who owns 15% or more of the outstanding voting stock of the
corporation;
- any person who is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at
any time within the three-year period prior to the date on which it is
sought to be determined whether such person is an interested stockholder;
and
- the affiliates or associates of any such person.
Because Golder, Thoma, Cressey, Rauner Fund IV, L.P. owned more than 15% of
our voting stock prior to the offering, Section 203 by its terms is currently
not applicable to business combinations with Golder, Thoma, Cressey, Rauner Fund
IV, L.P. If any other person acquires 15% or more of our outstanding voting
stock, such person will be subject to the provisions of Section 203.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our restated certificate of incorporation limits the liability of our
directors to the fullest extent permitted by Delaware law. In addition, our
restated certificate of incorporation will provide that we shall indemnify our
directors and officers to the fullest extent permitted by Delaware law. We
anticipate entering into indemnification agreements with our current directors
and executive officers prior to the completion of the offering and any new
directors or executive officers following such time.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Harris Trust and
Savings Bank.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering there has been no market for our common stock. We can
make no predictions as to the effect, if any, that sales of shares or the
availability of shares for sale will have on the market price of our common
stock. Nevertheless, sales of significant amounts of our common stock in the
public market, or the perception that such sales may occur, could adversely
affect prevailing market prices. See "Risk Factors" for a further description of
the effect of sales of our common stock.
Upon completion of the offering, we expect to have 15,123,573 shares of our
common stock outstanding. In addition, 280,336 shares of common stock will be
issuable upon the exercise of outstanding stock options pursuant to our
incentive plan. Of the shares outstanding after the offering, the 5,000,000
shares of our common stock, 5,750,000 shares if the underwriters' over-allotment
is exercised in full, sold in the offering will be freely tradeable without
restriction under the Securities Act, except for any such shares which may be
acquired by an "affiliate" of U.S. Aggregates under Rule 144 of the Securities
Act. Those shares will be subject to the volume limitations and other
restrictions of Rule 144 described below. An aggregate of 10,123,573 shares of
our common stock held by existing stockholders will be "restricted securities"
under Rule 144 and may not be resold in the absence of registration under the
Securities Act or pursuant to an exemption from such registration, including
among others, the exemption provided by Rule 144.
In general, under Rule 144 as currently in effect, beginning ninety days
after the date of this prospectus, if a period of at least one year has elapsed
since the later of the date the "restricted securities" were acquired from us or
the date they were acquired from an affiliate, then the holder of such
restricted securities is entitled to sell in the public market a number of
shares within any three-month period that does not exceed the greater of 1% of
the then outstanding shares of our common stock, approximately 151,124 shares
immediately after the offering, or the average weekly reported volume of trading
of our common stock on the New York Stock Exchange during the four calendar
weeks preceding such sale. The holder may only sell such shares through
"brokers' transactions" or in transactions directly with a "market maker." Sales
under Rule 144 are also subject to requirements regarding providing notice of
such sales and the availability of current public information concerning U.S.
Aggregates. Affiliates may sell shares not constituting restricted shares in
accordance with the foregoing volume limitations and other requirements but
without regard to the one-year holding period. Under Rule 144(k), if a period of
at least two years has elapsed between the later of the date restricted
securities were acquired from us or the date they were acquired from an
affiliate, a holder of such restricted securities who is not an affiliate at the
time of the sale and has not been an affiliate for at least three months prior
to the sale would be entitled to sell the shares in the public market without
regard to the volume limitations and other restrictions described above.
Beginning February, 2000, approximately 10,123,573 shares of our common stock
will be eligible for sale in the public market pursuant to Rule 144, subject to
the volume limitations and other restrictions described above.
Notwithstanding the foregoing, our executive officers, directors and some of
the existing stockholders, who own in aggregate approximately 9,474,210 shares
of our common stock, have agreed that, without the prior consent of Deutsche
Bank Securities Inc., they will not (1) directly or indirectly, sell, offer to
sell, grant any option for the sale of or otherwise dispose of any shares of our
common stock or securities or rights convertible into or exercisable or
exchangeable for our common stock, except through gifts to persons who agree in
writing to be bound by such restrictions or (2) make any demand for or exercise
any right with respect to the registration of any shares of our common stock or
other such securities, for a period of 180 days after the date of this
prospectus.
Approximately 700,840 shares of our common stock are reserved for issuance
under the incentive plan. We currently intend to file a registration statement
on Form S-8 under the Securities Act to register all shares of our common stock
issuable pursuant to the incentive plan. We expect to file such
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registration statement within 90 days following the date of this prospectus and
such registration statement will become effective upon filing. Shares covered by
the registration statement will thereafter be eligible for sale in the public
markets, subject to Rule 144 under the Securities Act.
U.S. Aggregates, Golder, Thoma, Cressey, Rauner Fund IV, L.P., James A.
Harris Grantor Retained Annuity Trust, The James A. Harris Charitable Remainder
Unitrust, a trust for the benefit of Mr. Stone and his wife for which they also
serve as trustees, Messrs. Harris, Bishop, Dougherty and Pullin and one of our
other stockholders are parties to a registration agreement. Pursuant to this
agreement, the holders of a majority of our common stock issued pursuant to an
equity purchase agreement, or issued or issuable in respect of such securities,
may request, after the offering, up to three registrations of all or any part of
our common stock on Form S-1 or any similar long-form registration statement, if
available, and an unlimited number of registrations on Form S-2 or S-3 or any
similar short-form registration statement, each at our expense. In the event
such holders make such request, all other parties to the registration agreement
will be entitled to participate in such registration. The registration agreement
also grants the parties piggyback registration rights with respect to
registrations by us of our securities, other than in the offering, and we have
agreed to pay all expenses related to such piggyback registrations. The parties
to the registration agreement will own approximately 9,187,830 shares of our
common stock immediately after the offering.
U.S. Aggregates, Golder, Thoma, Cressey, Rauner Fund IV, L.P., Messrs.
Harris and Stone and The Prudential Insurance Company of America have entered
into a registration rights and stockholders' agreement pursuant to which
Prudential has been granted registration rights with respect to shares of our
common stock issuable upon the exercise of warrants held by Prudential. If we
propose at any time to register any of our common stock for sale to the public,
we have agreed to use our best efforts to include in the registration shares
requested to be registered by Prudential. We have agreed to pay all expenses
related to any shares which are registered on behalf of Prudential. Upon
exercise of the warrants in full, Prudential would own approximately 2.0% of our
common stock immediately after the offering.
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MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
GENERAL
The following is a general discussion of the principal United States federal
income and estate tax consequences of the ownership and disposition of common
stock by a non-U.S. holder. For this purpose, the term "non-U.S. holder" means
any person or entity that is, for United States federal income tax purposes, a
foreign corporation, a non-resident alien individual, a foreign partnership or a
foreign estate or trust. This discussion is based on currently existing
provisions of the Internal Revenue Code, final, temporary and proposed
regulations promulgated thereunder, and administrative and judicial
interpretations thereof. All of these provisions, regulations and
interpretations are subject to change, possibly with retroactive effect, or
different interpretations. This discussion is limited to non-U.S. holders who
hold shares of our common stock as capital assets within the meaning of Section
1221 of the Code. Moreover, this discussion does not address all aspects of
United States federal income and estate taxes that may be relevant to a
particular non-U.S. holder in light of the holder's particular circumstances. It
does not describe tax provisions which may apply to individuals who relinquish
their United States citizenship or residence.
An individual may, subject to exceptions, be deemed to be a resident alien,
as opposed to a nonresident alien, by virtue of being present in the United
States for at least 31 days in the calendar year and for an aggregate of at
least 183 days during a three-year period ending in the current calendar year.
For such purposes all of the days present in the current year, one-third of the
days present in the immediately preceding year, and one-sixth of the days
present in the second preceding year are counted. Resident aliens are subject to
United States federal income tax as if they were United States citizens.
EACH PROSPECTIVE PURCHASER OF OUR COMMON STOCK IS ADVISED TO CONSULT A TAX
ADVISOR WITH RESPECT TO CURRENT AND POSSIBLE FUTURE TAX CONSEQUENCES ON THAT
PROSPECTIVE PURCHASER OF PURCHASING, OWNING AND DISPOSING OF OUR COMMON STOCK AS
WELL AS ANY TAX CONSEQUENCES ON THAT PROSPECTIVE PURCHASER THAT MAY ARISE UNDER
THE LAWS OF ANY FEDERAL, STATE, MUNICIPALITY OR OTHER TAXING JURISDICTION.
DIVIDENDS
In the event that dividends are paid on shares of our common stock,
dividends paid to a non-U.S. holder of our common stock will be subject to
withholding of United States federal income tax at a 30% rate or such lower rate
as may be specified by an applicable income tax treaty. To claim the benefit of
a lower rate under an income tax treaty, a non-U.S. holder of common stock must
properly file a form with the payor, claiming an exemption from or reduction in
withholding under such tax treaty.
Any dividends paid on shares of common stock to a non-U.S. holder will not
be subject to withholding tax, but instead are subject to United States federal
income tax on a net basis at applicable graduated individual or corporate rates
if:
- dividends are effectively connected with the conduct of a trade or
business by the non-U.S. holder within the United States and, where a tax
treaty applies, will be attributable to a United States permanent
establishment of the non-U.S. holder; and
- an IRS Form 4224, or successor form, is filed with the payor.
Any such effectively connected dividends received by a foreign corporation may,
under some circumstances, be subject to an additional "branch profits tax" at a
rate of 30% or such lower rate as may be specified by an applicable income tax
treaty.
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Unless the payor has knowledge to the contrary, dividends paid prior to
January 1, 2001 to an address outside the United States are presumed to be paid
to a resident of such country for purposes of the withholding discussed above
and for purposes of determining the applicability of a tax treaty rate. However,
recently finalized Treasury regulations pertaining to United States federal
withholding tax provide that a non-U.S. holder must comply with new
certification procedures with respect to dividends paid after December 31, 2000.
In the case of payments made outside the United States with respect to an
offshore account, a non-U.S. holder must comply with documentary evidence
procedures, directly or under some circumstances through an intermediary, to
obtain the benefits of a reduced rate under an income tax treaty with respect to
dividends paid after December 31, 2000. In addition, tax regulations will
require a non-U.S. holder to provide its United States taxpayer identification
number.
A non-U.S. holder of our common stock eligible for a reduced rate of
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for refund with the IRS.
GAIN ON DISPOSITION OF OUR COMMON STOCK
A non-U.S. holder generally will not be subject to federal income tax with
respect to gain recognized on a sale or other disposition of our common stock
unless:
(1) the gain is effectively connected with a trade or business of the
non-U.S. holder in the United States and, where a tax treaty applies, is
attributable to a United States permanent establishment of the non-U.S.
holder;
(2) in the case of a non-U.S. holder who is an individual and holds the
common stock as a capital asset, such holder is present in the United
States for 183 or more days in the taxable year of the sale or other
disposition and other conditions are met; or
(3) U.S. Aggregates is or has been a "U.S. real property holding
corporation" for federal income tax purposes, as discussed below.
An individual non-U.S. holder who falls under clause (1) above will, unless
an applicable treaty provides otherwise, be taxed on his or her net gain derived
from the sale or other disposition of our common stock under regular graduated
individual United States federal income tax rates. An individual non-U.S. holder
who falls under clause (2) above will be subject to a flat 30% tax on the gain
derived from the sale, which may be offset by United States capital losses.
A non-U.S. holder that is a foreign corporation falling under clause (1)
above will be taxed on its gain under regular graduated corporate United States
federal income tax rates and may be subject to an additional branch profits tax
equal to 30% of its effectively connected earnings and profits within the
meaning of the Code for the taxable year, as adjusted for certain items, unless
it qualifies for a lower rate under an applicable income tax treaty.
A corporation is a U.S. real property holding corporation if the fair market
value of the United States real property interests held by the corporation is
50% or more of the aggregate fair market value of its United States and foreign
real property interests and any other assets used or held for use by the
corporation in a trade or business. Based on our current and anticipated assets,
we believe that we are likely a U.S. real property holding corporation.
If we are a U.S. real property holding corporation, then gain on the sale or
other disposition of our common stock by a non-U.S. holder generally would be
subject to United States federal income tax unless both:
- the common stock was "regularly traded" on an established securities
market within the meaning of applicable regulations; and
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- the non-U.S. holder actually or constructively owned 5% or less of the
common stock during the shorter of the five-year period preceding such
disposition or the non-U.S. holder's holding period.
Non-U.S. holders should consult their tax advisors concerning any tax
consequences that may arise if we are a U.S. real property holding company.
FEDERAL ESTATE TAX
Common stock owned or treated as owned by an individual non-U.S. holder at
the time of death will be included in such holder's gross estate for federal
estate tax purposes, and may be subject to federal estate tax unless an
applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
We must report annually to the IRS and to each non-U.S. holder the amount of
dividends paid to such holder and the tax withheld with respect to such
dividends, regardless of whether withholding was required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the non-U.S. holder
resides under the provisions of an applicable income tax treaty or other
agreement.
Backup withholding is imposed at the rate of 31% on some payments to persons
that fail to furnish identifying information to the payer. Backup withholding
generally will not apply to dividends paid prior to January 1, 2001 to a
non-U.S. holder at an address outside the United States, unless the payor has
knowledge that the payee is a United States person. In the case of dividends
paid after December 31, 2000, the regulations provide that a non-U.S. holder
generally will be subject to withholding tax at a 31% rate unless certification
procedures, or, in the case of payments made outside the United States with
respect to an offshore account, documentary evidence procedures, are complied
with, directly or under some circumstances through an intermediary. Backup
withholding and information reporting generally will also apply to dividends
paid on common stock at addresses inside the United States to non-U.S. holders
that fail to provide identifying information in the manner required. Regulations
provide presumptions under which a non-U.S. holder would be subject to backup
withholding and information reporting unless certification from the holder of
the non-U.S. holder's non-United States status is provided.
Payment of the proceeds of a sale of common stock effected by or through a
United States office of a broker is subject to both backup withholding and
information reporting unless the beneficial owner provides the payor with its
name and address and certifies under penalties of perjury that it is a non-U.S.
holder, or otherwise establishes an exemption. In general, backup withholding
and information reporting will not apply to a payment of the proceeds of a sale
of common stock by or through a foreign office of a broker. If, however, such
broker is, for federal income tax purposes, a United States person, a controlled
foreign corporation, or a foreign person that derives 50% or more of its gross
income for certain periods from the conduct of a trade or business in the United
States, or, in addition, for periods after December 31, 2000, a foreign
partnership that at any time during its tax year either is engaged in the
conduct of a trade or business in the United States or has as partners one or
more United States persons that, in the aggregate, hold more than 50% of the
income or capital interest in the partnership, such payments will be subject to
information reporting, but not backup withholding, unless such broker has
documentary evidence in its records that the beneficial owner is a non-U.S.
holder and other conditions are met or the beneficial owner otherwise
establishes an exemption.
Any amounts withheld under the backup withholding rules generally will be
allowed as a refund or a credit against the non-U.S. holder's federal income tax
liability provided the required information is furnished in a timely manner to
the IRS.
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UNDERWRITING
We have agreed to sell to the underwriters named below the number of shares
of our common stock set forth opposite the name of the underwriter below.
Deutsche Bank Securities Inc., Schroder & Co. Inc. and The Robinson-Humphrey
Company, LLC are the representatives of the underwriters.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Deutsche Bank Securities Inc...............................................
Schroder & Co. Inc.........................................................
The Robinson-Humphrey Company, LLC.........................................
Total....................................................................
-----------------
</TABLE>
The underwriters will purchase all of the shares of common stock offered in
the offering, other than those shares covered by the over-allotment option
described below, if they purchase any shares.
The underwriters will initially offer the shares to the public at the
offering price set forth on the cover page of this prospectus and to selling
group members at that price less a concession not in excess of $ per share.
The underwriters and selling group members may allow a discount not in excess of
$ per share to other broker-dealers. After the offering, the underwriters
may change the public offering price and other selling terms.
The following table summarizes the compensation and the estimated expenses
we and the selling stockholders will pay:
<TABLE>
<CAPTION>
TOTAL
----------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
----------- ------------- -------------
<S> <C> <C> <C>
Underwriting discounts and commissions..................................
Expenses payable by U.S. Aggregates.....................................
Expenses payable by the selling stockholders............................
</TABLE>
The selling stockholders have granted to the underwriters a 30-day option,
exercisable by Deutsche Bank Securities Inc., to purchase up to 750,000
additional shares of our common stock at the initial public offering price less
the underwriting discounts and commissions. The option may only be exercised to
cover over-allotments of our common stock. We and the selling stockholders have
agreed to indemnify the underwriters against certain liabilities, including
liabilities under the Securities Act.
The underwriters may engage in transactions that stabilize, maintain or
otherwise affect the market price of our common stock. Specifically, the
underwriters may accept orders for more shares of the common stock than are
being offered in the offering. Additionally, to cover those orders or to
stabilize the market price of the common stock, the underwriters may bid for and
purchase shares of our common stock in the open market. Finally, the
underwriters may reclaim selling discounts allowed to an underwriter or dealer
if the underwriting syndicate repurchases shares distributed by that underwriter
or dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
We and our officers, directors and stockholders have each agreed that, for a
period of 180 days after the date of this prospectus, we will not offer, sell,
contract to sell or otherwise dispose of any shares of our common stock, or
enter into any transaction designed to, or which could be expected to, result in
the disposition of any portion of our common stock without the prior written
consent of Deutsche Bank Securities Inc., which may give its consent at any time
without public notice. The restriction on disposition of our common stock
includes shares of our common stock exchanged for shares of stock of our
subsidiaries.
73
<PAGE>
The underwriters have advised us that they do not expect discretionary sales
to exceed 5% of the offering.
Prior to the closing of the offering, there has been no public market for
our common stock. The initial public offering price has been determined by
negotiation among us and the representatives of the underwriters. The principal
factors considered in determining the public offering price included:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalizations and stages of development of generally
comparable companies;
- estimates of our business potential; and
- other factors deemed relevant by us and the representatives.
74
<PAGE>
EXPERTS
The financial statements of U.S. Aggregates included in this registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
The consolidated financial statements of Monroc, Inc. and Subsidiary for the
year ended December 31, 1997, included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The consolidated financial statements of Monroc, Inc. and subsidiary for the
year ended December 31, 1996 included in this registration statement have been
audited by Grant Thornton LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.
LEGAL MATTERS
Certain legal matters in connection with our common stock offered hereby
will be passed upon for us by Kirkland & Ellis. Certain legal matters will be
passed upon for the U.S. underwriters and the international managers by Winston
& Strawn.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act relating to the common stock offered in the offering. This
prospectus does not contain all of the information set forth in the registration
statement and its exhibits and schedules. Certain items are omitted in
accordance with the rules and regulations of the SEC. For further information
with respect to U.S. Aggregates and our common stock, reference is made to the
registration statement and its exhibits and schedules. We have summarized all of
the material terms of the contracts which are material to our business. However,
statements contained in this prospectus as to the contents of any contract or
other document referred to are not necessarily complete. In each instance, if a
contract or document is filed as an exhibit, reference is made to the copy of
that contract or other document filed as an exhibit to the registration
statement. A copy of the registration statement, including its exhibits and
schedules, may be read and copied at the SEC's public reference room in
Washington, D.C. and at the SEC's regional offices in New York, New York and
Chicago, Illinois. Information on the operation of the public reference room may
be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains
an Internet site at http://www.sec.gov, from which interested persons can
electronically access the registration statement, including its exhibits and
schedules.
As a result of the offering, we will become subject to the disclosure
requirements of the Exchange Act. We will fulfill our disclosure requirements by
filing periodic reports and other information with the SEC. We intend to furnish
our shareholders with annual reports containing consolidated financial
statements certified by an independent public accounting firm.
75
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
U.S. Aggregates, Inc. and Subsidiaries
Financial Statements--December 31, 1996, 1997 and 1998 and June 30, 1998 and 1999
Report of Independent Public Accountants......................................... F-2
Consolidated Balance Sheets...................................................... F-3
Consolidated Statements of Operations............................................ F-4
Consolidated Statements of Shareholders' Equity.................................. F-5
Consolidated Statements of Cash Flows............................................ F-6
Notes to Consolidated Financial Statements....................................... F-7
Monroc, Inc. and Subsidiary
Financial Statements--December 31, 1997
Independent Auditors' Report..................................................... F-25
Consolidated Statements of Operations............................................ F-26
Consolidated Statements of Shareholders' Equity.................................. F-27
Consolidated Statements of Cash Flows............................................ F-28
Notes to Consolidated Financial Statements....................................... F-29
Financial Statements--December 31, 1996
Report of Independent Certified Public Accountants............................... F-40
Consolidated Statement of Operations............................................. F-41
Consolidated Statement of Stockholders' Equity................................... F-42
Consolidated Statement of Cash Flows............................................. F-43
Notes to Consolidated Financial Statements....................................... F-44
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
U.S. Aggregates, Inc.:
We have audited the accompanying consolidated balance sheets of U.S.
Aggregates, Inc. (a Delaware corporation) and Subsidiaries (the Company) as of
December 31, 1997 and 1998, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of U.S. Aggregates, Inc. and
Subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
San Francisco, California,
January 29, 1999
F-2
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------- ------------- JUNE 30,
1999
-----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 479 $ 2,849 $ 2,226
Trade accounts receivable, net of allowance for doubtful accounts of
$629, $1,163 and $1,293............................................. 19,113 37,703 54,147
Notes and other receivables........................................... 77 8,104 1,469
Inventories........................................................... 11,280 25,480 27,506
Prepaid expenses and other assets..................................... 2,915 3,966 6,403
------------- ------------- -----------
Total current assets............................................ 33,864 78,102 91,751
------------- ------------- -----------
PROPERTY, PLANT AND EQUIPMENT, net...................................... 116,159 232,319 254,567
------------- ------------- -----------
INTANGIBLE ASSETS, net:
Goodwill.............................................................. 10,852 16,161 16,102
Covenants not to compete.............................................. 2,521 1,607 1,150
Deferred financing charges............................................ 4,511 7,775 7,628
------------- ------------- -----------
Total intangible assets......................................... 17,884 25,543 24,880
------------- ------------- -----------
OTHER ASSETS............................................................ 4,359 1,647 3,164
------------- ------------- -----------
Total assets.................................................... $ 172,266 $ 337,611 $ 374,362
------------- ------------- -----------
------------- ------------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable................................................ $ 9,428 $ 24,111 $ 26,152
Accrued payroll....................................................... 1,202 1,270 3,363
Other accrued liabilities............................................. 2,890 7,676 10,720
Income tax payable.................................................... -- 890 667
Current portion of long-term debt..................................... 6,139 6,781 8,860
Demand note........................................................... -- 8,020 15,957
------------- ------------- -----------
Total current liabilities....................................... 19,659 48,748 65,719
LONG TERM DEBT, net of current portion.................................. 86,649 185,790 200,890
OTHER................................................................... 258 192 164
DEFERRED INCOME TAXES, net.............................................. 12,656 44,611 46,201
MINORITY INTEREST, net.................................................. 2,681 3,160 3,180
------------- ------------- -----------
Total liabilities............................................... 121,903 282,501 316,154
------------- ------------- -----------
COMMITMENTS AND CONTINGENCIES (Note 14)
MANDATORY REDEEMABLE PREFERRED STOCK, $.01 par value, 500,000 shares
authorized............................................................ 39,466 43,563 45,768
------------- ------------- -----------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 7,508,664 shares authorized............. 61 61 61
Additional paid-in capital............................................ 2,587 2,887 2,887
Notes receivable from sale of stock................................... (593) (640) (666)
Treasury stock, at cost............................................... (2) (2) (2)
Retained earnings..................................................... 8,844 9,241 10,160
------------- ------------- -----------
Total shareholders' equity...................................... 10,897 11,547 12,440
------------- ------------- -----------
Total liabilities, mandatory redeemable preferred stock and
shareholders' equity.......................................... $ 172,266 $ 337,611 $ 374,362
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES............................................. $ 131,710 $ 163,243 $ 228,739 $ 83,042 $ 126,939
COST OF PRODUCTS SOLD................................. 92,821 119,132 168,220 60,808 91,966
--------- --------- --------- --------- ---------
Gross profit...................................... 38,889 44,111 60,519 22,234 34,973
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.......... 16,571 18,275 25,001 10,920 14,898
DEPRECIATION, DEPLETION AND AMORTIZATION.............. 6,301 7,830 11,098 4,549 5,694
--------- --------- --------- --------- ---------
Income from operations............................ 16,017 18,006 24,420 6,765 14,381
OTHER EXPENSE:
Interest, net....................................... (5,036) (8,344) (14,351) (5,554) (8,841)
Loss on sale of real estate......................... -- -- (386) -- --
Other, net.......................................... (150) (150) (718) (718) (479)
--------- --------- --------- --------- ---------
Income from continuing operations before
provision for income taxes, minority
interest and extraordinary item............. 10,831 9,512 8,965 493 5,061
PROVISION FOR INCOME TAXES............................ (3,660) (3,384) (3,748) (206) (1,898)
--------- --------- --------- --------- ---------
Income from continuing operations before
minority interest and extraordinary item.... 7,171 6,128 5,217 287 3,163
MINORITY INTEREST..................................... (727) (623) (385) 100 (39)
--------- --------- --------- --------- ---------
Income from continuing operations............. 6,444 5,505 4,832 387 3,124
EXTRAORDINARY ITEM: Loss on extinguishment of debt,
less applicable income tax benefit of $212.......... -- -- (338) (338) --
--------- --------- --------- --------- ---------
Net income.................................... $ 6,444 $ 5,505 $ 4,494 $ 49 $ 3,124
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income per common share--basic
Income (loss) from continuing operations available
for common shareholders........................... $ 0.57 $ 0.29 $ 0.12 $ (0.26) $ 0.15
Extraordinary item, net of tax...................... -- -- (0.06) (0.06) --
--------- --------- --------- --------- ---------
Net income (loss) available for common
shareholders...................................... $ 0.57 $ 0.29 $ 0.06 $ (0.32) $ 0.15
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common shares outstanding.......... 6,074,704 6,116,718 6,136,630 6,136,630 6,136,630
Income per common share--diluted
Income (loss) from continuing operations available
for common shareholders........................... $ 0.57 $ 0.28 $ 0.11 $ (0.26) $ 0.14
Extraordinary item, net of tax...................... -- -- (0.06) (0.06) --
--------- --------- --------- --------- ---------
Net income (loss) available for common
shareholders...................................... $ 0.57 $ 0.28 $ 0.05 $ (0.32) $ 0.14
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common shares
outstanding....................................... 6,095,472 6,306,747 6,382,094 6,136,630 6,423,011
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TREASURY
NOTES STOCK
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE -----------
---------------------- ----------------------- PAID-IN FROM SALE OF SHARES HELD
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK IN TREASURY
--------- ----------- ---------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995.... 182,842 $ 2 6,065,679 $ 60 $ 20,243 $ (310) --
Issuance of stock............. 118,000 1 78,571 1 11,823 -- --
Issuance of stock warrants.... -- -- -- -- 600 -- --
Notes receivable, net of
payments.................... -- -- -- -- -- (51) --
Conversion to mandatory
redeemable preferred
stock....................... (300,842) (3) -- -- (30,081) -- --
Accretion of mandatory
redeemable preferred stock
dividend.................... -- -- -- -- -- -- --
Net income.................... -- -- -- -- -- -- --
--------- --- ---------- --- ----------- ----- -----------
BALANCE AT DECEMBER 31, 1996.... -- -- 6,144,250 61 2,585 (361) --
Purchase of treasury stock,
net......................... -- -- -- -- -- -- 43,190
Notes receivable, net of
payments.................... -- -- -- -- 2 (232) (35,561)
Accretion of mandatory
redeemable preferred stock
dividend.................... -- -- -- -- -- -- --
Net income.................... -- -- -- -- -- -- --
--------- --- ---------- --- ----------- ----- -----------
BALANCE AT DECEMBER 31, 1997.... -- -- 6,144,250 61 2,587 (593) 7,629
Notes receivable, net of
payments.................... -- -- -- -- -- (47) --
Issuance of stock warrants.... -- -- -- -- 300 -- --
Accretion of mandatory
redeemable preferred stock
dividend.................... -- -- -- -- -- -- --
Net income.................... -- -- -- -- -- -- --
--------- --- ---------- --- ----------- ----- -----------
BALANCE AT DECEMBER 31, 1998.... -- -- 6,144,250 61 2,887 (640) 7,629
Notes receivable, net of
payments (unaudited)........ -- -- -- -- -- (26) --
Accretion of mandatory
redeemable preferred stock
dividend.................... -- -- -- -- -- -- --
Net income (unaudited)........ -- -- -- -- -- -- --
--------- --- ---------- --- ----------- ----- -----------
BALANCE AT JUNE 30, 1999
(UNAUDITED)................... -- $ -- 6,144,250 $ 61 $ 2,887 $ (666) 7,629
--------- --- ---------- --- ----------- ----- -----------
--------- --- ---------- --- ----------- ----- -----------
<CAPTION>
TOTAL
RETAINED SHAREHOLDERS'
AMOUNT EARNINGS EQUITY
----------- ----------- -------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995.... $ -- $ 6,276 $ 26,271
Issuance of stock............. -- -- 11,825
Issuance of stock warrants.... -- -- 600
Notes receivable, net of
payments.................... -- -- (51)
Conversion to mandatory
redeemable preferred
stock....................... -- (2,711) (32,795)
Accretion of mandatory
redeemable preferred stock
dividend.................... -- (2,958) (2,958)
Net income.................... -- 6,444 6,444
----- ----------- -------------
BALANCE AT DECEMBER 31, 1996.... -- 7,051 9,336
Purchase of treasury stock,
net......................... (220) -- (220)
Notes receivable, net of
payments.................... 218 -- (12)
Accretion of mandatory
redeemable preferred stock
dividend.................... -- (3,712) (3,712)
Net income.................... -- 5,505 5,505
----- ----------- -------------
BALANCE AT DECEMBER 31, 1997.... (2) 8,844 10,897
Notes receivable, net of
payments.................... -- -- (47)
Issuance of stock warrants.... -- -- 300
Accretion of mandatory
redeemable preferred stock
dividend.................... -- (4,097) (4,097)
Net income.................... -- 4,494 4,494
----- ----------- -------------
BALANCE AT DECEMBER 31, 1998.... (2) 9,241 11,547
Notes receivable, net of
payments (unaudited)........ -- -- (26)
Accretion of mandatory
redeemable preferred stock
dividend.................... -- (2,205) (2,205)
Net income (unaudited)........ -- 3,124 3,124
----- ----------- -------------
BALANCE AT JUNE 30, 1999
(UNAUDITED)................... $ (2) $ 10,160 $ 12,440
----- ----------- -------------
----- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before extraordinary item...................... $ 6,444 $ 5,505 $ 4,832 $ 387 $ 3,124
Adjustments to reconcile income before extraordinary
item to net cash provided by (used in) operating
activities:
Depreciation, depletion and amortization.......... 6,301 7,830 11,098 4,549 5,694
Provision for doubtful accounts, net.............. 15 (88) (49) (64) 130
Deferred income taxes............................. 2,626 3,129 3,226 522 1,361
Loss (gain) on disposal of fixed assets and real
estate.......................................... (13) (63) 330 8 35
Minority interest................................. 727 981 775 (90) 39
Extraordinary item................................ -- -- (338) (338) --
Change in operating assets and liabilities:
Trade accounts, notes and other receivables..... 2,900 (2,589) (13,018) (13,177) (10,364)
Inventories..................................... (2,797) (3,160) (8,280) (3,477) (3,130)
Prepaid expenses and other...................... (3,865) (4,218) 2,890 2,765 (5,759)
Trade accounts payable and accrued
liabilities................................... (5,678) (2,309) 347 9,410 5,550
Income taxes payable............................ (39) 615 916 (546) (223)
Other........................................... (35) (347) 454 (37) (28)
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities.................................. 6,586 5,286 3,183 (88) (3,571)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment............ (20,945) (17,750) (27,330) (19,124) (24,992)
Acquisition of subsidiaries, net of cash acquired..... (37,910) (4,038) (83,884) (82,222) --
Proceeds from sale of fixed assets.................... -- 1,310 10,360 154 2,868
--------- --------- --------- --------- ---------
Net cash used in investing activities........... (58,855) (20,478) (100,854) (101,192) (22,124)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt.................. (41,773) (693) (85,990) (400) (803)
New borrowings........................................ 78,075 14,946 185,731 103,518 25,867
Sale of stock......................................... 12,426 -- -- 300 --
Other................................................. (18) -- 300 9 8
--------- --------- --------- --------- ---------
Net cash provided by financing activities....... 48,710 14,253 100,041 103,427 25,072
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH......................... (3,559) (939) 2,370 2,147 (623)
CASH, beginning of period............................... 4,977 1,418 479 479 2,849
--------- --------- --------- --------- ---------
CASH, end of period..................................... $ 1,418 $ 479 $ 2,849 $ 2,626 $ 2,226
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
DISCLOSURE OF SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest............................................ $ 5,018 $ 8,311 $ 13,364 $ 200 $ 379
Taxes............................................... 937 (639) 131 103 732
NON CASH TRANSACTIONS:
Value assigned to warrants............................ 600 -- 300 -- --
Accretion of preferred stock dividend................. 2,958 3,712 4,097 1,998 2,205
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BUSINESS:
U.S. Aggregates, Inc. (a Delaware corporation, hereinafter referred to as
USAI or the Company) was incorporated in 1994. USAI is a leading producer of
aggregates, primarily crushed stone, sand and gravel and associated
aggregate-based materials and services. Its products are used primarily for the
construction and maintenance of highways and other infrastructure projects and
for commercial and residential construction, in nine states. The Company
operates through two subsidiaries: SRM Holdings Corp. (SRMHC) and Western
Aggregates Holding Corp. (WAHC). The capital structure of USAI includes common
stock with voting rights and preferred stock without voting rights.
The Company conducts its operations through one reportable segment: the
quarrying and distribution of aggregate products. The Company operates in nine
states which have been aggregated for segment reporting purposes.
2. BASES OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
INTERIM FINANCIAL STATEMENTS
The interim consolidated financial statements as of June 30, 1999, and for
the six months ended June 30, 1998 and 1999, are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary to fairly present the financial
position, results of operations and cash flows with respect to the interim
financial statements, have been included. The results of operations for the
interim periods are not indicative of the results for the entire fiscal year.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of USAI and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent funds on deposit in noninterest and
interest-bearing operating and/or highly liquid investment accounts, with
original maturities of three months or less.
INVENTORIES
Inventories are stated at the lower of average manufactured cost (which
approximates the first-in, first-out method of accounting) or market. Average
manufactured cost includes all direct labor and material costs and those
indirect costs specifically related to aggregate production, including indirect
labor, repairs, depreciation and depletion.
INCOME PER SHARE
Basic income per share was calculated by dividing net income by the weighted
average number of shares of common stock outstanding during the period. Diluted
earnings per share includes the impact of outstanding Warrants, using the
treasury stock method. Net income per share for all periods
F-7
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. BASES OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES: (CONTINUED)
presented and all share data reflect the Company's proposed 30.0347 for 1 stock
split effective at the time of the Company's initial public offering of common
stock.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RISK FACTORS RELATING TO THE COMPANY'S BUSINESS AND INDUSTRY
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 levels 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.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is provided
for using the straight-line method over the estimated useful lives of the
assets, which are as follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings....................................................... 40 years
10-30
Plant and equipment............................................. years
Transportation and delivery equipment........................... 4-15 years
Furniture and fixtures.......................................... 5-10 years
</TABLE>
F-8
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. BASES OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES: (CONTINUED)
In 1996, the salvage values were changed to 20% to standardize the residual
values used by U.S. Aggregates' various subsidiaries and to recognize the
residual values of the owned operating equipment. In 1997, USAI changed the
estimated lives of certain depreciable assets, resulting in an approximate
$1,550 reduction of 1997 depreciation expense compared to what it would have
been had the estimated lives not been changed.
Expenditures for development, renewals and betterments of developing
quarries and gravel pits are capitalized. Depletion of acquired or leased
mineral deposits is calculated on the units-of-production method over the
estimated remaining recoverable reserves. Repairs and maintenance that do not
improve or extend the lives of the assets are charged against operations or
included in the inventory overhead pool in the year benefited. When properties
are retired or otherwise disposed of, related costs and accumulated depreciation
are removed from the accounts and any resulting gain or loss is included in
operations.
INTANGIBLES
Goodwill is amortized on a straight-line basis over 40 years. Covenants not
to compete are amortized on a straight-line basis over the life of the
agreement. Deferred finance charges are amortized on a straight-line basis over
the life of the related loan. As of December 31, 1997 and 1998, the accumulated
amortization applicable to the intangible assets was $4,067 and $6,208,
respectively.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its plant and other long-term assets for impairment
and assesses their recoverability based upon anticipated future cash flows. If
facts and circumstances lead the Company's management to believe that the cost
of one of its assets may be impaired, the Company will (a) evaluate the extent
to which that cost is recoverable by comparing the future undiscounted cash
flows estimated to be associated with that asset to the asset's carrying amount
and (b) write-down that carrying amount to market value or discounted cash flow
value to the extent necessary. Using this approach, the Company's management
determined that the cash flows would be sufficient to recover the carrying value
of the Company's long lived assets as of December 31, 1997 and 1998.
F-9
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. BASES OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES: (CONTINUED)
VALUATION ACCOUNTS
Below is a summary of the changes in the Company's valuation accounts for
1996, 1997 and 1998:
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BEGINNING BALANCE ACQUIRED PROVIDED DEDUCTIONS ENDING BALANCE
------------------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
1996
Allowance for doubtful accounts......... $ 297 $ 554 $ 275 $ (259) $ 867
Inventory valuation reserve............. 450 -- 350 (450) 350
1997
Allowance for doubtful accounts......... $ 867 $ -- $ 50 $ (288) $ 629
Inventory valuation reserve............. 350 -- 500 (559) 291
1998
Allowance for doubtful accounts......... $ 629 $ 583 $ 409 $ (458) $ 1,163
Inventory valuation reserve............. 291 -- 500 (291) 500
</TABLE>
Deductions include all charges against reserves. These deductions were made
in the normal course of business and only for the specific use for which the
reserve was identified and intended.
RECLAMATION COSTS
Quarry and pit reclamation costs are treated as normal ongoing costs and are
expensed, as incurred.
ENVIRONMENTAL MATTERS
Remediation costs are accrued based on estimates of known environmental
remediation exposure. Ongoing environmental compliance costs, including
maintenance and monitoring costs, are expensed as incurred. Any other
environmental costs are recorded in the period which the amount can be
reasonably estimated. Among the variables that management must assess in
evaluating costs associated with environmental issues are the evolving
regulatory standards. It is impossible to quantify the impact of all actions
regarding environmental matters, particularly the extent and cost of future
remediation and other compliance efforts. However, the Company currently has no
known material liabilities in connection with expected remediation or other
environmental-related costs.
INCOME TAXES
USAI accounts for income taxes using the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement and
tax bases, as well as the effect of operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the period of
change.
F-10
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. BASES OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES: (CONTINUED)
REVENUE RECOGNITION
Revenues are recognized at the time the related products are shipped.
Contract revenues and costs are recognized under the
percentage-of-completion method, measured by the percentage of costs incurred to
date to estimated total costs for each contract. Revisions in cost estimates
during the course of a contract are reflected in the accounting period in which
the change of costs becomes known. Provision for estimated losses on incomplete
contracts is made in the period in which such losses become evident.
DEFERRED OFFERING COSTS
As of December 31, 1998 and June 30, 1999 costs of $348 and $1,242
(unaudited), respectively, have been incurred in connection with the Company's
initial public offering. Such costs will be treated as a reduction of the
proceeds from the offering.
FINANCIAL INSTRUMENTS
USAI'S financial instruments, other than debt, consist of cash, short-term
accounts receivable and accounts payable for which current carrying amounts are
equal to or approximate fair market value. The estimated fair values of the
Company's debt instruments at December 31, 1998, aggregated approximately
$189,100 compared with a carrying amount of $192,571. The fair values were
estimated based on the quoted market prices for similar issues, or on current
rates anticipated by the Company for debt of the same remaining maturities.
INTERNAL USE SOFTWARE
In March 1998, the AICPA issued Statement of Position 98-1, Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use ("SOP
98-1"). The Company adopted SOP 98-1 on January 1, 1999. SOP 98-1 requires the
capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal use. The Company
expensed such costs as incurred through December 31, 1998. The Company does not
expect the impact of the adoption of SOP 98-1 to be material.
COSTS OF START-UP ACTIVITIES
In April 1998, the American Institute of Certified Public Accountants (the
"AICPA") issued Statement of Position 98-5, REPORTING ON THE COSTS OF START-UP
ACTIVITIES ("SOP 98-5"). Effective January 1, 1999, SOP 98-5 requires that all
costs related to certain start-up activities, including organizational costs, be
expensed as incurred. The cumulative effect of the adoption of SOP 98-5 reduced
net earnings by $84, which has been recorded as an expense in the period ended
June 30, 1999.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income, ("FAS 130"). FAS 130 requires all
non-owner changes in equity that are
F-11
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. BASES OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES: (CONTINUED)
excluded from net earnings under existing FASB standards be included as
comprehensive income. The Company presently does not have any material
transactions that directly affect equity other than those transactions with
owners in their capacity as owners. Therefore, the provisions of FAS 130 did not
materially affect net earnings or financial position.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("FAS 133"), which is required to be adopted
in years beginning after June 15, 1999. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of FAS 133 will
have a significant impact on net earnings or the financial position of the
Company.
COLLECTIVE BARGAINING AGREEMENTS
The Company is a party to various collective bargaining agreements with
labor unions. The agreements require the Company to pay specified wages and
provide certain benefits to its union employees. These agreements will expire at
various times between July 1999 through July 2001.
3. ACQUISITIONS:
On June 5, 1998, USAI, through WAHC, purchased all of the outstanding common
stock of Monroc, Inc. (Monroc). Monroc's purchase price was approximately
$67,800 in cash plus costs and certain assumed liabilities. The acquisition has
been accounted for under the purchase method of accounting. The amount by which
the total cost exceeded the fair value of the tangible net assets acquired of
$1,135 was recognized as goodwill and is being amortized over 40 years.
In addition, at various dates during 1996, 1997 and 1998, USAI, through its
subsidiaries, acquired assets and businesses of several small companies. The
operating results of the acquired businesses are included in the accompanying
financial statements from their respective dates of acquisition.
The following table reflects supplemental disclosure of noncash transactions
related to these acquisitions for 1998:
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired, including goodwill of $4,132....... $ 139,417
Liabilities assumed............................................... (55,533)
---------
Cash paid for assets.............................................. $ 83,884
---------
---------
</TABLE>
The following unaudited selected pro forma financial data are presented as
if the acquisitions (excluding Monroc's discontinued operations) had occured on
January 1, 1997. The pro forma financial information is based upon certain
estimates and assumptions that management of the Company believes are reasonable
in the circumstances. The unaudited pro forma information presented below is
F-12
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. ACQUISITIONS: (CONTINUED)
not necessarily indicative of what results of operations actually would have
been if the acquisition had occured on the date indicated. Moreover, they are
not necessarily indicative of future results.
<TABLE>
<CAPTION>
1997 1998
---------- ----------
(UNAUDITED)
<S> <C> <C>
Net sales............................................................. $ 212,910 $ 249,224
Income from continuing operations..................................... 3,663 4,916
Income from continuing operations per share........................... $ (0.01) $ 0.13
</TABLE>
ASSETS HELD FOR SALE
Concurrent with the acquisition of Monroc, the Company decided to dispose of
the Precast Division operations of Monroc. The Precast Division operations
concentrated on the production of pre-fabricated concrete products using our
site casts and molds, made to meet existing industry construction standards. The
Company accounted for the acquisition and disposition of this division as
required by purchase accounting and EITF 87-11, "Allocation of Purchase Price to
Assets to be Sold." This included recording expected operational income as well
as interest on the cost of carrying this division as an allocation to purchase
price of Monroc. On December 31, 1998 the Company sold the Precast Division for
$8,637. No gain or loss was recognized on this disposition. The results of
operations from the Precast Division between the date of acquisition and sale of
$1,409 net of tax, and the interest expense associated with the purchase of the
Precast Division of $247 net of tax was considered in the purchase price
allocation. There were no earnings received or losses funded by Monroc during
the operational period.
Also, concurrent with the acquisition of Monroc, the Company decided to
dispose of a sand and gravel deposit site and a ready-mix plant site. The sites
were sold during the year for $6,945 and no gain or loss was recognized on these
dispositions.
4. INVENTORIES:
Inventories consist of the following as of December 31:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Finished products....................................................... $ 6,300 $ 19,014
Raw materials........................................................... 4,831 5,730
Supplies and parts...................................................... 236 888
Fuel.................................................................... 204 348
Less: Allowances........................................................ (291) (500)
--------- ---------
$ 11,280 $ 25,480
--------- ---------
--------- ---------
</TABLE>
Inventories are pledged as security under various debt agreements (see Note
6).
F-13
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following as of December 31:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Land.................................................................. $ 7,889 $ 31,988
Mineral deposits and quarry development............................... 22,872 97,061
Plant and equipment................................................... 96,107 119,675
Furniture and fixtures................................................ 1,669 4,148
Construction in progress.............................................. 2,018 1,038
---------- ----------
130,555 253,910
Less: Accumulated depreciation and depletion.......................... (14,396) (21,591)
---------- ----------
---------- ----------
$ 116,159 $ 232,319
---------- ----------
---------- ----------
</TABLE>
Property, plant and equipment are pledged as security for various debt
agreements (see Note 6).
6. LONG-TERM DEBT:
Long-term debt consists of the following as of December 31:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Prudential Insurance subordinated notes, net of discount of $530 and
$753, respectively.................................................. $ 29,470 $ 44,247
Bank of America term loan............................................. 25,875 --
Bank of America term loan A........................................... -- 53,500
Bank of America term loan B........................................... -- 58,500
Bank of America revolving loan........................................ 13,800 24,200
Bank of America acquisition loan...................................... 16,400 --
Notes payable to former stockholders.................................. 5,737 4,997
Other................................................................. 1,506 7,127
---------- ----------
Total long-term debt.............................................. 92,788 192,571
Less: Current portion................................................. (6,139) (6,781)
---------- ----------
Long-term debt, net of current portion............................ $ 86,649 $ 185,790
---------- ----------
---------- ----------
</TABLE>
The Bank of America credit facilities are secured by all of the assets of
USAI. The Prudential Insurance notes are subordinated to the Bank of America
credit facilities. Among other financial covenants, the debt agreements specify
a minimum interest coverage ratio, a minimum fixed charge coverage ratio and a
maximum leverage ratio. The agreements also prohibit the payment of dividends,
or purchase or redemption of stock without the lenders' consent. The Company is
in compliance with these covenants at December 31, 1997 and 1998.
PRUDENTIAL INSURANCE COMPANY SUBORDINATED NOTES
In November 1996 and June 1998, USAI issued $30,000 and $15,000,
respectively, in subordinated notes to the Prudential Insurance Company of
America (Prudential Insurance). Interest is due quarterly
F-14
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. LONG-TERM DEBT: (CONTINUED)
at a rate of 10.34 percent and 10.09 percent, respectively, per annum. Principal
payments are scheduled as follows:
<TABLE>
<S> <C>
2003............................................................... $ 6,000
2004............................................................... 6,000
2005............................................................... 6,000
2006............................................................... 16,500
2007............................................................... 4,500
2008............................................................... 6,000
</TABLE>
In connection with the issuance of the subordinated notes, USAI issued to
Prudential Insurance warrants to purchase 286,380 shares of the common stock of
USAI at a nominal cost. USAI has estimated the fair value of the warrants at
$900 ($600 recorded in 1996 and $300 in 1998) and reflected this amount as a
discount on the subordinated notes, with the offsetting credit to additional
paid-in capital. The discount is being amortized on a straight-line basis (which
approximates the interest method) over the life of the notes.
BANK OF AMERICA TERM LOANS
USAI has a syndicated term loan facility with Bank of America NT & SA, as
agent, and certain other financial institutions (Bank of America). In June 1998,
the term loan agreement was amended to increase the total principal amount of
the Term Loan from $30,000 to $115,000 of Term Loan A and Term Loan B. In
connection with the restructuring of the Company's debt, previously capitalized
fees and costs of $338, net of a tax benefit of $212, were recorded as an
Extraordinary Item--Loss on Extinguishment of Debt in 1998.
TERM LOAN A has interest payments due quarterly and is currently payable at
the Eurodollar rate plus 2.125 percent, or approximately 7.6875 percent as of
December 31, 1998. Principal payments are scheduled as follows:
TERM LOAN A
<TABLE>
<S> <C>
June 1999 through March 2000....... $1,250 per quarter
June 2000 through March 2001....... $2,500 per quarter
June 2001 through March 2002....... $3,000 per quarter
June 2002 through March 2003....... $3,250 per quarter
June 2003 through March 2004....... $3,750 per quarter
</TABLE>
F-15
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. LONG-TERM DEBT: (CONTINUED)
TERM LOAN B has interest payments due quarterly and is currently payable at
the Eurodollar rate plus 2.5 percent, or approximately 8.0625 percent as of
December 31, 1998. Principal payments are scheduled as follows:
TERM LOAN B
<TABLE>
<S> <C>
June 1999 through December 2005.... $138 per quarter
March 2006......................... $51,288
</TABLE>
BANK OF AMERICA REVOLVING LOAN
In June 1998, the Company's revolving loan facility was increased to
$40,000. Subsequent to year end, this loan facility was increased to $60,000.
The revolving loan is to be paid in full by the revolving facility termination
date in June 2004; however, USAI may terminate revolving commitments at any time
provided that USAI pays, in full, all obligations. Interest on the unpaid
principal amount of each revolving loan is due quarterly. If the loan is a
floating rate loan, interest is payable at a rate per annum equal to the sum of
the alternate reference rate from time to time in effect plus 1 percent. If the
loan is a Eurodollar loan, interest is payable at a rate per annum equal to the
sum of the Eurodollar rate applicable to each interest period for such loan plus
1.125 percent. In addition, USAI pays fees of .5 percent per annum on the daily
average of the unused amount of the revolver. The interest rate on this debt as
of December 31, 1998 was 8.875%.
The interest rate and commitment fee on unused amounts of the revolving loan
vary based on certain performance criteria established by USAI's banks. However,
the rates cannot exceed the Eurodollar rate plus 2.125%, the alternate reference
rate plus 1.125%, or, in relation to committment fees, 0.5% of the unused
portion of the revolver.
NOTES PAYABLE TO FORMER SHAREHOLDERS
In connection with the acquisition of certain companies, USAI subsidiaries
have issued from time to time notes payable to the selling shareholders, several
of whom remain employees and shareholders of subsidiaries. These notes payable
bear interest at rates from 6% to 10.65% per annum and have varying maturity
dates continuing to 2001.
OTHER DEBT
Other debt consists primarily of various borrowings from banks, generally
secured by equipment. Interest rates range from 7.9% to 10.0% and have varying
maturity dates through 2018.
F-16
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. LONG-TERM DEBT: (CONTINUED)
SCHEDULED PAYMENTS OF LONG-TERM DEBT
Scheduled long-term debt maturities are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
- ------------------------------------------------------------------------------
<S> <C>
1999.......................................................................... $ 6,781
2000.......................................................................... 12,756
2001.......................................................................... 14,202
2002.......................................................................... 13,949
2003.......................................................................... 21,621
Thereafter.................................................................... 124,193
--------------
193,502
Less: Unamortized discount.................................................... (931)
--------------
$ 192,571
--------------
--------------
</TABLE>
7. DEMAND NOTE
In March 1998, Harris Trust & Savings Bank granted USAI a $9,000 revolving
line of credit guaranteed by a shareholder. Interest is due quarterly at a rate
per annum equal to the rate announced from time to time by Harris Trust &
Savings Bank as prime commercial rate or approximately 7.75% as of December 31,
1998. The demand note is due in full on June 30, 1999.
Subsequent to the end of year, the Company retired the above note and was
granted a $17,500 revolving line of credit also guaranteed by a shareholder. The
note is due and payable on demand.
8. EMPLOYEE BENEFIT PLANS:
U.S. AGGREGATES INC. 401(K) PLAN
Prior to 1998, some of USAI's subsidiaries had 401(k) plans with various
vesting and discretionary contribution formulas. For the year ended December 31,
1997, the subsidiaries provided contributions of $255.
In 1998, USAI established a 401(k) plan that is funded by both employees and
at the discretion of USAI. This plan is administered by a third party.
Subsequently, the subsidiaries' 401(k) plans were merged into the USAI plan.
All full-time employees other than union employees are eligible to
participate in the U.S. Aggregates, Inc. 401(k) Plan. USAI may make
discretionary contributions each year. Participants increase their vested
interest in these discretionary contributions based upon years of employment in
which at least 1,000 hours are worked, and they become fully vested after seven
years. Participants are fully vested in their contributions. For the years ended
December 31, 1997 and 1998, USAI provided contributions of $255 and $0,
respectively.
F-17
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. EMPLOYEE BENEFIT PLANS: (CONTINUED)
SRM
SRM had a noncontributory defined benefit pension plan covering
substantially all of its employees. SRM's funding policy was to contribute
amounts that were actuarially determined to provide this plan with sufficient
assets to meet future benefit payment requirements.
In February 1997, a total distribution of plan assets to participants and
termination of the plan occurred. The Company has no ongoing liability related
to this plan.
SRM also maintains a benefit plan partially funded by key-man life insurance
for current and former key employees of SRM. Benefits under the plan are
discretionary and are payable over a ten-year period upon retirement at age 65
or upon death. As of December 31, 1997 and 1998, the present value of long-term
benefits payable are $79 and $76, respectively.
MULTIEMPLOYER PLANS
The Company participates in various multiemployer union pension plans
through two of its subsidiaries. Contributions to these plans in 1996, 1997 and
1998 were approximately $253, $292 and $586, respectively.
9. INCOME TAXES:
USAI files a consolidated federal tax return. Its subsidiaries file tax
returns in the states in which they conduct business.
The provision for income taxes for 1996, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal........................................... $ 888 $ 255 $ 884
State............................................. 146 -- 127
------------ ------------ ------------
1,034 255 1,011
------------ ------------ ------------
Deferred:
Federal........................................... 2,276 2,718 2,197
State............................................. 350 411 328
------------ ------------ ------------
2,626 3,129 2,525
------------ ------------ ------------
$ 3,660 $ 3,384 $ 3,536
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-18
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. INCOME TAXES: (CONTINUED)
The provision for income taxes as reflected in the accompanying statements
of operations includes the following components:
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Provision for income taxes.......................... $ 3,660 $ 3,384 $ 3,748
Benefit for income taxes on extraordinary item...... -- -- (212)
------------ ------------ ------------
$ 3,660 $ 3,384 $ 3,536
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
as of December 31 are as follows:
<TABLE>
<CAPTION>
1997 1998
-------------- --------------
<S> <C> <C>
Deferred tax assets;
Accruals and reserves....................................... $ 559 $ 308
Alternative minimum tax credit.............................. 1,541 2,425
Net operating loss.......................................... 1,554 3,922
Other....................................................... 154 1,211
-------------- --------------
Total deferred tax assets................................. 3,808 7,866
-------------- --------------
Deferred tax liabilities:
Depreciation and depletion.................................. (12,171) (24,147)
Book basis in fixed assets over tax basis................... (3,845) (27,082)
Other....................................................... (448) (1,248)
-------------- --------------
Total deferred tax liabilities............................ (16,464) (52,477)
-------------- --------------
Net deferred tax liability................................ $ (12,656) $ (44,611)
-------------- --------------
-------------- --------------
</TABLE>
The reconciliation of the statutory rate to the effective rate is as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Tax at federal statutory rate....................... $ 3,682 $ 3,234 $ 3,037
State taxes, net of federal benefit................. 357 358 304
Effect of tax rate increase to 35 percent........... -- -- 546
Depletion........................................... (432) (365) (491)
Other............................................... 53 157 140
------------ ------------ ------------
$ 3,660 $ 3,384 $ 3,536
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
At December 31, 1997 and 1998 the Company had net operating loss
carryforwards of $4,487 and $10,437 available to offset future taxable income.
These carryforwards expire through 2013. Alternative minimum tax credit
carryforwards of $1,541 and $2,425 at December 31, 1997 and 1998 have no
expiration date. Prior to 1998, the Company provided federal income taxes using
a rate of 34%. In the
F-19
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. INCOME TAXES: (CONTINUED)
year ended December 31, 1998 this rate was increased to 35% and deferred taxes
were adjusted accordingly.
10. COMMON STOCK
The Company has a stock purchase plan periodically made available to select
members of management. Under this formula plan, individuals are allowed to
purchase stock in the Company or its subsidiaries. The Company sold 43,190
shares of its common stock under this program in 1997. Also 50 shares (12,120
equivalent USAI shares) of SRMHC and 2,500 shares (46,757 equivalent USAI
shares) of WAHC common stock were sold under this program in 1998. Shares issued
under this program are generally sold for a combination of cash and notes and
are subject to vesting over a 6 year period. The vested and unvested shares are
subject to various call or put options upon termination. The repurchase price is
at fair market value for vested shares or original cost for unvested shares. The
total number of shares outstanding under this program are 43,190 and 17,276
unvested and vested for the Company, 3,857 (72,136 equivalent USAI shares) and
952 (17,805 equivalent USAI shares) unvested and vested for WAHC and 170 (41,208
equivalent USAI shares) and 67 (16,241 equivalent USAI shares) unvested and
vested for SRM. Upon completion of the Initial Public Offering contemplated, the
employees shares in subsidiary stock will be exchanged for stock of the Company,
and the Company's and employees rights with regard to vested shares will cease.
11. PREFERRED STOCK
There are 500,000 shares of non-voting preferred stock authorized with a .01
per share par value. At December 31, 1996, 1997 and 1998 there were 300,842
shares outstanding. Aggregate and per share cumulative preferred dividends in
arrears as of December 31 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Aggregate cumulative preferred dividends........................ $ 5,670 $ 9,382 $ 13,479
Per preferred share cumulative preferred dividends.............. 18.85 31.18 44.80
</TABLE>
The preferred stock has certain liquidation preferences and a liquidation
value of $100 per share. It entitles the holders to receive cumulative dividends
of 10% per annum of the sum of the liquidation value plus all accumulated and
unpaid dividends when and as declared. At the option of the preferred
stockholders, the net proceeds from any public offering must be used to redeem
these shares at their liquidation value plus all accrued and unpaid dividends.
Effective November, 1996 the terms of the preferred stock agreement were
modified, allowing the holders to redeem their shares at liquidation value plus
all accrued and unpaid dividends at any date after January 2000, subject to the
approval of the Company's lenders. As of December 31, 1998 the Company's debt
agreements do not allow such a redemption.
The preferred stock is reflected as Mandatorily Redeemable Preferred Stock
on the balance sheet and is not considered a component of Shareholders' Equity.
Dividends are accreted at a compound rate of 10% per quarter. Accumulated
accreted dividends of $13,479 have been charged against retained earnings and
reflected in mandatory redeemable preferred stock through December 31, 1998.
F-20
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. PREFERRED STOCK (CONTINUED)
Upon completion of the Initial Public Offering contemplated, this stock will
be converted into common shares.
12. INCOME PER SHARE
Basic income per share was calculated by dividing net income by the weighted
average number of shares of common stock outstanding during the period. Diluted
earnings per share include the impact of outstanding Warrants, using the
treasury stock method. Net income per share for all periods presented and all
share data reflect the Company's proposed 30.0347 for 1 stock split effective at
the time of the Company's initial public offering of common stock.
Income used in the per common share calculations are the same for basic and
diluted calculations. The following table reconciles the weighted average shares
outstanding used for basic and diluted income per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1996 1997
------------------------------------- -------------------------------------
PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
----------- --------- ------------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations..................... $ 6,444 $ 5,505
Less: Accretion of Preferred stock dividend......... 2,958 3,712
----------- -----------
Basic income from continuing operations available to
common stockholders................................. 3,486 6,074,704 $ 0.57 1,793 6,116,718 $ 0.29
Effect of warrants.................................... 20,768 190,029
--------- ---------
Dilutive income from continuing operations available
to common stockholders.............................. $ 3,486 6,095,472 $ 0.57 $ 1,793 6,306,747 $ 0.28
----------- --------- ----- ----------- --------- -----
----------- --------- ----- ----------- --------- -----
<CAPTION>
1998
-------------------------------------
PER SHARE
INCOME SHARES AMOUNT
----------- --------- -------------
<S> <C> <C> <C>
Income from continuing operations..................... $ 4,832
Less: Accretion of Preferred stock dividend......... 4,097
-----------
Basic income from continuing operations available to
common stockholders................................. 735 6,136,630 $ 0.12
Effect of warrants.................................... 245,464
---------
Dilutive income from continuing operations available
to common stockholders.............................. $ 735 6,382,094 $ 0.11
----------- --------- -----
----------- --------- -----
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------------------------
1998 1999
------------------------------------- -----------
(UNAUDITED) (UNAUDITED)
PER SHARE
INCOME SHARES AMOUNT INCOME
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income from continuing operations................................... $ 387 $ 3,124
Less: Accretion of preferred stock dividend....................... 1,998 2,205
----------- -----------
Basic income from continuing operations available to common
stockholders...................................................... (1,611) 6,136,630 $ (0.26) 919
Effect of warrants.................................................. --
-----------
Dilutive income from continuing operations available to common
stockholders...................................................... $ (1,611) 6,136,630 $ (0.26) $ 919
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
PER SHARE
SHARES AMOUNT
----------- -----------
<S> <C> <C>
Income from continuing operations...................................
Less: Accretion of preferred stock dividend.......................
Basic income from continuing operations available to common
stockholders...................................................... 6,136,630 $ 0.15
Effect of warrants.................................................. 286,381
-----------
Dilutive income from continuing operations available to common
stockholders...................................................... 6,423,011 $ 0.14
----------- -----------
----------- -----------
</TABLE>
13. CONCENTRATION OF CREDIT RISK:
Financial instruments that potentially subject USAI to concentrations of
credit risk consist primarily of cash and trade receivables.
USAI places its cash on deposit with credit-worthy financial institutions,
in accounts or instruments with maturities of three months or less.
Concentration of credit risk with respect to trade receivables is limited due to
the large number of customers who service a large base of clients dispersed
across many different industries throughout the southeastern and southwestern
sections of the United States.
F-21
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
14. COMMITMENTS AND CONTINGENCIES:
USAI and its subsidiaries lease office facilities, trucks, equipment and
certain quarry sites under operating lease arrangements. Lease expense (other
than royalties) was $3,933 and $8,951 for the years ended December 31, 1997 and
1998, respectively. Total future minimum rentals under noncancelable operating
leases as of December 31, 1998 are:
<TABLE>
<S> <C>
1999.............................................................. $ 10,755
2000.............................................................. 10,106
2001.............................................................. 8,930
2002.............................................................. 7,358
2003.............................................................. 5,857
Thereafter........................................................ 24,896
---------
$ 67,902
---------
---------
</TABLE>
The Company operates several quarries on land owned entirely or in part by
unrelated third parties. Pursuant to related agreements, the Company pays
monthly royalties to the owner based on the quantity of aggregates sold. The
initial terms of these agreements range from 5 to 40 years and generally include
renewal options. The minimum royalty payments are included in the above table.
Royalty expenses recorded pursuant to these arrangements in 1996, 1997 and 1998
totaled $2,490, $2,725 and $4,748, respectively.
USAI and its subsidiaries are subject to various laws and regulations
relating to the protection of the environment. It is not possible to quantify
with certainty the potential impact of actions regarding environmental matters,
particularly any future remediation and other compliance efforts. In the opinion
of management, future compliance with existing environmental protection laws
will not have a material adverse effect on the financial condition or results of
operations of USAI.
USAI acquired SRM from Lohja, Inc. (Lohja) in 1994. In connection with the
purchase, USAI agreed to make semiannual payments to Lohja (the Lohja
obligation) through December 31, 1999, under an initial $3,760 obligation,
contingent upon the continuing operations and earnings of one of the Company's
quarries. In September 1998, the Company signed a lease authorizing continuing
operations at the quarry and in accordance with the original purchase agreement
paid the balance owed of $1,149 in full satisfaction of the purchase contract.
The Company has a quarry under development in DeKalb County, Georgia which
is inactive but currently permitted as a dimensional stone quarry site. The
Company intends to file a lawsuit against the county regarding a dispute over
the issuance of a blasting permit to start a crushed stone operation. The DeKalb
site development-stage activities to date have consisted primarily of site
preparation work such as road construction, the placement of scales and legal
fees. DeKalb has also made advance minimum royalty payments under a sublease
agreement to be applied against payments due upon the commencement of operations
at this site. Capitalized costs as of December 31, 1998 in connection with this
site were $1,524. Management feels that they will eventually open the quarry;
however, in the event that DeKalb is not permitted to conduct operations at this
quarry, the quarry will likely be leased to a dimensional stone producer.
F-22
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
14. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
USAI is subject to various legal proceedings and claims that have arisen in
the ordinary course of its business and have not been finally adjudicated. In
the opinion of management, the ultimate resolution of these issues would not
have a material adverse effect on USAI's financial condition or results of
operations.
15. RELATED-PARTY TRANSACTIONS:
During 1998, SRMHC issued 50 shares (12,120 equivalent USAI shares) of SRMHC
common stock to one management member of SRMHC and received a note receivable of
$57 for the issuance of such shares. This note bears interest at 8 percent per
annum and is due on December 31, 2003.
In 1998, WAHC issued 2,500 shares (46,757 equivalent USAI shares) of WAHC
common stock to several members of WAHC management and received notes receivable
of $250 for the issuance of these shares. Additionally, a member of Valley
Asphalt, Inc.'s (Valley) management elected to purchase 625 shares (11,689
equivalent USAI shares) of WAHC's outstanding common stock, in lieu of amounts
owed to them.
In October 1997, USAI issued 43,190 shares of stock for $220 to a member of
USAI's management. Additionally, during the same period, members of Valley's
management elected to purchase 1,875 shares of WAHC's outstanding common stock,
in lieu of amounts owed to them. Included in long-term debt is $1,449 and $1,682
as of December 31, 1997 and 1998 that is due to employees or shareholders who
were former owners of acquired companies.
Shares of the Company or its subsidiaries owned by members of management are
subject to repurchase agreements with the Company.
USAI pays an advisory fee to one of its major shareholders. Such fee
amounted to $150 for each of the years ended December 31, 1997 and 1998.
Also, USAI paid advisory fees of approximately $308 and $404 to a common and
preferred shareholder of USAI for each of the years ended December 31, 1997 and
1998, respectively. These fees were paid in connection with various financing
transactions undertaken by USAI during these years.
The wife of one executive acts as a financial advisor to the Company. This
advisor was paid a total of $151 in 1998 for financial advisory services
provided.
All related-party transactions are considered to be conducted at arm's
length.
16. SUBSEQUENT EVENTS (UNAUDITED):
OFFERING
The Company is in the process of filing a Registration Statement with the
Securities and Exchange Commission in connection with the offering by the
Company of 5,000,000 shares of common stock for sale to the public.
F-23
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
16. SUBSEQUENT EVENTS (UNAUDITED): (CONTINUED)
U.S. AGGREGATES, INC. LONG-TERM INCENTIVE PLAN
The Board of Directors and the Company intend to adopt the U.S. Aggregates,
Inc. Long-term Incentive Plan, whereby the Company is authorized to issue up to
700,840 shares of the Company. The Compensation Committee of the Board of
Directors intends to grant 280,336 options under the plan to certain employees
of the Company to be effective concurrent with the initial public offering.
Options granted under this plan will be accounted for in accordance with APB.
No. 25 wherein no compensation expense would be recognized for options issued to
employees.
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Monroc, Inc.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Monroc, Inc. and Subsidiary (the
Company) for the year ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated results of operations and cash flows of
Monroc, Inc. and Subsidiary for the year ended December 31, 1997, in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Salt Lake City, Utah
March 31, 1998
F-25
<PAGE>
MONROC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ----------------------------
1997 1997 1998
------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Net Sales............................................................ $ 61,383 $ 14,913 $ 12,307
Cost and Expenses:
Cost of sales...................................................... 52,584 12,868 10,156
General and administrative expenses................................ 6,925 1,611 1,699
Contribution to ESOP............................................... 800 200 200
------------ ------------- -------------
Total costs and expenses............................................. 60,309 14,679 12,055
------------ ------------- -------------
Operating profit (loss).............................................. 1,074 234 252
Other income (expense):
Interest, net...................................................... (1,013) (231) (390)
Gain (loss) on sale of real estate................................. (16) 4 --
------------ ------------- -------------
Total other expense................................................ (1,029) (227) (390)
------------ ------------- -------------
Earnings (loss) before income taxes.................................. 45 7 (138)
Income tax (benefit)................................................. (194) -- --
------------ ------------- -------------
Net earnings (loss).................................................. $ 239 $ 7 $ (138)
------------ ------------- -------------
------------ ------------- -------------
Basic earnings (loss) per common share............................... $ 0.05 $ 0.00 $ (0.03)
Diluted earnings (loss) per common share............................. $ 0.05 $ 0.00 $ (0.03)
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE>
MONROC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
---------------------- EXCESS
SHARES AMOUNT OF PAR VALUE
--------- ----------- ----------------
<S> <C> <C> <C>
Balance at January 1, 1997.............................................................. 4,467,000 $ 45 $ 24,482
Common stock issued................................................................... 47,200 -- 236
Purchase of stock warrants............................................................ -- -- --
Net earnings for the year............................................................. -- -- --
Reduction of ESOP note receivable..................................................... -- -- --
--------- ----------- ----------------
Balance at December 31, 1997............................................................ 4,514,200 45 24,718
Net loss for the period (unaudited)................................................... -- -- --
Reduction of ESOP note receivable (unaudited)......................................... -- -- --
--------- ----------- ----------------
Balance at March 31, 1998 (unaudited)................................................... 4,514,200 $ 45 $ 24,718
--------- ----------- ----------------
--------- ----------- ----------------
<CAPTION>
ESOP
ACCUMULATED NOTE
DEFICIT RECEIVABLE
------------ ----------
<S> <C> <C>
Balance at January 1, 1997.............................................................. $ (3,332) $ (2,524)
Common stock issued................................................................... -- --
Purchase of stock warrants............................................................ (208) --
Net earnings for the year............................................................. 239 --
Reduction of ESOP note receivable..................................................... -- 800
------------ ----------
Balance at December 31, 1997............................................................ (3,301) (1,724)
Net loss for the period (unaudited)................................................... (138) --
Reduction of ESOP note receivable (unaudited)......................................... -- 200
------------ ----------
Balance at March 31, 1998 (unaudited)................................................... $ (3,439) $ (1,524)
------------ ----------
------------ ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-27
<PAGE>
MONROC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, --------------------
1997 1997 1998
------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)............................................................. $ 239 $ 7 $ (138)
Adjustments to reconcile net earnings (loss) to net cash provided by operating
activities:
Depreciation and amortization of property, plant, and equipment............... 2,303 569 704
Deferred income tax expense................................................... (194) -- --
Provision for contribution to ESOP and repayment of ESOP note receivable...... 800 200 200
Amortization of other assets.................................................. 57 18 13
Provision for discounts and doubtful accounts................................. 396 (1) (72)
Depletion of aggregate deposits............................................... 107 15 28
Loss on sale of property, plant and equipment, and land....................... 16 259 --
Changes in assets and liabilities:
Accounts receivable......................................................... 3,624 1,130 (150)
Note receivable from officer................................................ (140) -- --
Costs and estimated earnings in excess of billings on uncompleted
contracts................................................................. (33) (151) 210
Inventories................................................................. (761) 128 (339)
Prepaid expenses............................................................ 140 547 (214)
Other assets................................................................ -- (25) --
Trade accounts payable...................................................... (1,747) (2,065) 847
Accrued liabilities......................................................... 870 267 415
Billings in excess of costs and estimated earnings on uncompleted
contracts................................................................. (529) 142 (119)
Deferred compensation....................................................... (31) (29) 14
------------ --------- ---------
Net cash provided by operating activities..................................... 5,117 1,011 1,399
------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment................................... (4,357) (1,043) (4,774)
Proceeds from sale of property, plant, equipment, and land.................... 306 -- --
Additions to aggregate deposits............................................... (2,917) -- --
Addition to land.............................................................. (638) -- --
------------ --------- ---------
Net cash used in investing activities....................................... (7,606) (1,043) (4,774)
------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in line of credit..................................... 544 (1,237) (400)
Principal payments on long-term obligations................................... (1,656) (125) (308)
Issuance of long-term obligations............................................. 3,136 565 3,997
Purchase of stock warrants.................................................... (209) -- --
Issuance of common stock...................................................... 236 -- --
------------ --------- ---------
Net cash provided by (used in) financing activities......................... 2,051 (797) 3,289
------------ --------- ---------
Net decrease in cash and cash equivalents....................................... (438) (829) (86)
Cash and cash equivalents at beginning of period................................ 1,190 1,190 752
------------ --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................................... $ 752 $ 361 $ 666
------------ --------- ---------
------------ --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.................................................................... $ 981,672 $ 203 $ 401
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES--The Company acquired equipment under
capital lease obligations totaling $418 in 1997. Additionally, inventory valued
at a cost of $55 was transferred to the cost of land due to land reclamation
activities during 1997.
See notes to consolidated financial statements.
F-28
<PAGE>
MONROC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY -- Monroc, Inc. and subsidiary (the Company) operate in
one industry segment; the production and sale of sand and gravel products,
ready-mix concrete, prestress/precast concrete products, and accessories for the
building and construction industry, principally in Utah, Idaho, and Wyoming.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary, Big Horn
Redi-Mix, Inc. (Big Horn). All significant intercompany accounts and
transactions have been eliminated in consolidation.
INTERIM FINANCIAL STATEMENTS -- The interim consolidated financial
statements for the three months ended March 31, 1998 and 1997, are unaudited. In
the opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
indicative of the results for the entire fiscal year.
PROPERTY, PLANT, AND EQUIPMENT AND AGGREGATE DEPOSITS -- Property, plant,
and equipment are depreciated over their estimated useful lives. Leased property
under capital leases is amortized over the lives of the respective leases or
over the service lives of the assets for those leases which substantially
transfer ownership. The straight-line method of depreciation is followed for
financial reporting purposes; however, straight-line and accelerated methods are
used for tax purposes. Depletion on aggregate deposits is calculated on a
units-of-production basis. The estimated lives used in determining depreciation
and amortization are:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Mobile equipment................................................... 5-12
Plant equipment.................................................... 5-12
Administrative equipment and buildings............................. 5-50
</TABLE>
OTHER ASSETS -- Other assets include miscellaneous amortizable assets
including financing commitment fees, which fees are being amortized on the
interest method over the term of the notes payable to banks. Other assets also
includes goodwill which is being amortized on the straight-line method over 20
years. Impairment of long-lived assets is determined by evaluating long-lived
assets on a periodic basis in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and of Long-Lived Assets to be Disposed Of,"
which was adopted on January 1, 1996. Assets determined to be impaired are
written down to their fair value. There were no significant impairments during
1997.
REVENUE RECOGNITION -- Revenues on contracts which are primarily for
prestress/precast concrete products are recognized on the
percentage-of-completion method. The percentage-of-completion is determined on
the units-of-production basis. Under this method, revenues, costs, and estimated
profits are recognized as individual units are completed.
F-29
<PAGE>
MONROC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
During 1997, the Company recognized revenue of approximately $6,349 on a
significant project which was completed during 1997.
Contract costs are included in cost of sales and include all direct labor
and benefits, materials unique to or installed in the project, and indirect cost
allocations, including employee benefits and construction equipment expense. As
long-term contracts extend over one or more years, revision in cost and earnings
estimates during the course of the work are reflected in the accounting period
in which the facts which require the revision become known. At the time a loss
on a contract becomes known, the entire amount of the estimated ultimate loss is
recognized in the financial statements.
Costs attributable to contract claims or disputes are recorded only when
realization is probable. The amounts are recorded at the lesser of actual costs
incurred or the amount expected to be realized.
Revenues on other product sales are recognized when the product is shipped.
INCOME TAXES -- The Company utilizes an asset and liability approach for
financial accounting and reporting for income taxes. Under this method, deferred
tax assets and liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities and are measured
using enacted tax rates and laws that will be in effect when the differences are
expected to reverse. An allowance against deferred tax assets is recorded when
it is more likely than not that such tax benefits will not be realized.
ESOP ACCOUNTING -- The Company established an Employee Stock Ownership
Plan (ESOP) in 1986 to facilitate the acquisition of assets from a predecessor
company. In conjunction with the acquisition, the Company loaned the ESOP $10
million, which the ESOP used to finance the acquisition of its interest in the
Company. Generally accepted accounting principles require that the note
receivable from the ESOP be included in the balance sheet as a reduction of
stockholders' equity.
The ESOP allocates the shares issued to the ESOP in 1986 to the participants
of the ESOP as described below. The Company makes contributions to the ESOP
which allow the ESOP to make the debt payments back to the Company on the note
receivable from the ESOP. Upon a commitment to release shares, ESOP
contributions by the Company are expensed and charged against income for
accounting purposes and are deductible for income tax purposes. Shares allocable
to participants for a given year are determined based on the ratio of the
current year's ESOP debt service payments (principal and interest) on the
original note from the Company as compared to the total remaining required debt
service on that loan. The contribution to the ESOP is a noncash expense of the
Company because the contributions are paid back to the Company and reduce the
note receivable from the ESOP. Consequently, no cash is consumed as a result of
the contributions. Furthermore, since the note receivable from the ESOP is
reduced by contributions, total stockholders' equity is not affected by the
contributions to the ESOP.
CASH EQUIVALENTS -- For financial statement purposes, the Company
considers all highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK -- A significant portion of the Company's
sales are to customers whose activities are related to the building and
construction industry. These customers are located
F-30
<PAGE>
MONROC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
primarily in the intermountain west. The Company generally extends credit to
these customers and, therefore, collection of receivables is affected by the
economy of the building and construction industry. However, the Company closely
monitors extensions of credit.
ESTIMATES AND ASSUMPTIONS -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RELATED PARTIES -- The Company made consulting fee payments of $200 during
the year ended December 31, 1997 to an entity with controlling ownership of the
Company (see Note 8). This payment is included in general and administrative
expenses in the consolidated statements of operations.
2. LONG-TERM OBLIGATIONS
The following is a schedule of equipment capital lease obligations at
December 31, 1997:
<TABLE>
<S> <C>
Year ending December 31:
1998............................................ $ 553
1999............................................ 490
2000............................................ 448
2001............................................ 357
----------
Total minimum lease payments...................... 1,848
Less amount representing interest................. 275
----------
Present value of minimum lease payments........... $ 1,573
----------
----------
</TABLE>
The Company has entered into several operating leases on certain equipment
expiring through 2003. Lease expense for the year ended December 31, 1997, was
$2,627. The following is a schedule of future minimum lease payments on the
Company's operating leases at December 31, 1997:
<TABLE>
<S> <C>
Year ending December 31:
1998.............................................................. $ 2,650
1999.............................................................. 2,146
2000.............................................................. 1,830
2001.............................................................. 1,360
2002.............................................................. 539
Thereafter........................................................ 97
---------
Total............................................................... $ 8,622
---------
---------
</TABLE>
Not included in the above schedule are production royalties which the
Company has agreed to pay on aggregate deposits mined on lease property. The
payments are based on a progressive scale ranging from $0.25 per ton in 1997 to
$0.48 per ton in 2000. The annual expense for these royalties was $117 for 1997.
F-31
<PAGE>
MONROC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
3. INCOME TAXES
Income tax benefit for the year ended December 31, 1997 consists of the
following:
<TABLE>
<S> <C>
Current--Federal..................................................... $ --
Deferred--Federal.................................................... (194)
---------
Total................................................................ $ (194)
---------
---------
</TABLE>
At December 31, 1997, the Company had net operating loss carryforwards for
tax reporting purposes of approximately $5,100, which expire through the year
2012. The net operating loss carryforwards are subject to limitation in any
given year upon the occurrence of certain events, including significant changes
in ownership.
The net change in the Company's valuation allowance for the deferred tax
assets was $(82) for 1997, principally due to changes in net operating loss
carry forward, excess tax depreciation, and other items. Reconciliation of
income taxes computed at the federal statutory rate and income tax expense
(benefit) is as follows:
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Income tax (benefit) computed at the
Federal statutory rate of 35%....................................................... $ 16
Net operating loss (utilized)......................................................... (82)
Percentage depletion.................................................................. (145)
Nondeductible expenses................................................................ 17
---------
Income tax (benefit).................................................................. $ (194)
---------
---------
</TABLE>
4. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Company has an ESOP covering substantially all full-time employees who
have at least one year of service. Under the terms of the ESOP, the Company
contributes amounts as determined by the Board of Directors. Shares of stock
allocated for a given year are further allocated to individual participants
based on the ratio of the participants' annual compensation to total
compensation for all participants. Shares allocated to participants vest over
six years.
In 1986, the ESOP purchased 1,606,796 shares of the Company's common stock
representing a 68% interest, in exchange for a $10,000 promissory note. The
balance on the note receivable from the ESOP was $1,724 at December 31, 1997. As
of December 31, 1997, there were 1,164,075 shares of the Company's common stock
remaining in the ESOP with 920,569 shares allocated to participants' accounts
and 243,506 remaining to be allocated based on future contributions by the
Company. All shares in the ESOP are considered issued and outstanding for
purposes of calculating earnings per share. Participants vote the shares in
their accounts on any stockholder vote while the unallocated shares are voted by
the ESOP trustee under instructions from the Company's Board of Directors.
F-32
<PAGE>
MONROC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
4. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) (CONTINUED)
As of December 31, 1997, the fair value of the 243,506 shares still to be
allocated to participants' accounts was $2,465. The principal reductions on the
ESOP note were $800 for the year ended December 31, 1997 was shown as
contributions to the ESOP. The accumulated deficit at December 31, 1997 includes
$8,276 of contributions since 1986 to the ESOP, which have been used to reduce
principal on the ESOP note.
5. RETIREMENT PLANS
The Company makes payments to a defined contribution pension plan (Plan)
covering most full-time nonbargaining employees who have completed at least one
full year of service with the Company based on a percentage of the employee's
salary. Payments are made to the Plan as they accrue. The contribution for the
year ended December 31, 1997 was $523. There were also certain bargaining
employees who are covered under this Plan. The Company has no liability under
the Plan beyond the amounts contributed. The Company also makes payments to
various bargaining union trust funds, as negotiated under union contracts. The
contribution for the year ended December 31, 1997 was $286.
6. COMMITMENTS AND CONTINGENCIES
DEFERRED COMPENSATION AND EMPLOYMENT AGREEMENTS -- In May 1996, the
Company amended the employment agreement with its former president and chief
executive officer (president). The amended agreement stipulates that the Company
will no longer accrue amounts towards the former president's deferred
compensation effective May 22, 1996. In addition, the amount accrued in the
former president's unfunded deferred compensation account will continue to earn
interest at 1% below the prime interest rate (7.5% at December 31, 1997). The
total accrued amount will be paid over a period equal to one and one-fourth
times the length of Company service of the president as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- --------------------------------------------------------------------------------------
<S> <C>
1998.................................................................................. $ 112
1999.................................................................................. 30
2000.................................................................................. 32
2001.................................................................................. 35
2002.................................................................................. 38
Thereafter............................................................................ 599
---------
Total................................................................................. $ 846
---------
---------
</TABLE>
The Company has entered into employment agreements with certain officers.
These agreements provide for annual compensation through July 1998 as determined
by the Board of Directors. The Board of Directors has approved annual
compensation of $255 for these officers as of December 31, 1997.
ENVIRONMENTAL MATTERS -- The Company is currently the owner of 9.9 acres
of land located in Murray, Utah that contains mining slag previously deposited
by the former owner. The slag contains
F-33
<PAGE>
MONROC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
certain heavy metals including lead and arsenic that may have leached from the
slag into the environment. This and adjoining properties have been proposed by
the Environmental Protection Agency (EPA) for listing on the National Priorities
List for cleanup of the lead slag and potential groundwater contamination.
Although the Company did not generate the slag material, under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), the current
owner of a property may be liable for cleanup costs. In such case, the Company
would have a claim against the former owner for its respective share of these
costs. All the landholders and the City of Murray entered, in May 1997, into an
Agreement in Principle in which landholders agreed to donate land for a roadway
through the properties which would be used as a depository for some of the
hazardous wastes on the site. In addition, the parties agreed to cooperate in
the remediation efforts to be conducted by the former owner. The parties are
currently in negotiations regarding a proposed draft, Remedial Design/ Remedial
Action Consent Decree ("CD"). As proposed, the CD requires the Company to (i)
contribute a certain amount of its property for the roadway (approximately 1.8
acres with a book value of about $19) as its share of the cleanup costs, (ii)
participate in a local improvement district for the installation of a curb,
gutter, and sidewalks along the proposed roadway (approximately a $30 assessment
over a ten-year period), and (iii) implement certain institutional controls. In
return, the Company will receive protection from making further contributions
and a covenant not to sue. Under the current draft of the CD, the Company's
obligations terminate upon sale of the property. The Company's estimated cost to
satisfy these requirements of the CD as outlined above are immaterial.
On May 5, 1997, the Company entered into an agreement to sell its total
acreage in Murray, Utah to The Boyer Company, L.C. for a total purchase price of
approximately $1,900. The agreement is subject to the purchaser obtaining
necessary approvals. Pursuant to the agreement, the purchaser will assume the
Company's liabilities under the agreement in principle and the proposed consent
agreement described above including the dedication of the land for the roadway
and the participation in the improvement district. If the sale to the Boyer
Group does not occur, then the Company would be responsible for those costs.
Subject to certain conditions, the Company expects the sale of the Murray
property to close on or before January 1, 1999.
Prior to learning of the potential presence of lead in the slag from the
Murray site, the Company sold some of the slag for use in road base and railroad
fill. The Company has not sold any slag material from this site since 1988. The
Company may be liable for cleanup costs if it is determined that the lead from
this slag poses an environmental hazard. The Company has not received any notice
of government or private action on this matter. The potential cost to the
Company, if any, is not ascertainable at the present time because no action
currently is pending by any party and it is unknown whether any action will be
taken in the future. The Company's management believes that there are
economically reasonable methods of containing the slag should this become
necessary.
OTHER -- The Company is engaged in various lawsuits as plaintiff or
defendant arising in the normal course of business. In the opinion of
management, based upon advice of counsel, the ultimate outcome of these lawsuits
will not have a material impact on the Company's financial statements.
F-34
<PAGE>
MONROC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
7. CAPITAL STOCK
EARNINGS (LOSS) PER SHARE -- Effective December 31, 1997, the Company
adopted SFAS No. 128, "Earnings Per Share", and retroactively restated its
earnings per share (EPS) for 1997 to conform with SFAS No. 128.
Basic and diluted earnings per share are calculated as follows for the year
ended December 31, 1997:
<TABLE>
<CAPTION>
PER
AVERAGE SHARE
INCOME SHARES AMOUNT
----------- ---------- -----------
<S> <C> <C> <C>
Income........................................................ $ 239
-----
EPS basic:
Income available to common stockholders..................... 239 4,485,376 $ 0.05
----- -----
-----
Effect of dilutive securities--options and warrants........... 546,524
----------
EPS diluted:
Income available to common stockholders
with assumed conversions.................................. $ 239 5,031,900 $ 0.05
----- ---------- -----
----- ---------- -----
</TABLE>
Earnings per common share diluted are computed using the treasury stock
method.
8. STOCK OPTIONS AND WARRANTS
In 1997, the Company amended its 1994 stock option plan and increased the
shares available under the 1994 plan to 260,000. As of December 31, 1997, the
Company had granted stock options under the 1994 stock option plan to various
officers, directors, and employees of the Company covering the aggregate amount
of 119,600 shares of common stock.
In 1997, the Company amended its 1996 stock option plan and increased the
shares available under the 1996 plan to 600,000. As of December 31, 1997, the
Company had granted stock options under the 1996 stock option plan covering
296,000 shares of common stock. Of these, 136,000 options had vested as of
December 31, 1997. The remaining 160,000 options vest annually through July 2000
with 60,000 to vest in 1998 and 1999 with the remaining 40,000 to vest in 2000.
In conjunction with its initial public offering in 1994, the Company issued
60,000 warrants at $5.50 per share to various entities involved in helping the
Company go public. During 1997, 58,750 of these warrants were repurchased at a
cost of $209. As of December 31, 1997, none of the remaining 1,250 warrants had
been exercised.
On December 28, 1995, in connection with the issuance of 1,650,000 shares of
common stock, the Company issued a warrant to a single purchaser to purchase
1,500,000 shares of common stock at an exercise price of $6.25 per share. The
warrant was exercisable at the issuance date and expires in December 2000. As of
December 31, 1997, the warrant has not been exercised.
F-35
<PAGE>
MONROC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
The Company accounts for stock-based compensation under APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations under
which no compensation cost has been recognized because all options were issued
at fair value. During 1996, the Company adopted the disclosure provision of
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
(FAS 123). If the Company had elected to recognize compensation expense based
upon the fair value at the grant date for awards under these plans consistent
with the methodology prescribed by FAS 123, the Company's net earnings (loss)
and earnings (loss) per share would be reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Net earnings (loss):
As reported......................................................................... $ 239
Pro Forma........................................................................... 161
Earnings (loss) per common share:
As reported--basic.................................................................. $ 0.05
Pro forma--basic.................................................................... 0.04
As reported--diluted................................................................ 0.05
Pro forma--diluted.................................................................. 0.03
</TABLE>
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation costs related to
grants made before 1995. The fair value of the applicable options was estimated
at the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions for 1997: expected volatility of 57%,
risk-free interest rate of 5.18%, and expected life of .25 years (See Note 11).
The weighted average fair value of options granted during 1997 was $.70.
Option pricing models require the input of highly subjective assumptions
including the expected stock price volatility. Also, the Company's employee
stock options have characteristics significantly different from those of traded
options and changes in the subjective input assumptions can materially affect
the fair value estimate. Management believes the best input assumptions
available were used to value the options and the resulting option values are
reasonable.
F-36
<PAGE>
MONROC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
Information with respect to the Company's stock option plans at December 31,
1997 and changes for the year then ended is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
STOCK EXERCISE EXERCISE
OPTIONS PRICE PRICE
--------- ----------- -----------
<S> <C> <C> <C>
Outstanding at January 1, 1997............................. 367,600 $ 5.00-8.75 $ 5.95
Granted.................................................... 112,000 5.25-7.50 5.94
Canceled................................................... 16,800 5.00 5.00
Exercised.................................................. 47,200 5.00 5.00
---------
Outstanding at December 31, 1997........................... 415,600 $ 5.00-8.75 $ 6.11
---------
---------
Exercisable at December 31, 1997........................... 255,600 $ 5.00-7.50 $ 5.35
---------
---------
</TABLE>
Additional information about stock options outstanding and exercisable at
December 31, 1997 is summarized as follows:
OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
REMAINING WEIGHTED-
CONTRACTUAL AVERAGE
NUMBER LIFE (YEARS) EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING (SEE NOTE 11) PRICE
- ------------------------------------------------------ ----------- --------------- -----------
<S> <C> <C> <C>
$5.00-$5.75........................................... 259,600 2.69 $ 5.25
6.60.................................................. 40,000 5.00 6.60
6.80.................................................. 20,000 5.00 6.80
7.50.................................................. 16,000 4.50 7.50
7.60.................................................. 40,000 5.00 7.60
8.75.................................................. 40,000 5.00 8.75
----------- -----
415,600 $ 6.11
----------- -----
----------- -----
</TABLE>
OPTIONS EXERCISABLE
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER EXERCISE
RANGE OF EXERCISE PRICES EXERCISABLE PRICE
- ---------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
$5.00-$5.75........................................................... 239,600 $ 5.21
7.50.................................................................. 16,000 7.50
----------- -----
255,600 $ 5.35
----------- -----
----------- -----
</TABLE>
F-37
<PAGE>
MONROC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
9. QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Quarterly financial results for the year ended December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
BASIC DILUTED
OPERATING NET EARNINGS EARNINGS
NET PROFIT EARNINGS (LOSS) (LOSS)
SALES (LOSS) (LOSS) PER SHARE PER SHARE
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1997
First quarter.......................................... $ 14,913 $ 234 $ 7 N/A N/A
Second quarter......................................... 16,352 804 764 $ 0.17 $ 0.15
Third quarter.......................................... 16,193 1,198 1,051 0.23 0.19
Fourth quarter......................................... 13,925 (1,162) (1,583) (0.35) (0.29)
--------- ----------- ----------- ----------- -----------
Total.................................................... $ 61,383 $ 1,074 $ 239 $ 0.05 $ 0.05
--------- ----------- ----------- ----------- -----------
--------- ----------- ----------- ----------- -----------
</TABLE>
Year end adjustments to accrued liabilities, accounts receivable, property,
and contract estimates made in the fourth quarter of 1997 had the effect of
decreasing net income by approximately $925 or $.25 per common share --
basic/$.18 per common share -- diluted. Additionally, the Company experienced
operating losses during the fourth quarter of 1997.
10. SUBSEQUENT EVENTS
On January 6, 1998, the Company acquired all the outstanding common stock of
Treasure Valley Concrete, Inc., an Idaho corporation, for $3,350 in cash and the
assumption of $1,141 of liabilities. Treasure Valley Concrete, Inc., with annual
revenues of approximately $7 million, is a producer of ready mix concrete,
serving the Boise, Idaho area. With the close of the transaction, Treasure
Valley Concrete becomes a wholly owned subsidiary of Monroc, Inc.
The Company has entered into an Amended and Restated Agreement and Plan of
Merger dated as of January 29, 1998 and amended and restated as of March 4, 1998
(the Merger Agreement) with U.S. Aggregates, Inc., a Delaware corporation
(USAI), and Western Acquisition, Inc., a Delaware corporation and a subsidiary
of USAI (Sub), providing for the merger of Sub with and into the Company (the
Merger), with the Company continuing as the surviving corporation and a
subsidiary of USAI. Pursuant to the Merger Agreement, each outstanding share of
common stock, par value $.01 per share, of the Company (the Common Stock) will
be converted into the right to receive $10.771 per share in cash. In addition,
the Merger Agreement provides that each option or warrant to purchase shares of
Common Stock will be canceled in consideration for the right to receive in cash
an amount equal to the number of shares subject to such option or warrant
multiplied by the difference between $10.771 and the exercise price of such
option or warrant, less any applicable tax withholdings.
The Merger is conditioned upon, among other things, the approval of the
stockholders of the Company, certain regulatory and governmental approvals and
other customary conditions. In connection with the proposed Merger, the Board of
Directors of the Company received a fairness opinion from SBC Warburg Dillion
Read Inc. to the effect that, as of the date of the opinion, the merger
consideration is fair to the stockholders of the Company from a financial point
of view.
F-38
<PAGE>
MONROC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
11. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general purpose financial statements. This Statement requires
that an enterprise (a) classify items of other comprehensive income by their
nature in a financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The adoption of SFAS No. 130 may require the
Company to add disclosure to the financial statements about comprehensive
income.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information", which redefines how public business
enterprises report information about operating segments in annual financial
statements. It also establishes standards for related disclosures about products
and services, geographical areas, and major customers. SFAS No. 131 is effective
for financial statements for periods beginning after December 15, 1997. In the
initial year of application, comparative information for earlier years is to be
restated. The adoption of SFAS No. 131 may result in additional disclosures
regarding the Company's segments.
******
F-39
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Monroc, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Monroc, Inc. and Subsidiary, for the
year ended December 31, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations, changes in
stockholders' equity and cash flows of Monroc, Inc. and Subsidiary, for the year
ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ Grant Thornton LLP
Salt Lake City, Utah
February 11, 1997
F-40
<PAGE>
MONROC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C>
Net Sales....................................................................... $ 70,401
Cost and Expenses:
Cost of sales................................................................. 63,045
General and administrative expenses........................................... 5,941
Contribution to ESOP.......................................................... 800
Restructuring charges......................................................... 1,500
-----------
Operating loss.................................................................. (885)
Other income (expense):
Interest, net................................................................. (737)
Gain on sale of property, plant and equipment................................. 36
-----------
Loss before income taxes........................................................ (1,586)
Income tax benefit.............................................................. (218)
-----------
Net loss........................................................................ $ (1,368)
-----------
-----------
Loss per common share........................................................... $ (0.31)
Weighted average common shares outstanding...................................... 4,467,000
</TABLE>
The accompanying notes are an integral part of this statement.
F-41
<PAGE>
MONROC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
---------------------- EXCESS OF ACCUMULATED ESOP NOTE
SHARES AMOUNT PAR VALUE DEFICIT RECEIVABLE
--------- ----------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996........................ 4,467,000 $ 45 $ 24,482 $ (1,964) $ (3,325)
Reduction of ESOP note receivable............... -- -- -- -- 800
Net loss for the year........................... -- -- -- (1,368) --
--------- ----------- ---------- --------------- ----------
Balance at December 31, 1996...................... 4,467,000 $ 45 $ 24,482 $ (3,332) $ (2,525)
--------- ----------- ---------- --------------- ----------
--------- ----------- ---------- --------------- ----------
</TABLE>
The accompanying notes are an integral part of this statement.
F-42
<PAGE>
MONROC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss............................................................................ $ (1,368)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, depletion and amortization of property, plant and equipment and
other assets.................................................................... 2,377
Provision for contribution to ESOP and repayment of ESOP note receivable.......... 800
Amortization of other assets...................................................... 82
Provision for discounts and doubtful accounts, net................................ 537
Depletion of aggregate deposits................................................... 107
Gain on sale of property, plant and equipment..................................... (36)
Deferred income taxes............................................................. (218)
Restructuring charges............................................................. 1,500
Change in operating assets and liabilities:
Accounts receivable............................................................. (7,099)
Costs and estimated earnings in excess of bilings on uncompleted contracts...... (29)
Inventories..................................................................... (1,161)
Prepaid expenses................................................................ (215)
Other assets.................................................................... 518
Trade accounts payable.......................................................... 1,022
Accrued liabilities............................................................. 27
Billings in excess of costs and estimated earnings on uncompleted contracts..... 448
Deferred compensation........................................................... 19
-------
Net cash used in operating activities............................................... (2,689)
-------
Cash flow from investing activities:
Additions to property, plant and equipment.......................................... (4,503)
Additions to aggregate deposits..................................................... (22)
Additions to land................................................................... (842)
Proceeds from sale of property, plant, equipment and land........................... 329
-------
Net cash used in investing activities............................................... (5,038)
-------
Cash flows from financing activities:
Net increase in line of credit...................................................... 5,268
Principal payments on long-term obligations......................................... (3,627)
Issuance of long-term obligations................................................... 769
-------
Net cash provided by financing activities........................................... 2,410
-------
Net decrease in cash................................................................ (5,317)
Cash, beginning of year............................................................. 6,507
-------
Cash, end of year................................................................... $ 1,190
-------
-------
Disclosure of supplemental cash flow information:
Cash paid during the year for:
Interest.......................................................................... $ 907
Income taxes...................................................................... 32
Non cash investing and financing activities:
The Company acquired equipment under capital lease obligations totalling $1,424 in
1996.
</TABLE>
The accompanying notes are an integral part of this statement.
F-43
<PAGE>
MONROC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.
1. BUSINESS ACTIVITY
Monroc, Inc. and Subsidiary (the Company), operate in one industry segment;
the production and sale of sand and gravel products, ready-mix concrete,
prestress/precast concrete products and accessories for the building and
construction industry, principally in Utah, Idaho, and Wyoming.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Big Horn Redi-Mix, Inc. (Big Horn). Effective
December 1995, the Company merged Cody Concrete, Inc. (Cody Concrete), and
Powell Ready Mix, Inc. (Powell Ready Mix) with and into Big Horn with Big Horn
as the surviving corporation. All significant intercompany accounts and
transactions have been eliminated in consolidation.
3. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method, except for sand and gravel which
uses the lower of average cost or market.
4. PROPERTY, PLANT AND EQUIPMENT AND AGGREGATE DEPOSITS
Property, plant and equipment are stated at cost. Depreciation and
amortization are provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives. Leased
property under capital leases is amortized over the lives of the respective
leases or over the service lives of the assets for those leases which
substantially transfer ownership. The straight-line method of depreciation is
followed for financial reporting purposes; however, straight-line and
accelerated methods are used for tax purposes. Depletion on aggregate deposits
is calculated on a units-of-production basis. The estimated lives used in
determining depreciation and amortization are:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Mobile equipment............................................................. 5-12
Plant equipment.............................................................. 5-12
Administrative equipment and buildings....................................... 5-50
</TABLE>
5. OTHER ASSETS
Other assets include miscellaneous amortizable assets including financing
commitment fees, which fees are being amortized on the interest method over the
term of the notes payable to banks. Other assets also includes goodwill which is
being amortized on the straight-line method over 20 years. The Company evaluates
its goodwill annually to determine potential impairment by comparing the
carrying value to the undiscounted estimated expected future cash flows of the
related asset.
F-44
<PAGE>
MONROC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
6. REVENUE RECOGNITION
Revenues on contracts which are primarily for prestress/precast concrete
products are recognized on the percentage-of-competion method. The
percentage-of-completion is determined on the units-of-production basis. Under
this method, revenues, costs, and estimated profits are recognized as individual
units are completed. The amounts included in the accompanying balance sheets as
"costs and estimated earnings in excess of billings on uncompleted contracts"
represent revenues recognized in excess of amounts billed (underbillings) and
"billings in excess of costs and estimated earnings on uncompleted contracts"
represent billings in excess of revenues recognized (overbillings).
During 1996, the Company recognized revenue of approximately $15,600 on a
significant project which is scheduled to be completed during 1997. No single
project with revenues recognized in excess of 10% of total consolidated revenues
existed during 1995.
Contract costs include all direct labor and benefits, materials unique to or
installed in the project, and indirect cost allocations, including employee
benefits and construction equipment expense. As long-term contracts extend over
one or more years, revisions in cost and earnings estimates during the course of
the work are reflected in the accounting period in which the facts which require
the revision become known. At the time a loss on a contract becomes known, the
entire amount of the estimated ultimate loss is recognized in the financial
statements.
Costs attributable to contract claims or disputes are carried in the
accompanying balance sheets only when realization is probable. The amounts are
recorded at the lesser of actual costs incurred or the amount expected to be
realized.
Revenues on all other products are recognized when the product is shipped.
7. INCOME TAXES
The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities and are measured using enacted tax rates and laws that will be
in effect when the differences are expected to reverse. An allowance against
deferred tax assets is recorded when it is more likely than not that such tax
benefits will not be realized.
8. ESOP ACCOUNTING
As described in Note D, the Company established an Employee Stock Ownership
Plan (ESOP) in 1986 to facilitate the acquisition of assets from a predecessor
company. In conjunction with the acquisition, the Company loaned the ESOP
$10,000, which the ESOP used to finance the acquisition of its interest in the
Company. Generally accepted accounting principles require that the note
receivable from the ESOP be included in the balance sheet as a reduction of
stockholders' equity.
The ESOP allocates the shares issued to the ESOP in 1986 to the participants
of the ESOP as described below. The Company makes contributions to the ESOP
which allow the ESOP to make the debt payments back to the Company on the note
receivable from the ESOP. ESOP contributions by the
F-45
<PAGE>
MONROC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company are expensed and charged against income for accounting purposes and are
deductible for income tax purposes. Shares allocable to participants for a given
year are determined based on the ratio of the current year's ESOP debt service
payments (principal and interest) on the original note from the Company as
compared to the total remaining required debt service on that loan. The
contribution to the ESOP is a noncash expense of the Company because the
contributions are paid back to the Company and reduce the note receivable from
the ESOP. Consequently, no cash is consumed as a result of the contributions.
Furthermore, since the note receivable from the ESOP is reduced by
contributions, total stockholders' equity is not affected by the contributions
to the ESOP.
9. CASH EQUIVALENTS
For financial statement purposes, the Company considers all highly liquid
debt instruments purchased with an original maturity of three months or less to
be cash equivalents.
10. CONCENTRATION OF CREDIT RISK
A significant portion of the Company's sales are to customers whose
activities are related to the building and construction industry. These
customers reside primarily in the intermountain west. The Company generally
extends credit to these customers and, therefore, collection of receivables is
affected by the economy of the building and construction industry. However, the
Company closely monitors extensions of credit.
The Company maintains cash and money market balances at several financial
institutions in the intermountain west. Accounts at each institution are insured
up to $100 by the Federal Deposit Insurance Corporation. Uninsured balances
aggregate to approximately $860 at December 31, 1996.
11. EARNINGS (LOSS) PER SHARE
Earnings (loss) per common and common equivalent share are computed by
dividing net earnings (loss) by the weighted average common shares outstanding
during each year. Common stock equivalents are antidilutive in the loss year and
are not included in the weighted average common shares outstanding.
12. ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash, and short-term trade receivables
and payables approximate their fair values.
F-46
<PAGE>
MONROC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE B--CONTRACTS IN PROCESS
Costs incurred to date, estimated earnings, and the related progress
billings are as follows:
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Costs incurred to date............................................................. $ 20,418
Estimated earnings................................................................. 1,304
---------
Revenue recognized................................................................. 21,722
Less billings to date.............................................................. 22,230
---------
$ (508)
---------
---------
</TABLE>
The above are included in the accompanying balance sheet under the following
captions:
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Costs and estimated earnings in excess of billings on uncompleted contracts $ 182
Billings in excess of costs and estimated earnings on uncompleted contracts (690)
---------
$ (508)
---------
---------
</TABLE>
Retainage on uncompleted contracts amounted to $870 at December 31, 1996.
All accounts receivable, including retainage, under contracts in process are
expected to be collected within one year.
F-47
<PAGE>
MONROC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE C--INCOME TAXES
Income tax benefit consists of the following:
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Current-Federal....................................................................... $ --
Deferred-Federal...................................................................... (218)
---------
$ (218)
---------
---------
</TABLE>
The components of the Company's deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Deferred tax assets (liabilities)
Net operating loss carryforward................................................... $ 1,915
Deferred compensation............................................................. 243
Allowance for doubtful accounts................................................... 103
Accrued expenses.................................................................. 258
Inventory cost capitalization..................................................... 74
Other............................................................................. 11
Excess of tax depreciation and amortization....................................... (1,096)
Difference in assigned values and tax basis in purchase of subsidiaries........... (972)
Valuation allowance............................................................... (1,508)
---------
Net deferred tax liability.......................................................... $ (972)
---------
---------
</TABLE>
There were no deferred tax assets or income tax benefits recorded in the
financial statements for net deductible temporary differences or net operating
loss carryforwards due to the fact that the likelihood of realization of the
related tax benefits cannot be established. A deferred tax liability was
recognized upon the purchase of three subsidiary corporations during 1994. The
initial deferred liability was calculated on the differences between the
assigned values and tax bases of the assets and liabilities acquired in the
purchase.
At December 31, 1996, the Company had net operating loss carryforwards for
tax reporting purposes of approximately $5,850, which expire through the year
2011. The net operating loss carryforwards are subject to limitation in any
given year upon the occurrence of certain events, including significant changes
in ownership.
F-48
<PAGE>
MONROC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE C--INCOME TAXES (CONTINUED)
Reconciliation of income taxes computed at the federal statutory rate and
income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Income tax benefit computed at the Federal statutory rate............................. $ (555)
Net operating loss generated.......................................................... 402
Percentage depletion.................................................................. (89)
Nondeductible expenses................................................................ 33
All other, net........................................................................ (9)
---------
Income tax benefit.................................................................... $ (218)
---------
---------
</TABLE>
NOTE D--EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Company has an ESOP covering substantially all full-time employees who
have at least one year of service. Under the terms of the ESOP, the Company
contributes amounts as determined by the Board of Directors, except as discussed
below. Shares of stock allocated for a given year are further allocated to
individual participants based on the ratio of the participants' annual
compensation to total compensation for all participants. Shares allocated to
participants vest over six years.
In 1986, the ESOP purchased 1,606,796 shares of the Company's common stock
representing a 68% interest, in exchange for a $10,000 promissory note. The
interest rate and payment terms of the note receivable were identical to those
of the Company's notes payable to banks, which were paid in full during 1993.
The balance on the note receivable from ESOP was $2,525 at December 31, 1996.
The principal reduction on the ESOP note is $800 for the year ended December
31, 1996 and is shown as a contribution to the ESOP. The accumulated deficit at
December 31, 1996, includes $7,476 of contributions since 1986 to the ESOP,
which have been used to reduce principal on the ESOP note.
NOTE E--RETIREMENT PLANS
The Company makes payments to a defined contribution pension plan (Plan)
covering most full-time nonbargaining employees who have completed at least one
full year of service with the Company based on a percentage of the employee's
salary. Payments are made to the Plan as they accrue. The contribution for the
year ended December 31, 1996 was $481. There are also certain bargaining
employees who are covered under this Plan. The Company has no liability under
the Plan beyond the amounts contributed. The Company also makes payments to
various bargaining union trust funds, as negotiated under union contracts. The
contribution for the year ended December 31, 1996 was $334.
NOTE F--COMMITMENTS AND CONTINGENCIES
1. DEFERRED COMPENSATION AND EMPLOYMENT AGREEMENTS
In May 1996, the Company amended the employment agreement with its former
president and chief executive officer (president). The amended agreement
stipulates that the Company will no longer
F-49
<PAGE>
MONROC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE F--COMMITMENTS AND CONTINGENCIES (CONTINUED)
accrue amounts towards the former president's deferred compensation effective
May 22, 1996. In addition, the amount accrued in the former president's deferred
compensation account will continue to earn interest at 1% below the prime
interest rate (7.25% at December 31, 1996). The total accrued amount plus
interest will be paid over a period equal to one and one-fourth times the length
of Company service of the president as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -------------------------------------------------------------------------------------
<S> <C>
1997................................................................................. $ --
1998................................................................................. 33
1999................................................................................. 78
2000................................................................................. 78
2001................................................................................. 78
Thereafter........................................................................... 1,107
---------
$ 1,374
---------
---------
</TABLE>
Deferred compensation of $779 was accrued in this account as of December 31,
1996.
The Company has entered into employment agreements with certain officers.
These agreements provide for annual compensation through July 1998 as determined
by the Board of Directors. The Board of Directors has approved annual
compensation of $312 for these officers as of December 31, 1996.
2. ENVIRONMENTAL MATTERS
The Company is currently the owner of certain property located in Murray,
Utah, which contains lead slag deposited by the former owner. The slag contains
heavy metals including lead and arsenic which may have leached from the slag
into the environment. This and adjoining properties have been proposed by the
Environmental Protection Agency (EPA) for listing on the National Priorities
List for cleanup of the lead slag, and potential groundwater contamination.
Although the Company did not generate the slag material, under the Comprehensive
Environmental Response, Compensation and Liability Act, the current owner of a
property may be liable for clean-up costs. In such case, the Company would have
a claim against the former owner for its respective share of these costs. The
Company has not been designated a Potentially Responsible Party by the EPA with
respect to cleanup of any waste at this site.
The Company has been participating in a study group with the EPA, the former
owner, Murray City and the other current landowners to develop a plan that would
result in the remediation of the problems described above. An agreement in
principal has been reached among all parties, and upon executing of a formal
understanding, the EPA will begin the process of preparing a consent agreement
in 1997. Cleanup will take several years to accomplish and involves a
combination of offsite disposal, redevelopment of the area including new road
construction, and on site treatment. Development of the land for commercial
purposes will be possible at the end of the process. The remediation plan calls
for the dedication of a certain amount of the Company's property for the
extension of a roadway in
F-50
<PAGE>
MONROC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE F--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Murray City. Until approval of a consent agreement, it is difficult to estimate
the possible financial impact to the Company, if any.
Prior to learning of the potential presence of lead in the slag from this
site, the Company sold some of the slag for use in road base and railroad fill.
The Company may be liable for cleanup costs if it is determined that the lead
from this slag poses an environmental hazard to drinking water. The Company has
not received any notice of government or private action on this matter. The
potential cost to the Company, if any, is not ascertainable at the present time.
The Company's management believes that there are economically reasonable methods
of containing the slag should this become necessary.
3. OPERATING LEASES
The Company has entered into several operating leases on certain equipment
expiring through 2002. Lease expense for the year ended December 31, 1996 was
$1,493. The following is a schedule of future minimum lease payments on the
Company's operating leases at December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -----------------------------------------------------------------------------------
<S> <C>
1997............................................................................. $ 2,888
1998............................................................................. 2,805
1999............................................................................. 2,263
2000............................................................................. 1,892
2001............................................................................. 1,430
Thereafter....................................................................... 842
---------
$ 12,120
---------
---------
</TABLE>
Not included in the above schedule are production royalties which the Company
has agreed to pay on aggregate deposits mined on leased property. The payments
are based on a progressive scale ranging from $0.25 per ton in 1997 to $0.31 per
ton in 2000.
4. OTHER
The Company is engaged in various lawsuits as plaintiff or defendant arising
in the normal course of business. In the opinion of management, based upon
advice of counsel, the ultimate outcome of these lawsuits will not have a
material impact on the Company's financial statements.
NOTE G--STOCK OPTIONS AND WARRANTS
Effective January 20, 1994, the Company adopted a stock option plan which
provides for the granting of stock options to purchase up to 200,000 shares of
common stock, subject to adjustment under certain circumstances. As of December
31, 1996, the Company had granted stock options under the Company's 1994 stock
option plan to various officers, directors and employees of the Company covering
the aggregate amount of 167,600 shares of common stock.
F-51
<PAGE>
MONROC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE G--STOCK OPTIONS AND WARRANTS (CONTINUED)
On May 22, 1996, the stockholders approved the Company's 1996 stock option
plan which provides for the granting of stock options to purchase up to 300,000
shares of common stock. As of December 31, 1996, the Company had granted stock
options under the 1996 stock option plan covering 200,000 shares of common
stock. Of these, 40,000 options vested immediately. The remaining 160,000
options vest at 40,000 annually through July 2000.
On December 28, 1995, in connection with the issuance of 1,650,000 shares of
common stock, the Company issued a warrant to a single purchaser to purchase
1,500,000 shares of common stock at an exercise price of $6.25 per share. The
warrant vested immediately and expires in December 2000. As of December 31,
1996, none of the warrants have been exercised.
During 1996 the Company adopted only the disclosure provisions of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (FAS
123). Therefore, the Company accounts for stock based compensation under APB
Opinion No. 25. "Accounting for Stock Issued to Employees," and related
Interpretations under which no compensation cost has been recognized. If the
Company had elected to recognize compensation expense based upon the fair value
at the grant date for awards under these plans consistent with the methodology
prescribed by FAS 123, the Company's net loss and loss per share would be
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Net loss
As reported....................................................................... $ (1,368)
Pro forma......................................................................... (1,566)
Loss per common share
As reported....................................................................... $ (0.31)
Pro forma......................................................................... (0.35)
</TABLE>
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation costs related to
grants made before 1995. The fair value of these options was estimated at the
date of grant using the modified Black-Scholes American option-pricing model
with the following weighted-average assumptions for 1996: expected volatility of
61%, risk-free interest rate of 6%, and expected life of 3.6 years for the
period. The weighted average fair value of options granted during 1996 was
$3.07.
Option pricing models require the input of highly subjective assumptions
including the expected stock price volatility. Also, the Company's employee
stock options have characteristics significantly different from those of traded
options, and changes in the subjective input assumptions can materially affect
the fair value estimate. Management believes the best input assumptions
available were used to value the options and the resulting option values are
reasonable.
F-52
<PAGE>
MONROC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE G--STOCK OPTIONS AND WARRANTS (CONTINUED)
Information with respect to the Company's stock option plans at December 31,
1996, and changes for the year then ended, is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
STOCK EXERCISE AVERAGE
OPTIONS PRICE EXERCISE PRICE
------------ ----------- ---------------
<S> <C> <C> <C>
Outstanding at January 1, 1996......................................... 156,600 $ 5.00 $ 5.00
Granted.............................................................. 217,700 5.00-8.75 6.61
Canceled............................................................. 6,700 5.00-8.75 5.00
------------
Outstanding at December 31, 1996....................................... 367,600 5.00-8.75 5.95
------------ ----------- -----
------------ ----------- -----
Exercisable at December 31, 1996....................................... 207,600 $ 5.00-5.38 $ 5.01
------------ ----------- -----
------------ ----------- -----
</TABLE>
Additional information about stock options outstanding and exercisable at
December 31, 1996, is summarized as follows:
OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE WEIGHTED-
REMAINING AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE
- ----------------------------------------------- ----------- ---------------- ------------
<S> <C> <C> <C>
$5.00-5.75..................................... 247,600 3.1 years $ 5.13
6.60.......................................... 40,000 4.5 years 6.60
7.60.......................................... 40,000 4.5 years 7.60
8.75.......................................... 40,000 4.5 years 8.75
-----------
367,600
-----------
-----------
</TABLE>
OPTIONS EXERCISABLE
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
RANGE OF NUMBER EXERCISE
EXERCISE PRICES EXERCISABLE PRICE
- ----------------------------------------------- ----------- ----------------
<S> <C> <C> <C>
$5.00-5.38..................................... 207,600 $ 5.01
</TABLE>
F-53
<PAGE>
MONROC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE H--QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Quarterly financial results for the year ended December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
EARNINGS
OPERATING NET EARNINGS (LOSS) PER
1996 NET SALES PROFIT (LOSS) (LOSS) COMMON SHARE
- ------------------------------------------------------------ --------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
First quarter............................................... $ 9,204 $ (916) $ (1,041) $ (0.23)
Second quarter.............................................. 19,416 888 771 0.17
Third quarter............................................... 22,246 (459) (657) (0.15)
Fourth quarter.............................................. 19,535 (398) (441) (0.10)
--------- ----- ------------ ------
$ 70,401 $ (885) $ (1,368) $ (0.31)
--------- ----- ------------ ------
--------- ----- ------------ ------
</TABLE>
NOTE I--RESTRUCTURING CHARGES AND PLANT CLOSING
A change in control of the Company occurred in December 1995. The Company's
management has restructured the operations so that the Company can be more
responsive to the needs of the marketplace and improve operating efficiencies.
Due to these changes, the Company incurred certain restructuring charges
totaling $1,500 ($0.34 per share) during 1996. These one time restructuring
charges included: (i) the write-off of certain facilities and equipment
obsoleted by new operating strategies ($715); (ii) the closure of undersized and
unprofitable operations in Utah and Wyoming ($351); (iii) the payout remaining
on the Company's two-year employment agreement with its former president and
chief executive officer ($333); and (iv) costs associated with restructuring
management ($101).
F-54
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,000,000 SHARES
U.S. AGGREGATES, INC.
COMMON STOCK
[LOGO]
--------------
PROSPECTUS
, 1999
--------------
DEUTSCHE BANC ALEX. BROWN
SCHRODER & CO. INC.
THE ROBINSON-HUMPHREY
COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses, to be paid solely by the
Company, of the issuance and distribution of the securities being registered:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........... $ 42,182.64
NASD filing fee............................................... 15,500
New York Stock Exchange original listing fee.................. 119,600
Blue Sky fees and expenses (including attorneys' fees and
expenses)................................................... 5,000
Printing expenses............................................. 475,000
Accounting fees and expenses.................................. 400,000
Transfer agent's fees and expenses............................ 10,000
Legal fees and expenses....................................... 450,000
Miscellaneous expenses........................................ 280,000
------------
Total..................................................... $1,797,282.64
------------
------------
</TABLE>
- ------------------------
* To be provided by Amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware. Section
145 of the General Corporation Law of the State of Delaware ("Section 145")
provides that a Delaware corporation may indemnify any persons who are, or are
threatened to be made, parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of the
fact that such person is or was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided such person acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his or her conduct was
illegal. A Delaware corporation may indemnify any persons who are, or are
threatened to be made, a party to any threatened, pending or completed action or
suit by or in the right of the corporation by reason of the fact that such
person was a director, officer, employee or agent of such corporation, or is or
was serving at the request of such corporation as a director, officer, employee
or agent of another corporation or enterprise. The indemnity may include
expenses (including attorney's fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit,
provided such person acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the corporation's best interests except that
no indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him or her against the
expenses which such officer or director has actually and reasonably incurred.
Section 145 further provides that the indemnification provisions of Section
145 shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office. The certificate of incorporation of the Company provides that, to the
fullest extent permitted by the General Corporation Law of the State of
Delaware, no director of the Company shall be liable to the Company or its
II-1
<PAGE>
stockholders for monetary damages arising from a breach of fiduciary duty owed
to the corporation of its stockholders.
Article V of the by-laws of the Company provides that any person who was or
is a party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative by
reason of the fact that he or she is or was a director or officer of the
Company, or is or was serving at the request of the Company as a director,
officer, employee, fiduciary or agent of another corporation or of a
partnership, joint venture, trust or other enterprise including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee,
fiduciary or agent or in any other capacity while serving as a director,
officer, employee, fiduciary or agent, shall be indemnified and held harmless by
the corporation to the fullest extent to which it is empowered to do so unless
prohibited from doing so by the General Corporation Law of the State of
Delaware, as may be amended against all expense, liability and loss (including
attorneys' fees actually and reasonably incurred by such person in connection
with such proceeding) and such indemnification shall continue as to an
indemnitee who has ceased to a be a director, officer, employee or agent and
shall inure to the benefit of the indemnitee's heirs, executors and
administrators, provided that, such person shall be indemnified only (subject to
certain limited exceptions) in connection with a proceeding initiated by such
person only if such proceeding was authorized by the board of directors of the
corporation. The right to indemnification of such person shall be a contract
right and shall include the right to be paid expenses incurred in defending any
proceeding in advance of its final disposition.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him or her and incurred by him or her in
any such capacity, arising out of his or her status as such, whether or not the
corporation would otherwise have the power to indemnify him or her under Section
145.
Article V of the by-laws of the Company further provides that the Company
may purchase and maintain insurance on its own behalf and on behalf of any
person who is or was a director, officer, employee, fiduciary, or agent of the
Company or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, whether or not the corporation would have
the power to indemnify such person against such liability under Article V of its
by-laws. All of the directors and officers of the Company are covered by
insurance policies maintained and held in effect by the Company against certain
liabilities for actions taken in such capacities, including liabilities under
the Securities Act of 1933.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since May 15, 1996, the Company has sold and issued the following
unregistered securities:
(1) In June 1996, the Company sold 50,000 shares of Preferred Stock to
Golder, Thoma, Cressey, Rauner Fund IV, L.P. for a cash purchase price of
$5,000,000.00.
(2) In November 1996, the Company sold 810.5 shares of Common Stock to James
Harris for a purchase price of $8,105.00. Mr. Harris purchased the shares
with $8.11 cash and a promissory note for $8,096.89 due November 20,
2001.
(3) In November 1996, the Company sold 810.5 shares of Common Stock to
Michael Stone for a purchase price of $8,105.00. Mr. Stone purchased the
shares with $8.11 cash and a promissory note for $8,096.89 due November
20, 2001.
II-2
<PAGE>
(4) In November 1996, the Company sold 995 shares of Common Stock to Morris
Bishop, Jr. for a purchase price of $9,950.00. Mr. Bishop purchased the
shares with $9.95 cash and a promissory note for $9,940.05 due November
20, 2001.
(5) In November 1996, the Company issued Warrants to purchase 6,327 shares
of Common Stock (the "1996 Warrants") to The Prudential Insurance Company
of America ("Prudential") in connection with Prudential's purchase of
$30,000,000.00 principal amount of the Company's 10.34% Senior
Subordinated Notes due November 22, 2006 (the "1996 Notes"). Prudential
purchased the 1996 Warrants and the 1996 Notes for a purchase price of
$30,000,000.00.
(6) In October 1997, the Company sold 1,438 shares of Common Stock to Morris
Bishop, Jr. for a purchase price of $220,000.00. Mr. Bishop purchased the
shares with $14.38 cash and a demand note for $219,985.62.
(7) In June 1998, the Company issued Warrants to purchase 3,208 shares of
Common Stock (the "1998 Warrants") to Prudential in connection with
Prudential's purchase of $15,000,000.00 principal amount of the Company's
10.09% Senior Subordianted Notes due November 22, 2008 (the "1998
Notes"). Prudential purchased the 1998 Warrants and the 1998 Notes for a
purchase price of $15,000,000.00.
The above-described transactions were exempt from registration under the
Securities Act pursuant to Section 4(2) of the Securities Act as transactions
not involving any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement among the Company, the Selling Stockholders, BT
Alex. Brown Incorporated, The Robinson-Humphrey Company, LLC and J. Henry Schroder
& Co. Limited.***
3.1 (i) Certificate of Incorporation of the Company dated as of January 13, 1994.***
3.1 (ii) Certificate of Correction of Certificate of Incorporation Before Payment of
Capital of the Company dated as of January 14, 1994.***
3.1 (iii) Certificate of Amendment to Certificate of Incorporation of the Company dated as
of February 24, 1994.***
3.1 (iv) Certificate of Amendment to Certificate of Incorporation of the Company dated as
of November 21, 1996.***
3.1 (v) Certificate of Amendment to Certificate of Incorporation of the Company dated as
of June 3, 1998.***
3.1 (vi) Form of Restated Certificate of Incorporation of the Company.***
3.2 (i) By-laws of the Company.***
3.2 (ii) Form of Restated By-laws of the Company.***
4.1 (i) Third Amended and Restated Credit Agreement dated as of June 5, 1998 by and among
the Company, various financial institutions and Bank of America National Trust and
Savings Association, individually and as agent.***
4.1 (ii) First Amendment to Third Amended and Restated Credit Agreement dated as of April
14, 1999 by and among the Company, various financial institutions and Bank of
America National Trust and Savings Association, individually and as agent.***
4.2 Amended and Restated Security Agreement dated as of June 5, 1998 by and among the
Company, its subsidiaries and Bank of America National Trust and Savings
Association.***
</TABLE>
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (CONTINUED)
(a) Exhibits.
<TABLE>
<C> <S>
4.3 Amended and Restated Company Pledge Agreement dated as of June 5, 1998 by and
between the Company and Bank of America National Trust and Savings Association.***
4.4 Amended and Restated Subsidiary Pledge Agreement dated as of June 5, 1998 by and
among Western Aggregates Holding Corp., Western Rock Products Corp., SRM Holdings
Corp., Southern Ready Mix, Inc., Monroc, Inc. and Bank of America National Trust
and Savings Association.***
4.5 Amended and Restated Shareholder Pledge Agreement dated as of June 5, 1998 by and
among Western Aggregates Holding Corp.'s stockholders, SRM Holdings Corp.'s
stockholders and Bank of America National Trust and Savings Association.***
4.6 Amended and Restated Guaranty dated as of June 5, 1998 by and among the Company's
subsidiaries, various financial institutions and Bank of America National Trust
and Savings Association.***
4.7 (i) Amended and Restated Note and Warrant Purchase Agreement dated as of June 5, 1998
by and between the Company and The Prudential Insurance Company of America.***
4.7 (ii) Amendment No. 1 to Amended and Restated Note and Warrant Purchase Agreement dated
as of April 14, 1999 by and between the Company and The Prudential Insurance
Company of America.***
4.7 (iii) Waiver under Note Agreement dated as of April 15, 1999 by and between the Company
and The Prudential Insurance Company of America.***
4.8 Amended and Restated Guaranty dated as of June 5, 1998 by and among the Company's
subsidiaries and The Prudential Insurance Company of America.***
4.9 (i) Registration Rights and Stockholders' Agreement dated as of November 21, 1996 by
and among the Company, the Company's stockholders and The Prudential Insurance
Company of America.***
4.9 (ii) First Amendment to Registration Rights and Stockholders' Agreement dated as of
June 5, 1998 by and among, the Company, the Company's stockholders and The
Prudential Insurance Company of America.***
4.10 Warrant Agreement dated as of November 21, 1996 by and between the Company and The
Prudential Insurance Company of America.***
4.11 Warrant Agreement dated as of June 5, 1998 by and between the Company and The
Prudential Insurance Company of America.***
4.12 Letter Agreement dated as of April 15, 1999 by and among Golder, Thoma, Cressey,
Rauner Fund IV, L.P., Harris Trust and Savings Bank, Bank of America National
Trust and Savings Association, as Agent, The Prudential Insurance Company of
America and the Company.***
4.13 Floating Rate Loan - Procedures Letter dated as of April 15, 1999 by and between
Harris Trust and Savings Bank and the Company.***
4.14 Guaranty, dated April 15, 1999, in favor of Harris Trust and Savings Bank executed
by Golder, Thoma, Cressey, Rauner Fund, IV, L.P.***
5.1 Opinion and consent of Kirkland & Ellis.
10.1 Professional Services Agreement dated as of January 24, 1994 by and between the
Company and Golder, Thoma, Cressey, Rauner, Inc.***
</TABLE>
II-4
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (CONTINUED)
(a) Exhibits.
<TABLE>
<C> <S>
10.1 (i) Cancellation of Professional Services Agreement dated as of July 9, 1999 by and
between the Company and Golder, Thoma, Cressey, Rauner, Inc.***
10.2 Equity Purchase Agreement dated as of January 24, 1994 between the Company and
Golder, Thoma, Cressey, Rauner Fund IV, L.P.***
10.3 Stockholders Agreement dated as of January 24, 1994 by and among the Company and
Golder, Thoma, Cressey, Rauner Fund IV, L.P. and certain Executives named
therein.***
10.4 Stockholders Joinder Agreement dated as of August 1, 1994 by and among the
Company, Golder, Thoma, Cressey, Rauner Fund IV, L.P. and Edward A. Dougherty.***
10.5 Stockholders Joinder Agreement dated as of August 5, 1994 by and among the
Company, Golder, Thoma, Cressey, Rauner Fund IV, L.P. and Morris L. Bishop.***
10.6 Stockholders Joinder Agreement dated as of October 31, 1994 by and among the
Company, Golder, Thoma, Cressey, Rauner Fund IV, L.P. and Charles R. Pullin.***
10.7 Stockholders Joinder Agreement dated as of July 31, 1998 by and among the Company,
James A. Harris and James A. Harris Grantor Retained Annuity Trust.***
10.8 Stockholders Joinder Agreement dated as of October 1, 1998 by and among the
Company, James A. Harris and The James A. Harris Charitable Remainder Unitrust.***
10.9 Registration Rights Agreement dated as of January 24, 1994 by and among the
Company and Golder, Thoma, Cressey, Rauner Fund IV, L.P. and certain Executives
named therein.***
10.10 Registration Rights Joinder Agreement dated as of August 1, 1994 by and among the
Company, Golder, Thoma, Cressey, Rauner Fund IV, L.P. and Edward A. Dougherty.***
10.11 Registration Rights Joinder Agreement dated as of August 5, 1994 by and among the
Company, Golder, Thoma, Cressey, Rauner Fund IV, L.P. and Morris L. Bishop.***
10.12 Registration Rights Joinder Agreement dated as of October 31, 1994 by and among
the Company, Golder, Thoma, Cressey, Rauner Fund IV, L.P. and Charles R.
Pullin.***
10.13 Senior Management Agreement dated as of January 24, 1994 by and between the
Company and James A. Harris.** ***
10.15 Senior Management Agreement dated as of November 20, 1996 by and between the
Company and James A. Harris.** ***
10.16 Senior Management Agreement dated as of January 24, 1994 by and between the
Company and Michael J. Stone.** ***
10.18 Senior Management Agreement dated as of November 20, 1996 by and between the
Company and Michael J. Stone.** ***
10.19 Senior Management Agreement dated as of August 5, 1994 by and between the Company
and Morris L. Bishop, Jr.** ***
10.20 Senior Management Agreement dated as of October 1, 1997 by and between the Company
and Morris L. Bishop, Jr.** ***
10.21 Executive Stock Pledge Agreement dated as of January 24, 1994 by and between the
Company and James A. Harris.***
10.22 Executive Stock Pledge Agreement dated as of May 10, 1994 by and between the
Company and James A. Harris.***
</TABLE>
II-5
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (CONTINUED)
(a) Exhibits.
<TABLE>
<C> <S>
10.23 Executive Stock Pledge Agreement dated as of November 20, 1996 by and between the
Company and James A. Harris. (Included as Exhibit B to exhibit 10.15)***
10.24 Executive Stock Pledge Agreement dated as of January 24, 1994 by and between the
Company and Michael J. Stone.***
10.25 Executive Stock Pledge Agreement dated as of May 10, 1994 by and between the
Company and Michael J. Stone.***
10.26 Executive Stock Pledge Agreement dated as of November 20, 1996 by and between the
Company and Michael J. Stone. (Included as Exhibit B to exhibit 10.18)***
10.27 Executive Stock Pledge Agreement dated as of August 5, 1994 by and between the
Company and Morris L. Bishop, Jr.***
10.28 Executive Stock Pledge Agreement dated as of November 20, 1996 by and between the
Company and Morris L. Bishop, Jr. (Included as Exhibit B to exhibit 10.43)***
10.29 Executive Stock Pledge Agreement dated as of October 1, 1997 by and between the
Company and Morris L. Bishop, Jr. (Included as Exhibit B to exhibit 10.20)***
10.30 Promissory Note dated as of January 24, 1994 by James A. Harris in favor of the
Company in the principal amount of $16,223.76.***
10.31 Promissory Note dated as of May 10, 1994 by James A. Harris in favor of the
Company in the principal amount of $121,638.24.***
10.32 Promissory Note dated as of November 20, 1996 by James A. Harris in favor of the
Company in the principal amount of $8,096.89. (Included as Exhibit A to exhibit
10.15)***
10.33 Promissory Note dated as of January 24, 1994 by Michael J. Stone in favor of the
Company in the principal amount of $10,809.18.***
10.34 Promissory Note dated as of May 10, 1994 by Michael J. Stone in favor of the
Company in the principal amount of $81,098.82.***
10.35 Promissory Note dated as of November 20, 1996 by Michael J. Stone in favor of the
Company in the principal amount of $8,096.89. (Included as Exhibit A to Exhibit
10.18)***
10.36 Promissory Note dated August 5, 1994 by Morris L. Bishop in favor of the Company
in the principal amount of $16,903.08.***
10.37 Promissory Note dated November 20, 1996 by Morris L. Bishop in favor of the
Company in the principal amount of $9,940.05. (Included as Exhibit A to exhibit
10.43)***
10.38 Demand Note dated October 1, 1997 by Morris L. Bishop in favor of the Company in
the principal amount of $219,985.62. (Included as an exhibit A to exhibit 20)***
10.39 Employment Agreement dated as of January 24, 1994 by and between the Company and
James A. Harris.***
10.40 Employment Agreement dated as of January 24, 1994 by and between the Company and
Michael J. Stone.***
10.41 Employment Agreement dated as of August 5, 1994 by and between the Company and
Morris L. Bishop, Jr.***
10.42(i) Agreement and Plan of Merger dated as of January 29, 1998 by and among the
Company, Western Acquisition, Inc. and Monroc, Inc.***
</TABLE>
II-6
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (CONTINUED)
(a) Exhibits.
<TABLE>
<C> <S>
10.42(ii) Amended and Restated Agreement and Plan of Merger dated as of March 4, 1998 by and
among the Company, Western Acquisition, Inc. and Monroc, Inc.***
10.43 Senior Management Agreement dated as of November 20, 1996 by and between the
Company and Morris L. Bishop, Jr.***
10.44 Stockholders Joinder Agreement dated as of December 31, 1997 by and among the
Company, Golder, Thoma, Cressey, Rauner Fund IV, L.P. and Jeanne T. Richey.***
10.45 Letter Agreement dated as of April 18, 1998 by and between the Company and Edward
A. Dougherty.***
10.46 Letter Agreement dated as of April 18, 1998 by and between the Company and Edward
A. Dougherty.***
10.47 Letter Agreement dated as of December 30, 1998 by and between the Company and
Edward A. Dougherty.***
10.48 Form of Lock-Up Agreement with Deutsche Banc Securities Inc.***
10.49 U.S. Aggregates, Inc. 1999 Long Term Incentive Plan.**
21.1 Subsidiaries of the Company.***
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Grant Thornton LLP.
23.4 Consent of Kirkland & Ellis (Included in Exhibit 5.1).
24.1 Powers of Attorney of Directors and Officers of the Company (Included on signature
page).***
27.1 Financial Data Schedule.***
</TABLE>
- ------------------------
** Management contract or compensatory plan or arrangement.
*** Filed previously.
(b) Financial Statement Schedules.
All schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions,
are inapplicable or not material, or the information called for thereby is
otherwise included in the financial statements and therefore has been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at closing specified in the underwriting agreement certificates in such
denominations and registered in such names as requested by the underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
II-7
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (CONTINUED)
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 4 to Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of San Mateo, State of California, on August 12, 1999.
U.S. AGGREGATES, INC.
By: /s/ MICHAEL J. STONE
-----------------------------------------
Michael J. Stone
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER, TREASURER AND
SECRETARY
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
Chief Executive Officer
* and Chairman of the
- ------------------------------ Board (principal August 12, 1999
James A. Harris executive officer)
Executive Vice President,
/s/ MICHAEL J. STONE Chief Financial Officer
- ------------------------------ and Director (principal August 12, 1999
Michael J. Stone financial and accounting
officer)
*
- ------------------------------ President, Chief Operating August 12, 1999
Morris L. Bishop, Jr. Officer and Director
*
- ------------------------------ Director August 12, 1999
Bruce V. Rauner
*
- ------------------------------ Director August 12, 1999
David A. Donnini
*
- ------------------------------ Director August 12, 1999
Charles R. Pullin
*
- ------------------------------ Director August 12, 1999
Edward A. Dougherty
- ------------------------
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 4 to Registration Statement on Form S-1 on behalf of the above
named officers and directors of U.S. Aggregates, Inc. pursuant to the Power
of Attorney executed by such officers and directors and filed with the
Securities and Exchange Commission.
<TABLE>
<S> <C>
/s/ MICHAEL J. STONE
- -------------------------------
Michael J. Stone
ATTORNEY-IN-FACT
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement among the Company, the Selling Stockholders, BT
Alex. Brown Incorporated, The Robinson-Humphrey Company, LLC and J. Henry Schroder
& Co. Limited.***
3.1 (i) Certificate of Incorporation of the Company dated as of January 13, 1994.***
3.1 (ii) Certificate of Correction of Certificate of Incorporation Before Payment of
Capital of the Company dated as of January 14, 1994.***
3.1 (iii) Certificate of Amendment to Certificate of Incorporation of the Company dated as
of February 24, 1994.***
3.1 (iv) Certificate of Amendment to Certificate of Incorporation of the Company dated as
of November 21, 1996.***
3.1 (v) Certificate of Amendment to Certificate of Incorporation of the Company dated as
of June 3, 1998.***
3.1 (vi) Form of Restated Certificate of Incorporation of the Company.***
3.2 (i) By-laws of the Company.***
3.2 (ii) Form of Restated By-laws of the Company.***
4.1 (i) Third Amended and Restated Credit Agreement dated as of June 5, 1998 by and among
the Company, various financial institutions and Bank of America National Trust and
Savings Association, individually and as agent.***
4.1 (ii) First Amendment to Third Amended and Restated Credit Agreement dated as of April
14, 1999 by and among the Company, various financial institutions and Bank of
America National Trust and Savings Association, individually and as agent.***
4.2 Amended and Restated Security Agreement dated as of June 5, 1998 by and among the
Company, its subsidiaries and Bank of America National Trust and Savings
Association.***
4.3 Amended and Restated Company Pledge Agreement dated as of June 5, 1998 by and
between the Company and Bank of America National Trust and Savings Association.***
4.4 Amended and Restated Subsidiary Pledge Agreement dated as of June 5, 1998 by and
among Western Aggregates Holding Corp., Western Rock Products Corp., SRM Holdings
Corp., Southern Ready Mix, Inc., Monroc, Inc. and Bank of America National Trust
and Savings Association.***
4.5 Amended and Restated Shareholder Pledge Agreement dated as of June 5, 1998 by and
among Western Aggregates Holding Corp.'s stockholders, SRM Holdings Corp.'s
stockholders and Bank of America National Trust and Savings Association.***
4.6 Amended and Restated Guaranty dated as of June 5, 1998 by and among the Company's
subsidiaries, various financial institutions and Bank of America National Trust
and Savings Association.***
4.7 (i) Amended and Restated Note and Warrant Purchase Agreement dated as of June 5, 1998
by and between the Company and The Prudential Insurance Company of America.***
4.7 (ii) Amendment No. 1 to Amended and Restated Note and Warrant Purchase Agreement dated
as of April 14, 1999 by and between the Company and The Prudential Insurance
Company of America.***
4.7 (iii) Waiver under Note Agreement dated as of April 15, 1999 by and between the Company
and The Prudential Insurance Company of America.***
4.8 Amended and Restated Guaranty dated as of June 5, 1998 by and among the Company's
subsidiaries and The Prudential Insurance Company of America.***
</TABLE>
<PAGE>
<TABLE>
<C> <S>
4.9 (i) Registration Rights and Stockholders' Agreement dated as of November 21, 1996 by
and among the Company, the Company's stockholders and The Prudential Insurance
Company of America.***
4.9 (ii) First Amendment to Registration Rights and Stockholders' Agreement dated as of
June 5, 1998 by and among, the Company, the Company's stockholders and The
Prudential Insurance Company of America.***
4.10 Warrant Agreement dated as of November 21, 1996 by and between the Company and The
Prudential Insurance Company of America.***
4.11 Warrant Agreement dated as of June 5, 1998 by and between the Company and The
Prudential Insurance Company of America.***
4.12 Letter Agreement dated as of April 15, 1999 by and among Golder, Thoma, Cressey,
Rauner Fund IV, L.P., Harris Trust and Savings Bank, Bank of America National
Trust and Savings Association, as Agent, The Prudential Insurance Company of
America and the Company.***
4.13 Floating Rate Loan - Procedures Letter dated as of April 15, 1999 by and between
Harris Trust and Savings Bank and the Company.***
4.14 Guaranty, dated April 15, 1999, in favor of Harris Trust and Savings Bank executed
by Golder, Thoma, Cressey, Rauner Fund, IV, L.P.***
5.1 Opinion and consent of Kirkland & Ellis.
10.1 Professional Services Agreement dated as of January 24, 1994 by and between the
Company and Golder, Thoma, Cressey, Rauner, Inc.***
10.1 (i) Cancellation of Professional Services Agreement dated as of July 9, 1999 by and
between the Company and Golder, Thoma, Cressey, Rauner, Inc.***
10.2 Equity Purchase Agreement dated as of January 24, 1994 between the Company and
Golder, Thoma, Cressey, Rauner Fund IV, L.P.***
10.3 Stockholders Agreement dated as of January 24, 1994 by and among the Company and
Golder, Thoma, Cressey, Rauner Fund IV, L.P. and certain Executives named
therein.***
10.4 Stockholders Joinder Agreement dated as of August 1, 1994 by and among the
Company, Golder, Thoma, Cressey, Rauner Fund IV, L.P. and Edward A. Dougherty.***
10.5 Stockholders Joinder Agreement dated as of August 5, 1994 by and among the
Company, Golder, Thoma, Cressey, Rauner Fund IV, L.P. and Morris L. Bishop.***
10.6 Stockholders Joinder Agreement dated as of October 31, 1994 by and among the
Company, Golder, Thoma, Cressey, Rauner Fund IV, L.P. and Charles R. Pullin.***
10.7 Stockholders Joinder Agreement dated as of July 31, 1998 by and among the Company,
James A. Harris and James A. Harris Grantor Retained Annuity Trust.***
10.8 Stockholders Joinder Agreement dated as of October 1, 1998 by and among the
Company, James A. Harris and The James A. Harris Charitable Remainder Unitrust.***
10.9 Registration Rights Agreement dated as of January 24, 1994 by and among the
Company and Golder, Thoma, Cressey, Rauner Fund IV, L.P. and certain Executives
named therein.***
10.10 Registration Rights Joinder Agreement dated as of August 1, 1994 by and among the
Company, Golder, Thoma, Cressey, Rauner Fund IV, L.P. and Edward A. Dougherty.***
10.11 Registration Rights Joinder Agreement dated as of August 5, 1994 by and among the
Company, Golder, Thoma, Cressey, Rauner Fund IV, L.P. and Morris L. Bishop.***
10.12 Registration Rights Joinder Agreement dated as of October 31, 1994 by and among
the Company, Golder, Thoma, Cressey, Rauner Fund IV, L.P. and Charles R.
Pullin.***
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.13 Senior Management Agreement dated as of January 24, 1994 by and between the
Company and James A. Harris.** ***
10.15 Senior Management Agreement dated as of November 20, 1996 by and between the
Company and James A. Harris.** ***
10.16 Senior Management Agreement dated as of January 24, 1994 by and between the
Company and Michael J. Stone.** ***
10.18 Senior Management Agreement dated as of November 20, 1996 by and between the
Company and Michael J. Stone.** ***
10.19 Senior Management Agreement dated as of August 5, 1994 by and between the Company
and Morris L. Bishop, Jr.** ***
10.20 Senior Management Agreement dated as of October 1, 1997 by and between the Company
and Morris L. Bishop, Jr.** ***
10.21 Executive Stock Pledge Agreement dated as of January 24, 1994 by and between the
Company and James A. Harris.***
10.22 Executive Stock Pledge Agreement dated as of May 10, 1994 by and between the
Company and James A. Harris.***
10.23 Executive Stock Pledge Agreement dated as of November 20, 1996 by and between the
Company and James A. Harris. (Included as Exhibit B to exhibit 10.15)***
10.24 Executive Stock Pledge Agreement dated as of January 24, 1994 by and between the
Company and Michael J. Stone.***
10.25 Executive Stock Pledge Agreement dated as of May 10, 1994 by and between the
Company and Michael J. Stone.***
10.26 Executive Stock Pledge Agreement dated as of November 20, 1996 by and between the
Company and Michael J. Stone. (Included as Exhibit B to exhibit 10.18)***
10.27 Executive Stock Pledge Agreement dated as of August 5, 1994 by and between the
Company and Morris L. Bishop, Jr.***
10.28 Executive Stock Pledge Agreement dated as of November 20, 1996 by and between the
Company and Morris L. Bishop, Jr. (Included as Exhibit B to exhibit 10.43)***
10.29 Executive Stock Pledge Agreement dated as of October 1, 1997 by and between the
Company and Morris L. Bishop, Jr. (Included as Exhibit B to exhibit 10.20)***
10.30 Promissory Note dated as of January 24, 1994 by James A. Harris in favor of the
Company in the principal amount of $16,223.76.***
10.31 Promissory Note dated as of May 10, 1994 by James A. Harris in favor of the
Company in the principal amount of $121,638.24.***
10.32 Promissory Note dated as of November 20, 1996 by James A. Harris in favor of the
Company in the principal amount of $8,096.89. (Included as Exhibit A to exhibit
10.15)***
10.33 Promissory Note dated as of January 24, 1994 by Michael J. Stone in favor of the
Company in the principal amount of $10,809.18.***
10.34 Promissory Note dated as of May 10, 1994 by Michael J. Stone in favor of the
Company in the principal amount of $81,098.82.***
10.35 Promissory Note dated as of November 20, 1996 by Michael J. Stone in favor of the
Company in the principal amount of $8,096.89. (Included as Exhibit A to Exhibit
10.18)***
10.36 Promissory Note dated August 5, 1994 by Morris L. Bishop in favor of the Company
in the principal amount of $16,903.08.***
10.37 Promissory Note dated November 20, 1996 by Morris L. Bishop in favor of the
Company in the principal amount of $9,940.05. (Included as Exhibit A to exhibit
10.43)***
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.38 Demand Note dated October 1, 1997 by Morris L. Bishop in favor of the Company in
the principal amount of $219,985.62. (Included as an exhibit A to exhibit 20)***
10.39 Employment Agreement dated as of January 24, 1994 by and between the Company and
James A. Harris.***
10.40 Employment Agreement dated as of January 24, 1994 by and between the Company and
Michael J. Stone.***
10.41 Employment Agreement dated as of August 5, 1994 by and between the Company and
Morris L. Bishop, Jr.***
10.42(i) Agreement and Plan of Merger dated as of January 29, 1998 by and among the
Company, Western Acquisition, Inc. and Monroc, Inc.***
10.42(ii) Amended and Restated Agreement and Plan of Merger dated as of March 4, 1998 by and
among the Company, Western Acquisition, Inc. and Monroc, Inc.***
10.43 Senior Management Agreement dated as of November 20, 1996 by and between the
Company and Morris L. Bishop, Jr.***
10.44 Stockholders Joinder Agreement dated as of December 31, 1997 by and among the
Company, Golder, Thoma, Cressey, Rauner Fund IV, L.P. and Jeanne T. Richey.***
10.45 Letter Agreement dated as of April 18, 1998 by and between the Company and Edward
A. Dougherty.***
10.46 Letter Agreement dated as of April 18, 1998 by and between the Company and Edward
A. Dougherty.***
10.47 Letter Agreement dated as of December 30, 1998 by and between the Company and
Edward A. Dougherty.***
10.48 Form of Lock-Up Agreement with Deutsche Banc Securities Inc.***
10.49 U.S. Aggregates, Inc. 1999 Long Term Incentive Plan.**
21.1 Subsidiaries of the Company.***
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Grant Thornton LLP.
23.4 Consent of Kirkland & Ellis (Included in Exhibit 5.1).
24.1 Powers of Attorney of Directors and Officers of the Company (Included on signature
page).***
27.1 Financial Data Schedule.***
</TABLE>
- ------------------------
** Management contract or compensatory plan or arrangement.
*** Filed previously.
<PAGE>
EXHIBIT 5.1
[Kirkland & Ellis Letterhead]
July 14, 1999
U.S. Aggregates, Inc.
400 South El Camino Real, Suite 500
San Mateo, California 94402
Ladies and Gentlemen:
We are acting as special counsel to U.S. Aggregates, Inc., a Delaware
corporation (the "Company"), in connection with the proposed registration by the
Company of 7,986,111 shares of its Common Stock, par value $.01 per share (the
"Common Stock"), including 1,041,667 shares of its Common Stock to cover
over-allotments, if any, pursuant to a Registration Statement on Form S-1,
originally filed with the Securities and Exchange Commission (the "Commission")
on May 24, 1999 under the Securities Act of 1933, as amended (the"Act") (such
Registration Statement, as amended or supplemented, is hereinafter referred to
as the "Registration Statement"). Of the shares of Common Stock to be registered
pursuant to the Registration Statement, up to 6,944,444 shares are being offered
by the Company (the "Primary Shares") and up to 1,041,667 shares to cover
over-allotments, if any, are being offered by certain selling stockholders (the
"Secondary Shares").
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purposes of this
opinion, including (i) the corporate and organizational documents of the Company
and (ii) minutes and records of the corporate proceedings of the Company with
respect to the issuance and sale of the Primary Shares and the original issuance
of the Secondary Shares.
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have also assumed the legal capacity of
all natural persons, the genuineness of the signatures of persons signing all
documents in connection with which this opinion is rendered, the authority of
such persons signing on behalf of the parties thereto other than the Company and
the due authorization, execution and delivery of all documents by the parties
thereto other than the Company. As to any facts material to the opinions
expressed herein which we have not independently established or verified, we
have relied upon statements and representations of officers and other
representatives of the Company and others.
Based upon and subject to the foregoing qualifications, assumptions and
limitations and the further limitations set forth below, we are of the opinion
that:
<PAGE>
(1) The Company is a corporation existing and in good standing
under the corporation law of the State of Delaware.
(2) The Primary Shares have been duly authorized, and, when
the Registration Statement becomes effective under the Act, when the
Board of Directors of the Company has taken all necessary action to
approve the issuance and sale of the Primary Shares and when
appropriate certificates representing the Primary Shares are duly
countersigned and registered by the Company's transfer agent/registrar
and delivered to the Company's underwriters against payment of the
agreed consideration therefor in accordance with the U.S. Underwriting
Agreement and the International Underwriting Agreement, the Primary
Shares will be validly issued, fully paid and nonassessable.
(3) When appropriate certificates representing the Secondary
Shares are duly countersigned and registered by the Company's transfer
agent/registrar and delivered to the Company's underwriters against
payment of the agreed consideration therefor in accordance with the
U.S. Underwriting Agreement and the International Underwriting
Agreement, the Secondary Shares will be validly issued, fully paid and
nonassessable.
Our opinions expressed above are subject to the qualifications that
we express no opinion as to the applicability of, compliance with, or effect
of (i) any bankruptcy, insolvency, reorganization, fraudulent transfer,
fraudulent conveyance, moratorium or other similar law affecting the
enforcement of creditors' rights generally, (ii) general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or
at law), (iii) public policy considerations which may limit the rights of
parties to obtain certain remedies and (iv) any laws except the corporation
law of the State of Delaware.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
our firm under the heading "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission. This opinion and consent may be incorporated by
reference in a subsequent registration statement on Form S-1 filed pursuant to
Rule 462(b) under the Act with respect to the registration of additional
securities for sale in the offering or offerings contemplated by the
Registration Statement.
<PAGE>
We do not find it necessary for the purposes of this opinion, and
accordingly we do not purport to cover herein, the application of the securities
or "Blue Sky" laws of the various states to the issuance and sale of the Primary
Shares and the sale of the Secondary Shares.
This opinion is limited to the specific issues addressed herein, and
no opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the
corporation law of the State of Delaware be changed by legislative action,
judicial decision or otherwise.
Sincerely,
/S/ KIRKLAND & ELLIS
Kirkland & Ellis
<PAGE>
U.S. AGGREGATES, INC.
1999 LONG TERM INCENTIVE PLAN
1. PURPOSE.
This plan shall be known as the U.S. Aggregates, Inc. 1999
Long Term Incentive Plan (the "PLAN"). The purpose of this Plan shall be to
promote the long term growth and profitability of U.S. Aggregates, Inc. (the
"COMPANY") and its Subsidiaries by (i) providing certain directors, officers
and key employees of, and certain other key individuals who perform services
for, the Company and its Subsidiaries with incentives to maximize stockholder
value and otherwise contribute to the success of the Company and (ii)
enabling the Company to attract, retain and reward the best available persons
for positions of substantial responsibility. Grants of incentive or
nonqualified stock options, stock appreciation rights ("SARS"), either alone
or in tandem with options, restricted stock, performance awards, or any
combination of the foregoing may be made under this Plan.
2. DEFINITIONS.
(a) "BOARD OF DIRECTORS" and "BOARD" mean the board of
directors of the Company.
(b) "CAUSE" means the occurrence of one of the following
events: (i) conviction of a felony or any crime or offense lesser than a
felony involving the property of the Company or a Subsidiary; (ii) conduct
that has caused demonstrable and serious injury to the Company or a
Subsidiary, monetary or otherwise; (iii) willful refusal to perform or
substantial disregard of duties properly assigned, as determined by the
Company; or (iv) breach of duty of loyalty to the Company or a Subsidiary or
other act of fraud or dishonesty with respect to the Company or a Subsidiary.
(c) "CHANGE IN CONTROL" means the occurrence of one of the
following events:
(i) if any "person" or "group" as those terms are
used in Sections 13(d) and 14(d) of the Exchange Act, other than
Golder, Thoma, Cressey, Rauner Fund IV, L.P. and its affiliates, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company's
then outstanding securities;
(ii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board
and any new directors whose election by the Board or nomination for
election by the Company's stockholders was approved by at least
two-thirds of the directors then still in office who either were
directors at the beginning of the period or whose election was
previously so approved, cease for any reason to constitute a majority
thereof;
(iii) the stockholders of the Company approve a merger
or consolidation of the Company with any other corporation, other than
a merger or consolidation (A) which
<PAGE>
would result in all or a portion of the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation or
(B) by which the corporate existence of the Company is not affected and
following which the Company's chief executive officer and directors
retain their positions with the Company (and constitute at least a
majority of the Board); or
(iv) the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's
assets.
(d) "CODE" means the Internal Revenue Code of 1986, as
amended.
(e) "COMMITTEE" means the Compensation Committee of the Board.
The membership of the Committee shall be constituted so as to comply at all
times with the applicable requirements of Rule 16b-3 under the Exchange Act and
Section 162(m) of the Code.
(f) "COMMON STOCK" means the Common Stock, par value $.01 per
share, of the Company, and any other shares into which such stock may be changed
by reason of a recapitalization, reorganization, merger, consolidation or any
other change in the corporate structure or capital stock of the Company.
(g) "COMPETITION" is deemed to occur if a person whose
employment with the Company or its Subsidiaries has terminated obtains a
position as a full-time or part-time employee of, as a member of the board of
directors of, or as a consultant or advisor with or to, or acquires an ownership
interest in excess of 5% of, a corporation, partnership, firm or other entity
that engages in any of the businesses of the Company or any Subsidiary with
which the person was involved in a management role at any time during his or her
last five years of employment with or other service for the Company or any
Subsidiary.
(h) "DISABILITY" means a disability that would entitle an
eligible participant to payment of monthly disability payments under any Company
disability plan or as otherwise determined by the Committee.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(j) "FAIR MARKET VALUE" of a share of Common Stock of the
Company means, with respect to the date in question, the officially-quoted
closing selling price of the stock (or if no selling price is quoted, the bid
price) on the principal securities exchange on which the Common Stock is then
listed for trading (including for this purpose The Nasdaq Stock Market) (the
"MARKET") for the immediately preceding trading day or, if the Common Stock is
not then listed or quoted in the Market, the Fair Market Value shall be the fair
value of the Common Stock determined in good faith by the Board; provided,
however, that when shares received upon exercise of an option are
- 2 -
<PAGE>
immediately sold in the open market, the Committee may use the net sale price
received to determine the Fair Market Value of any shares used to pay the
exercise price or withholding taxes and to compute the withholding taxes.
(k) "INCENTIVE STOCK OPTION" means an option conforming to the
requirements of Section 422 of the Code and any successor thereto.
(l) "NON-EMPLOYEE DIRECTOR" has the meaning given to such term
in Rule 16b-3 under the Exchange Act.
(m) "NONQUALIFIED STOCK OPTION" means any stock option other
than an Incentive Stock Option.
(n) "OTHER COMPANY SECURITIES" mean securities of the Company
other than Common Stock, which may include, without limitation, unbundled stock
units or components thereof, debentures, preferred stock, warrants and
securities convertible into or exchangeable for Common Stock or other property.
(p) "PERSON" means a natural person, partnership (whether
general or limited), limited liability company, trust, estate, association,
corporation, custodian, nominee or any other individual or entity in its own or
any representative capacity.
(o) "RETIREMENT" means retirement as defined under any Company
pension plan or retirement program or termination of one's employment on
retirement with the approval of the Committee.
(p) "SUBSIDIARY" means a corporation or other entity of which
outstanding shares or ownership interests representing 50% or more of the
combined voting power of such corporation or other entity entitled to elect the
management thereof, or such lesser percentage as may be approved by the
Committee, are owned directly or indirectly by the Company.
3. ADMINISTRATION.
This Plan shall be administered by the Committee; provided
that the Board may, in its discretion, at any time and from time to time,
resolve to administer this Plan, in which case the term "COMMITTEE" shall be
deemed to mean the Board for all purposes herein. The Committee shall consist of
at least two Non-Employee Directors (unless the Committee consists of the entire
Board). Subject to the provisions of this Plan, the Committee shall be
authorized to (i) select persons to participate in this Plan, (ii) determine the
form and substance of grants made under this Plan to each participant, and the
conditions and restrictions, if any, subject to which such grants will be made,
(iii) modify the terms of grants made under this Plan, (iv) interpret this Plan
and grants made thereunder, and (v) adopt, amend, or rescind such rules and
regulations, and make such other determinations, for carrying out this Plan as
it may deem appropriate. Decisions of the Committee on all matters relating to
this Plan shall be in the Committee's sole discretion and shall be conclusive
and binding on all parties. The validity, construction, and effect of this Plan
and any rules and
- 3 -
<PAGE>
regulations relating to this Plan shall be determined in accordance with
applicable federal and state laws and rules and regulations promulgated pursuant
thereto. No member of the Committee and no officer or other director of the
Company shall be liable for any action taken or omitted to be taken by such
member, by any other member of the Committee or by any officer or other director
of the Company in connection with the performance of duties under this Plan,
except for such person's own willful misconduct or as expressly provided by
statute.
The expenses of this Plan shall be borne by the Company. This
Plan shall not be required to establish any special or separate fund or make any
other segregation of assets to assume the payment of any award under this Plan,
and rights to the payment of such awards shall be no greater than the rights of
the Company's general creditors.
4. SHARES AVAILABLE FOR THIS PLAN.
Subject to adjustments as provided in Section 15, an aggregate
of 700,840 shares of Common Stock (the "SHARES") may be issued pursuant to this
Plan. Such Shares may be in whole or in part authorized and unissued, or shares
which are held by the Company as treasury shares. If any grant under this Plan
expires or terminates unexercised, becomes unexercisable or is forfeited as to
any Shares, such unpurchased or forfeited Shares shall thereafter be available
for further grants under this Plan unless, in the case of options granted under
this Plan, related SARs are exercised.
Without limiting the generality of the foregoing provisions of
this Section 4 or the generality of the provisions of Sections 3, 6 or 17 or any
other section of this Plan, the Committee may, at any time or from time to time,
and on such terms and conditions (that are consistent with and not in
contravention of the other provisions of this Plan) as the Committee may, in its
sole discretion, determine, enter into agreements (or take other actions with
respect to the options) for new options containing terms (including exercise
prices) more (or less) favorable than the outstanding options.
5. PARTICIPATION.
Participation in this Plan shall be limited to those directors
(including Non-Employee Directors), officers and key employees of, and other key
individuals performing services for, the Company and its Subsidiaries selected
by the Committee. Nothing in this Plan or in any grant thereunder shall confer
any right on a participant to continue in the employ of or the performance of
services for the Company or shall interfere in any way with the right of the
Company to terminate the employment or performance of services of a participant
at any time. By accepting any award under this Plan, each participant and each
person claiming under or through him or her shall be conclusively deemed to have
indicated his or her acceptance and ratification of, and consent to, any action
taken under this Plan by the Company, the Board or the Committee.
Incentive Stock Options or Nonqualified Stock Options, SARs ,
alone or in tandem with options, restricted stock awards, performance awards, or
any combination thereof, may be granted to such persons and for such number of
Shares as the Committee shall determine (such individuals to whom grants are
made being sometimes herein called "OPTIONEES" or "GRANTEES," as the case may
be). Determinations made by the Committee under this Plan need not be uniform
and
- 4 -
<PAGE>
may be made selectively among eligible individuals under this Plan, whether or
not such individuals are similarly situated. A grant of any type made hereunder
in any one year to an eligible participant shall neither guarantee nor preclude
a further grant of that or any other type to such participant in that year or
subsequent years.
6. INCENTIVE AND NONQUALIFIED OPTIONS.
The Committee may from time to time grant to eligible
participants Incentive Stock Options, Nonqualified Stock Options, or any
combination thereof; provided that the Committee may grant Incentive Stock
Options only to eligible employees of the Company or its subsidiaries (as
defined for this purpose in Section 424(f) of the Code). In any one calendar
year, the Committee shall not grant to any one participant, options or SARs to
purchase a number of shares of Common Stock in excess of 20% of the shares
authorized under the Plan. The options granted shall take such form as the
Committee shall determine, subject to the following terms and conditions.
It is the Company's intent that Nonqualified Stock Options
granted under this Plan not be classified as Incentive Stock Options, that
Incentive Stock Options be consistent with and contain or be deemed to contain
all provisions required under Section 422 of the Code and any successor thereto,
and that any ambiguities in construction be interpreted in order to effectuate
such intent. If an Incentive Stock Option granted under this Plan does not
qualify as such for any reason, then to the extent of such nonqualification, the
stock option represented thereby shall be regarded as a Nonqualified Stock
Option duly granted under this Plan, provided that such stock option otherwise
meets this Plan's requirements for Nonqualified Stock Options.
(a) PRICE. The price per Share deliverable upon the exercise
of each option ("EXERCISE PRICE") shall be established by the Committee, except
that in the case of the grant of any Incentive Stock Option, the exercise price
may not be less than 100% of the Fair Market Value of a share of Common Stock as
of the date of grant of the option, and in the case of the grant of any
Incentive Stock Option to an employee who, at the time of the grant, owns more
than 10% of the total combined voting power of all classes of stock of the
Company or any of its Subsidiaries, the exercise price may not be less that 110%
of the Fair Market Value of a share of Common Stock as of the date of grant of
the option, in each case unless otherwise permitted by Section 422 of the Code.
(b) PAYMENT. Options may be exercised, in whole or in part,
upon payment of the exercise price of the Shares to be acquired. Unless
otherwise determined by the Committee, payment shall be made (i) in cash
(including check, bank draft or money order), (ii) by delivery of outstanding
shares of Common Stock with a Fair Market Value on the date of exercise equal to
the aggregate exercise price payable with respect to the options' exercise,
(iii) by simultaneous sale through a broker reasonably acceptable to the
Committee of Shares acquired on exercise, as permitted under Regulation T of the
Federal Reserve Board, (iv) by authorizing the Company to withhold from issuance
a number of Shares issuable upon exercise of the options which, when multiplied
by the Fair Market Value of a share of Common Stock on the date of exercise is
equal to the aggregate exercise price payable with respect to the options so
exercised or (v) by any combination of the foregoing. Options may also be
exercised upon payment of the exercise price of the Shares to be
- 5 -
<PAGE>
acquired by delivery of the optionee's promissory note, but only to the
extent specifically approved by and in accordance with the policies of the
Committee.
In the event a grantee elects to pay the exercise price
payable with respect to an option pursuant to clause (ii) above, (A) only a
whole number of share(s) of Common Stock (and not fractional shares of Common
Stock) may be tendered in payment, (B) such grantee must present evidence
acceptable to the Company that he or she has owned any such shares of Common
Stock tendered in payment of the exercise price (and that such tendered
shares of Common Stock have not been subject to any substantial risk of
forfeiture) for at least six months prior to the date of exercise, and (C)
Common Stock must be delivered to the Company. Delivery for this purpose may,
at the election of the grantee, be made either by (A) physical delivery of
the certificate(s) for all such shares of Common Stock tendered in payment of
the price, accompanied by duly executed instruments of transfer in a form
acceptable to the Company, or (B) direction to the grantee's broker to
transfer, by book entry, such shares of Common Stock from a brokerage account
of the grantee to a brokerage account specified by the Company. When payment
of the exercise price is made by delivery of Common Stock, the difference, if
any, between the aggregate exercise price payable with respect to the option
being exercised and the Fair Market Value of the share(s) of Common Stock
tendered in payment (plus any applicable taxes) shall be paid in cash. No
grantee may tender shares of Common Stock having a Fair Market Value
exceeding the aggregate exercise price payable with respect to the option
being exercised (plus any applicable taxes).
In the event a grantee elects to pay the exercise price
payable with respect to an option pursuant to clause (iv) above, (A) only a
whole number of Share(s) (and not fractional Shares) may be withheld in
payment and (B) such grantee must present evidence acceptable to the Company
that he or she has owned a number of shares of Common Stock at least equal to
the number of Shares to be withheld in payment of the exercise price (and
that such owned shares of Common Stock have not been subject to any
substantial risk of forfeiture) for at least six months prior to the date of
exercise. When payment of the exercise price is made by withholding of
Shares, the difference, if any, between the aggregate exercise price payable
with respect to the option being exercised and the Fair Market Value of the
Share(s) withheld in payment (plus any applicable taxes) shall be paid in
cash. No grantee may authorize the withholding of Shares having a Fair Market
Value exceeding the aggregate exercise price payable with respect to the
option being exercised (plus any applicable taxes). Any withheld Shares shall
no longer be issuable under such option.
(c) TERMS OF OPTIONS. The term during which each option may
be exercised shall be determined by the Committee, but, except as otherwise
provided herein, in no event shall an option be exercisable in whole or in
part (i) in the case of a Nonqualified Stock Option or an Incentive Stock
Option (other than as described below), more than ten years and one day from
the date it is granted or (ii) in the case of an Incentive Stock Option
granted to an employee who at the time of the grant owns more than 10% of the
total combined voting power of all classes of stock of the Company or any of
its Subsidiaries, if required by the Code, more than five years from the date
it is granted. All rights to purchase Shares pursuant to an option shall,
unless sooner terminated, expire at the date designated by the Committee. The
Committee shall determine the date on which each option shall become
exercisable and may provide that an option shall become exercisable in
installments. The Shares constituting each installment may be purchased in
whole or in part at any
- 6 -
<PAGE>
time after such installment becomes exercisable, subject to such minimum
exercise requirements as may be designated by the Committee. Unless otherwise
provided herein or in the terms of the related grant, an optionee may
exercise an option only if he or she is, and has been continuously since the
date the option was granted, a director, officer or employee of, or performed
other services for, the Company or a Subsidiary. Prior to the exercise of an
option and delivery of the Shares represented thereby, the optionee shall
have no rights as a stockholder with respect to any Shares covered by such
outstanding option (including any dividend or voting rights).
(d) LIMITATIONS ON GRANTS. If required by the Code, the
aggregate Fair Market Value (determined as of the grant date) of Shares for
which an Incentive Stock Option is exercisable for the first time during any
calendar year under all equity incentive plans of the Company and its
Subsidiaries (as defined in Section 422 of the Code) may not exceed $100,000.
(e) TERMINATION OF EMPLOYMENT.
(i) If a participant ceases to be a director,
officer or employee of, or to perform other services for, the Company
or any Subsidiary as a result of his or her death or Disability or upon
the occurrence of his or her Retirement, all of the participant's
options and SARs shall become fully vested and exercisable and shall
remain exercisable for, and shall otherwise terminate at the end of, a
period of up to three years after the date of such death, Disability or
Retirement, but in no event after the expiration date of the options or
SARs; provided that the participant does not engage in Competition
during such three-year period unless he or she receives written consent
to do so from the Board or the Committee. Notwithstanding the
foregoing, Incentive Stock Options not exercised by such participant
within 90 days after death, Disability or Retirement will cease to
qualify as Incentive Stock Options and will be treated as Nonqualified
Stock Options under this Plan if required to be so treated under the
Code.
(ii) If a participant ceases to be a director,
officer or employee of, or to perform other services for, the Company
or a Subsidiary due to Cause, all of the participant's options and SARs
shall be forfeited immediately upon such cessation, whether or not then
exercisable.
(iii) Unless otherwise determined by the Committee, if
a participant ceases to be a director, officer or employee of, or to
otherwise perform services for, the Company or a Subsidiary for any
reason other than death, Disability, Retirement or Cause, (A) all of
the participant's options and SARs that were exercisable on the date of
such cessation shall remain exercisable for, and shall otherwise
terminate at the end of, a period of 90 days after the date of such
cessation, but in no event after the expiration date of the options or
SARs; provided that the participant does not engage in Competition
during such 90-day period unless he or she receives written consent to
do so from the Board or the Committee, and (B) all of the participant's
options and SARs that were not exercisable on the date of such
cessation shall be forfeited immediately upon such cessation.
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<PAGE>
(f) GRANT OF RELOAD OPTIONS. The Committee may provide
(either at the time of grant or exercise of an option), in its discretion,
for the grant to a grantee who exercises all or any portion of an option
("EXERCISED OPTIONS") and who pays all or part of such exercise price with
shares of Common Stock, of an additional option (a "RELOAD OPTION") for a
number of shares of Common Stock equal to the sum (the "RELOAD NUMBER") of
the number of shares of Common Stock tendered or withheld in payment of such
exercise price for the Exercised Options plus, if so provided by the
Committee, the number of shares of Common Stock, if any, tendered or withheld
by the grantee or withheld by the Company in connection with the exercise of
the Exercised Options to satisfy any federal, state or local tax withholding
requirements. The terms of each Reload Option, including the date of its
expiration and the terms and conditions of its exercisability and
transferability, shall be the same as the terms of the Exercised Option to
which it relates, except that (i) the grant date for each Reload Option shall
be the date of exercise of the Exercised Option to which it relates and (ii)
the exercise price for each Reload Option shall be the Fair Market Value of
the Common Stock on the grant date of the Reload Option.
7. STOCK APPRECIATION RIGHTS.
The Committee shall have the authority to grant SARs under
this Plan, either alone or to any optionee in tandem with options (either at
the time of grant of the related option or thereafter by amendment to an
outstanding option). SARs shall be subject to such terms and conditions as
the Committee may specify.
No SAR may be exercised unless the Fair Market Value of a
share of Common Stock of the Company on the date of exercise exceeds the
exercise price of the SAR or, in the case of SARs granted in tandem with
options, the exercise price of any options to which the SARs correspond.
Prior to the exercise of the SAR and delivery of the cash and/or Shares
represented thereby, the participant shall have no rights as a stockholder
with respect to Shares covered by such outstanding SAR (including any
dividend or voting rights).
SARs granted in tandem with options shall be exercisable
only when, to the extent and on the conditions that any related option is
exercisable. The exercise of an option shall result in an immediate
forfeiture of any related SAR to the extent the option is exercised, and the
exercise of an SAR shall cause an immediate forfeiture of any related option
to the extent the SAR is exercised.
Upon the exercise of an SAR, the participant shall be
entitled to a distribution in an amount equal to the difference between the
Fair Market Value of a share of Common Stock of the Company on the date of
exercise and the exercise price of the SAR or, in the case of SARs granted in
tandem with options, the exercise price of any option to which the SAR is
related, multiplied by the number of Shares as to which the SAR is exercised.
The Committee shall decide whether such distribution shall be in cash, in
Shares having a Fair Market Value equal to such amount, in Other Company
Securities having a Fair Market Value equal to such amount or in a
combination thereof.
All SARs will be exercised automatically on the last day
prior to the expiration date of the SAR or, in the case of SARs granted in
tandem with options, the expiration date of any related
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<PAGE>
option, so long as the Fair Market Value of a share of the Company's Common
Stock on that date exceeds the exercise price of the SAR or any related
option, as applicable. An SAR granted in tandem with options shall expire at
the same time as any related option expires and shall be transferable only
when, and under the same conditions as, any related option is transferable.
8. RESTRICTED STOCK.
The Committee may at any time and from time to time grant
Shares of restricted stock under this Plan to such participants and in such
amounts as it determines. Each grant of restricted stock shall specify the
applicable restrictions on such Shares, the duration of such restrictions
(which shall be at least six months except as otherwise provided in the third
paragraph of this Section 8), and the time or times at which such
restrictions shall lapse with respect to all or a specified number of Shares
that are part of the grant.
The participant will be required to pay the Company the
aggregate par value of any Shares of restricted stock (or such larger amount
as the Board may determine to constitute capital under Section 154 of the
Delaware General Corporation Law, as amended) within ten days of the date of
grant, unless such Shares of restricted stock are treasury shares. Unless
otherwise determined by the Committee, certificates representing Shares of
restricted stock granted under this Plan will be held in escrow by the
Company on the participant's behalf during any period of restriction thereon
and will bear an appropriate legend specifying the applicable restrictions
thereon, and the participant will be required to execute a blank stock power
therefor. Except as otherwise provided by the Committee, during such period
of restriction the participant shall have all of the rights of a holder of
Common Stock, including but not limited to the rights to receive dividends
and to vote, and any stock or other securities received as a distribution
with respect to such participant's restricted stock shall be subject to the
same restrictions as then in effect for the restricted stock.
Except as otherwise provided by the Committee, at such time
as a participant ceases to be a director, officer or employee of, or to
otherwise perform services for, the Company and its Subsidiaries due to
death, Disability or Retirement during any period of restriction, all
restrictions on Shares granted to such participant shall lapse. At such time
as a participant ceases to be a director, officer or employee of, or to
otherwise perform services for, the Company or its Subsidiaries for any other
reason, all Shares of restricted stock granted to such participant on which
the restrictions have not lapsed shall be immediately forfeited to the
Company.
9. PERFORMANCE AWARDS.
Performance awards may be granted on a contingent basis to
participants at any time and from time to time as determined by the
Committee. The Committee shall have complete discretion in determining the
size and composition of performance awards so granted to a participant and
the appropriate period over which performance is to be measured (a
"PERFORMANCE CYCLE"). Performance awards may include (i) specific
dollar-value target awards (ii) performance units, the value of each such
unit being determined by the Committee at the time of issuance, and/or (iii)
performance Shares, the value of each such Share being equal to the Fair
Market Value of a share of the Company's Common Stock.
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<PAGE>
The value of each performance award may be fixed or it may
be permitted to fluctuate based on a performance factor (e.g., return on
equity) selected by the Committee.
The Committee shall establish performance goals and
objectives for each performance cycle on the basis of such criteria and
objectives as the Committee may select from time to time, including, without
limitation, the performance of the participant, the Company, one or more of
its Subsidiaries or divisions or any combination of the foregoing. During any
performance cycle, the Committee shall have the authority to adjust the
performance goals and objectives for such cycle for such reasons as it deems
equitable.
The Committee shall determine the portion of each
performance award that is earned by a participant on the basis of the
Company's performance over the performance cycle in relation to the
performance goals for such cycle. The earned portion of a performance award
may be paid out in Shares, cash, Other Company Securities, or any combination
thereof, as the Committee may determine.
A participant must be a director, officer or employee of,
or otherwise perform services for, the Company or its Subsidiaries at the end
of the performance cycle in order to be entitled to payment of a performance
award issued in respect of such cycle; provided, however, that, except as
otherwise determined by the Committee, if a participant ceases to be a
director, officer or employee of, or to otherwise perform services for, the
Company and its Subsidiaries upon his or her death, Disability or Retirement
prior to the end of the performance cycle, the participant shall earn a
proportionate portion of the performance award based upon the elapsed portion
of the performance cycle and the Company's performance over that portion of
such cycle.
10. WITHHOLDING TAXES.
(a) PARTICIPANT ELECTION. Unless otherwise determined by
the Committee, a participant may elect to deliver shares of Common Stock (or
have the Company withhold shares acquired upon exercise of an option or SAR
or deliverable upon grant or vesting of restricted stock, as the case may be)
to satisfy, in whole or in part, the amount the Company is required to
withhold for taxes in connection with the exercise of an option or SAR or the
delivery of restricted stock upon grant or vesting, as the case may be. Such
election must be made on or before the date the amount of tax to be withheld
is determined. Once made, the election shall be irrevocable. The fair market
value of the shares to be withheld or delivered will be the Fair Market Value
as of the date the amount of tax to be withheld is determined. In the event a
participant elects to deliver shares of Common Stock pursuant to this Section
10(a), such delivery must be made subject to the conditions and pursuant to
the procedures set forth in Section 6(b) with respect to the delivery of
Common Stock in payment of the exercise price of options.
(b) COMPANY REQUIREMENT. The Company may require, as a
condition to any grant or exercise under this Plan or to the delivery of
certificates for Shares issued hereunder, that the grantee make provision for
the payment to the Company, either pursuant to Section 10(a) or this Section
10(b), of any federal, state or local taxes of any kind required by law to be
withheld with respect to any grant or any delivery of Shares. The Company, to
the extent permitted or required by
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<PAGE>
law, shall have the right to deduct from any payment of any kind (including
salary or bonus) otherwise due to a grantee, an amount equal to any federal,
state or local taxes of any kind required by law to be withheld with respect
to any grant or to the delivery of Shares under this Plan, or to retain or
sell without notice a sufficient number of the Shares to be issued to such
grantee to cover any such taxes, the payment of which has not otherwise been
provided for in accordance with the terms of this Plan; provided that the
Company shall not sell any such Shares if such sale would be considered a
sale by such grantee for purposes of Section 16 of the Exchange Act that is
not exempt from matching thereunder.
11. WRITTEN AGREEMENT; VESTING.
Each employee to whom a grant is made under this Plan shall
enter into a written agreement with the Company that shall contain such
provisions, including without limitation vesting requirements, consistent
with the provisions of this Plan, as may be approved by the Committee. Unless
the Committee determines otherwise, no grant under this Plan may be
exercised, and no restrictions relating thereto may lapse, within six months
of the date such grant is made.
12. TRANSFERABILITY.
Unless the Committee determines otherwise, no option, SAR,
performance award, or restricted stock granted under this Plan shall be
transferable by a participant otherwise than by will or the laws of descent
and distribution or pursuant to a qualified domestic relations order as
defined by the Code. Unless the Committee determines otherwise, an option,
SAR, or performance award may be exercised only by the optionee or grantee
thereof or his guardian or legal representative; provided that Incentive
Stock Options may be exercised by such guardian or legal representative only
if permitted by the Code and any regulations promulgated thereunder.
13. LISTING, REGISTRATION AND QUALIFICATION.
If the Committee determines that the listing, registration
or qualification upon any securities exchange or under any law of Shares
subject to any option, SAR, performance award or restricted stock grant is
necessary or desirable as a condition of, or in connection with, the granting
of same or the issue or purchase of Shares thereunder, no such option or SAR
may be exercised in whole or in part, no such performance award may be paid
out and no Shares may be issued unless such listing, registration or
qualification is effected free of any conditions not acceptable to the
Committee.
It is the intent of the Company that this Plan comply in
all respects with Section 162(m) of the Code, that awards made hereunder
comply in all respects with Rule 16b-3 under the Exchange Act, that any
ambiguities or inconsistencies in construction of this Plan be interpreted to
give effect to such intention and that if any provision of this Plan is found
not to be in compliance with Section 162(m), such provision shall be deemed
null and void to the extent required to permit this Plan to comply with
Section 162(m), as the case may be.
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<PAGE>
14. TRANSFER OF EMPLOYEE.
The transfer of an employee from the Company to a
Subsidiary, from a Subsidiary to the Company, or from one Subsidiary to
another shall not be considered a termination of employment; nor shall it be
considered a termination of employment if an employee is placed on military
or sick leave or such other leave of absence which is considered by the
Committee as continuing intact the employment relationship.
15. ADJUSTMENTS.
In the event of a reorganization, recapitalization, stock
split, stock dividend, combination of shares, merger, consolidation,
distribution of assets, or any other change in the corporate structure or
shares of the Company, the Committee shall make such adjustment as it deems
appropriate in the number and kind of Shares or other property reserved for
issuance under this Plan, in the number and kind of Shares or other property
covered by grants previously made under this Plan, and in the exercise price
of outstanding options and SARs. Any such adjustment shall be final,
conclusive and binding for all purposes of this Plan. In the event of any
merger, consolidation or other reorganization in which the Company is not the
surviving or continuing corporation or in which a Change in Control is to
occur, all of the Company's obligations regarding options, SARs, performance
awards, and restricted stock that were granted hereunder and that are
outstanding on the date of such event shall, on such terms as may be approved
by the Committee prior to such event, be (i) assumed by the surviving or
continuing corporation, (ii) canceled in exchange for property (including
cash), and/or (iii) in the case of options, SARs, performance awards, and
restricted stock which are not vested, either (A) canceled for no
consideration or payment of any kind or (B) vested and canceled in exchange
for property (including cash).
Without limitation of the foregoing, in connection with any
transaction of the type specified by clause (iii) of the definition of a
Change in Control in Section 2(c), the Committee may, in its discretion, (i)
cancel any or all outstanding options under this Plan in consideration for
payment to the holders thereof of an amount equal to the portion of the
consideration that would have been payable to such holders pursuant to such
transaction if their options had been fully exercised immediately prior to
such transaction, less the aggregate exercise price that would have been
payable therefor, or (ii) if the amount that would have been payable to the
option holders pursuant to such transaction if their options had been fully
exercised immediately prior thereto would be less than the aggregate exercise
price that would have been payable therefor, cancel any or all such options
for no consideration or payment of any kind. Payment of any amount payable
pursuant to the preceding sentence may be made in cash or, in the event that
the consideration to be received in such transaction includes securities or
other property, in cash and/or securities or other property in the
Committee's discretion.
16. TERMINATION AND MODIFICATION OF THIS PLAN.
The Board of Directors or the Committee, without further
approval of the stockholders, may modify or terminate this Plan, except that
no modification shall become effective without prior approval of the
stockholders of the Company if stockholder approval would be required
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<PAGE>
for continued compliance with the performance-based compensation exception of
Section 162(m) of the Code or any listing requirement of the principal stock
exchange on which the Common Stock is then listed.
17. AMENDMENT OR SUBSTITUTION OF AWARDS UNDER THIS PLAN.
The terms of any outstanding award under this Plan may be
amended from time to time by the Committee in its discretion in any manner
that it deems appropriate (including, but not limited to, acceleration of the
date of exercise of any award and/or payments thereunder or of the date of
lapse of restrictions on Shares); provided that, except as otherwise provided
in Section 15, no such amendment shall adversely affect in a material manner
any right of a participant under the award without his or her written
consent. The Committee may, in its discretion, permit holders of awards under
this Plan to surrender outstanding awards in order to exercise or realize
rights under other awards, or in exchange for the grant of new awards, or
require holders of awards to surrender outstanding awards as a condition
precedent to the grant of new awards under this Plan.
18. COMMENCEMENT DATE; TERMINATION DATE.
The date of commencement of this Plan shall be August 10,
1999, subject to approval by the shareholders of the Company. Unless
previously terminated upon the adoption of a resolution of the Board
terminating this Plan, this Plan shall terminate at the close of business on
August 10, 2009; provided that the Board may, prior to such termination,
extend the term of this Plan for up to five years for the grant of awards
other than Incentive Stock Options. No termination of this Plan shall
materially and adversely affect any of the rights or obligations of any
person, without his or her consent, under any grant of options or other
incentives theretofore granted under this Plan.
19. GOVERNING LAW.
The corporate laws of the State of Delaware will govern all
questions concerning this Plan to the extent such laws are applicable to this
Plan. All other questions concerning the construction, validity and
interpretation of this Plan will be governed by and construed in accordance
with the domestic laws of the State of Illinois, without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of
Illinois or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Illinois.
* * * * *
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated January 29, 1999 and to all references to our firm included in or
made a part of this registration statement.
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
San Francisco, California
August 10, 1999
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 4 to Registration Statement No.
333-79209 of U.S. Aggregates, Inc., on Form S-1 of our report dated March 31,
1998, appearing in the Prospectus, which is part of such Registration Statement,
and to the reference to us under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Salt Lake City, Utah
August 10, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have issued our report dated February 11, 1997 accompanying the
consolidated financial statements of Monroc, Inc. and Subsidiary as of and for
the year ended December 31, 1996 contained in the Form S-1 Registration
Statement and Prospectus of U.S. Aggregates, Inc. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus and to the
use of our name as it appears under the caption "Experts".
/s/ Grant Thornton LLP
GRANT THORNTON LLP
Salt Lake City, Utah
August 10, 1999
