UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 001-15217
---------------
U.S. AGGREGATES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 57-0990958
----------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 South El Camino Real, Suite 500,
San Mateo, California 94402
----------------------------------------------------------
(Address, of principal executive offices) (Zip Code)
(650) 685-4880
----------------------------------------------------
(Registrant's telephone number, including area code)
None
--------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Shares outstanding as of October 31, 2000
---------------------------- -------------------------------------------
Common stock, $.01 par value 14,900,593
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
CONTENTS
PART I. FINANCIAL INFORMATION
PAGE NO.
---------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
EXHIBIT INDEX 16
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
SEPTEMBER 30, DECEMBER 31,
2000 1999
--------------- --------------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 6,103 $ 4,478
Trade accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . 59,660 52,294
Inventories, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,764 28,041
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . 7,771 7,802
--------------- --------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . 109,298 92,615
--------------- --------------
PROPERTY, PLANT AND EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . . 373,337 325,328
Less: Accumulated depreciation & depletion. . . . . . . . . . . . . . . . . (41,002) (32,418)
--------------- --------------
Net property, plant and equipment . . . . . . . . . . . . . . . . . . 332,335 292,910
--------------- --------------
INTANGIBLE ASSETS, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 21,991 22,308
OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,833 7,095
--------------- --------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 477,457 $ 414,928
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,636 $ 56,591
LONG-TERM DEBT, net of current portion. . . . . . . . . . . . . . . . . . . 198,845 160,312
DEFERRED INCOME TAXES, net. . . . . . . . . . . . . . . . . . . . . . . . . 60,949 55,404
OTHER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 96
--------------- --------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 326,612 272,403
--------------- --------------
MINORITY INTEREST, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 12 12
--------------- --------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares authorized,
14,908,222 shares outstanding, including 7,629 shares of treasury stock 149 149
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . 123,648 123,648
Notes receivable from sale of stock . . . . . . . . . . . . . . . . . . . (1,267) (1,195)
Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . (2) (2)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,305 19,913
--------------- --------------
Total shareholders' equity. . . . . . . . . . . . . . . . . . . . . . 150,833 142,513
--------------- --------------
Total liabilities, minority interest and shareholders' equity . . . . $ 477,457 $ 414,928
=============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
<TABLE>
<CAPTION>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------------------
2000 1999 2000 1999
------------ ------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES . . . . . . . . . . . . . . . . . . . . . . $ 89,257 $ 93,986 $ 222,113 $ 220,925
COST OF PRODUCTS SOLD . . . . . . . . . . . . . . . . 64,629 65,000 158,506 156,966
------------ ------------ ------------ -----------
Gross profit. . . . . . . . . . . . . . . . . . 24,628 28,986 63,607 63,959
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. . . . . 6,640 7,806 22,476 22,704
DEPRECIATION, DEPLETION AND AMORTIZATION. . . . . . . 4,187 3,517 12,354 9,211
------------ ------------ ------------ -----------
Income from operations. . . . . . . . . . . . . 13,801 17,663 28,777 32,044
OTHER INCOME (EXPENSES):
Interest, net . . . . . . . . . . . . . . . . . . . (5,101) (4,018) (13,474) (12,859)
Other, net. . . . . . . . . . . . . . . . . . . . . (1,105) 97 (1,145) (382)
------------ ------------ ------------ -----------
Income before provision for income taxes,
minority interest and extraordinary item. . . 7,595 13,742 14,158 18,803
PROVISION FOR INCOME TAXES. . . . . . . . . . . . . . (2,074) (5,138) (4,425) (7,036)
------------ ------------ ------------ -----------
Income before minority interest and
extraordinary item. . . . . . . . . . . . . . 5,521 8,604 9,733 11,767
MINORITY INTEREST . . . . . . . . . . . . . . . . . . - (533) - (572)
------------ ------------ ------------ -----------
Income before extraordinary item. . . . . . . . 5,521 8,071 9,733 11,195
EXTRAORDINARY ITEM: Loss on extinguishment of debt,
less applicable income tax benefit of $161. . . . . - (264) - (264)
------------ ------------ ------------ -----------
Net income. . . . . . . . . . . . . . . . . . . $ 5,521 $ 7,807 $ 9,733 $ 10,931
============ ============ ============ ===========
Income per common share-basic
Income before extraordinary item available for
common shareholders . . . . . . . . . . . . . . . $ 0.37 $ 0.69 $ 0.65 $ 1.09
Extraordinary item, net of tax. . . . . . . . . . . - (0.02) - (0.03)
------------ ------------ ------------ -----------
Net income available for common shareholders. . . . $ 0.37 $ 0.67 $ 0.65 $ 1.06
============ ============ ============ ===========
Weighted average common shares outstanding. . . . . 14,900,593 10,804,389 14,900,593 7,709,642
Income per common share-diluted
Income before extraordinary item available for
common shareholders . . . . . . . . . . . . . . . $ 0.36 $ 0.67 $ 0.64 $ 1.05
Extraordinary item, net of tax. . . . . . . . . . . - (0.02) - (0.03)
------------ ------------ ------------ -----------
Net income available for common shareholders. . . . $ 0.36 $ 0.65 $ 0.64 $ 1.02
============ ============ ============ ===========
Weighted average common shares outstanding. . . . . 15,202,644 11,078,626 15,196,015 7,991,930
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
<TABLE>
<CAPTION>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share amounts)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
2000 1999
--------- ---------
(UNAUDITED)
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES. . . . . . . . . . . . . . . . $ 8,692 $ 4,103
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment . . . . . . . . . . . . . . (40,678) (43,251)
Acquisition of subsidiaries, net of cash acquired. . . . . . . . . . . - (325)
Proceeds from sale of property, plant & equipment. . . . . . . . . . . 5,055 2,874
--------- ---------
Net cash used in investing activities. . . . . . . . . . . . . (35,623) (40,702)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt . . . . . . . . . . . . . . . . . (39,639) (92,342)
New borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,500 64,115
Proceeds from sale of stock, net . . . . . . . . . . . . . . . . . . . - 65,706
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,341) -
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,964) 45
--------- ---------
Net cash provided by financing activities. . . . . . . . . . . 28,556 37,524
--------- ---------
NET INCREASE IN CASH . . . . . . . . . . . . . . . . . . . . . . . . . . 1,625 925
CASH, beginning of period. . . . . . . . . . . . . . . . . . . . . . . . 4,478 2,849
--------- ---------
CASH, end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,103 $ 3,774
========= =========
DISCLOSURE OF SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,619 $ 14,260
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 679 755
NONCASH TRANSACTIONS:
Accretion of preferred stock dividend. . . . . . . . . . . . . . . . . - 2,814
Conversion of minority interest to equity. . . . . . . . . . . . . . . - 8,273
Conversion of preferred shares and accreted dividends to common shares - 46,377
Dividends declared but not paid. . . . . . . . . . . . . . . . . . . . 447 -
Conversion of operating leases to capital leases . . . . . . . . . . . 14,224 -
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
U.S. AGGREGATES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization and Basis of Presentation
Founded in 1994, U.S. Aggregates, Inc. ("USAI" or the "Company") is a
leading producer of aggregates. Aggregates consist of crushed stone, sand and
gravel. The Company's products are used primarily for construction and
maintenance of highways, other infrastructure projects, and for commercial and
residential construction. USAI serves local markets in nine states in two
regions of the United States, the Mountain states and the Southeast.
The accompanying unaudited condensed consolidated financial statements of
U.S. Aggregates, Inc. and subsidiaries have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to the Quarterly Report on Form 10-Q and to Article 10 of
Regulation S-X. In the opinion of management, the interim financial information
provided herein reflects all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the results of operations for the
interim periods. The results of operations for the nine months ended September
30, 2000 are not necessarily indicative of the results to be expected for the
full year.
These condensed consolidated financial statements and the notes thereto
should be read in conjunction with the consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1999.
2. Risk Factors
The Company's business is seasonal with peak revenue and profits occurring
primarily in the months of April through November. Bad weather conditions
during this period could adversely affect operating income and cash flow and
could therefore have a disproportionate impact on the Company's results for the
full year. Quarterly results have varied significantly in the past and are
likely to vary significantly from quarter to quarter in the future.
A majority of the Company's revenues are from customers who are in
industries and businesses that are cyclical in nature and subject to changes in
general economic conditions. In addition, since operations occur in a variety
of geographic markets, the Company's business is subject to the economic
conditions in each such geographic market. General economic downturns or
localized downturns in the regions where the Company has operations, including
any downturns in the construction industry, could have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company's operations are subject to and affected by federal, state and
local laws and regulations including such matters as land usage, street and
highway usage, noise level and health, safety and environmental matters. In
many instances, various permits are required. Although management believes that
the Company is in compliance with regulatory requirements, there can be no
assurance that the Company will not incur material costs or liabilities in
connection with regulatory requirements.
Certain of the Company's operations may from time to time involve the use
of substances that are classified as toxic or hazardous substances within the
meaning of these laws and regulations. Risk of environmental liability is
inherent in the operation of the Company's business. As a result, it is
possible that environmental liabilities will have a material adverse effect on
the Company in the future.
6
<PAGE>
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. A decrease or delay in
government funding of highway construction and maintenance and other
infrastructure projects could reduce our sales and profits.
A material rise in the price or a material decrease in the availability of
oil could adversely affect operating results. The cost of asphalt is correlated
to the price of oil. Any increase in the price of oil might result in the
company's customers using less asphalt. A material increase in the price of oil
could also lead to higher gasoline costs which could increase the company's
operating costs. These increases may not be accepted by customers in the form
of higher prices.
3. Long-Term Debt
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
--------------- --------------
(dollars in thousands)
<S> <C> <C>
Prudential Insurance subordinated notes, net of discount
of $597 and $664, respectively . . . . . . . . . . . . $ 44,403 $ 44,336
Bank of America term loan A. . . . . . . . . . . . . . . 35,108 39,238
Bank of America term loan B. . . . . . . . . . . . . . . 46,404 46,404
Bank of America revolving loan . . . . . . . . . . . . . 70,000 30,000
Notes payable to former shareholders . . . . . . . . . . 1,890 4,001
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 15,920 5,631
--------------- --------------
Total long-term debt . . . . . . . . . . . . . . . . 213,725 169,610
Less: Current portion. . . . . . . . . . . . . . . . . . (14,880) (9,298)
--------------- --------------
Long-term debt, net of current portion . . . . . . . $ 198,845 $ 160,312
=============== ==============
</TABLE>
On January 13, 2000, the Company's revolving loan facility was increased
from $60 million to $90 million. The revolving loan is to be paid in full by
the revolving facility termination date in June 2004. Subsequently, the Company
has amended its facility agreements on November 13, 2000. See the "Liquidity
and Capital Resources" discussion contained in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of this Quarterly
Report on Form 10-Q.
During the first quarter, the Company committed to purchase $14.2 million
of plant and equipment originally financed under operating leases thereby
converting the obligations to capital leases. This amount, less payments made
during the first quarter, is included in the table above under the caption
"Other". Depreciation related to these leases is included in depreciation
expense.
7
<PAGE>
4. Shareholders' Equity
The following Statement of Changes in Shareholders' Equity summarizes the
Company's equity transactions between December 31, 1999 and September 30, 2000:
<TABLE>
<CAPTION>
NOTES TREASURY STOCK
------------------
ADDITIONAL RECEIVABLE SHARES TOTAL
COMMON STOCK PAID-IN FROM SALE HELD IN RETAINED SHAREHOLDERS'
-------------------
SHARES AMOUNT CAPITAL OF STOCK TREASURY AMOUNT EARNINGS EQUITY
---------- ------- -------- ---------- -------- -------- ---------- ---------
(in thousands, except share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1999. . . . . . 14,908,222 $ 149 $123,648 $ (1,195) 7,629 $ (2) $ 19,913 $142,513
Interest on notes receivable - - - (72) - - - (72)
Net income . . . . . . . . . - - - - - - 9,733 9,733
Cash dividends declared. . . - - - - - - (1,341) (1,341)
---------- ------- -------- ---------- -------- -------- ---------- ---------
BALANCE AT
SEPTEMBER 30, 2000 . . . . . 14,908,222 $ 149 $123,648 $ (1,267) 7,629 $ (2) $ 28,305 $150,833
========== ======= ======== ========== ======== ======== ========== =========
</TABLE>
5. Inventories
Inventories consist of the following as of:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
--------------- --------------
(dollars in thousands)
<S> <C> <C>
Finished products. $ 32,403 $ 24,624
Raw materials. . . 1,943 2,341
Supplies and parts 956 551
Fuel . . . . . . . 486 541
Less: Allowances . (24) (16)
--------------- --------------
$ 35,764 $ 28,041
=============== ==============
</TABLE>
Inventories are pledged as security under various debt agreements.
8
<PAGE>
6. Income Per Share
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------------
2000 1999
------------------------------- -------------------------------
(in thousands, except share amounts)
PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- ---------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary item. . . . . . . $ 5,521 $ 8,071
Less: Accretion of preferred stock dividend - 609
------- -------
Basic income before extraordinary item
available for common shareholders . . . . . 5,521 14,900,593 $ 0.37 7,462 10,804,389 $ 0.69
Effect of dilutive securities . . . . . . . . 302,051 274,237
---------- ----------
Dilutive income before extraordinary item
available for common shareholders . . . . . $ 5,521 15,202,644 $ 0.36 $ 7,462 11,078,626 $ 0.67
======= ========== ========== ======= ========== ==========
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------------
2000 1999
------------------------------- -------------------------------
(in thousands, except share amounts)
PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- ---------- ---------- ------- ---------- ----------
Income before extraordinary item. . . . . . . $ 9,733 $11,195
Less: Accretion of preferred stock dividend - 2,814
------- -------
Basic income before extraordinary item
available for common shareholders . . . . . 9,733 14,900,593 $ 0.65 8,381 7,709,642 $ 1.09
Effect of dilutive securities . . . . . . . . 295,422 282,288
---------- ----------
Dilutive income before extraordinary item
available for common shareholders . . . . . $ 9,733 15,196,015 $ 0.64 $ 8,381 7,991,930 $ 1.05
======= ========== ========== ======= ========== ==========
</TABLE>
7. New Accounting Pronouncements
In June 2000, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Statement (SFAS) No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities, an amendment to
SFAS No. 133. SFAS Nos. 133 and 138 are required to be adopted for all fiscal
years beginning after June 15, 2000. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of SFAS Nos. 133
and 138 will have a significant impact on net earnings or the financial position
of the Company.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation - an interpretation of APB
Opinion No. 25" (FIN 44). FIN 44 clarifies the application of APB Opinion No.
25, and among other issues clarifies the following: the definition of an
employee for purposes of applying APB Opinion No. 25; the criteria for
determining whether a plan qualifies as a noncompensatory plan; the accounting
consequence of various modifications to the terms of previously fixed stock
options or awards; and the accounting for an exchange of stock compensation
awards in a business combination. FIN 44 is effective July 1, 2000, but certain
conclusions in FIN 44 cover specific events that occurred after either December
15, 1998 or January 12, 2000. The adoption of FIN 44 is not expected to have a
material impact on the Company's consolidated financial statements.
9
<PAGE>
8. Effective Tax Rate
The Company uses an effective tax rate based on its best estimate of the
tax rate expected to be applicable for the full fiscal year. This estimated
rate is applied to the current year-to-date results to determine the interim
provision for income taxes.
9. Reclassifications
Certain prior-year amounts have been reclassified to conform with the
current-year presentation.
10. Commitments and Contingent Liabilities
The Company is engaged in certain legal proceedings described in Part II.
Item 1. Legal Proceedings of this Quarterly Report on Form 10-Q. While it is
not possible to determine with precision the probable outcome or the amount of
liability, if any, with respect to these proceedings, in the opinion of
management, it is unlikely that the outcome of such litigation will have a
material adverse affect on the consolidated financial statements of the Company.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following Management's Discussion and Analysis should be read in
conjunction with the MD&A included in our Annual Report on Form 10-K for the
year ended December 31, 1999.
INTRODUCTION
We conduct our operations through the quarrying and distribution of
aggregate products in nine states in two regions of the United States, the
Mountain states and the Southeast. Our operations have the same general
economic characteristics including the nature of the products, production
processes, type and class of customers, methods of distribution and governmental
regulations.
Including the opening of the Pride, Alabama quarry in October 1999, we have
started nine major greenfield aggregate production sites serving large
metropolitan markets to date. 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.
On April 24, 2000, U.S. Aggregates, Inc. sold its ready mix operations in
the Birmingham market to Ready Mix USA, Inc., one of the largest producers of
ready mix in Alabama. This sale is not expected to have a material impact on
the Company's revenues or net income. Terms of the sale include the
establishment of a long-term contract for U.S. Aggregates to provide Ready Mix
USA with aggregates for its ready mix operations.
Also during the second quarter, U.S. Aggregates made significant
investments in three of its businesses to expand into new geographical markets
in the Southeast, Utah, and Nevada. First, distribution of aggregate products
in the Southeast was expanded with the startup of a major distribution yard in
Memphis, Tennessee. In addition, three new distribution yards were started in
Mississippi and two in the Florida panhandle. We also formed a new
subsidiary, Eagle Valley Ready Mix, to expand our geographical market in the
Salt Lake City Wasatch Front area. The new operation is located in Lehi, Utah,
adjacent to one of the fastest growing cities in Utah and expects excellent
volume growth as a result. Tri-State Testing Laboratories, Inc., a subsidiary
of U.S. Aggregates, Inc., opened a new location in Las Vegas, Nevada. Tri-State
Testing is an independent testing laboratory for aggregates and asphalt
producers with offices in Salt Lake City, Utah County, and St. George, Utah.
The new laboratory will enable U.S. Aggregates to benefit from the high growth
area of Las Vegas.
On September 1, 2000 U.S. Aggregates, Inc. announced that it hired Deutsche
Banc Alex. Brown earlier this year to assist the Company in a review of
strategic alternatives.
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 necessarily indicative of our results for the
full year.
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2000 Compared to Third Quarter Ended September
30, 1999
Net sales for the third quarter in 2000 decreased by 5.0% to $89.3 million
compared to $94.0 million for the third quarter in 1999. Processed aggregate
shipments grew by 18.2% versus last year during the same period. Volumes for
asphalt declined by 12.0% while ready mix volumes declined 13.9% (4.7% excluding
the impact of Birmingham ready mix) compared to the third quarter in 1999. The
decrease in demand for asphalt is primarily due the effect of rising oil prices
on delaying commercial and residential paving projects, delays in the
implementation of TEA-21, the Federal highway funding program, as well as a
curtailment of state paving projects in Utah due to concerns about potential
Olympic funding deficits. Aggregate prices were up an average of nearly 3% (net
of
11
<PAGE>
freight to remote distribution yards), asphalt prices decreased by 4.2%,
while ready mix prices remained flat compared to last year. The Company sold its
ready mix operations in Birmingham, Alabama, and discontinued a portion of its
coal hauling business in the Mountain states, both at the beginning of the
second quarter in 2000.
Gross profit for the quarter decreased to $24.6 million, or 27.6% of net
sales, compared with $29.0 million, or 30.8% of net sales, in the third quarter
of 1999. This decrease in gross profit is primarily due to the negative impact
of higher energy, liquid asphalt and fuel costs, which were estimated to be $4.0
million higher than prior year. The Company was unable to implement price
increases sufficient to offset these increases in costs, particularly in the
asphalt and ready mix businesses. Selling, general and administrative expenses
were $6.6 million for the third quarter in 2000 versus $7.8 million in 1999. As
a percentage of net sales, the selling, general, and administrative expenses
were 7.4% in 2000 compared to 8.3% during the same period in 1999, reflecting
management's focus on effectively managing the Company's variable costs. As a
result of the investment in our business in 1998 and 1999, depreciation and
amortization grew by $0.7 million.
Income from operations for the third quarter in 2000 was $13.8 million
compared to $17.7 million in 1999. Net interest expense was $5.1 million for
the three months ended September 30, 2000 compared to $4.0 million in 1999 due
to higher debt levels and increased interest rates.
Other nonoperating expenses, net for the third quarter of 2000 were $1.1
million compared with $0.1 million in income in 1999. Other nonoperating
expenses in 2000 comprised primarily of fees and expenses incurred by the
company in its review of strategic alternatives for its business.
The effective tax rate for the quarter was 27.3% compared to 37.4% in last
year's third quarter. The decrease in the tax rate is primarily attributable to
a decrease in projected pretax income combined with the net permanent benefits
from depletion allowances and to a true-up of prior year's taxes.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
Net sales for the first nine months in 2000 increased by 0.5% to $222.1
million compared to $220.9 million for the same period in 1999. Processed
aggregate shipments grew by 14.5% versus last year during the same period.
Volumes for asphalt decreased by 6.7% while ready mix volumes declined 5.1%
(ready mix volumes increased 2.7% excluding the impact of Birmingham ready mix)
compared to last year's first nine months. Aggregate prices were up an average
of 5.4% (net of freight to remote distribution yards), asphalt prices and ready
mix prices were flat compared to last year. The Company sold its ready mix
operations in Birmingham, Alabama, and discontinued a portion of its coal
hauling business in the Mountain states, both at the beginning of the second
quarter in 2000.
Gross profit for the first nine months decreased to $63.6 million, or 28.6%
of net sales, compared with $64.0 million, or 29.0% of net sales, in the first
nine months of 1999. Selling, general and administrative expenses were $22.5
million for the first nine months in 2000 versus $22.7 million in 1999. As a
percentage of net sales, the selling, general, and administrative expenses were
10.1% in 2000, in line with 10.3% during the same period in 1999. As a result
of the investment in our business in 1998 and 1999, depreciation and
amortization grew by $3.1 million.
Income from operations for the first nine months in 2000 was $28.8 million
compared to $32.0 million in 1999. Net interest expense was $13.5 million for
the nine months ended September 30, 2000 compared to $12.9 million during the
same period in 1999.
The effective tax rate for the first nine months was 31.3% compared to
37.4% last year. The decrease in the effective tax rate was primarily
attributable to a decrease in projected pretax income combined with the net
permanent benefits from depletion allowances and to a true-up of prior year's
taxes.
LIQUIDITY AND CAPITAL RESOURCES
We agreed to enter into a Fourth Amendment with our existing lenders
pursuant to our senior secured credit facility effective September 29, 2000.
The facility provides the Company with a $90 million revolving line of credit
and a $105 million term loan. 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 2.00% to 3.50% and the term loan
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B accrues interest at a rate per annum based on the Eurodollar rate plus a
spread of 3.25% to 4.00%. The term loan A matures in March 2004 and the term
loan B matures in March 2006. The Revolving facility of $90 million will be
automatically and permanently reduced over the next three years and terminates
on June 2004. The agreement also amends the following, amongst other matters,
minimum interest coverage ratio, minimum fixed charge coverage ratio, maximum
leverage ratios, a minimum EBITDA, limitations on capital expenditures and
acquisitions, the use of proceeds from the sale of assets, and limitations on
the Company's ability to pay dividends.
The Company has also similarly agreed to amend its agreements with the
holders of our existing senior subordinated notes to parallel the covenants in
the Fourth Amendment to our senior secured credit facility. Our $30 million
senior subordinated notes interest rate is 12% per annum, which matures in
November 2006. Our $15 million senior subordinated notes interest rate is 12%
per annum, which matures in November 2008. In addition both senior subordinated
notes will accrue interest at a rate per annum of 2%, which is not paid in cash
until the maturity of these notes.
At September 30, 2000, working capital, exclusive of current maturities of
debt and cash items, totaled $51.4 million compared to $40.8 million at December
31, 1999, up 26.0% and compared to $60.7 million at June 30, 2000, down 15.3%.
The change in net working capital was primarily the result of activity
associated with the seasonal demand for construction materials.
Net cash provided by operating activities for the nine months ended
September 30, 2000 was $8.7 million, compared to $4.1 million during the same
period last year. This increase resulted primarily from increased collections
of trade accounts receivable. Net cash used in investing activities for the
nine months ended September 30, 2000 was $35.6 million primarily used for the
geographical expansion described in the opening paragraphs on page 11, compared
to $40.7 million for the same period in 1999. During the first quarter of 2000,
the Company converted $14.2 million of existing operating leases to capital
leases. Net cash provided by financing activities was $28.6 million for the
nine months ended September 30, 2000 compared to $37.5 million during the same
period last year. In January 2000, the revolving portion of our credit facility
was increased to $90 million from $60 million.
Based on prior performance and current expectations, we expect cash flows
from internally generated funds and our access to capital markets will continue
to be sufficient to provide the capital resources necessary to fund the
operating needs of our existing businesses and cover debt service requirements.
On August 18, 1999, the minority owned shares of SRM Holdings Corp. (SRMHC)
and Western Aggregates Holding Corp. (WAHC) were converted to 649,363 shares of
U.S. Aggregates, Inc.'s common stock.
FORWARD LOOKING STATEMENTS
Certain matters discussed in this report contain forward-looking statements
and information based on management's belief as well as assumptions made by and
information currently available to management. Such statements are subject to
risks, uncertainties and assumptions including, among other matters, future
growth in the construction industry; the ability of U.S. Aggregates, Inc. to
complete acquisitions and effective integration of acquired companies
operations; and general risks related to the markets in which U.S. Aggregates,
Inc. operates. Should one or more of these risks materialize, or should
underlying assumptions prove incorrect, actual results may differ materially
from those projected. Additional information regarding these risk factors and
other uncertainties may be found in the Company's filings with the Securities
and Exchange Commission.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks arising from transactions
that are entered into in the normal course of business.
All of the Company's borrowings under 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 margin. Each 1.0% increase in the interest rates on the
total of our floating rate debt would impact pretax earnings by approximately
$1.5 million. The Company does not use interest rate swap contracts to hedge
the impact of interest rate fluctuations on certain variable rate debt.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
An operating subsidiary of the Company has received a notice of violation
regarding the removal and disposal of asbestos-containing insulation from two
above ground asphalt storage tanks at one of the subsidiary's facilities and is
the subject of several related state and federal civil and criminal
investigations. The agencies involved include the Federal Environmental
Protection Agency, the United States Department of Justice, the Occupational
Safety and Health Administration and the Utah Department of Air Quality (DAQ).
The site has been fully cleaned up under the supervision and with the approval
of the Utah DAQ and costs related to the clean up have been recorded. In order
to fully resolve the matter, the Company anticipates entering into settlements
with the various governmental entities which will involve the payment of fines
and the establishment of certain environmental compliance procedures.
From time to time, the Company and our subsidiaries have been involved in
various legal proceedings relating to our and our subsidiaries' operations and
properties which, except for the proceedings described in the previous
paragraph, we believe are routine in nature and incidental to the conduct of our
and our subsidiaries' business.
Our and our subsidiaries' ultimate legal and financial liability with
respect to these matters 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.
ITEM 5. OTHER INFORMATION
Charles R. Pullin has resigned from the Board of Directors because of ill
health effective October 30, 2000. Mr. Pullin, former Chairman of Koppers
Company, Inc., has served on the Board since 1994, providing more than forty
years of experience with the aggregate business to the Board. Mr. Pullin was
elected on October 30 as Director Emeritus to the Board of Directors where he
will be able to continue to provide advice, health permitting, but without the
right to vote.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
------------ -----------
3.1* Form of Restated Certificate of Incorporation of
the Company (Amendment No. 1 to Form S-1 (Reg. No.
333-79209), Exhibit 3.1(vi), filed July 14, 1999)
3.2* Form of Restated By-laws of the Company (Amendment No. 1
to Form S-1 (Reg. No. 333-79209), Exhibit 3.2(ii),
filed July 14, 1999)
27.1 Financial Data Schedule (EDGAR Filing Only)
* Incorporated by reference to the filing indicated
(b) Reports on Form 8-K
On September 22, 2000, the Company filed a current report on Form 8-K
reporting under item 5 the September 1, 2000 Press Release commenting on the
outlook for second half and full year.
No other reports on Form 8-K were filed during the three months ended
September 30, 2000.
All other items specified by Part II of this report are inapplicable and
accordingly have been omitted.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. AGGREGATES, INC.
Dated: November 13, 2000 /s/ Michael J. Stone
-----------------------------------------------------
Michael J. Stone
Executive Vice President,
Chief Financial Officer, Treasurer and Secretary
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EXHIBIT INDEX
Exhibit No. Description
------------ -----------
3.1* Form of Restated Certificate of Incorporation of
the Company (Amendment No. 1 to Form S-1 (Reg. No.
333-79209), Exhibit 3.1(vi), filed July 14, 1999)
3.2* Form of Restated By-laws of the Company (Amendment No. 1
to Form S-1 (Reg. No. 333-79209), Exhibit 3.2(ii),
filed July 14, 1999)
27.1 Financial Data Schedule (EDGAR Filing Only)
* Incorporated by reference to the filing indicated
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