AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1999.
REGISTRATION NO. 333-74855
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
U.S. CONCRETE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3273 76-0586680
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
1360 POST OAK BLVD., SUITE 800
HOUSTON, TEXAS 77056
(713) 350-6017
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
EUGENE P. MARTINEAU
CHIEF EXECUTIVE OFFICER
1360 POST OAK BLVD., SUITE 800
HOUSTON, TEXAS 77056
(713) 350-6040
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPY TO:
TED W. PARIS, ESQ. MICHAEL C. BLANEY, ESQ.
BAKER & BOTTS, L.L.P. ANDREWS & KURTH L.L.P.
3000 ONE SHELL PLAZA 4200 CHASE TOWER
HOUSTON, TEXAS 77002-4995 HOUSTON, TEXAS 77002
FAX: (713) 229-1522 FAX: (713) 220-4285
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,
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, 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 statement 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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<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.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 21, 1999
3,800,000 SHARES
[LOGO--U.S. CONCRETE, INC.--LOGO]
COMMON STOCK
------------------------
U.S. Concrete, Inc. is selling all the 3,800,000 shares of common stock
through underwriters in a firm commitment underwriting. This is our initial
public offering, and no public market currently exists for our shares. We and
the underwriters expect the public offering price will be between $7.50 and
$9.50 per share. Our common stock will be quoted on the Nasdaq National Market
under the symbol "RMIX."
We have been recently formed to acquire operating businesses in the
ready-mixed concrete industry and intend to become a leading supplier of
ready-mixed concrete to the construction industry in the United States.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 9.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PER SHARE TOTAL
--------- --------------
Public Offering Price................ $ $
Underwriting Discount................ $ $
Proceeds, before expenses, to U.S.
Concrete, Inc. ...................... $ $
We have granted the underwriters a 30-day option to purchase up to an
additional 570,000 shares at the public offering price, less the underwriting
discount, to cover any over-allotments.
The underwriters expect to deliver the shares to purchasers on or about
, 1999.
------------------------
SCOTT & STRINGFELLOW, INC. SANDERS MORRIS MUNDY
The date of this prospectus is , 1999
<PAGE>
[US CONCRETE LOGO]
We intend to become the leading value-added provider of ready-mixed
concrete and related products and services to the construction
industry in major markets in the United States.
[GRAPHIC OF CONSTRUCTION SITE OMITTED] [GRAPHIC OF MIXER TRUCK OMITTED]
[GRAPHIC OF WET BATCH PLANT OMITTED]
[GRAPHIC OF COMPLETED PROJECT OMITTED] [GRAPHIC OF COMPLETED PROJECT OMITTED]
<PAGE>
TABLE OF CONTENTS
PAGE
-----
Prospectus Summary................... 4
Risk Factors......................... 9
The Company.......................... 16
Use of Proceeds...................... 19
Dividend Policy...................... 19
Pro Forma Capitalization............. 20
Dilution............................. 21
Selected Financial Information....... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 25
Business............................. 39
Management........................... 50
Certain Transactions................. 57
Security Ownership of Certain
Beneficial Owners and Management..... 60
Shares Eligible for Future Sale...... 61
Description of Capital Stock......... 62
Underwriting......................... 67
Legal Matters........................ 69
Experts.............................. 69
Where You Can Find More
Information.......................... 70
Index to Financial Statements........ F-1
------------------------
You should rely only on the information this prospectus contains. We have
not, and the underwriters have not, authorized anyone to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We are not, and the underwriters are
not, making an offer to sell these securities in any jurisdiction that does not
permit that offer or sale. You should assume that the information in this
prospectus is accurate only as of the date of this prospectus. Our business,
financial condition, results of operations and prospects may have changed since
that date.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION THIS PROSPECTUS CONTAINS, AND
THE REMAINDER OF THIS PROSPECTUS QUALIFIES THIS SUMMARY IN ITS ENTIRETY.
OUR COMPANY
We intend to become a leading value-added provider of ready-mixed concrete
and related products and services to the construction industry in major markets
in the United States. When this offering closes, we will purchase six businesses
and begin our operations as a provider of ready-mixed concrete and related
products and services. These businesses operate 26 concrete plants in the San
Francisco Bay area, the Sacramento metropolitan area, Washington, D.C. and
northern New Jersey. Their plants produced over 2.5 million cubic yards of
concrete in 1998 for more than 2,500 different customers. Their pro forma
combined sales totaled $194.1 million in 1998, an increase of 17.4% from their
pro forma combined sales in 1997. We believe our initial size will place us
among the leading independent ready-mixed concrete companies in the United
States on the basis of annual sales.
Of our 1998 pro forma combined sales, we estimate that approximately 44%
were to commercial and industrial construction contractors, 33% were to
residential construction contractors, 18% were to street and highway
construction and paving contractors and 5% were to other public works and
infrastructure contractors. In 1998, repeat customers accounted for an estimated
85% of our pro forma combined sales.
THE READY-MIXED CONCRETE INDUSTRY
According to the National Ready-Mixed Concrete Association, the annual
market for ready-mixed concrete in the United States currently exceeds $21.3
billion and has been growing at an annual rate of approximately 10% since 1996.
The primary factor driving this market is the favorable trend in the overall
economy of the United States. In addition, we believe three other factors are
contributing to the expansion of this market:
o the increased level of industry-wide promotional and marketing
activities;
o the development of new and innovative uses for ready-mixed concrete;
and
o the 1998 enactment of the Federal Transportation Equity Act for the
21st Century.
On the basis of information the National Ready-Mixed Concrete Association has
provided us, we estimate that, in addition to vertically integrated
manufacturers of cement and ready-mixed concrete, more than 3,500 independent
producers currently operate a total of approximately 5,300 ready-mixed concrete
plants in the United States. See "Business -- Industry Overview."
OUR BUSINESS STRATEGY
Our objective is to expand the geographic scope of our operations and
become the leading value-added provider of ready-mixed concrete and related
services in each of our markets. The significant costs and regulatory
requirements the building of new plants entails make acquisitions an important
element of our growth strategy. In addition to acquiring businesses in our
existing and new markets, we plan to implement a national operating strategy
aimed at increasing revenue growth and market share, achieving cost efficiencies
and enhancing profitability. We believe numerous potential acquisition
candidates exist in the highly fragmented ready-mixed concrete industry in both
the markets we initially will serve and other large metropolitan, high-growth
markets. We believe that a significant consolidation opportunity exists for a
company that can consistently offer high-quality, value-added services to users
of large volumes of ready-mixed concrete.
We intend to manage our operations on a decentralized basis to allow
acquired businesses to focus on their existing customer relationships and local
strategy. Our executive management team will be responsible for executing our
company-wide strategy, including acquisition planning, execution and integration
and initiating and overseeing operational improvements.
HOW TO REACH US
Our principal executive offices are located at 1360 Post Oak Blvd., Suite
800, Houston, Texas 77056. Our telephone number at that address is (713)
350-6040. We are a Delaware corporation.
4
<PAGE>
THIS OFFERING
<TABLE>
<S> <C>
Common stock we are offering......... 3,800,000 shares
Common stock that will be outstanding
immediately after this offering.... 15,638,543 shares
Use of proceeds...................... When this offering closes, we will use $23.3 million of our net
proceeds to pay the cash portion of the purchase prices for six
businesses which then will be due and apply the balance to repay a
portion of the indebtedness of those businesses. See "Use of
Proceeds."
Nasdaq National Market
trading symbol..................... RMIX
</TABLE>
5
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following summary unaudited financial information represents historical
information we have adjusted to give effect to:
o our acquisition of six businesses;
o this offering and our use of its estimated net proceeds; and
o borrowings we will make to refinance indebtedness of the six
businesses.
The pro forma balance sheet information assumes these transactions occurred
on March 31, 1999, while the other pro forma information assumes these events
occurred on January 1 in each period presented. This information reflects that
we will account for our acquisition of six businesses under the purchase method
of accounting and presents Central Concrete Supply Co., Inc., one of these
businesses, as the acquirer of the other five businesses and U.S. Concrete. This
information is not necessarily indicative of the consolidated results we would
have obtained had these transactions actually occurred when assumed or of our
future consolidated results. We have based this information on preliminary
estimates, available information and assumptions we deem appropriate.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
YEAR ENDED --------------------------
DECEMBER 31, 1998 1998 1999
----------------- ------------ ------------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE INFORMATION)
STATEMENT OF OPERATIONS INFORMATION:
Sales............................ $ 194,076 $ 33,181 $ 38,461
Cost of goods sold............... 158,913 28,277 31,986
----------------- ------------ ------------
Gross profit..................... 35,163 4,904 6,475
Selling, general and
administrative expenses(1)....... 13,321 2,154 3,318
Stock compensation charge(2)..... 2,678 -- 765
Depreciation and
amortization(3).................. 4,995 1,261 1,320
----------------- ------------ ------------
Income from operations........... 14,169 1,489 1,072
Other income (expense), net(4)... 73 (73) 290
----------------- ------------ ------------
Income before provision for
income taxes..................... 14,242 1,416 1,362
Provision for income taxes(5).... 6,337 710 687
----------------- ------------ ------------
Net income....................... $ 7,905 $ 706 $ 675
================= ============ ============
Net income per share............. $ 0.51 $ 0.05 $ 0.04
================= ============ ============
Shares used in computing net
income per share(6)............ 15,638,543 15,638,543 15,638,543
================= ============ ============
OTHER INFORMATION:
EBITDA(7)........................ $ 19,164 $ 2,750 $ 2,392
================= ============ ============
</TABLE>
AS OF MARCH 31, 1999
-------------------------------
COMBINED(8) AS ADJUSTED(9)
------------ ---------------
(IN THOUSANDS)
BALANCE SHEET INFORMATION:
Working capital (deficit)(10).... $(18,524) $ 4,788
Total assets..................... 125,227 123,999
Total debt, including current
maturities (10).................. 39,761 12,722
Stockholders' equity............. 60,647 86,458
6
<PAGE>
- ------------
(1) Reflects the following:
o reductions in compensation and benefits to which owners of the
six businesses we are acquiring have agreed and which totaled
$3.5 million in 1998, $0.9 million for the three-month period
ended March 31, 1998 and $0.7 million for the three-month period
ended March 31, 1999; and
o a charge for recurring salary changes of our management which
totaled $0.3 million in 1998 and $0.1 million in each of the
three-month periods ended March 31.
(2) Reflects a noncash, nonrecurring compensation charge resulting from the
issuance of 350,000 shares of common stock to management in 1998 and
100,000 shares of common stock to nonemployee directors in the three-month
period ended March 31, 1999. The charge was calculated using an estimated
fair value of $7.65 per share, which reflects a 10% discount from the
assumed initial public offering price of $8.50 per share because of
restrictions on the sale and transferability of the shares issued. Upon
consummation of our initial acquisitions, we will record a stock
compensation charge of $3.1 million related to 400,000 shares issued to
management and non-employee directors. We will record goodwill on the
additional 50,000 shares issued to management, as these shares were issued
for services related to these acquisitions.
(3) Reflects our write-off at the rate of $1.3 million per year over 40 years
of purchased goodwill and $0.7 million per in year in additional
depreciation expense to reflect the fair value of equipment of the six
businesses we are acquiring.
(4) Reflects interest expense of $0.8 million for 1998 and $0.2 million for
each of the three-month periods ended March 31, on borrowings of $12.7
million necessary to fund the acquisitions of the six businesses. This is
net of savings of $1.2 million in 1998 and $0.2 million in each of the
three-month periods ended March 31, on $14.7 million of historical debt to
be repaid. It also reflects the elimination of historical interest income
of $0.4 million in 1998 and $0.1 million in each of the three-month periods
ended March 31.
(5) Reflects application of a 40.8% combined tax rate to all pretax income
before nondeductible goodwill and other permanent items.
(6) Consists of:
o 8,985,288 shares we will issue to the owners of the six
businesses;
o 2,853,255 shares our current stockholders and executive
officers own; and
o 3,800,000 shares we will sell in this offering.
This share number:
o gives effect to a split of the common stock and a
recapitalization in March 1999 and the automatic
conversion of our outstanding class A common stock into
common stock which will occur prior to the closing of
this offering; and
o assumes the underwriters do not exercise their
over-allotment option.
(7) "EBITDA" means income from operations plus noncash depreciation and
amortization and is a supplemental financial measurement we use to evaluate
our business. We are not presenting our pro forma combined EBITDA as an
alternative measure of operating results or cash flow from operations or
any other measure of performance in accordance with generally accepted
accounting principles. 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. In addition, our presentation of EBITDA may not be
comparable to similarly titled measures other companies report.
(8) Does not reflect the closing of this offering or our use of its proceeds.
(9) Reflects the closing of this offering and our use of its proceeds.
(10) The pro forma combined amount includes the $23.3 million cash portion of
the purchase prices we will pay when this offering closes.
7
<PAGE>
SUMMARY FINANCIAL INFORMATION FOR THE BUSINESSES WE WILL ACQUIRE
The following table presents summary historical financial information for
each business we initially will acquire for its three most recently completed
fiscal years. Fiscal 1996 for Baer Concrete, Incorporated is its fiscal year
ended March 31, 1997, while each other fiscal year presented is a calendar year.
The information for Opportunity Concrete Corporation for fiscal 1996, Baer for
fiscal 1996 and 1997 and Santa Rosa Cast Products Co. for all periods is
unaudited. We have not adjusted this historical income statement information for
the pro forma adjustments that relate to reductions in compensation and benefits
to which owners of the businesses have agreed or any of the other pro forma
adjustments reflected in the Unaudited Pro Forma Combined Financial Statements
this prospectus contains. You should read this information along with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes this prospectus
contains.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR MARCH 31
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CENTRAL CONCRETE SUPPLY CO., INC.
Sales........................... $ 39,204 $ 53,631 $ 66,499 $ 9,918 $ 12,956
Gross profit.................... 5,802 9,837 12,525 1,381 2,331
Income from operations.......... 955 4,242 6,883 593 716
WALKER'S CONCRETE, INC.
Sales........................... $ 31,008 $ 37,990 $ 41,615 $ 5,842 $ 8,244
Gross profit.................... 4,553 6,192 7,087 572 1,300
Income (loss) from operations... 1,631 2,411 3,169 (420) 230
BAY CITIES BUILDING MATERIALS CO.,
INC.
Sales........................... $ 30,496 $ 45,312 $ 53,600 $ 10,908 $ 12,548
Gross profit.................... 3,209 5,020 6,834 1,468 1,993
Income from operations.......... 661 1,784 2,367 650 1,337
OPPORTUNITY CONCRETE CORPORATION
Sales........................... $ 19,737 $ 15,550 $ 16,180 $ 4,266 $ 2,164
Gross profit.................... 4,197 4,852 4,884 1,261 545
Income (loss) from operations... 2,654 2,240 2,287 614 (89)
BAER CONCRETE, INCORPORATED
Sales........................... $ 4,811 $ 9,712 $ 11,973 $ 2,084 $ 2,024
Gross profit.................... 400 965 2,063 183 154
Income (loss) from operations... (585) 261 456 (207) (243)
SANTA ROSA CAST PRODUCTS CO.
Sales........................... $ 3,032 $ 3,176 $ 4,209 $ 163 $ 525
Gross profit.................... 1,116 1,312 1,770 39 152
Income (loss) from operations... 186 292 728 (9) (35)
</TABLE>
8
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, AS WELL AS THE OTHER
INFORMATION THIS PROSPECTUS CONTAINS.
AS A RESULT OF CAPITAL CONSTRAINTS AND OTHER FACTORS, WE MAY NOT BE ABLE TO
REALIZE OUR BUSINESS STRATEGY OF GROWING RAPIDLY THROUGH ACQUISITIONS
We may not be able to grow as rapidly as we expect through acquiring
additional businesses after this offering closes for various reasons, including
the following:
o This offering will not provide us with any cash for use beyond
making our initial acquisitions, and we expect we will use the
cash our operations generate primarily for reinvestment in our
business. Consequently, the extent to which we are able to use
cash to pay for additional acquisitions will be subject to the
limitations our credit facility will impose on our ability to
incur additional debt and perceptions of our creditworthiness.
The failure of consolidators in other industries to execute their
business plans may adversely affect our ability to raise capital.
See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Combined."
o We may not be able to use our common stock as an acquisition
currency because prospective sellers will not accept it or, as a
result of the price at which it is trading, its use would be
dilutive to our existing stockholders.
o We may not be able to identify and acquire sufficient suitable
acquisition candidates available for sale at reasonable prices
and on other reasonable terms for a number of reasons, including:
o the unwillingness of candidates to sell during a period of
growing demand for ready-mixed concrete:
o competitors in our industry may outbid us; or
o we may not have sufficient available capital to pay for
acquisitions.
o The businesses we do acquire may fail to meet our earnings
expectations for a number of reasons, including:
o the loss of their customers or key personnel;
o adverse developments in the markets in which they operate; or
o financial losses owing to contingent and latent risks,
including environmental risks, associated with their past
operations or to other unanticipated problems.
IF OUR SENIOR MANAGEMENT DOES NOT EXECUTE OUR BUSINESS PLAN, WE MAY NOT BE ABLE
TO REALIZE OUR BUSINESS STRATEGY OF REDUCING COSTS AND ACHIEVING REVENUE
ENHANCEMENTS IN OUR OPERATIONS
We may not be able to realize our business strategy of reducing costs and
achieving revenue enhancements in our operations for a number of reasons,
including the following:
o We may fail to integrate the businesses we acquire into a cohesive,
efficient enterprise with company-wide information and management
systems and effective cost and other control mechanisms.
o We will have to rely on existing accounting, information and
administrative systems of acquired businesses, which may be
inadequate, until we can implement centralized systems.
o Our resources, including management resources, are limited and may
be strained if we engage in a significant number of acquisitions,
and acquisitions may divert our management's attention from
initiating or carrying out programs to save costs or enhance
revenues.
o We have assembled our senior management only recently, and they may
not be able to work effectively together or with our operating
managements.
o Only two members of our senior management have any experience in
our industry.
o Our ability to realize significant cost savings and customer
cross-selling opportunities in any market will depend on the extent
to which our acquisition strategy succeeds in that market.
9
<PAGE>
o We may fail in our efforts to identify and hire the skilled
personnel we will need to implement and maintain various training
programs we expect would improve our performance, including
programs designed to:
o develop a professional sales force; and
o expand our expertise in the design and variation of concrete
mixes.
OUR SUCCESS WILL DEPEND ON OUR RETAINING EXISTING PERSONNEL, HIRING ADDITIONAL
CORPORATE OFFICERS AND MANAGERS AND, WHEN NECESSARY, HIRING QUALIFIED
REPLACEMENTS
The extent to which we will be able to carry out our business plan will
depend on the continuing efforts of our executive officers and the senior
management of the businesses we initially acquire. Our success also will depend
on our supplementing our initial four corporate officers and managers with
additional officers and managers and, in most cases, on our maintaining the
senior management of any significant businesses we acquire in the future. Our
success also will depend on the continuing efforts of our plant managers and
technicians and drivers. If some of these persons do not continue in their
respective roles and we are unable to attract and retain qualified replacements,
the resulting vacancies could materially adversely affect our business,
financial condition and results of operations. We do not intend to carry
key-person life insurance on any of our employees. See "Management."
OUR PRO FORMA FINANCIAL STATEMENTS MAY NOT REFLECT THE RATE AT WHICH WE WILL
WRITE OFF THE SIGNIFICANT GOODWILL ON OUR BALANCE SHEET AND THUS MAY OVERSTATE
OUR PRO FORMA EARNINGS
Our pro forma financial statements may not reflect the rate at which we
will write off the significant goodwill on our balance sheet and thus may
overstate our pro forma earnings. On May 19, 1999, the Financial Accounting
Standards Board tentatively decided to reduce the current maximum write-off
period of 40 years for goodwill to 20 years for most companies. We understand
the 20-year write-off period may apply only to acquisitions occurring after a
future date the FASB will set. We understand the FASB will issue a formal
proposal on this subject for public comment later in the year. Our pro forma
financial statements in this prospectus reflect that we currently plan to:
o record, as a result of our initial acquisitions, a significant
amount of goodwill on our balance sheet which, on a pro forma
basis, constituted approximately 41.6% of our assets at March 31,
1999; and
o write off that goodwill as a noncash operating expense in our
statements of operations at the annual rate of $1.3 million over
a period of 40 years.
We will have to accelerate the rate at which we will write off our goodwill
if:
o the FASB effects a change in generally accepted accounting
principles which requires us to do so; or
o we determine at some future time that our then remaining balance
of goodwill has become impaired.
Any such acceleration would cause our reported earnings to decrease for some
period of time, and that decrease might cause the market price of our common
stock to drop.
WE MAY LOSE BUSINESS TO COMPETITORS WHO UNDERBID US AND OTHERWISE BE UNABLE TO
COMPETE FAVORABLY IN OUR HIGHLY COMPETITIVE INDUSTRY
We may lose business to competitors who underbid us and otherwise be unable
to compete favorably in our highly competitive industry. Our competitive
position in a given market will depend largely on the location and operating
costs of our ready-mixed concrete plants and prevailing prices in that market.
Price is the primary competitive factor among suppliers for small or simple
jobs, principally in residential construction, while timeliness of delivery and
consistency of quality and service as well as price are the principal
competitive factors among suppliers for large or complex jobs. Our competitors
will range from small, owner-operated private companies offering simple mixes to
subsidiaries or operating units of large,
10
<PAGE>
vertically integrated cement manufacturing and concrete products companies.
Competitors having lower operating costs than we do or having the financial
resources to enable them to accept lower margins than we do will have a
competitive advantage over us for jobs that are particularly price-sensitive.
Competitors having greater financial resources than we do to invest in new mixer
trucks, build plants in new areas or pay for acquisitions also will have
competitive advantages over us.
GOVERNMENTAL REGULATIONS, INCLUDING ENVIRONMENTAL REGULATIONS, MAY RESULT IN
INCREASES IN OUR OPERATING COSTS AND CAPITAL EXPENDITURES AND DECREASES IN OUR
EARNINGS
A wide range of federal, state and local laws, ordinances and regulations
will apply to our operations, including the following matters:
o land usage;
o street and highway usage;
o noise levels; and
o health, safety and environmental matters.
In many instances, we must have various certificates, permits or licenses in
order to conduct our business. Our failure to maintain required certificates,
permits or licenses or to comply with applicable governmental requirements could
result in substantial fines or possible revocation of our authority to conduct
some of our operations. Delays in obtaining approvals for the transfer or grant
of certificates, permits or licenses, or failure to obtain new certificates,
permits or licenses, could impede the implementation of our acquisition program.
Governmental requirements that will impact our operations include those
relating to air quality, solid waste management and water quality. These
requirements are complex and subject to frequent change. They impose strict
liability in some cases without regard to negligence or fault and expose us to
liability for the conduct of or conditions caused by others, or for our acts
that complied with all applicable requirements when we performed them. Our
compliance with amended, new or more stringent requirements, stricter
interpretations of existing requirements or the future discovery of
environmental conditions may require us to make material expenditures we
currently do not anticipate. In addition, although we intend to conduct
appropriate investigations with respect to environmental matters in connection
with future acquisitions, we may fail to identify or obtain indemnification from
all potential environmental liabilities of any acquired business. See
"Business -- Governmental Regulation and Environmental Matters."
COLLECTIVE BARGAINING AGREEMENTS, WORK STOPPAGES AND OTHER LABOR RELATIONS
MATTERS MAY RESULT IN INCREASES IN OUR OPERATING COSTS, DISRUPTIONS IN OUR
BUSINESS AND DECREASES IN OUR EARNINGS
At May 15, 1999, approximately 75% of the employees of the businesses we
initially will acquire were represented by labor unions having collective
bargaining agreements with five of those businesses. Any inability by us to
negotiate acceptable new contracts with these unions could cause strikes or
other work stoppages by the affected employees, and new contracts could result
in increased operating costs attributable to both union and non-union employees.
If any such strikes or other work stoppages were to occur, or if other of our
employees were to become represented by a union, we could experience a
significant disruption of our operations and higher ongoing labor costs which
could materially adversely affect our business, financial condition and results
of operations. In addition, the coexistence of union and non-union employees may
lead to conflicts between union and non-union employees or impede our ability to
integrate our operations efficiently. Labor relations matters affecting our
suppliers of cement and aggregates could adversely impact our business from time
to time. See "Business -- Employees."
OUR OPERATIONS ARE SUBJECT TO VARIOUS HAZARDS THAT MAY CAUSE PERSONAL INJURY OR
PROPERTY DAMAGE AND INCREASES IN OUR OPERATING COSTS
Operating mixer trucks, particularly when loaded, exposes our drivers and
others to traffic hazards. Our drivers are subject to the usual hazards
associated with providing services on construction sites, while
11
<PAGE>
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 loss of life, damage to
or destruction of property, plant and equipment and environmental damage.
Although we will conduct training programs designed to reduce the risks of these
occurrences, we cannot eliminate these risks. The businesses we initially will
acquire maintain insurance coverage in amounts and against the risks we believe
accord with industry practice, but this insurance 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.
WE MAY INCUR MATERIAL COSTS AND LOSSES AS A RESULT OF CLAIMS OUR PRODUCTS DO NOT
MEET REGULATORY REQUIREMENTS OR CONTRACTUAL SPECIFICATIONS
Our operations generally will involve providing mixed designs of concrete
which must meet building code or other regulatory requirements and contractual
specifications for durability, stress-level capacity, weight-bearing capacity
and other characteristics. The businesses we initially will acquire generally
warrant to their customers that the concrete they provide: (1) in its plastic
state on site will be delivered on time and in conformity with applicable tests
and contractual specifications; and (2) in its hardened state will satisfy any
applicable industry compressive strength test conducted by an independent
testing laboratory. If we fail to provide product in accordance with these
requirements and specifications, claims may arise against us or our reputation
may be damaged. The businesses we initially will acquire have not experienced
any material claims of this nature in recent periods, but we may experience such
claims in the future.
THE YEAR 2000 PROBLEM MAY MATERIALLY ADVERSELY AFFECT US
A significant percentage of the software that runs most computers worldwide
relies on two-digit codes to reflect the last two digits of a year in performing
computations and decision-making functions. These programs may fail beginning on
January 1, 2000 or earlier because of their inability to interpret information
codes properly. For example, these programs may misinterpret "00" as the year
1900 rather than 2000. After reviewing the computer programs and systems of the
businesses we initially will acquire to determine whether they will be year 2000
compliant, we have determined that some systems are year 2000 compliant, but we
will have to replace some existing systems and upgrade others. We presently
believe that the year 2000 problem should not pose material operational problems
for us or require expenditures material to our financial condition or results of
operations, but we may not be successful in dealing with the year 2000 problem
at a cost that is not material to our financial condition. Any failure on our
part or on the part of our significant service providers or materials suppliers
to have year 2000 compliant programs and systems timely in place could have a
material adverse effect on our ability to serve our customers in a timely manner
and result in lost business and revenues or increased costs. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Compliance -- Combined."
FORMER OWNERS OF THE BUSINESSES WE INITIALLY WILL ACQUIRE AND OUR MANAGEMENT
WILL CONTROL A MAJORITY OF OUR STOCK, AND THEIR INTERESTS MAY CONFLICT WITH
THOSE OF OUR OTHER STOCKHOLDERS
When our initial acquisitions and this offering close, the former owners of
the businesses we initially will acquire and our directors, executive officers
and current stockholders will beneficially own in the aggregate approximately
75.7% of our outstanding common stock. If these persons were to act in concert,
they would be able to exercise control over our affairs, including the election
of our entire board of directors and, subject to the Delaware General
Corporation Law, the disposition of any matter submitted to a vote of our
stockholders. The interests of these persons with respect to matters potentially
or actually involving or affecting us, such as future acquisitions, financings
and other corporate opportunities and attempts to acquire us, may conflict with
the interests of our other stockholders. See "Security Ownership of Certain
Beneficial Owners and Management."
12
<PAGE>
NO PUBLIC MARKET HAS EXISTED FOR OUR STOCK PRIOR TO THIS OFFERING AND AN ACTIVE
TRADING MARKET FOR OUR COMMON STOCK MAY NOT DEVELOP OR, IF IT DEVELOPS, MAY NOT
CONTINUE TO EXIST
Prior to this offering, no public market for our common stock has existed,
and the initial public offering price, which the representatives of the
underwriters and we will negotiate, may not be indicative of the price at which
our common stock will trade after this offering. See "Underwriting" for the
factors those representatives and we will consider in determining the initial
public offering price. An active trading market for our common stock may not
develop for a number of reasons. For example, the shares we sell in this
offering initially will constitute the only publicly tradable shares and
prospective investors may be deterred by the fact these shares represent only a
24.3% interest in our company. Other factors that may affect the extent to which
a market for the common stock will develop include:
o the extent to which securities analysts at the major national
brokerages do research and publish reports on our company; and
o the extent to which those interested in investing in our industry
prefer to do so through investments in vertically integrated
manufacturers of cement and ready-mixed concrete.
If an active trading market does develop for our common stock, it may not
continue to exist.
OUR STOCK PRICE MAY BE VOLATILE AFTER THIS OFFERING
The market price of our common stock after this offering may be volatile.
Factors that could cause that volatility include:
o the relatively small number of shares of our common stock that
initially will be publicly tradable;
o fluctuations in our annual or quarterly financial results or those
of our competitors or consolidators having growth strategies
similar to ours in other industries;
o price and volume volatility in the stock market generally or in
the group of companies having smaller market capitalizations
similar to ours;
o changes in the market valuations of other consolidators;
o failures of our operating results to meet the estimates of
securities analysts or the expectations of our stockholders or
changes by securities analysts in their estimates of our future
earnings;
o changing conditions in our cyclical industry or in the local and
regional economies in which we operate; and
o unfavorable publicity or changes in laws or regulations which
adversely affect our industry or us.
We expect our quarterly operating results will fluctuate significantly as a
result of many factors, including:
o the high seasonality of demand for ready-mixed concrete which
results from the seasonal nature of construction activity;
o postponements or delays of projects during sustained periods of
inclement weather and other extreme weather conditions; and
o the magnitude and timing of future acquisitions.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations_-- Overview" and "-- Factors That May Affect Our Future Operating
Results -- Combined."
SALES OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK MAY ADVERSELY AFFECT OUR STOCK
PRICE AND MAKE FUTURE OFFERINGS TO RAISE CAPITAL MORE DIFFICULT
When this offering closes, approximately 75.7% of the outstanding shares of
our common stock will be contractually restricted from resale until the first
anniversary of this offering. Subsequent sales of these
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<PAGE>
shares or sales of substantial amounts of other shares in the open market, or
the perception that those sales might occur, could materially adversely affect
the price of our common stock and make it more difficult for us to raise funds
through future offerings of common stock. See "Shares Eligible for Future Sale."
YOU WILL EXPERIENCE IMMEDIATE, SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK
VALUE OF THE SHARES YOU PURCHASE
Purchasers of our common stock in this offering:
o will pay a price per share that substantially exceeds the value on
a per share basis of our assets after we subtract from those assets
our intangible assets and our liabilities;
o will contribute a majority of the funds we will need to complete
our initial acquisitions and refinance indebtedness, but will own
only 24% of the outstanding shares of our common stock; and
o may experience further dilution in the net tangible value of their
common stock as a result of future issuances of common stock.
See "Dilution."
WE MAY ISSUE PREFERRED STOCK WHOSE TERMS COULD ADVERSELY AFFECT THE VOTING POWER
OR VALUE OF OUR COMMON STOCK
Our certificate of incorporation authorizes us to issue, without the
approval of our stockholders, one or more classes or series of preferred stock
having such preferences, powers and relative, participating, optional and other
rights, including preferences over our common stock respecting dividends and
distributions, as our board of directors may determine. The terms of one or more
classes or series of preferred stock could adversely impact the voting power or
value of our common stock. For example, we might afford holders of preferred
stock the right to elect some number of our directors in all events or on the
happening of specified events or the right to veto specified transactions.
Similarly, the repurchase or redemption rights or liquidation preferences we
might assign to holders of preferred stock could affect the residual value of
the common stock. See "Description of Capital Stock -- Preferred Stock" and
"-- Stockholders Rights Plan."
PROVISIONS IN OUR CORPORATE DOCUMENTS AND DELAWARE LAW COULD DELAY OR PREVENT A
CHANGE IN CONTROL OF OUR COMPANY, EVEN IF THAT CHANGE WOULD BE BENEFICIAL TO OUR
STOCKHOLDERS
The existence of some provisions in our corporate documents and Delaware
law could delay or prevent a change in control of our company, even if that
change would be beneficial to our stockholders. Our certificate of incorporation
and bylaws contain provisions that may make acquiring control of our company
difficult, including:
o provisions relating to the classification, nomination and removal
of our directors;
o provisions limiting the right to call special meetings of our board
and our stockholders;
o provisions regulating the ability of our stockholders to bring
matters for action at annual meetings of our stockholders;
o a prohibition of action by our stockholders without a meeting by
less than their unanimous written consent; and
o the authorization to issue and set the terms of preferred stock.
In addition, we have adopted a stockholder rights plan that would cause extreme
dilution to any person or group who attempts to acquire a significant interest
in U.S. Concrete without advance approval of our board of directors, while the
Delaware General Corporation Law would impose some restrictions on mergers and
other business combinations between us and any holder of 15% or more of our
outstanding common stock. See "Description of Capital Stock."
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<PAGE>
WE ENCOURAGE YOU NOT TO PLACE UNDUE RELIANCE ON FORWARD-LOOKING INFORMATION
This prospectus contains statements of our expectations, objectives and
plans and other forward-looking statements that involve a number of risks,
uncertainties and assumptions about matters such as:
o our acquisition and national operating strategies;
o our ability to integrate companies we acquire;
o the trends we anticipate in the ready-mixed concrete industry;
o future expenditures for capital projects; and
o our ability to control costs and maintain quality.
Actual results could differ materially from those the forward-looking statements
project.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events this prospectus discusses might not occur.
15
<PAGE>
THE COMPANY
The six businesses we will acquire when this offering closes operate in the
San Francisco Bay area, the Sacramento metropolitan area, Washington, D.C. and
northern New Jersey and have been in business an average of 43.5 years. In 1998,
they generated sales of $194.1 million, income from operations of $14.2 million
and net income of $7.9 million on a pro forma combined basis.
OUR INITIAL BUSINESSES
CENTRAL. Central Concrete Supply Co., Inc. was founded in 1948 and is
headquartered in San Jose, California. It owns six ready-mixed concrete plants,
of which five are operating, in San Jose and elsewhere in the San Francisco Bay
area and has a fleet of 94 mixer trucks. Central also sells concrete-related
building materials and tools to concrete contractors. Central recently supplied
ready-mixed concrete for the following projects, among others, in the San
Francisco Bay area:
o a new facility for Cisco Systems;
o a new facility for Adobe Systems;
o a new facility for Silicon Graphics; and
o the new Interstate Highway 24/680 interchange.
Its sales totaled approximately $66.5 million in 1998 and $13.0 million in the
first quarter of 1999.
WALKER'S. Walker's Concrete, Inc. was founded in 1949 and is headquartered
in Hayward, California. It operates five ready-mixed concrete plants in Oakland,
San Jose and elsewhere in the San Francisco Bay area and has a fleet of 91 mixer
trucks. Walker's has recently supplied ready-mixed concrete for the following
projects, among others:
o a new complex for Sun Microsystems;
o a highway interchange in Oakland;
o two single-family home developments in San Jose; and
o four new multifamily apartment complexes in San Jose and Oakland.
Its sales totaled approximately $41.6 million in 1998 and $8.2 million in the
first quarter of 1999.
BAY CITIES. Bay Cities Building Materials Co., Inc. was founded in 1957
and is headquartered in South San Francisco, California. It operates 10
ready-mixed concrete plants, including three portable plants, in South San
Francisco and the Sacramento, California metropolitan area and has a fleet of
112 mixer trucks. Bay Cities recently supplied ready-mixed concrete for the
following projects, among others:
o various renovation and expansion projects at the San Francisco
Airport;
o addition and extension projects at the Moscone Center in San
Francisco;
o various sewer improvement projects for the City of San Francisco;
o a terminal project at the Sacramento International Airport; and
o a large parking garage and the Natomas Marketplace in Sacramento.
Its sales totaled approximately $53.6 million in 1998 and $12.6 million in the
first quarter of 1999.
OPPORTUNITY. Opportunity Concrete Corporation was founded in 1975 and is
headquartered in Washington, D.C. It operates one ready-mixed concrete plant in
the District of Columbia and has a fleet of 35 mixer trucks. Opportunity has
recently supplied concrete for the following local projects, among others:
o the Federal Triangle;
o reconstruction of the 14th Street Bridge;
o Market Square;
o the MCI Arena;
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<PAGE>
o the Hyattsville Justice Center;
o Ronald Reagan Airport; and
o assorted Metro lines and stations.
Its sales totaled approximately $16.2 million in 1998 and $2.2 million in the
first quarter of 1999.
BAER. Baer Concrete, Incorporated was founded in 1946 and is headquartered
in Roseland, New Jersey. It operates five ready-mixed concrete plants in
northern New Jersey and has a fleet of 45 mixer trucks. Baer has recently
supplied ready-mixed concrete for the following projects in northern New Jersey,
among others:
o Yogi Berra Stadium and Floyd Hall Arena at Montclair State
University;
o the Bergen County Jail;
o a new Academic Support Building at Seton Hall University; and
o the New Jersey Shakespeare Theatre at Drew University.
Its sales totaled approximately $12.0 million in 1998 and $2.0 million in the
first quarter of 1999.
SANTA ROSA. Santa Rosa Cast Products Co. was founded in 1958 and is
headquartered in Santa Rosa, California, near Sacramento. It manufactures
precast concrete products and produces over 200 standard products, specialty
precast structures and related accessories. Its customers are generally located
within a 250-mile radius of Santa Rosa and include the following:
o public works departments;
o cities;
o water districts;
o general contractors; and
o plumbing, underground and other specialty contractors.
Its sales totaled approximately $4.2 million in 1998 and $0.5 million in the
first quarter of 1999. Santa Rosa's legal name is "R.G. Evans/Associates."
SUMMARY OF TERMS OF THE ACQUISITIONS
The aggregate consideration we will pay to acquire the six businesses,
excluding the post-closing adjustments we describe below, consists of (1)
approximately $23.3 million in cash and (2) 8,985,288 shares of our common
stock. We will also assume all the indebtedness of these businesses. That
indebtedness totaled approximately $14.7 million as of March 31, 1999 on a
combined historical basis. We will repay approximately $3.7 million of that
indebtedness with net proceeds from this offering and refinance the balance with
our initial borrowings under our credit facility. For information relating to
the consideration we will pay for each business, see "Certain
Transactions -- Organizational Transactions"
Changes in the working capital of the businesses from December 31, 1998 to
the date this offering closes may result in upward or downward adjustments to
the purchase prices we pay for them. If any of four of the businesses has
working capital when this offering closes which (1) exceeds a specified minimum
and (2) includes cash and cash equivalents that also exceed a specified minimum,
we will pay the former owners of that business, as additional purchase price,
cash in the amount equal to the lesser of that excess in cash or cash
equivalents or a specified amount. The maximum increase in the cash purchase
price we will pay for all the businesses is approximately $9.0 million. We
intend to effect the adjustments approximately 90 days after this offering
closes.
Three of the businesses are S corporations. Before this offering closes,
they will make distributions in the form of cash, other assets or short-term
notes to their owners in amounts equal to the balances of their retained
earnings on which those owners have paid or will pay income taxes, including
1999 earnings. At March 31, 1999 these distributions would have totaled
approximately $10.7 million.
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<PAGE>
We negotiated the purchase price we will pay for each business through
arm's-length negotiations between one or more owners or representatives of that
business and us. We used the same general valuation methodology to determine the
purchase price we were willing to pay for each business.
The closing of each acquisition is subject to customary conditions,
including, among others:
o the continuing accuracy of the representations and warranties made
by the applicable business, its stockholders and us;
o the performance of each of their respective covenants in their
acquisition agreement; and
o the absence of any legal action or proceeding reasonably likely to
result in a material adverse change in the business, results of
operations or financial condition of the business prior to the
closing date.
The acquisition agreement relating to a business may be terminated under
certain circumstances prior to closing, including: (1) by the mutual consent of
the owner or owners of that business and us; or (2) if a material breach or
default under the agreement by one party occurs and is not waived.
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<PAGE>
USE OF PROCEEDS
We estimate the proceeds we will receive from this offering, net of the
underwriting discount and $3.0 million of estimated offering expenses we have
paid or will pay, will be approximately $27.0 million if the initial public
offering price is $8.50 per share, which is the midpoint of the estimated
initial public offering price range, and the underwriters do not exercise their
over-allotment option. At the same initial public offering price, these net
proceeds will increase to approximately $31.5 million if the underwriters
exercise their over-allotment option in full. When this offering closes, we will
use $23.3 million of these net proceeds to pay the aggregate cash portion of the
purchase prices for our initial acquisitions which then will be due and apply
the balance to repay a portion of the indebtedness we will assume as a result of
those acquisitions. That indebtedness totaled approximately $14.7 million at
March 31, 1999 on a historical combined basis. See "Certain
Transactions -- Organizational Transactions."
We will refinance the assumed indebtedness we do not repay with proceeds of
this offering with our initial borrowings under a new credit facility we will
have in place when this offering closes. On the basis of our negotiations with
lenders that we expect will provide us with this facility, we expect this
facility will allow us to borrow up to $75 million for use in connection with
acquisitions, working capital and other general corporate purposes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Combined."
The owners of the businesses we acquire when this offering closes have
guaranteed some of the indebtedness we will assume and repay or refinance. Some
of those businesses owe some of that indebtedness to their owners. The assumed
indebtedness bears interest at rates ranging from 4.73% to 10.6%. That
indebtedness would otherwise mature at various dates through January 2005.
If the working capitals of four of our initial acquired businesses on the
date this offering closes meet specified levels, we may have to increase the
cash portion of the purchase prices for those businesses by up to a total of
approximately $9.0 million. We expect to pay any increase approximately 90 days
after this offering closes with cash on hand or a borrowing under our credit
facility. See "Certain Transactions -- Organizational Transactions."
DIVIDEND POLICY
We currently intend to retain our entire available discretionary cash flow
to finance the growth, development and expansion of our business and do not
anticipate paying any cash dividends on our common stock in the foreseeable
future. Any future dividends will be at the discretion of our board of directors
after taking into account various factors, including:
o our financial condition and performance;
o our cash needs and expansion plans;
o income tax consequences; and
o the restrictions Delaware and other applicable laws and our
credit arrangements then impose.
In addition, we expect the terms of our credit facility will prohibit the
payment of cash dividends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Combined."
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<PAGE>
PRO FORMA CAPITALIZATION
The following table sets forth our short-term debt and current maturities
of long-term obligations and capitalization as of March 31, 1999: (1) on a pro
forma combined basis after giving effect to our initial acquisitions and our net
incurrence of indebtedness since March 31, 1999; and (2) on that pro forma
basis, as adjusted to give effect to this offering and our use of its net
proceeds. See "Use of Proceeds" and the Unaudited Pro Forma Combined Financial
Statements and the related notes this prospectus contains.
MARCH 31, 1999
-----------------------------
PRO FORMA
COMBINED(1) AS ADJUSTED
------------- ------------
(IN THOUSANDS)
Payable to business owners(2)........ $ 23,312 $ --
============= ============
New credit facility.................. 16,449 12,722
Stockholders' equity:
Preferred stock: $.001 par
value, 10,000,000 shares,
authorized; no shares issued
and outstanding............... -- --
Common stock: $.001 par value,
60,000,000 shares authorized;
11,838,543 shares issued and
outstanding, pro forma; and
15,638,543 shares issued and
outstanding, as adjusted(3)... 118 156
Additional paid-in capital........... 63,589 89,362
Retained deficit..................... (3,060) (3,060)
------------- ------------
Total stockholders' equity...... 60,647 86,458
------------- ------------
Total capitalization....... $ 77,096 $ 99,180
============= ============
- ------------
(1) Combines the respective accounts of U.S. Concrete and the six businesses it
initially will acquire as reflected in the Unaudited Pro Forma Combined
Balance Sheet as of March 31, 1999.
(2) The pro forma combined amount represents the $23.3 million cash portion of
the purchase prices we will pay when this offering closes and does not
include any additional cash consideration post-closing adjustment provisions
in our acquisition agreements may require us to pay. The maximum amount we
will pay if cash balances and working capital meet or exceed specified
levels is $9.0 million, and the net amount we would have paid as of March
31, 1999 was $3.5 million.
(3) The 15,638,543 shares that will be outstanding when this offering closes
consist of:
o the 3,800,000 shares we will sell in this offering if the
underwriters do not exercise their over-allotment option to
purchase up to an additional 570,000 shares;
o the 8,985,288 shares we will issue as part of the purchase prices
for our initial acquisitions;
o the 450,000 shares our management and non-employee directors own;
o the 801,000 shares American Ready-Mix, L.L.C. owns; and
o the 1,602,255 shares Main Street Merchant Partners II, L.P. owns.
That share number does not include:
o the 1,150,000 shares subject to options we expect to grant to our
management and key employees of the businesses we initially will
acquire when this offering closes; or
o the 200,000 shares subject to the warrants we will issue to the
representatives of the underwriters for this offering for the
services they perform through the date this offering closes.
See "Management," "Certain Transactions" and "Underwriting."
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<PAGE>
DILUTION
Our pro forma combined net tangible book value as of March 31, 1999 was
approximately $9.0 million or approximately $0.76 per share, after giving effect
to our initial acquisitions and our net incurrence of indebtedness since March
31, 1999. This value per share represents the amount by which our pro forma
combined total liabilities exceed our pro forma combined tangible assets as of
March 31, 1999, divided by the number of shares of common stock which will be
outstanding after giving effect to our initial acquisitions. If the initial
public offering price in this offering is $8.50 per share, which is the midpoint
of the estimated initial public offering price range, our pro forma combined net
tangible book value as of March 31, 1999 would have been approximately $34.9
million, or approximately $2.23 per share of common stock, after giving effect
to the closing of this offering, the estimated underwriting discount and our
estimated offering expenses. This represents an immediate increase in pro forma
net tangible book value of approximately $1.47 per share to existing
stockholders and an immediate dilution of approximately $6.27 per share to new
investors purchasing shares in this offering. The following table illustrates
this pro forma dilution:
Assumed initial public offering price
per share............................ $ 8.50
Pro forma net tangible book
value per share before this
offering....................... $ 0.76
Increase in pro forma net
tangible book value per share
attributable to new
investors...................... 1.47
---------
Pro forma net tangible book value per
share after this offering............ 2.23
---------
Dilution per share to new
investors............................ $ 6.27
=========
The table below sets forth, on a pro forma basis to give effect to the
acquisitions and the closing of this offering and our application of our
estimated net proceeds from this offering as of March 31, 1999:
o the number of shares of common stock we have sold;
o the total consideration and average price per share existing
stockholders, including persons who will acquire common stock in
the acquisitions, have paid us; and
o the total consideration and average price per share new investors
purchasing shares in this offering will pay us.
In this table, the total consideration we attribute to existing stockholders
represents our pro forma stockholders' equity less pro forma goodwill before
giving effect to the post-merger adjustments set forth in our Unaudited Pro
Forma Combined Balance Sheet this prospectus contains.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 11,838,543 75.7% $ 9,037,000 21.9% $ 0.76
New investors........................ 3,800,000 24.3% 32,300,000 78.1% $ 8.50
---------- ------- ----------- -------
Total........................... 15,638,543 100.0% $41,337,000 100.0%
========== ======= =========== =======
</TABLE>
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<PAGE>
SELECTED FINANCIAL INFORMATION
For financial statement presentation purposes, Central Concrete Supply Co.,
Inc., one of the six businesses we initially will acquire, is presented as the
acquirer of the other five businesses and U.S. Concrete. The following
historical financial information for Central as of December 31, 1997 and 1998,
and for the years ended December 31, 1996, 1997 and 1998, derives from the
audited financial statements of Central this prospectus contains. The remaining
historical financial information for Central derives from Central's unaudited
financial statements, which have been prepared on the same basis as the audited
financial statements and reflect all adjustments consisting of normal recurring
adjustments, necessary for a fair presentation of that information. See the
Unaudited Pro Forma Combined Financial Statements and related notes and the
historical financial statements and related notes this prospectus contains.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED APRIL 30 YEAR ENDED DECEMBER 31 ENDED MARCH 31
-------------------- ------------------------------- --------------------
1995 1996 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS INFORMATION FOR
THE ACCOUNTING ACQUIRER:
Sales.............................. $ 25,570 $ 37,781 $ 39,204 $ 53,631 $ 66,499 $ 9,918 $ 12,956
Cost of goods sold................. 23,170 32,040 33,402 43,794 53,974 8,537 10,625
--------- --------- --------- --------- --------- --------- ---------
Gross profit....................... 2,400 5,741 5,802 9,837 12,525 1,381 2,331
Selling, general and administrative
expenses......................... 1,700 2,955 3,644 4,265 4,712 600 1,323
Depreciation....................... 474 586 1,203 1,330 930 188 292
--------- --------- --------- --------- --------- --------- ---------
Income from operations............. 226 2,200 955 4,242 6,883 593 716
Other income (expense), net........ 371 (73) (188) (200) (129) 96 227
--------- --------- --------- --------- --------- --------- ---------
Income before provision for income
taxes............................ 597 2,127 767 4,042 6,754 689 943
Provision (benefit) for income
taxes............................ 101 937 303 (457) 100 6 17
--------- --------- --------- --------- --------- --------- ---------
Net income......................... $ 496 $ 1,190 $ 464 $ 4,499 $ 6,654 $ 683 $ 926
========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET INFORMATION FOR THE
ACCOUNTING ACQUIRER:
APRIL 30 DECEMBER 31
-------------------- ------------------------------- MARCH 31,
1995 1996 1996 1997 1998 1999
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Working capital (deficit).......... $ (10) $ 1,074 $ 1,363 $ 4,899 $ 7,431 $ 7,685
Total assets....................... 7,789 9,683 13,603 19,837 26,640 26,389
Long-term debt, including current
maturities....................... 1,465 2,091 1,730 2,660 3,530 5,112
Total stockholders' equity......... 1,967 3,158 7,599 10,731 15,154 14,439
</TABLE>
22
<PAGE>
The following pro forma combined information assumes that we completed the
following transactions (1) on January 1, 1998 in the case of the statement of
operations information, (2) on January 1, 1999, in the case of the EBITDA
information, and (3) on March 31, 1999, in the case of the balance sheet
information:
o our issuance and sale in this offering of 3,800,000 shares of
common stock at an assumed initial public offering price of $8.50
per share, which is the midpoint of the estimated initial public
offering price range;
o our use of our net proceeds from this offering, which we estimate
will be approximately $27.0 million;
o our acquisition of the six businesses and our payment of the
purchase prices for those businesses; and
o our refinancing with borrowings under our new credit facility of
the indebtedness we will assume as a result of the acquisitions.
This information is not necessarily indicative of the consolidated results we
would have obtained had these transactions actually occurred when assumed or of
our future consolidated results. We have prepared this information on the basis
of preliminary estimates, available information and assumptions we deem
appropriate. You should read it together with the historical financial
statements and related notes this prospectus contains.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
YEAR ENDED ------------------------------
DECEMBER 31, 1998 1998 1999
----------------------- -------------- --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<S> <C> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS
INFORMATION:
Sales.............................. $ 194,076 $ 33,181 $ 38,461
Cost of goods sold................. 158,913 28,277 31,986
----------------------- -------------- --------------
Gross profit....................... 35,163 4,904 6,475
Selling, general and administrative
expenses(1)...................... 13,321 2,154 3,318
Stock compensation charge(2)....... 2,678 -- 765
Depreciation and goodwill
amortization(3).................. 4,995 1,261 1,320
----------------------- -------------- --------------
Income from operations............. 14,169 1,489 1,072
Other income (expense), net(4)..... 73 (73) 290
----------------------- -------------- --------------
Income before provision for income
taxes............................ 14,242 1,416 1,362
Provision for income taxes(5)...... 6,337 710 687
----------------------- -------------- --------------
Net income......................... $ 7,905 $ 706 $ 675
======================= ============== ==============
Net income per share............... $ 0.51 $ 0.05 $ 0.04
======================= ============== ==============
Shares used in computing net income
per share(6)..................... 15,638,543 15,638,543 15,638,543
======================= ============== ==============
OTHER PRO FORMA INFORMATION:
EBITDA(7).......................... $ 19,164 $ 2,750 $ 2,392
======================= ============== ==============
</TABLE>
23
<PAGE>
AS OF MARCH 31, 1999
--------------------------
AS
COMBINED(8) ADJUSTED(9)
----------- -----------
(IN THOUSANDS)
PRO FORMA BALANCE SHEET INFORMATION:
Working capital (deficit)(10)...... $ (18,524) $ 4,788
Total assets....................... 125,227 123,999
Total long-term debt, including
current maturities(10)............ 39,761 12,722
Stockholders' equity............... 60,647 86,458
24
<PAGE>
- ------------
(1) Reflects the following:
o reductions in compensation and benefits to which owners of the
six businesses we are acquiring have agreed and which totaled
$3.5 million in 1998, $0.9 million for the three-month period
ended March 31, 1998 and $0.7 million for the three-month period
ended March 31, 1999; and
o a charge for recurring salary changes of our management which
totaled $0.3 million in 1998 and $0.1 million in each of the
three-month periods ended March 31.
(2) Reflects a noncash, nonrecurring compensation charge resulting from the
issuance of 350,000 shares of common stock to management in 1998 and
100,000 shares of common stock to nonemployee directors in the three-month
period ended March 31, 1999. The charge was calculated using an estimated
fair value of $7.65 per share, which reflects a 10% discount from the
assumed initial public offering price of $8.50 per share due to
restrictions on the sale and transferability of the shares issued. Upon
consummation of our initial acquisitions, we will record a stock
compensation charge of $3.1 million related to 400,000 shares issued to
management and non-employee directors. We will record goodwill on the
additional 50,000 shares issued to management, as these shares were issued
for services related to these acquisitions.
(3) Reflects our write-off at the rate of $1.3 million per year over 40 years
of purchased goodwill and $0.7 million per year in additional depreciation
expense to reflect the fair value of equipment of the six businesses we are
acquiring.
(4) Reflects interest expense of $0.8 million for 1998 and $0.2 million for
each of the three-month periods ended March 31, on borrowings of $12.7
million necessary to fund the acquisitions of the six businesses. This is
net of savings of $1.2 million in 1998 and $0.2 million in each of the
three-month periods ended March 31, on $14.7 million of historical debt to
be repaid. It also reflects the elimination of historical interest income
of $0.4 million in 1998 and $0.1 million in each of the three-month periods
ended March 31.
(5) Reflects application of a 40.8% combined tax rate to all pretax income
before nondeductible goodwill and other permanent items.
(6) Consists of:
o 8,985,288 shares we will issue to the owners of the six
businesses;
o 2,853,255 shares our current stockholders and executive officers
own; and
o 3,800,000 shares we will sell in this offering.
This share number:
o gives effect to a split of the common stock and a
recapitalization in March 1999 and the automatic conversion of
our outstanding class A common stock into common stock which will
occur prior to the closing of this offering; and
o assumes the underwriters do not exercise their over-allotment
option.
(7) "EBITDA" means income from operations plus noncash depreciation and
amortization and is a supplemental financial measurement we use to evaluate
our business. We are not presenting our pro forma combined EBITDA as an
alternative measure of operating results or cash flow from operations or
any other measure of performance in accordance with generally accepted
accounting principles. 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. In addition, our presentation of EBITDA may not be
comparable to similarly titled measures other companies report.
(8) Does not reflect the closing of this offering or our use of its proceeds.
(9) Reflects the closing of this offering and our use of its proceeds.
(10) The pro forma combined amount includes the $23.3 million cash portion of
the purchase prices we will pay when this offering closes.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION TOGETHER WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES THIS PROSPECTUS CONTAINS.
OVERVIEW
We expect to derive substantially all our revenues from the sale of
ready-mixed concrete, other concrete products and related construction materials
to the construction industry in the United States. We will serve all segments of
the construction industry, and our customers will include contractors for
commercial, industrial, residential and public works and infrastructure
construction. We typically will sell ready-mixed concrete pursuant to daily
purchase orders that require us to formulate, prepare and deliver ready-mixed
concrete to the job sites of our customers. We generally will recognize our
sales from these orders when we deliver the ordered products.
Our cost of goods sold will consist principally of the costs we will incur
in obtaining the cement, aggregates and admixtures we will combine to produce
ready-mixed concrete and other concrete products in various formulations. We
will obtain all these materials from third parties and generally will have only
one day's supply at each of our concrete plants. Our cost of goods sold also
will include labor costs and the operating, maintenance and rental expenses we
will incur in operating our concrete plants and mixer trucks and other vehicles.
Our selling expenses will include the salary and incentive compensation we
will pay our sales force, the salaries and incentive compensation of our sales
managers and travel, entertainment and other promotional expenses. Our general
and administrative expenses will include the salaries and benefits we pay to our
executive officers, the senior managers of our local and regional operations,
plant managers and administrative staff, as well as office rent and utilities,
communications expenses and professional fees.
Our pro forma combined statements of operations include pro forma
adjustments to our selling, general and administrative expenses to reflect the
reductions in salaries, bonuses and benefits to which owners of the businesses
we initially will acquire have agreed will take effect when we acquire them.
These reductions totaled approximately $3.5 million in 1998, $0.9 million in the
first quarter of 1998 and $0.7 million in the first quarter of 1999. Our pro
forma combined statements of operations also reflect the substantial increase in
income tax expense which will result from the conversion of three of those
businesses from S corporations into C corporations. That pro forma increase was
approximately $2.2 million in 1998.
We expect that our integration of the businesses we will acquire will
present opportunities to realize cost savings through the elimination of
duplicative functions and the development of economies of scale. We believe that
we should be able to:
o obtain greater discounts from suppliers;
o borrow at lower interest rates;
o consolidate insurance programs; and
o generate savings in other general and administrative areas.
We cannot currently quantify these savings and expect that various incremental
costs partially offset them. These incremental costs include those associated
with:
o our corporate management;
o our being a public company; and
o our systems integration, upgrading and replacement.
Our pro forma combined statements of operations reflect neither the cost savings
nor the incremental costs we expect, but cannot quantify.
The pro forma combined financial information this prospectus contains
covers periods during which the businesses we initially will acquire had
different tax structures and operated independently of each other
25
<PAGE>
as private, owner-operated companies. This information reflects the purchase
method of accounting we will use to account for these acquisitions and presents
Central as the "accounting acquirer."
FACTORS THAT MAY AFFECT OUR FUTURE OPERATING RESULTS -- COMBINED
Reflecting the levels of construction activity, the demand for ready-mixed
concrete is highly seasonal. We believe that this demand may be as much as three
times greater in a prime summer month than in a slow winter month and that the
six-month period of May through October is the peak demand period. Consequently,
we expect that our sales generally will be materially lower in the first and
fourth calender quarters. Because we incur fixed costs, such as wages, rent,
depreciation and other selling, general and administrative expenses, throughout
the year, we expect our gross profit margins will be disproportionately lower
than our sales in these quarters. Even during traditional peak periods,
sustained periods of inclement weather and other extreme weather conditions can
slow or delay construction and thus slow or delay our sales.
You should not rely on (1) quarterly comparisons of our revenues and
operating results as indicators of our future performance or (2) the results of
any quarterly period during a year as an indicator of results you may expect for
that entire year.
Demand for ready-mixed concrete and other concrete products depends on the
level of activity in the construction industry. That industry is cyclical in
nature, and the general condition of the economy and a variety of other factors
beyond our control affect its level of activity. These factors include, among
others:
o the availability of funds for public or infrastructure
construction;
o commercial and residential vacancy levels;
o changes in interest rates;
o the availability of short- and long-term financing;
o inflation;
o consumer spending habits; and
o employment levels.
The construction industry can exhibit substantial variations in activity across
the country as a result of these factors impacting regional and local economies
differently.
Markets for ready-mixed concrete generally are local. Because our
operations will be initially geographically concentrated in four markets, our
results of operations will be initially susceptible to any swings in the level
of construction activity which may occur in those markets.
Ready-mixed concrete is highly price-sensitive. We expect our prices often
will be subject to changes in response to relatively minor fluctuations in
supply and demand, general economic conditions and market conditions, all of
which will be beyond our control. Because of the fixed-cost nature of our
business, our overall profitability will be sensitive to minor variations in
sales volumes and small shifts in the balance between supply and demand.
Competitive conditions in our industry also may affect our future operating
results. See "Business -- Competition."
If we acquire additional businesses in the future and account for those
acquisitions in accordance with the purchase method of accounting, we will
include the operating results of those businesses in our consolidated operating
results from their respective acquisition dates and begin writing off any
purchase goodwill resulting from those acquisitions on those same dates.
Consequently, the magnitude and timing of our future acquisitions will affect
our operating results.
26
<PAGE>
RESULTS OF OPERATIONS -- PRO FORMA COMBINED
The following table sets forth for us on a pro forma combined basis
selected statement of operations information and that information as a
percentage of sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
------------------------------------------
1998 1999
-------------------- --------------------
<S> <C> <C> <C> <C>
(UNAUDITED AND DOLLARS IN THOUSANDS)
Sales................................ $ 33,181 100.0% $ 38,461 100.0%
Cost of goods sold................... 28,277 85.2% 31,986 83.2%
--------- --------- --------- ---------
Gross profit.................... 4,904 14.8% 6,475 16.8%
Selling, general and administrative
expenses........................... 2,154 6.5% 3,318 8.6%
Stock compensation charge............ -- -- 765 2.0%
Depreciation and amortization........ 1,261 3.8% 1,320 3.4%
--------- --------- --------- ---------
Income from operations............... $ 1,489 4.5% $ 1,072 2.8%
========= ========= ========= =========
</TABLE>
SALES. Sales increased $5.3 million, or 16.0%, from $33.2 million in 1998
to $38.5 million in 1999, primarily as a result of improved weather conditions
and higher average sales prices resulting from strong demand in most of our
markets.
GROSS PROFIT. Gross profit increased $1.6 million, or 32.6%, from $4.9
million in 1998 to $6.5 million in 1999. Gross margins increased from 14.8% in
1998 to 16.8% in 1999 primarily due to higher average sales prices and the
strong marginal contribution from those increased prices due to the fixed cost
nature of our business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.1 million, or 50.0%, from $2.2 million in
1998 to $3.3 million in 1999 primarily due to additions to the administrative
infrastructure of several of the businesses we initially will acquire and higher
average compensation levels. As a percentage of sales, selling, general and
administrative expenses increased from 6.5% in 1998 to 8.6% in 1999.
SELECTED OPERATING INFORMATION -- COMBINED
The following table sets forth selected combined statement of operations
information of the six businesses we initially will acquire on an historical
basis and as a percentage of total sales for the periods indicated with the
exception of Baer, whose fiscal 1996 is its fiscal year ended March 31, 1997.
This information is only a summation of the sales, cost of goods sold and gross
profit of the individual businesses and does not represent a presentation of
that historical information in accordance with generally accepted accounting
principles. These businesses were not under common control or management during
the periods presented, and this information may not be indicative of our
consolidated sales, cost of goods sold or gross profit after this offering
closes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------
1996 1997 1998
--------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED AND DOLLARS IN THOUSANDS)
Sales................................ $ 128,288 100.0% $ 165,372 100.0% $ 194,076 100.0%
Cost of goods sold................... 109,011 85.0% 138,077 83.5% 158,913 81.9%
---------- --------- ---------- --------- ---------- ---------
Gross profit......................... $ 19,277 15.0% $ 27,295 16.5% $ 35,163 18.1%
========== ========= ========== ========= ========== =========
</TABLE>
SALES. Combined sales increased $28.7 million, or 17.4%, in 1998 and $37.1
million, or 28.9%, in 1997, as a result of both price and volume increases. In
both years, volumes were higher because of increased construction activity in
the San Francisco Bay area. The price increases in both years primarily
reflected higher raw material costs and increased demand.
GROSS PROFIT. Combined gross profit increased $7.9 million, or 28.8%, in
1998 and $8.0 million, or 41.6%, in 1997. The combined gross profit margin
increased from 15.0% in 1996 to 16.5% in 1997 and to
27
<PAGE>
18.1% in 1998. The increases in gross profit for both years resulted principally
from increased sales and was a function of higher revenues and the strong
marginal contribution due to the fixed-cost nature of the ready-mixed concrete
business.
LIQUIDITY AND CAPITAL RESOURCES -- COMBINED
This offering will not provide us with any funds for use in implementing
our business strategies beyond making our initial acquisitions. We will use
$23.3 million of our net proceeds from this offering to pay the cash portion of
the purchase prices for our initial acquisitions which will be due when this
offering closes and apply the balance of approximately $3.7 million to repay a
portion of the indebtedness we will assume as a result of those acquisitions.
That indebtedness totaled approximately $14.7 million as of March 31, 1999 on a
historical combined basis. We will refinance the assumed indebtedness we do not
repay with proceeds of this offering with our initial borrowings under the
credit facility we describe below. We will then terminate all the agreements
relating to that indebtedness.
We will enter into a senior secured credit facility effective when this
offering closes. Chase Securities Inc. has agreed to structure, arrange and
syndicate the facility on the terms and conditions of a commitment letter.
According to those terms, the facility will be a three-year revolving credit
facility of up to $75.0 million, with a $5.0 million sublimit for letters of
credit issued on our behalf, we may use for the following purposes:
o finance acquisitions;
o refinance existing indebtedness; and
o for general corporate purposes.
Our subsidiaries will guarantee the repayment of all amounts due under the
facility, and we will secure the facility with the capital stock and assets of
our subsidiaries. We expect the facility will:
o require the consent of the lenders for acquisitions;
o prohibit the payment of cash dividends by us;
o restrict our ability to incur additional indebtedness; and
o require us to comply with stringent financial covenants.
The failure to comply with these covenants and restrictions would
constitute an event of default under the facility. At March 31, 1999, after
giving pro forma effect to this offering and our use of its proceeds, the
completion of our initial acquisitions, our initial net borrowings under the
facility and the other transactions to which the pro forma combined financial
statements in this prospectus also give pro forma effect, our unused borrowing
capacity would have been $37.3 million. Our borrowing capacity under the
facility will vary from time to time depending on our satisfaction of several
financial tests.
After giving effect to our application of our proceeds from this offering
and funds we will borrow under our credit facility when this offering closes,
our pro forma combined working capital would have totaled approximately $4.8
million at March 31, 1999. We anticipate that our consolidated cash flow from
our operations will exceed our normal working capital needs, debt service
requirements and the amount of our planned capital expenditures, excluding
acquisitions, for at least the next 12 months. We currently estimate that
purchases of new mixer trucks and other capital expenditures during 1999 will
total approximately $4.5 million. During 1998, our pro forma combined purchases
of property, plant and equipment, net of disposed items, totaled approximately
$8.7 million.
Three of the businesses we initially will purchase are S corporations.
Before this offering closes, they will make distributions in the form of cash,
other assets or short-term notes to their owners in amounts equal to the
balances of their retained earnings on which those owners have paid or will pay
income taxes, including 1999 earnings. At March 31, 1999, these distributions
would have totaled approximately $10.7 million.
28
<PAGE>
Approximately 90 days after this offering closes, we will adjust the
purchase prices for our initial acquisitions to take into account changes in
working capital from December 31, 1998 to the date this offering closes. As of
March 31, 1999, the net adjustments would have required us to pay a total of
$3.5 million as additional cash consideration on a pro forma basis. The maximum
amount we will pay if cash balances and working capital meet or exceed specified
levels is approximately $9.0 million. As a result of (1) the S corporation
distributions, (2) these post-closing payments, if any, and (3) the interest we
will pay on borrowings under our credit facility, we may be required to borrow
substantial amounts under our credit facility to finance our cash needs on a
temporary basis.
Our growth strategy will require substantial capital. We currently intend
to finance future acquisitions with future internally generated cash flow and
through issuances of our common stock or debt securities, including convertible
debt securities, and borrowings under our credit facility. Using internally
generated cash or debt to complete acquisitions could substantially limit our
operational and financial flexibility. The extent to which we will be able or
willing to use our common stock to make acquisitions will depend on its market
value from time to time and the willingness of potential sellers to accept it as
full or partial payment. Using our common stock for this purpose may result in
significant dilution to our then existing stockholders. To the extent we are
unable to use our common stock to make future acquisitions, our ability to grow
will be limited by the extent to which we are able to raise capital for this
purpose, as well as to expand existing operations, through debt or additional
equity financings. If we are unable to obtain additional capital on acceptable
terms, we may be required to reduce the scope of our presently anticipated
expansion, which could materially adversely affect our business and the value of
our common stock.
We cannot accurately predict the timing, size and success of our
acquisition efforts or our associated potential capital commitments.
YEAR 2000 COMPLIANCE -- COMBINED
Many software applications, computer hardware and related equipment and
systems that use embedded technology, such as microprocessors, rely on two
digits rather than four to represent years in performing computations and
decision-making functions. These programs, hardware items and systems may fail
beginning on January 1, 2000 or earlier because they misinterpret "00" as the
year 1900 rather than 2000. These failures could have an adverse effect on us
because of our direct dependence on our own applications, equipment and systems
and our indirect dependence on those of third parties.
Our year 2000 program consists of the following phases:
o identifying all items that may be affected by the year 2000;
o investigating those items for year 2000 compliance;
o assessing the potential impact of year 2000 noncompliance;
o designing solutions for noncompliant items;
o repairing and replacing any noncompliant items and testing those
improvements; and
o contingency planning.
Each company we are acquiring has assigned one or more individuals in its
organization year 2000 responsibility. We have also assigned an individual
overall year 2000 responsibility to track and coordinate the efforts of the
individual companies. Although we are following the general steps we outlined
above, we do not consider preparation and maintenance of formal inventories and
risk rankings, detailed test plans and documentation of results necessary
because of the small number of information technology systems each company uses.
Each company we are acquiring has completed identification of its
mission-critical information technology hardware and software, including
business applications, operations software, service providers and product
suppliers that may be affected by the year 2000. We are in the process of
identifying the potential impact of embedded technologies on the companies. We
estimate that we have completed 80% of this process and expect to complete it by
June 30, 1999.
29
<PAGE>
We are also contacting various third parties to obtain representations and
assurances that their hardware, embedded technology systems and software which
we 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 April 1999 and
have received responses from approximately 50% 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. We expect to have this part of our program
completed by June 30, 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.
Most of the companies we initially will acquire are in the solution design
phase of their efforts to determine whether noncompliant information hardware
and software systems can be repaired or replaced. We estimate that we have
completed approximately 40% of this phase and expect to complete it by June 30,
1999.
As part of our consolidation of our six initial businesses, we are
replacing some of their financial and other systems in order to obtain internal
consistency. Some systems we are replacing happen not to be year 2000 compliant,
but we would replace them in all events this year and are not including the cost
of their replacements as a part of our year 2000 program.
We have decided not to develop formal budgets or perform detailed analysis
of the costs associated with this effort. We based this decision on the low
number of systems that comprise our technical environment and the fact that our
year 2000 efforts are being addressed during the normal course of business. We
estimate our external costs of our year 2000 program total approximately $50,000
to date and expect that any additional costs of this program will be nominal. We
expect to pay these costs with the cash flow from our consolidated operations.
We have incurred substantially all these costs in investigating systems for year
2000 compliance and have not incurred any material costs to replace or repair
noncompliant systems. We have not deferred other information technology projects
because of our year 2000 efforts.
We have not yet begun a formal analysis of various failure scenarios or
their potential impact or possible contingency plans. If we identify significant
risks related to year 2000 compliance or our progress deviates from our
anticipated program, we will develop contingency plans as necessary. We expect
that we will develop any necessary contingency plans in the fourth quarter of
1999 and that these will primarily consist of replacing noncompliant third-party
suppliers or making arrangements with compliant third-party suppliers to backup
any delivery failures and developing back up procedures to handle the failure of
any of our internal systems.
We do not anticipate any material adverse effect from year 2000 failures,
but you have no guarantee that we will 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:
o loss of gas, electricity, water or phone service;
o failures or delays in the daily delivery of raw materials;
o equipment failures;
o an interruption in our ability to collect amounts due from
customers; and
o 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.
30
<PAGE>
This disclosure is subject to protection under the Year 2000 Information
and Readiness Disclosure Act of 1998, Public Law 105-271, as a "Year 2000
Statement" and "Year 2000 Readiness Disclosure" as that Act defines those
terms.
INFLATION -- COMBINED
As a result of the relatively low levels of inflation in the last three
years, inflation did not have a significant effect on the results of operations
in those periods of any of the businesses we initially will acquire.
RESULTS OF OPERATIONS -- CENTRAL
Central owns six ready-mixed concrete batch plants in San Jose and
elsewhere in the San Francisco Bay area. It also sells concrete-related building
materials and tools through its Westside division.
Central was a C corporation until May 1, 1997, when it converted to an S
corporation. As an S corporation, Central is not subject to federal income
taxes, and its stockholders report their respective portions of Central's
taxable earnings or losses in their personal tax returns. In California, S
corporations are subject to taxation at the rate of 1.5%. Central will terminate
its S corporation status when we acquire it.
The following table sets forth selected statement of operations information
of Central and that information as a percentage of sales for the periods
indicated (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
---------------------------------------------------------------- --------------------
1996 1997 1998 1998
-------------------- -------------------- -------------------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................................ $ 39,204 100.0% $ 53,631 100.0% $ 66,499 100.0% $ 9,918 100%
Cost of goods sold................... 33,402 85.2% 43,794 81.7% 53,974 81.2% 8,537 86.1%
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit..................... 5,802 14.8% 9,837 18.3% 12,525 18.8% 1,381 13.9%
Selling, general and administrative
expenses........................... 3,644 9.3% 4,265 7.9% 4,712 7.1% 600 6.0%
Depreciation......................... 1,203 3.1% 1,330 2.5% 930 1.4% 188 1.9%
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations............... $ 955 2.4% $ 4,242 7.9% $ 6,883 10.3% 593 6.0%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
1999
--------------------
Sales................................ $ 12,956 100%
Cost of goods sold................... 10,625 82.0%
--------- ---------
Gross profit..................... 2,331 18.0%
Selling, general and administrative
expenses........................... 1,323 10.2%
Depreciation......................... 292 2.3%
--------- ---------
Income from operations............... 716 5.5%
========= =========
Central has two reportable business segments -- its ready-mixed concrete
operations and its Westside building materials and tools division. Segment
information for Central as a percentage of sales is as follows for the periods
indicated (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
---------------------------------------------------------------- --------------------
1996 1997 1998 1998
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Sales
Ready-Mixed...................... $ 33,112 $ 46,077 $ 57,339 $ 8,639
Westside......................... 6,135 8,255 9,162 1,367
Other*........................... (43) (701) (2) (88)
--------- --------- --------- ---------
Total sales.................. 39,204 53,631 66,499 9,918
========= ========= ========= =========
Cost of goods sold
Ready-Mixed...................... 26,923 81.3% 36,301 78.8% 46,465 81.0% 7,116 82.4%
Westside......................... 5,064 82.5% 6,261 75.8% 7,049 76.9% 1,201 87.9%
Other*........................... 1,415 N/A 1,232 N/A 460 N/A 220 N/A
--------- --------- --------- --------- --------- --------- --------- ---------
Total cost of goods sold..... 33,402 85.2% 43,794 81.7% 53,974 81.2% 8,537 86.1%
========= ========= ========= ========= ========= ========= ========= =========
Gross profit
Ready-Mixed...................... 6,189 18.7% 9,776 21.2% 10,874 19.0% 1,523 17.6%
Westside......................... 1,071 17.5% 1,994 24.2% 2,113 23.1% 166 12.1%
Other*........................... (1,458) N/A (1,933) N/A (462) N/A (308) N/A
--------- --------- --------- --------- --------- --------- --------- ---------
Total gross profit........... $ 5,802 14.8% $ 9,837 18.3% $ 12,525 18.8% $ 1,381 13.9%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
1999
--------------------
Sales
Ready-Mixed...................... $ 11,259
Westside......................... 1,697
Other*........................... --
---------
Total sales.................. 12,956
=========
Cost of goods sold
Ready-Mixed...................... 9,245 82.1%
Westside......................... 1,210 71.3%
Other*........................... 170 N/A
--------- ---------
Total cost of goods sold..... 10.625 82.0%
========= =========
Gross profit
Ready-Mixed...................... 2,014 17.9%
Westside......................... 487 28.7%
Other*........................... (170) N/A
--------- ---------
Total gross profit........... $ 2,331 18.0%
========= =========
- ------------
* Consists of unallocated administrative items.
31
<PAGE>
FIRST QUARTER 1999 COMPARED TO FIRST QUARTER 1998
SALES. Sales increased $3.1 million, or 30.6%, from $9.9 million in the
first quarter of 1998 to $13.0 million in the first quarter of 1999, primarily
as a result of improved weather conditions and increased demand for commercial
building construction. Additionally, Central increased sales efforts for its
high-end products in 1999. Sales for the Ready-Mixed segment increased $2.6
million, or 30.3%, from $8.6 million in the first quarter of 1998 to $11.3
million in the first quarter of 1999. Sales for the Westside segment increased
$0.3 million, or 24.1%, from $1.4 million in the first quarter of 1998 to $1.7
million in the first quarter of 1999, primarily as a result of increased
marketing efforts.
GROSS PROFIT. Gross profit increased $0.9 million, or 68.8%, from $1.4
million in the first quarter of 1998 to $2.3 million in the first quarter of
1999. Gross margins increased from 13.9% in the first quarter of 1998 to 18.0%
in the first quarter of 1999. Gross profit for the Ready-Mixed segment increased
$0.5 million, or 32.2%, from $1.5 million in the first quarter of 1998 to $2.0
million in the first quarter of 1999. Gross margins for the Ready-Mixed segment
increased from 17.6% in the first quarter of 1998 to 17.9% in the first quarter
of 1999, as a result of sales volume increases and higher average sales prices
and the strong marginal contribution from these increased volumes and prices
attributable to the fixed-cost nature of Central's business. Gross profit of the
Westside segment increased $0.3 million, or 193.4%, from $0.2 million in the
first quarter of 1998 to $0.5 million in the first quarter of 1999. Gross
margins for the Westside segment increased from 12.1% in the first quarter of
1998 to 28.7% in the first quarter of 1999, as a result of increased marketing
efforts and improved inventory management.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.7 million, or 120.3%, from $0.6 million in
the first quarter of 1998 to $1.3 million in the first quarter of 1999,
primarily because of costs incurred in connection with our acquisition of
Central and higher average compensation levels. As a percentage of sales,
selling, general and administrative expenses increased from 6.0% in the first
quarter of 1998 to 10.2% in the first quarter of 1999.
1998 COMPARED TO 1997
SALES. Sales increased $12.9 million, or 24.1%, from $53.6 million in 1997
to $66.5 million in 1998, primarily as a result of the strong construction
activity in the Silicon Valley region. Both increases in the size of Central's
customer base and in repeat sales to existing customers contributed to Central's
increase in sales. Sales for Central's Ready-Mixed segment increased $11.2
million, or 24.4%, from $46.1 million in 1997 to $57.3 million in 1998,
primarily as a result of strong demand for commercial building construction.
Sales for Central's Westside segment increased $0.9 million, or 11.0%, from $8.3
million in 1997 to $9.2 million in 1998, primarily as a result of increased
sales efforts and expanded product lines for both building materials and
equipment.
GROSS PROFIT. Gross profit increased $2.7 million, or 27.3%, from $9.8
million in 1997 to $12.5 million in 1998. Gross margins increased from 18.3% in
1997 to 18.8% in 1998 because increases in product prices more than offset
increases in union labor rates, additional technical personnel and increases in
costs of raw materials. Gross profit of the Ready-Mixed segment increased $1.1
million, or 11.2%, from $9.8 million in 1997 to $10.9 million in 1998. Gross
margins decreased from 21.2% in 1997 to 19.0% in 1998 as a result of cost
increases for both raw materials and freight during 1998. Gross profit of the
Westside segment increased $0.1 million, or 6.0%, from $2.0 million in 1997 to
$2.1 million in 1998. Gross margins decreased from 24.2% in 1997 to 23.1% in
1998 as a result of major cost increases for raw building materials during 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.4 million, or 10.5%, from $4.3 million in
1997 to $4.7 million in 1998 as a result of the addition of administrative
infrastructure necessary to support Central's growth. As a percentage of sales,
these expenses decreased from 7.9% in 1997 to 7.1% in 1998.
32
<PAGE>
1997 COMPARED TO 1996
SALES. Sales increased $14.4 million, or 36.8%, from $39.2 million in 1996
to $53.6 million in 1997, primarily because of increased construction activity
by high-tech companies in the Silicon Valley region. Both increases in the size
of Central's customer base and in repeat sales to existing customers in the San
Francisco Bay area contributed to Central's increase in sales. Sales of the
Ready-Mixed segment increased $13.0 million, or 39.2%, from $33.1 million in
1996 to $46.1 million in 1997, as a result of strong commercial building demand.
Sales of the Westside segment increased $2.2 million, or 34.6%, from $6.1
million in 1996 to $8.3 million in 1997 as a result of increased sales efforts
and expanded product lines in building materials and equipment sales.
GROSS PROFIT. Gross profit increased $4.0 million, or 69.5%, from $5.8
million in 1996 to $9.8 million in 1997, primarily because reductions in the
cost of materials more than offset increases in the number of union employees,
union labor rates and operating and maintenance expenses. Gross margins
increased from 14.8% in 1996 to 18.3% in 1997 for the same reason. Gross profit
of the Ready-Mixed segment increased $3.6 million, or 58.0%, from $6.2 million
in 1996 to $9.8 million in 1997. Gross margins of the Ready-Mixed segment
increased from 18.7% in 1996 to 21.2% in 1997. Gross profit of the Westside
segment increased $0.9 million from $1.1 million in 1996 to $2.0 million in
1997. Gross margins of the Westside segment improved from 17.5% in 1996 to 24.2%
in 1997 as a result of increased sales efforts and expanded product lines.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.7 million, or 17.0%, from $3.6 million in
1998 to $4.3 million in 1997, primarily because of an increase of $0.3 million
in expenses attributable to the hiring of additional personnel. As a percentage
of sales, these expenses decreased from 9.3% in 1996 to 7.9% in 1997 because of
Central's sales growth in 1997.
LIQUIDITY AND CAPITAL RESOURCES -- CENTRAL
Central's operations generated $1.9 million of net cash for the first
quarter of 1999, a decrease of $0.5 million from 1998, primarily because of a
$0.9 million decrease in payables and a $1.0 million increase in receivables,
partially offset by a $0.2 million increase in net income and $1.2 million of
other favorable changes in working capital accounts. Central used net cash in
investing activities of $0.6 million in the first quarter of 1999, substantially
all of which it spent on property, plant and equipment. In the first quarter of
1999, Central used net cash of $0.1 million in its financing activities, which
reflected distributions to its stockholders of $1.6 million, partially offset by
net borrowings of $1.5 million. At March 31, 1999, Central had working capital
of $7.7 million and total long-term debt of $5.1 million.
Central's operations generated $6.9 million of net cash in 1998, an
increase of $4.6 million from 1997 as a result principally of a $2.2 million
increase in net income and a $2.3 million decrease in receivables. Central used
net cash in investing activities of approximately $3.4 million in 1998,
substantially all of which it spent for property, plant and equipment. In 1998,
Central used net cash of $1.2 million in its financing activities, principally
to repay debt and make distributions to its stockholders. At December 31, 1998,
Central had working capital of $7.4 million and total debt of $3.5 million.
Central expects to be able to fund its cash needs such as working capital
through cash it generates from its operations. It generally funds its purchases
of property, plant, and equipment with internally generated cash or debt.
Central maintains a $1.2 million line of credit with a bank. It did not draw on
this line in 1997 or 1998. We will terminate this line of credit when we acquire
Central.
OTHER -- CENTRAL
For information respecting factors causing seasonal and quarterly
fluctuations in Central's operating results, see "-- Factors That May Affect
Our Future Operating Results -- Combined."
RESULTS OF OPERATIONS -- WALKER'S
Walker's operates five ready-mixed concrete plants in Oakland, Hayward and
San Jose, California.
33
<PAGE>
The following table sets forth selected statement of operations information
of Walker's and that information as a percentage of sales for the periods
indicated (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
---------------------------------------------------------------- --------------------
1996 1997 1998 1998
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Sales................................ $ 31,008 100.0% $ 37,990 100.0% $ 41,615 100.0% $ 5,842 100.0%
Cost of goods sold................... 26,455 85.3% 31,798 83.7% 34,528 83.0% 5,270 90.2%
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit..................... 4,553 14.7% 6,192 16.3% 7,087 17.0% 572 9.8%
Selling, general and administrative
expenses........................... 2,155 6.9% 2,953 7.8% 3,022 7.3% 707 12.1%
Depreciation......................... 767 2.5% 828 2.2% 896 2.1% 285 4.9%
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations........ $ 1,631 5.3% $ 2,411 6.3% $ 3,169 7.6% $ (420) (7.2)%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
1999
--------------------
Sales................................ $ 8,244 100.0%
Cost of goods sold................... 6,944 84.2%
--------- ---------
Gross profit..................... 1,300 15.8%
Selling, general and administrative
expenses........................... 850 10.3%
Depreciation......................... 220 2.7%
--------- ---------
Income (loss) from operations........ $ 230 2.8%
========= =========
FIRST QUARTER 1999 COMPARED TO FIRST QUARTER 1998
SALES. Sales increased $2.4 million, or 41.1%, from $5.8 million in the
first quarter of 1998 to $8.2 million in the first quarter of 1999, primarily
because of sales volume increases resulting from improved weather conditions and
an increase in concrete sales prices. Concrete sales price increases resulted
primarily from significant improvements in the pricing of projects in the
Silicon Valley market.
GROSS PROFIT. Gross profit increased $0.7 million, or 127.3%, from $0.6
million in the first quarter of 1998 to $1.3 million in the first quarter of
1999. Gross margins increased from 9.8% in the first quarter of 1998 to 15.8% in
the first quarter of 1999, as a result of sales volume increases and higher
average sales prices and the strong marginal contribution from these increased
volumes and prices due to the fixed-cost nature of Walker's business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.2 million, or 20.2%, from $0.7 million in
the first quarter of 1998 to $0.9 million in the first quarter of 1999,
primarily because of costs incurred in connection with our acquisition of
Walker's and higher average compensation levels. As a percentage of sales, these
expenses decreased from 12.1% in the first quarter of 1998 to 10.3% in the first
quarter of 1999.
1998 COMPARED TO 1997
SALES. Sales increased $3.6 million, or 9.5%, from $38.0 million in 1997
to $41.6 million in 1998, primarily as a result of the strong construction
activity in the Silicon Valley region and increased average sales prices.
GROSS PROFIT. Gross profit increased $0.9 million, or 14.5%, from $6.2
million in 1997 to $7.1 million in 1998 due to higher sales volume and higher
average sales prices more than offsetting increases in cement prices and other
costs. Gross margins increased from 16.3% in 1997 to 17.0% in 1998, primarily
due to higher average sales prices.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses remained relatively constant at $3.0 million. As a
percentage of sales, these expenses decreased from 7.8% in 1997 to 7.3% in 1998.
1997 COMPARED TO 1996
SALES. Sales increased $7.0 million, or 22.5%, from $31.0 million in 1996
to $38.0 million in 1997, primarily as a result of increased demand as a result
of the strong construction activity in the Silicon Valley region and increased
average sales prices.
GROSS PROFIT. Gross profit increased $1.6 million, or 36.0%, from $4.6
million in 1996 to $6.2 million in 1997. Gross margins increased from 14.7% in
1996 to 16.3% in 1997 because sales price increases more than offset increases
in cement and other costs and because of the strong marginal contribution from
these increased prices due to the fixed-cost nature of Walker's business.
34
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.8 million, or 37.0%, from $2.2 million in
1996 to $3.0 million in 1997, due to increased selling and administrative costs
to support the growth of Walker's business. As a percentage of sales, these
expenses increased from 6.9% in 1996 to 7.8% in 1997.
LIQUIDITY AND CAPITAL RESOURCES -- WALKER'S
Walker's operations generated $1.3 million of net cash for the first
quarter of 1999, a decrease of $0.6 million from 1998, primarily because of a
$0.7 million increase in receivables and $0.2 million of unfavorable changes in
other working capital accounts, partially offset by a $0.3 million increase in
net income. Walker's used net cash in investing activities of $1.1 million in
the first quarter of 1999, all of which it spent on property, plant and
equipment. In the first quarter of 1999, Walker's generated net cash of $0.2
million in its financing activities, which reflected net borrowings. At March
31, 1999, Walker's had working capital of $0.2 million and long-term debt of
$1.8 million.
Walker's operations generated $2.6 million of net cash in 1998, an increase
of $0.8 million from 1997, principally as a result of a $0.5 million increase in
net income and a $0.2 decrease in receivables. Walker's used net cash in
investing activities of approximately $2.0 million in 1998, substantially all of
which it spent for property, plant and equipment.
Walker's expects to be able to fund its cash needs such as working capital
through cash it generates from its operations. It generally funds its purchases
of property, plant and equipment with internally generated cash or debt.
Walker's maintains a $4.0 million line of credit with a bank. At March 31, 1999,
it had $2.8 million outstanding under this line of credit. We will repay that
indebtedness and terminate the line of credit when we acquire Walker's.
OTHER -- WALKER'S
For information respecting factors causing seasonal and quarterly
fluctuations in Walker's operating results, see "-- Factors That May Affect Our
Future Operating Results -- Combined."
RESULTS OF OPERATIONS -- BAY CITIES
Bay Cities operates 10 ready-mixed concrete plants in the San Francisco Bay
area and Sacramento metropolitan area.
The following table sets forth selected statement of operations information
of Bay Cities and that information as a percentage of sales for the periods
indicated (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
---------------------------------------------------------------- --------------------
1996 1997 1998 1998
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Sales................................ $ 30,496 100.0% $ 45,312 100.0% $ 53,600 100.0% $ 10,908 100.0%
Cost of goods sold................... 27,287 89.5% 40,292 88.9% 46,766 87.3% 9,440 86.5%
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit..................... 3,209 10.5% 5,020 11.1% 6,834 12.7% 1,468 13.5%
Selling, general and administrative
expenses........................... 2,090 6.8% 2,778 6.2% 3,962 7.4% 697 6.4%
Depreciation......................... 458 1.5% 458 1.0% 505 0.9% 121 1.1%
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations............... $ 661 2.2% $ 1,784 3.9% $ 2,367 4.4% $ 650 6.0%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
1999
--------------------
Sales................................ $ 12,548 100.0%
Cost of goods sold................... 10,555 84.1%
--------- ---------
Gross profit..................... 1,993 15.9%
Selling, general and administrative
expenses........................... 553 4.4%
Depreciation......................... 103 0.8%
--------- ---------
Income from operations............... $ 1,337 10.7%
========= =========
FIRST QUARTER 1999 COMPARED TO FIRST QUARTER 1998
SALES. Sales increased $1.6 million, or 15.0%, from $10.9 million in the
first quarter of 1998 to $12.5 million in the first quarter of 1999, primarily
because of strong construction activity in the Silicon Valley region and higher
average sales prices.
GROSS PROFIT. Gross profit increased $0.5 million, or 35.8%, from $1.5
million in the first quarter of 1998 to $2.0 million in the first quarter of
1999. Gross margins increased from 13.5% in the first quarter of 1998 to 15.9%
in the first quarter of 1999, primarily because of higher average sales prices
and the strong marginal contribution from these increased prices due to the
fixed-cost nature of Bay Cities' business.
35
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $0.1 million, or 20.7%, from $0.7 million in
the first quarter of 1998 to $0.6 million in the first quarter of 1999,
primarily because of a decrease in owners' compensation, partially offset by
costs incurred in connection with our acquisition of Bay Cities. As a percentage
of sales, these expenses decreased from 6.4% in the first quarter of 1998 to
4.4% in the first quarter of 1999.
1998 COMPARED TO 1997
SALES. Sales increased $8.3 million, or 18.3%, from $45.3 million in 1997
to $53.6 million in 1998, primarily as a result of the strong construction
activity in the Silicon Valley region and increasing prices for concrete.
GROSS PROFIT. Gross profit increased $1.8 million, or 36.1%, from $5.0
million in 1997 to $6.8 million in 1998. Gross margins increased from 11.1% in
1997 to 12.7% in 1998, because sales price increases more than offset increases
in cement and other costs and because of the strong marginal contribution from
the sales price increases due to the fixed-cost nature of Bay Cities' business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.2 million, or 42.6%, from $2.8 million in
1997 to $4.0 million in 1998, due to increased selling and administrative costs
associated with Bay Cities' growth. As a percentage of sales, these expenses
increased from 6.2% in 1997 to 7.4% in 1998.
1997 COMPARED TO 1996
SALES. Sales increased $14.8 million, or 48.6%, from $30.5 million in 1996
to $45.3 million in 1997, primarily as a result of the strong construction
activity in the Silicon Valley region and increasing prices for concrete.
GROSS PROFIT. Gross profit increased $1.8 million, or 56.4%, from $3.2
million in 1996 to $5.0 million in 1997. Gross margins increased from 10.5% in
1996 to 11.1% in 1997, because sales price increases more than offset increases
in cement and other costs and because of the strong marginal contribution from
the sales price increases due to the fixed-cost nature of Bay Cities' business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.7 million, or 32.9%, from $2.1 million in
1996 to $2.8 million in 1997, because of increased selling and administrative
costs associated with Bay Cities' growth. As a percentage of sales, these
expenses decreased from 6.8% in 1996 to 6.2% in 1997.
LIQUIDITY AND CAPITAL RESOURCES -- BAY CITIES
Bay Cities' operations generated $0.5 million of net cash for the first
quarter of 1999, an increase of $1.0 million from 1998, primarily because of a
$0.4 million increase in net income and $1.9 million increase in payables,
partially offset by a $1.1 million increase in receivables and $0.2 million of
unfavorable changes in other working capital accounts. Bay Cities used net cash
in investing activities of $0.3 million in the first quarter of 1999,
substantially all of which it spent on property, plant and equipment. In the
first quarter of 1999, Bay Cities neither generated nor used net cash in its
financing activities. At March 31, 1999, Bay Cities had working capital of $2.3
million and long-term debt of $2.5 million.
Bay Cities' operations generated $3.5 million of net cash in 1998, an
increase of $3.0 million from 1997 as a result principally of a $0.4 million
increase in net income and a $5.3 million decrease in receivables. These
increases were offset by a $2.6 million decrease in accounts payable. Bay Cities
used net cash in investing activities of approximately $1.6 million in 1998,
substantially all of which it spent for property, plant and equipment.
Bay Cities expects to be able to fund its cash needs such as working
capital through cash it generates from its operations. It generally funds its
purchases of property, plant and equipment with internally generated cash or
debt. We will repay that indebtedness and terminate the related loan agreements
when we acquire Bay Cities.
36
<PAGE>
OTHER -- BAY CITIES
For information respecting factors causing seasonal and quarterly
fluctuations in Bay Cities' operating results, see "-- Factors That May Affect
Our Future Operating Results -- Combined."
RESULTS OF OPERATIONS -- OPPORTUNITY
Opportunity operates a ready-mixed concrete plant in Washington, D.C.
The following table sets forth selected statement of operations information
of Opportunity and that information as a percentage of sales for the periods
indicated (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 THREE MONTHS ENDED MARCH 31
------------------------------------------ ------------------------------------------
1997 1998 1998 1999
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Sales................................ $ 15,550 100.0% $ $16,180 100.0% $ 4,266 100.0% $ 2,164 100.0%
Cost of goods sold................... 10,698 68.8% 11,296 69.8% 3,005 70.4% 1,619 74.8%
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 4,852 31.2% 4,884 30.2% 1,261 29.6% 545 25.2%
Selling, general and administrative
expenses........................... 2,380 15.3% 2,352 14.5% 586 13.7% 575 26.6%
Depreciation......................... 232 1.5% 245 1.5% 61 1.4% 59 2.7%
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations........ $ 2,240 14.4% $ 2,287 14.1% $ 614 14.5% $ (89) (4.1)%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
FIRST QUARTER 1999 COMPARED TO FIRST QUARTER 1998
SALES. Sales decreased $2.1 million, or 49.3%, from $4.3 million in the
first quarter of 1998 to $2.2 million in the first quarter of 1999, primarily
because of sales volume decreases resulting from adverse weather conditions in
the 1999 period as compared to the corresponding period in the prior year. The
adverse weather conditions in the first quarter of 1999 resulted in several of
Opportunity's projects being delayed until the second and third quarters of
1999. In addition, Opportunity's projects during 1998 included a strong backlog
of underground work, which is typically unaffected by adverse weather
conditions.
GROSS PROFIT. Gross profit decreased $0.7 million, or 56.8%, from $1.3
million in the first quarter of 1998 to $0.5 million in the first quarter of
1999. Gross margins decreased from 29.6% in the first quarter of 1998 to 25.2%
in the first quarter of 1999, primarily because of the decrease in sales and
production and the impact of these reduced volumes attributable to the
fixed-cost nature of Opportunity's business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses remained constant at $0.6 million in the first quarter
of 1999 compared to the first quarter of 1998. As a percentage of sales, these
expenses increased from 13.7% in the first quarter of 1998 to 26.6% in the first
quarter of 1999 because of the reduction in sales and the fixed-cost nature of
these expenses.
1998 COMPARED TO 1997
SALES. Sales increased $0.6 million, or 4.1%, from $15.6 million in 1997
to $16.2 million in 1998, primarily due to increased demand for commercial
building construction and an increase in average selling prices.
GROSS PROFIT. Gross profit remained constant at $4.9 million in 1998
compared to 1997. Gross margins decreased from 31.2% in 1997 to 30.2% in 1998
because increases in cement prices and other costs more than offset the higher
sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses remained constant at $2.4 million in 1998 compared to
1997. As a percentage of sales, these expenses decreased from 15.3% in 1997 to
14.5% in 1998 because of the increase in sales and the fixed-cost nature of
these expenses.
LIQUIDITY AND CAPITAL RESOURCES -- OPPORTUNITY
Opportunity's operations generated $0.2 million of net cash for the first
quarter of 1999. Cash used in financing activities was $0.4 million, including
repayments of debt of $0.1 million and distributions to
37
<PAGE>
stockholders of $0.3 million. At March 31, 1999, Opportunity had working capital
of $1.2 million and long-term debt of $0.9 million.
Opportunity's operations generated $2.4 million of net cash in 1998, an
increase of $0.2 million from 1997, primarily because of a $0.2 million increase
in cash paid on receivables. Opportunity used net cash in investing activities
of $0.5 million in 1998, substantially all of which it spent on property, plant
and equipment. In 1998, Opportunity used net cash of $2.1 million in its
financing activities, which reflected distributions to its stockholders of $2.3
million, partially offset by net borrowings of $0.2 million.
Opportunity expects to be able to fund its cash needs such as working
capital through cash it generates from its operations. It generally funds its
purchases of property, plant and equipment with internally generated cash or
debt. Opportunity maintains a $500,000 line of credit with a bank. There was no
outstanding balance under that line of credit at March 31, 1999. We will
terminate this line of credit when we acquire Opportunity.
RESULTS OF OPERATIONS -- BAER
Baer operates five ready-mixed concrete plants in northern New Jersey.
The following table sets forth selected statement of operations information
of Baer and that information as a percentage of sales for the periods indicated
(dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
------------------------------------------
1998 1999
-------------------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales................................ $ 2,084 100.0% $ 2,024 100.0%
Cost of goods sold................... 1,901 91.2% 1,870 92.4%
--------- --------- --------- ---------
Gross profit......................... 183 8.8% 154 7.6%
Selling, general and administrative
expenses........................... 286 13.7% 260 12.8%
Depreciation......................... 104 5.0% 137 6.8%
--------- --------- --------- ---------
Loss from operations................. $ (207) (9.9)% $ (243) (12.0)%
========= ========= ========= =========
</TABLE>
FIRST QUARTER 1999 COMPARED TO FIRST QUARTER 1998
SALES. Sales decreased $0.1 million, or 2.9%, from $2.1 million in the
first quarter of 1998 to $2.0 million in the first quarter of 1999, primarily
due to slightly lower sales volumes resulting from unfavorable weather
conditions in 1999.
GROSS PROFIT. Gross profit remained constant at $0.2 million in the first
quarter of 1999 compared to the first quarter of 1998. Gross margins decreased
from 8.8% in the first quarter of 1998 to 7.6% in the first quarter of 1999,
primarily because of slightly lower sales volumes and the impact of these
reduced volumes attributable to the fixed-cost nature of Baer's business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses remained constant at $0.3 million in 1999 compared to
1998. As a percentage of sales, these expenses decreased from 13.7% in the first
quarter of 1998 to 12.8% in the first quarter of 1999 because of a decrease in
owner's compensation that was partially offset by costs incurred in connection
with our acquisition of Baer.
LIQUIDITY AND CAPITAL RESOURCES -- BAER
Baer's operations generated $0.1 million of net cash for the first quarter
of 1999. Cash used in investing activities was $0.1 million in 1999, primarily
for the purchases of plant, property and equipment. Cash used in financing
activities was $1.2 million, including repayments of debt and other long-term
obligations of $1.1 million and advances to related parties of $0.1 million. At
March 31, 1999, Baer had a working capital deficit of $0.1 million and long-term
debt and other long-term obligations of $1.5 million.
Baer expects to be able to fund its cash needs such as working capital
through cash it generates from its operations. It generally funds its purchases
of property, plant and equipment with internally generated cash or debt. Baer
maintains a $350,000 line of credit with a bank with no outstanding balance at
March 31, 1999. We will terminate this line of credit when we acquire Baer.
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BUSINESS
GENERAL
We initially will serve all segments of the construction industry in the
San Francisco Bay area, the Sacramento metropolitan area, Washington, D.C. and
northern New Jersey. Our initial 26 concrete plants produced over 2.5 million
cubic yards of concrete in 1998. Our operations will consist principally of
formulating, preparing, delivering and placing ready-mixed concrete at the job
sites of our customers. We will provide services to reduce our customers'
overall construction costs by lowering the installed, or "in-place," cost of
concrete. These services will include the formulation of new mixtures for
specific design uses, on-site and lab-based product quality control and delivery
programs configured to meet customers' needs.
On a pro forma combined basis, our sales of $194.1 million in 1998
represented a 17.4% increase from our 1997 sales of $165.4 million, and our 1997
sales represented a 28.9% increase from our fiscal 1996 sales of $128.3 million.
In 1998, we estimate the following segments of the construction industry
accounted for the following approximate percentages of our pro forma combined
sales:
Commercial and industrial
construction......................... 44%
Residential construction............. 33%
Street and highway construction and
paving............................... 18%
Other public works and infrastructure
construction......................... 5%
---
Total........................... 100%
===
We believe our initial size will place us among the leading independent
ready-mixed concrete companies in the United States on the basis of annual
sales.
Given the large size and fragmentation of the ready-mixed concrete
industry, we believe numerous potential acquisition candidates exist both in the
markets we initially will serve and other large metropolitan, high-growth
markets. We intend to continue to make acquisitions to enhance our position in
existing markets and expand into new markets. We believe that a significant
consolidation opportunity exists for a company that can consistently offer
high-quality, value-added services to users of large volumes of ready-mixed
concrete.
INDUSTRY OVERVIEW
Annual usage of ready-mixed concrete in the United States is currently at a
record level and is projected to continue growing. According to the National
Ready-Mixed Concrete Association, total sales from production and delivery of
ready-mixed concrete in the United States grew from $17.6 billion in 1996 to
$19.3 billion in 1997, an increase of 9.7%, and to $21.3 billion in 1998, an
increase of 10.4%, and are expected to grow to $22.1 billion in 1999. Also
according to this industry association, the following segments of the
construction industry accounted for the following approximate percentages of
total sales of ready-mixed concrete in the United States in 1998:
Commercial and industrial
construction......................... 18%
Residential construction............. 22%
Street and highway construction and
paving............................... 32%
Other public works and infrastructure
construction......................... 28%
---
Total........................... 100%
===
Ready-mixed concrete is a versatile, low-cost manufactured material the
construction industry uses in substantially all its projects. It is a stone-like
compound that results from combining fine and coarse aggregates, such as sand,
gravel and crushed stone, with water, various admixtures and cement. Ready-mixed
concrete can be manufactured in thousands of variations which in each instance
may reflect a specific design use. Manufacturers of ready-mixed concrete
generally maintain less than one day's
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requirements of raw materials and must coordinate their daily material purchases
with the time-sensitive delivery requirements of their customers.
Ready-mixed concrete begins to harden when mixed and generally becomes
difficult to place within 60 to 90 minutes after mixing. This characteristic
generally limits the market for a permanently installed plant to an area within
a 25-mile radius of its location. Concrete manufacturers produce ready-mixed
concrete in batches at their plants and use mixer and other trucks to distribute
and place it at the job sites of their customers. These manufacturers generally
do not provide paving or other finishing services construction contractors or
subcontractors typically perform.
Manufacturers generally obtain contracts through local sales and marketing
efforts they direct at general contractors, developers and home builders. As a
result, local relationships are very important.
On the basis of information the National Ready-Mixed Concrete Association
has provided us, we estimate that, in addition to vertically integrated
manufacturers of cement and ready-mixed concrete, more than 3,500 independent
producers currently operate a total of approximately 5,300 plants in the United
States. Larger markets generally have numerous producers competing for business
on the basis of price, timing of delivery and reputation for quality and
service. We believe, on the basis of available market information, that the
typical ready-mixed concrete company is family-owned and has limited access to
capital, limited financial and technical expertise and limited exit strategies
for its owners. Given these operating constraints, we believe many ready-mixed
concrete companies are finding it difficult to both grow their businesses and
compete effectively against larger, more cost-efficient and technically capable
competitors. We believe these characteristics in our highly fragmented industry
present consolidation and growth opportunities for a company with a focused
acquisition program and access to low-cost capital.
Barriers to the start-up of a new ready-mixed concrete manufacturing
operation have historically been low. In recent years, however, public concerns
about the dust, noise and heavy mixer and other truck traffic associated with
the operation of ready-mixed concrete plants and their general appearance have
made obtaining the necessary permits and licenses required for new plants more
difficult. Delays in the regulatory process, coupled with the substantial
capital investment start-up operations entail, have substantially raised the
barriers to entry for those operations.
SIGNIFICANT FACTORS IMPACTING THE MARKET FOR READY-MIXED CONCRETE
On the basis of available industry information, we believe that between
1996 and 1998 ready-mixed concrete sales as a percentage of total construction
expenditures in the United States increased 13.2%. In addition to favorable
trends in the overall economy of the United States, we believe three significant
factors have been expanding the market for ready-mixed concrete in particular:
o the increased level of industry-wide promotional and marketing
activities;
o the development of new and innovative uses for ready-mixed
concrete; and
o the enactment of the federal legislation commonly called TEA-21.
INDUSTRY-WIDE PROMOTIONAL AND MARKETING ACTIVITIES. We believe industry
participants have only in recent years focused on and benefitted from
promotional activities to increase the industry's share of street and highway
and residential construction expenditures. Many of these promotional efforts
resulted from an industry-wide initiative called RMC 2000, a program that was
established in 1993 under the leadership of our chief executive officer, Eugene
P. Martineau, and has been adopted by the National Ready-Mixed Concrete
Association, the industry's largest trade organization. The principal goals of
RMC 2000 have been to (1) promote ready-mixed concrete as a building and paving
material and (2) improve the overall image of the ready-mixed concrete industry.
We believe RMC 2000 has been a catalyst for increased investment in concrete
promotional activities.
DEVELOPMENT OF NEW AND INNOVATIVE READY-MIXED CONCRETE
PRODUCTS. Ready-mixed concrete has many attributes that make it a highly
versatile construction material. In recent years, industry participants have
developed various product innovations, including:
40
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o concrete housing;
o precast modular paving stones;
o prestressed concrete railroad ties to replace wood ties;
o continuous-slab rail-support systems for rapid transit and
heavy-traffic intercity rail lines; and
o concrete bridges, tunnels and other structures for rapid
transit systems.
Other examples of successful innovations that have opened new markets for
ready-mixed concrete include:
o highway median barriers;
o highway sound barriers;
o paved shoulders to replace less permanent and increasingly
costly asphalt shoulders;
o parking lots providing a long-lasting and aesthetically
pleasing urban environment; and
o colored pavements to mark entrance and exit ramps and lanes
of expressways.
IMPACT OF TEA-21. The Federal Transportation Equity Act for the 21st
Century, commonly called TEA-21, is the largest public works funding bill in the
history of the United States. It became effective in June 1998 and provides a
$218 billion budget for federal highway, transit and safety spending for the
six-year period from 1998 through 2003. This represents a 43% increase over the
funding levels authorized under similar federal funding programs covering the
immediately preceding six-year period. In addition, because relatively more of
this funding is designated for use in maintenance and reconstruction projects
instead of new construction, we believe the ready-mixed concrete industry will
secure a greater percentage of the work than under previous federal highway
funding measures. Although road and highway construction and paving accounted
for only 18% of the sales of our initial businesses in 1998, we believe we
should benefit from the impact we expect TEA-21 will have on the overall demand
for ready-mixed concrete in the United States.
BUSINESS STRATEGY
Our objective is to expand the geographic scope of our operations and
become the leading value-added provider of ready-mixed concrete and related
services in each of our markets. We plan to achieve this objective by (1) making
acquisitions and (2) implementing a national operating strategy aimed at
increasing revenue growth and market share, achieving cost efficiencies and
enhancing profitability. We intend to manage our operations on a decentralized
basis to allow acquired businesses to focus on their existing customer
relationships and local strategy. Our executive management team will be
responsible for executing our company-wide strategy, including acquisition
planning, execution and integration and initiating and overseeing operational
improvements.
GROWTH THROUGH ACQUISITIONS. The significant costs and regulatory
requirements involved in building new plants make acquisitions an important
element of our growth strategy. We intend to implement an acquisition program
targeting opportunities for (1) expansion in our existing markets and (2)
entering new geographic markets in the United States.
o EXPANDING IN EXISTING MARKETS. We will seek to acquire other
well-established companies operating in our existing markets in order
to expand our market penetration. By expanding in existing markets
through acquisitions, we expect to realize various operating
synergies, including:
o increased market coverage;
o economies of scale in materials procurement;
o improved utilization and range of mixer trucks because of
access to additional plants;
o customer cross-selling opportunities; and
o reduced operating and overhead costs.
41
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We believe our three initial businesses in the San Francisco Bay area
provide a clear example of many of the market inefficiencies that
confront local, competing ready-mixed concrete manufacturers. On the
basis of industry information, we estimate that these businesses
realized a combined 30% share of their market. Among these businesses,
the average cost per yard of concrete delivered during 1998 varied by as
much as $1.00 and the average revenue earned per yard delivered varied
by as much as $4.35.
Our acquisition of the businesses in the San Francisco Bay area also
illustrates our acquisition strategy to expand operations in existing
markets which we intend to replicate in additional markets throughout
the United States. We believe that by properly allocating production and
mixer trucks, as required by shifting demand in a market, we can improve
the utilization rates of our plants and mixer trucks and maximize our
revenues per yard of concrete delivered.
o ENTERING NEW GEOGRAPHIC MARKETS. We will seek to enter new geographic
markets that have a balanced mix of residential, commercial, industrial
and public sector concrete consumption and have demonstrated adequate
sustainable demand and prospects for growth. In each new market we
enter, we initially will target for acquisition one or more leading
local or regional ready-mixed concrete companies that can serve as
platform businesses into which we can consolidate other ready-mixed
concrete operations. Important criteria for these acquisition candidates
will include historically successful operating results, established
customer relationships and superior operational management personnel,
whom we generally will seek to retain.
During the past several months, we have contacted the owners of a number
of ready-mixed concrete companies, several of whom have expressed
interest in selling their businesses to us. We are reviewing those
opportunities. We do not have any binding commitments or letters of
intent relating to any proposed acquisition, other than the binding
acquisition agreements relating to the six businesses we initially will
acquire. We cannot accurately predict the timing, size or success of our
acquisition efforts or our associated potential capital commitments. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources -- Combined."
IMPLEMENTATION OF A NATIONAL OPERATING STRATEGY. We intend to implement a
national operating strategy designed to (1) increase revenues and market share
through improved marketing and sales initiatives and enhanced operations and (2)
achieve cost efficiencies.
o IMPROVING MARKETING AND SALES INITIATIVES AND ENHANCING OPERATIONS. Our
basic operating strategy will be to emphasize the sale of value-added
product to customers who are more focused on reducing their installed,
or in-place, concrete costs than on the price per cubic yard of the
ready-mixed concrete they purchase. Key elements of our service-oriented
strategy include:
o providing corporate-level marketing and sales expertise;
o establishing company-wide quality control improvements;
o developing and implementing training programs that emphasize
successful marketing, sales and training techniques and the sale of
high-margin concrete mix designs; and
o investing in computer and communications technology at each of our
locations to improve communications, purchasing, accounting, load
dispatch, delivery efficiency and reliability and customer
relations.
o ACHIEVING COST EFFICIENCIES. We expect to reduce the total operating
expenses of the businesses we acquire by eliminating duplicative
administrative functions and consolidating other functions each business
performed separately prior to its acquisition. In addition, we believe
that, as we increase in size, we should experience reduced costs as a
percentage of net sales compared to those of the individual businesses
we acquire in such areas as:
o materials procurement;
o purchases of mixer trucks and other equipment, spare parts and
tools;
42
<PAGE>
o vehicle and equipment maintenance;
o financing terms;
o employee benefit plans; and
o insurance and other risk management programs.
PRODUCTS AND SERVICES
READY-MIXED CONCRETE. Our ready-mixed concrete products will consist of
proportioned mixes we prepare and deliver in unhardened plastic states for
placement and shaping into their designed forms. Selecting the optimum mix for a
job entails determining not only the ingredients that will produce the desired
permeability, strength, appearance and other properties of the concrete after it
has hardened and cured, but also the ingredients necessary to achieve a workable
consistency under the weather and other conditions at the job site. We believe
we can achieve product differentiation for the mixes we will offer because of
the variety of mixes we are able to produce, our volume production capacity and
our scheduling, delivery and placement reliability. We also believe we can
distinguish ourselves with our value-added service approach that emphasizes
reducing our customers' overall construction costs by lowering the installed, or
in-place, cost of concrete.
From a contractor's perspective, the in-place cost of concrete includes
both the amount paid to the ready-mixed concrete manufacturer and the internal
costs associated with the labor and equipment the contractor provides. A
contractor's unit cost of concrete is often only a small component of the total
in-place cost that takes into account all the labor and equipment costs required
to place and finish the ready-mixed concrete, including the cost of additional
labor and time lost due to substandard products or delivery delays. By carefully
designing proper mixes and using recent advances in mixing technology, we can
assist our customers in reducing the amount of reinforcing steel and labor
required in various applications.
We will provide a variety of services in connection with our sale of
ready-mixed concrete which can help reduce our customers' in-place cost of
concrete. These services will include:
o production of new formulations and alternative product
recommendations that reduce labor and materials costs;
o quality control, through automated production and laboratory
testing, that ensures consistent results and minimizes the need to
correct completed work;
o automated scheduling and tracking systems that ensure timely
delivery and reduce the downtime incurred by the customer's
finishing crew; and
o innovative pricing discounts that are designed to minimize the time
the customer keeps our trucks on site, thereby resulting in a lower
price to the customer as well as a more efficient use of the
customer's crews and equipment.
We will produce ready-mixed concrete by combining the desired type of
cement, sand, gravel and crushed stone with water and typically one or more
admixtures. These admixtures, such as chemicals, minerals and fibers, determine
the usefulness of the product for particular applications.
We will use a variety of chemical admixtures to achieve one or more of five
basic purposes:
o relieve internal pressure and increase resistance to cracking in
subfreezing weather;
o retard the hardening process to make concrete more workable in hot
weather;
o strengthen concrete by reducing its water content;
o accelerate the hardening process and reduce the time required for
curing; and
o facilitate the placement of concrete having a low water content.
We frequently will use various mineral admixtures as supplementary
cementing materials to alter the permeability, strength and other properties of
concrete. These materials include fly ash, ground granulated blast-furnace slag
and silica fume.
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We also will use fibers, such as steel, glass and synthetic and carbon
filaments, as an additive in various formulations of concrete. Fibers help to
control shrinkage cracking, thus reducing permeability and improving abrasion
resistance. In many applications, fibers replace welded steel wire and
reinforcing bars. Relative to the other components of ready-mixed concrete,
these additives generate comparatively high margins.
OTHER PRODUCTS. We will produce precast concrete products at our Santa
Rosa, California plant. These products include specialty engineered structures,
custom signage and curb inlets. In some locations, we will also sell
concrete-related building materials and supplies to small residential
contractors and large construction companies. These products include bagged
cement, rebar, wire mesh, concrete blocks, framing forms and various types of
concrete and masonry finishing tools.
Our pro forma combined sales from the sale of precast concrete products and
other concrete-related building materials and supplies in 1998 totaled
approximately $13.4 million, or approximately 7.0% of our total pro forma
combined sales for 1998.
OPERATIONS
The businesses we initially will acquire have made substantial capital
investments in equipment, systems and personnel at their respective plants to
facilitate continuous multi-customer deliveries of highly perishable products.
In any given market, we may maintain a number of plants whose production we
centrally coordinate to meet customer production requirements. We must be able
to constantly adapt to continually changing delivery schedules.
Our ready-mixed concrete plants will consist of permanent installations and
portable facilities. Several factors govern the choice of plant type, including:
o capital availability;
o production consistency requirements; and
o daily production capacity requirements.
A wet batch plant generally costs more, but yields greater consistency in
the concrete produced and has greater daily production capacity, than a dry
batch plant. We believe that a wet batch plant having an hourly capacity of 250
cubic yards currently would cost approximately $1.5 million to build, while a
dry batch plant having the same capacity currently would cost approximately $0.7
million to build. Initially, we will operate 12 wet batch plants and 14 dry
batch plants.
The market primarily will drive our future plant construction decisions.
The relevant market factors include:
o the expected production demand for the plant;
o the expected types of projects the plant will service; and
o the desired location of the plant.
Generally, plants intended primarily to serve high-volume, commercial or public
works projects will be wet batch plants, while plants intended primarily to
serve low-volume, residential construction projects generally will be dry batch
plants. From time to time, we may also use portable plants, which include both
wet batch and dry batch facilities, to service large, long-term jobs and jobs in
remote locations.
We will produce ready-mixed concrete in batches. The batch operator in a
dry batch plant simultaneously loads the dry components of stone, sand and
cement with water and admixtures in a mixer truck that begins the mixing process
during loading and completes that process while driving to the job site. In a
wet batch plant, the batch operator blends the dry components and water in a
plant mixer from which he loads the already mixed concrete into the mixer truck,
which leaves for the job site promptly after loading.
Mixer trucks slowly rotate their loads on route to job sites in order to
maintain product consistency. A mixer truck typically has a load capacity of
nine cubic yards, or approximately 18 tons, and a useful life of 12 years. After
eight years, some components of the mixer trucks require refurbishment. A new
truck of this
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size currently costs approximately $125,000. Initially, we will operate a fleet
of approximately 380 mixer trucks.
In our manufacture and delivery of ready-mixed concrete, we will emphasize
quality control, pre-job planning, customer service and coordination of supplies
and delivery. The businesses we initially will acquire often obtain purchase
orders for ready-mixed concrete months in advance of actual delivery to a job
site. A typical order contains various specifications that the contractor
requires the concrete to meet. After receiving the specifications for a
particular job, these businesses utilize computer modeling, industry data and
data from previous similar jobs to formulate a variety of mixtures of cement,
aggregates, water and admixtures which will meet or exceed the contractor's
specifications. These businesses perform testing to determine which mix design
is most appropriate to meet the required specifications. The test results enable
them to select the mixture that has the lowest cost and meets or exceeds the job
specifications. The testing center creates and maintains a project file that
details the mixture to be used when the concrete for the job is actually
prepared. For quality control purposes, the testing center is also responsible
for maintaining batch samples of concrete that has been delivered to a job site.
We will use computer modeling to prepare bids for particular jobs based on
the size of the job, location, desired margin, cost of raw materials and the
design mixture identified in our testing process. If the job is large enough, we
will obtain quotes from our suppliers as to the cost of raw materials we will
use in preparing the bid. Once we obtain a quotation from our suppliers, the
price of the raw materials for the specified job is informally established.
Several months may elapse from the time a contractor has accepted our bid until
actual delivery of the ready-mixed concrete begins. During this time, we will
maintain regular communication with the contractor concerning the status of the
job and any changes in the job's specifications in order to coordinate the
multi-sourced purchases of cement and other materials we will need to fill the
job order and meet the contractor's delivery requirements. We must confirm that
our customers are ready to take delivery of manufactured product throughout the
placement process. On any given day, a particular plant may have production
orders for dozens of customers at various locations throughout its area of
operation. To fill an order:
o the dispatch office coordinates the timing and delivery of the
concrete to the job site;
o a load operator supervises and coordinates the receipt of the
necessary raw materials and operates the hopper that dispenses
those materials into the appropriate storage bins;
o a batch operator prepares the specified mixture from the order and
oversees the loading of the mixer truck with either dry ingredients
and water in a dry batch plant or the already-mixed concrete in a
wet batch plant; and
o the driver of the mixer truck delivers the load to the job site,
places the load and, after washing the truck, departs at the
direction of the dispatch office.
The central dispatch system tracks the status of each mixer truck as to
whether a particular truck is:
o loading concrete;
o in route to a particular job site;
o on the job site;
o placing concrete;
o being washed; or
o in route to a particular plant.
The system is continuously updated via signals received from the individual
truck operators as to their status. In this manner, the dispatcher is able to
determine the optimal routing and timing of subsequent deliveries by each mixer
truck and to monitor the performance of each driver.
A plant manager oversees the operation of each plant. Our employees also
will include:
o maintenance personnel who perform routine maintenance work
throughout our plants;
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o a full-time staff of mechanics who perform substantially all the
maintenance and repair work on our vehicles;
o testing center staff who prepare mixtures for particular job
specifications and maintain quality control;
o various clerical personnel who are responsible for the day-to-day
operations; and
o sales personnel who are responsible for identifying potential
customers and maintaining existing customer relationships.
We will generally operate on a single shift with some overtime operation during
the construction season. On occasion, however, we may have projects that require
deliveries "around the clock."
CEMENT AND RAW MATERIALS
We will obtain most of the materials necessary to manufacture ready-mixed
concrete at each of our facilities on a daily basis. These raw materials include
cement, which is a manufactured product, stone, gravel and sand. Each plant
typically maintains an inventory level of these materials sufficient to satisfy
its operating needs for one day or less. Cement represents the highest cost
material used in manufacturing a cubic yard of ready-mixed concrete, while the
combined cost of the stone, gravel and sand used is slightly less than the
cement. In each of our markets, we will purchase each of these materials from
any one of several suppliers.
SALES AND MARKETING
General contractors typically select their suppliers of ready-mixed
concrete. In large, complex projects, an engineering firm or division within a
state transportation or public works department may influence the purchasing
decision, particularly where the concrete has complicated design specifications.
In those projects and in government-funded projects generally, the general
contractor or project engineer usually awards supply orders on the basis of
either direct negotiation or competitive bidding. We believe the purchasing
decision in many cases ultimately is relationship-based. Our marketing efforts
will target general contractors, design engineers and architects whose focus
extends beyond the price of ready-mixed concrete to product quality and
consistency and reducing their in-place cost of concrete.
As of May 1, 1999, the businesses we initially will acquire collectively
employed approximately 25 full-time sales persons. We intend to increase the
size of that sales staff. We also intend to develop and implement training
programs to increase the marketing and sales expertise and technical abilities
of that staff. Our goal is to create a sales force whose service-oriented
approach will appeal to our targeted prospective customers and differentiate us
from our competitors.
CUSTOMERS
In 1998, the businesses we initially will acquire sold concrete to more
than 2,500 different customers, and no single customer or project accounted for
more than 4% of their combined sales.
These businesses rely heavily on repeat customers. We estimate that repeat
customer sales in 1998 accounted for approximately 85% of their combined sales.
Management and dedicated sales personnel at each of these businesses have been
responsible for developing and maintaining successful long-term relationships
with key customers. We believe that by operating in more geographic markets, we
will be in a better position to market to and service large nationwide and
regional contractors.
TRAINING AND SAFETY
Our future success will depend, in part, on the extent to which we are able
to attract, retain and motivate qualified employees. We believe that our ability
to do so will depend on the quality of our recruiting, training, compensation
and benefits, the opportunities we afford for advancement and our safety record.
Historically, the businesses we will initially acquire have supported and funded
continuing education programs for their employees. We intend to continue and
expand these programs. We will require all field employees to attend periodic
safety training meetings and all drivers to participate in training
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seminars followed by certification testing. We expect to hire a safety director
who will supervise a unified, company-wide safety program.
COMPETITION
The ready-mixed concrete industry is highly competitive. Our competitive
position in a given market will depend largely on the location and operating
costs of our ready-mixed concrete plants and prevailing prices in that market.
Price is the primary competitive factor among suppliers for small or simple
jobs, principally in residential construction, while timeliness of delivery and
consistency of quality and service as well as price are the principal
competitive factors among suppliers for large or complex jobs. Our competitors
will range from small, owner-operated private companies to subsidiaries or
operating units of large, vertically integrated cement manufacturing and
concrete products companies. Competitors having lower operating costs than we do
or having the financial resources to enable them to accept lower margins than we
do will have a competitive advantage over us for jobs that are particularly
price-sensitive. Competitors having greater financial resources to build plants
in new areas or pay for acquisitions also will have competitive advantages over
us.
EMPLOYEES
At May 15, 1999, the businesses we initially will acquire had approximately
90 salaried employees, including executive officers, management personnel, sales
personnel, technical personnel, administrative staff and clerical personnel, and
approximately 515 hourly personnel generally employed on an as-needed basis,
including 400 truck drivers. The number of employees fluctuates depending on the
number and size of projects ongoing at any particular time, which may be
impacted by variations in weather conditions throughout the year.
At May 15, 1999, approximately 450 of those employees were represented by
labor unions having collective bargaining agreements with five of the businesses
we initially will acquire. Generally, these agreements have multiyear terms and
expire on a staggered basis. Under these agreements, the businesses pay
specified wages to their covered employees, observe designated workplace rules
and make payments to multi-employer pension plans and employee benefit trusts
rather than administering the funds on behalf of their employees.
Bay Cities' collective bargaining agreement with Operating Engineers Local
Union No. 3 for the Sacramento Area expires June 30, 1999 and its collective
bargaining agreement with Chauffeurs, Teamsters and Helpers Local Union No. 150
expires July 1, 1999. These contracts cover approximately 60 employees. We are
negotiating new contracts with these unions and expect the new contracts will be
in place before the existing contracts expire.
None of the businesses we initially will acquire has experienced any
strikes or significant work stoppages in the past 10 years. The managements of
these businesses believe their relationships with their employees and union
representatives are satisfactory.
FACILITIES AND EQUIPMENT
We initially will operate a fleet of approximately 380 owned and leased
mixer trucks and 195 other vehicles. Our own mechanics will service most of the
fleet. We believe these vehicles are generally well-maintained and adequate for
our initial operations. The average age of the mixer trucks is approximately six
years.
When this offering closes, our corporate headquarters will be located in
Houston, Texas. The businesses we initially will acquire collectively maintain
office, maintenance and/or sales operations at a total of six sites located in:
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o the San Francisco Bay area;
o the Sacramento metropolitan area;
o Washington, D.C.; and
o northern New Jersey.
These businesses also operate batch plants at 21 sites scattered throughout
their prime operating regions.
The chart below summarizes the operating facilities we initially will
acquire. We believe that these facilities are sufficient for our immediate
needs. See "Certain Transactions."
<TABLE>
<CAPTION>
OWNED/
LOCATION TYPE OF FACILITY LEASED 1998 VOLUME
- ------------------------------------- ---------------------------- ----------- ------------
<S> <C> <C> <C> <C>
(CUBIC
YARDS)
Byron, CA............................ 2 Dry Batch Plants Owned 95,195
Cameron Park, CA..................... Dry Batch Plant Owned 59,269
Elk Grove, CA........................ Dry Batch Plant Owned 45,749
Hayward, CA.......................... Wet Batch Plant Owned 219,721
Lincoln, CA.......................... Dry Batch Plant Leased 69,977
Oakland, CA.......................... Wet Batch Plant Leased 89,017
Pleasanton, CA....................... Wet Batch Plant/ Leased 166,352
Dry Batch Plant
Redwood City, CA..................... Dry Batch Plant Leased 76,272
Rio Linda, CA........................ 2 Dry Batch Plants Owned 115,765
San Jose, CA......................... 3 Wet Batch Plants/2 Dry 4 Owned 766,498
Batch Plants 1 Leased
Santa Rosa, CA....................... Cast Products Facility Leased N/A
South San Francisco, CA.............. 2 Wet Batch Plants Owned 300,827
Walnut Creek, CA..................... Wet Batch Plant Leased 136,235
Bernardsville, NJ.................... Dry Batch Plant Leased 55,892
Lake Hopatcong, NJ................... Dry Batch Plant Leased 29,809
Roseland, NJ......................... 2 Wet Batch Plants/ Leased 100,606
Dry Batch Plant
Washington, D.C...................... Wet Batch Plant Leased 230,276
------------
Total........................... 2,557,460
============
</TABLE>
The leases referred to in the table above have terms that expire at various
times ranging from 2000 to 2020.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
A wide range of federal, state and local laws will apply to our operations,
including such matters as:
o land usage;
o street and highway usage;
o noise levels; and
o health, safety and environmental matters.
In many instances, we will be required to have certificates, permits or
licenses in order to conduct our business. Failure to maintain required
certificates, permits or licenses or to comply with applicable laws could result
in substantial fines or possible revocation of our authority to conduct some of
our operations. Delays in obtaining approvals for the transfer or grant of
certificates, permits or licenses, or failure to obtain new certificates,
permits or licenses, could impede the implementation of our acquisition program.
Environmental laws that will impact our operations include those relating
to air quality, solid waste management and water quality. Environmental laws are
complex and subject to frequent change. These
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laws impose strict liability in some cases without regard to negligence or
fault. Sanctions for noncompliance may include revocation of permits, corrective
action orders, administrative or civil penalties and criminal prosecution. Some
environmental laws provide for joint and several strict liability for
remediation of spills and releases of hazardous substances. In addition,
businesses may be subject to claims alleging personal injury or property damage
as a result of alleged exposure to hazardous substances, as well as damage to
natural resources. These laws also may expose us to liability for the conduct of
or conditions caused by others, or for acts which complied with all applicable
laws when performed. We are conducting Phase I investigations to assess
environmental conditions on substantially all the real properties we initially
will own or lease and we have engaged an independent environmental consulting
firm in that connection. We have not identified any environmental concerns we
believe are likely to have a material adverse effect on our business, financial
condition or results of operations, but you have no assurance material
liabilities will not occur. You also have no assurance our compliance with
amended, new or more stringent laws, stricter interpretations of existing laws
or the future discovery of environmental conditions will not require additional,
material expenditures. OSHA regulations establish requirements our training
programs must meet.
The businesses we initially will acquire have all material permits and
licenses required to conduct their operations and are in substantial compliance
with applicable regulatory requirements relating to their operations. Their
capital expenditures relating to environmental matters were not material on a
pro forma combined basis in 1998. We do not currently anticipate any material
adverse effect on our business or financial position as a result of our future
compliance with existing environmental laws controlling the discharge of
materials into the environment.
LEGAL PROCEEDINGS AND INSURANCE
The businesses we initially will acquire have been from time to time, and
currently are, subject to claims and litigation brought by employees, customers
and third parties for personal injuries, property damages, product defects and
delay damages, that have, or allegedly have, resulted from the conduct of their
operations. Currently, they do not have pending any litigation that, separately
or in the aggregate, if adversely determined, we believe would have a material
adverse effect on our business, financial condition or results of operations. We
expect that in the future we will from time to time be a party to litigation or
administrative proceedings which arise in the normal course of our business.
Our operations will often involve providing blends of ready-mixed concrete
that are required to meet building code or other regulatory requirements and
contractual specifications for durability, stress-level capacity, weight-bearing
capacity and other characteristics. If we fail or are unable to provide product
in accordance with these requirements and specifications, claims may arise
against us or our reputation could be damaged. Although the businesses we
initially will acquire have not experienced any material claims of this nature
in recent periods, we may experience such claims in the future. In addition, our
employees will perform a significant portion of their work moving and storing
large quantities of heavy raw materials, driving large mixer trucks in heavy
traffic conditions or placing concrete at construction sites or in other areas
that may be hazardous. These operating hazards can cause personal injury and
loss of life, damage to or destruction of property and equipment and
environmental damage. We will maintain insurance coverage in amounts and against
the risks we believe accord with industry practice, but this insurance 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.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning our directors,
executive officers and key management employees and the persons who will become
our directors following the closing of this offering:
<TABLE>
<CAPTION>
AGE
AS OF
MAY 15,
NAME 1999 POSITION DIRECTOR CLASS
- -------------------------------------- --------- -------------------------------------- --------------
<S> <C> <C> <C>
Eugene P. Martineau................... 59 Director, Chief Executive Officer and I
President
Michael W. Harlan..................... 38 Director, Senior Vice President, Chief I
Financial Officer and Secretary
Terry Green........................... 51 Vice President -- Operational
Integration*
Charles W. Sommer..................... 34 Corporate Controller*
John R. Colson........................ 51 Director(3) II
Peter T. Dameris...................... 39 Director(3) I
Vincent D. Foster..................... 42 Director and Chairman of the II
Board(1)(2)
William T. Albanese................... 55 Director(3) and President of Central III
Michael D. Mitschele.................. 42 Director(3) and President of Baer II
Murray S. Simpson..................... 61 Director(3) III
Neil J. Vannucci...................... 62 Director(3) and President of Bay III
Cities
Robert S. Walker...................... 55 Director(3) and President of Walker's III
</TABLE>
- ------------
* Key Employee.
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) Appointment as a director will become effective when this offering closes.
EUGENE P. MARTINEAU has served as our Chief Executive Officer and President
since September 1998 and as one of our directors since March 1999. Mr. Martineau
has over 30 years of experience in the ready-mixed concrete industry. From 1992
until joining us, he was Executive Vice-President for the Concrete Products
Group of Southdown, Inc., a publicly traded, integrated cement and ready-mixed
concrete company. From April 1990 through March 1992, Mr. Martineau was
Vice-President and General Manager of Southdown's Florida Mining and Materials.
Prior thereto, Mr. Martineau held various executive management positions with
Allied Ready Mix, Inc., Ready Mix Concrete Company, the Lehigh Portland Cement
Company and Allied Products Company. Since 1996, Mr. Martineau has served as a
director and member of the Executive Committee of the National Ready-Mixed
Concrete Association. He also served as chairman of the NRMCA's Promotion
Committee from 1997 through March 1999. From 1994 through 1997, Mr. Martineau
served as the National Director of RMC 2000.
MICHAEL W. HARLAN has served as our Senior Vice President, Chief Financial
Officer and Secretary since September 1998 and as one of our directors since
March 1999. Mr. Harlan served as Senior Vice President and Chief Financial
Officer of Apple Orthodontix, Inc., a publicly traded orthodontic practice
management company from March 1997 to August 1998. From December 1996 to
February 1997, Mr. Harlan served as a consultant to Apple Orthodontix on
financial and accounting matters. From April 1991 through December 1996, Mr.
Harlan held various positions in the finance and acquisitions departments,
including as Treasurer from September 1993 to December 1996, of Sanifill, Inc.,
a publicly traded international environmental services company USA Waste
Services, Inc. acquired in 1996. From May 1982 through April 1991, he held
various positions in the tax and corporate financial consulting services
division
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<PAGE>
of Arthur Andersen LLP, where he had been a manager since July 1986. Mr. Harlan
is a certified public accountant.
TERRY GREEN will assume the position of Vice President -- Operational
Integration when this offering closes. Mr. Green has managed the operations of
ready-mixed concrete producers and other transportation related businesses for
over 20 years. Since August 1998, he was Vice President of Maintenance for
Armellini Express Lines, Inc. From January 1989 until June 1998, Mr. Green
served as Director of Maintenance, Equipment and Purchasing for the concrete
products division of Southdown, Inc., a publicly traded, integrated cement and
ready-mixed concrete company. Prior thereto, Mr. Green held various positions
with Kraft, Inc. from 1980 until 1989, serving as Private Fleet Operations
Manager from 1988 until 1989.
CHARLES W. SOMMER has served as our Corporate Controller since March 1999.
From February 1997 through March 1999, Mr. Sommer was Corporate Controller of
Apple Orthodontix, Inc., a publicly traded orthodontic practice management
company. From February 1996 through January 1997, Mr. Sommer was the Corporate
Controller of Metamor Worldwide, Inc., a publicly traded provider of temporary
services. From November 1993 through February 1996, Mr. Sommer was Assistant
Corporate Controller of Sanifill, Inc., and from July 1986 through November 1993
he held various positions in the audit division of Arthur Andersen LLP, where he
had been a manager since July 1990. Mr. Sommer is a certified public accountant.
JOHN R. COLSON has served as Chief Executive Officer of Quanta Services,
Inc. since December 1997. From 1991 to February 1998, he served as President of
PAR Electrical Contractors, Inc., a company that Quanta Services, Inc. acquired
in February 1998. Mr. Colson is also a director of Quanta Services, Inc.
PETER T. DAMERIS has served as Executive Vice President of Corporate
Development and Secretary of Metamor Worldwide, Inc. since 1998, where he also
served as Senior Vice President, General Counsel and Secretary from September
1996 to 1998 and as Vice President, General Counsel and Secretary from January
1995 to September 1996. Before joining Metamor Worldwide, Inc. in January 1995,
Mr. Dameris was a partner with the law firm of Cochran, Rooke and Craft, LLP,
with whom he had been associated since June 1989.
VINCENT D. FOSTER has been one of our directors since August 1998. Mr.
Foster is a Managing Director of Main Street Merchant Partners II, L.P., a
merchant banking firm. Since February 1998, Mr. Foster has served as a
nonexecutive Chairman of the Board of Directors of Quanta Services, Inc., a
consolidator in the electrical contracting industry which Main Street organized.
From September 1988 through October 1997, Mr. Foster was a partner of Andersen
Worldwide and Arthur Andersen LLP, where he was the director of the corporate
finance practice and the mergers and acquisitions practice in the southwestern
United States. Mr. Foster specialized in structuring and executing "roll-up"
transactions and in providing merger and acquisition and corporate finance
advisory services to clients in consolidating industries. Mr. Foster holds a
J.D. degree and is a certified public accountant.
WILLIAM T. ALBANESE has been President of Central since 1987. Previously he
served in various other capacities for Central since 1966.
MICHAEL D. MITSCHELE has been President of Baer since 1986 and has been an
employee of Baer in various other positions since 1972. Mr. Mitschele is a
founding board member of the New Jersey Concrete and Aggregate Association and
currently serves as its Vice Chairman. He has been a member of the NRMCA for
over 20 years and has held several leadership positions with the NRMCA,
including service as a member of its board of directors for two terms, Chairman
of its membership committee and visionary leadership taskforce and service on
its financial management committee.
MURRAY S. SIMPSON is a founding member of American Ready-Mix, L.L.C., which
was formed in 1998. He is also a stockholder of Opportunity. From 1975 until
1991, Mr. Simpson served as President and Chief Executive Officer of Super
Concrete Corporation. Following that company's merger with British construction
materials producer Evered, plc, which is now known as Aggregate Industries, plc,
Mr. Simpson served in various roles, including Executive Vice President,
Corporate Development, for its United States operations and Director and Counsel
for its mid-Atlantic area subsidiary, Bardon, Inc. Mr. Simpson has
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<PAGE>
served on the board of directors of the NRMCA for 19 years and as chairman of
the board from 1997 to 1998. He has also served as a director of the National
Aggregates Association.
NEIL J. VANNUCCI has been President of Bay Cities since 1995. Previously,
he served as Vice President of Bay Cities since October 1982. Before joining Bay
Cities, Mr. Vannucci was a self-employed, registered architect. Mr. Vannucci
also serves as a Director of First National Bank of Northern California, a
publicly traded financial institution.
ROBERT S. WALKER has been President and Chief Operating Officer of Walker's
since 1965.
When this offering closes, our board of directors will have three director
classes, each of which, following a transitional period, will have a three-year
term, with one class being elected each year at that year's annual stockholders'
meeting. The initial term of the Class I directors will expire at the 2000
meeting, the initial term of the Class II directors will expire at the 2001
meeting, and the initial term of the Class III directors will expire at the 2002
meeting.
DIRECTOR COMPENSATION
We will initially pay each director who is not one of our employees fees of
$1,000 for each board meeting and $500 for each board committee meeting the
director attends, unless the committee meeting is held on the same day as a
board meeting. We will also periodically grant these nonemployee directors
options to purchase shares of common stock pursuant to our incentive plan. See
"-- 1999 Incentive Plan -- Nonemployee Director Awards." 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.
EXECUTIVE AND OTHER COMPENSATION
We did not pay any compensation to our executive officers prior to January
1999. We anticipate that during 1999 our most highly compensated executive
officers and their annualized base salaries will be: Eugene P. Martineau --
$150,000; and Michael W. Harlan. Effective when this offering closes, we will
grant these executive officers incentive-plan options to purchase the following
numbers of shares of common stock: Mr. Martineau -- 225,000; and Mr. Harlan --
175,000. The initial exercise price of those options will be the initial per
share price to the public the front cover page of this prospectus sets forth.
Those options will vest in 25% annual increments, beginning on the first
anniversary of the date this offering closes. See "-- 1999 Incentive Plan."
When this offering closes, we will begin paying the following annual
minimum base salaries to the following director-employees: Mr.
Albanese -- $200,000; Mr. Mitschele -- $125,000; Mr. Vannucci -- $200,000; and
Mr. Walker -- $200,000.
EMPLOYMENT AGREEMENTS
We will enter into employment agreements with Messrs. Martineau, and Harlan
which will become effective when this offering closes. Each of these agreements
will:
o provide for an annual minimum base salary;
o entitle the employee to participate in all our compensation plans
in which our executive officers participate; and
o have an initial term of three years.
Each agreement is subject to an automatic daily extension beginning in the
third year of the initial term so that, beginning with that third year, the
agreement provides for a continuous one-year term, subject to the right of
either party to terminate the employee's employment at any time. If we terminate
that employment without cause or the employee terminates that employment for
good reason, we generally must pay to the employee monthly for the longer of (1)
the balance of the initial term or (2) one year following the date the notice of
termination is given, the amount equal to one-twelfth of the employee's average
annual cash
52
<PAGE>
compensation during the two years preceding the date the notice of termination
is given. In each agreement, "good reason" includes our failure to nominate the
employee for reelection to our board of directors at the 2000 annual meeting of
our stockholders and a change of control of our company. If a change of control
of the Company occurs, the employee will be entitled to terminate his employment
at any time during the 365-day period following that change of control and
receive a lump-sum payment equal to the base salary that would be payable to the
employee over the remainder of the employee's initial term of employment or, if
longer, 24 months. Each of these agreements also will provide for benefits if
the employee dies or becomes disabled. If the employment of the employee
terminates for any reason other than for cause by us or for good reason by the
employee, that termination will not affect the term or exercisability of any
incentive plan stock options that employee holds. Copies of these agreements are
exhibits to the registration statement of which this prospectus is a part.
We will enter into similar employment agreements with senior managers of
each of the businesses we initially will acquire, including Messrs. Albanese,
Mitschele, Vannucci and Walker.
1999 INCENTIVE PLAN
The following summarizes the principal provisions of our incentive plan, a
copy of which is an exhibit to the registration statement of which this
prospectus is a part.
GENERAL. The incentive plan, which our board and then-current stockholders
approved in March 1999, aims to (1) attract and retain the services of key
employees and qualified independent directors and contractors and (2) encourage
and stimulate in those persons the sense of proprietorship and self-interest in
our development and financial success by making performance-based awards tied to
our growth and performance.
We have reserved 2,000,000 shares of common stock for use under the
incentive plan. Beginning with the first calendar quarter after the closing of
this offering and continuing each quarter thereafter, the number of shares
available for that use will be the greater of 2,000,000 shares or 15% of the
number of shares of common stock outstanding on the last day of the immediately
preceding calendar quarter. Awarded shares that we do not issue again will
become available for awards.
The following persons are eligible for awards:
o 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;
o nonemployee directors; and
o nonemployee consultants and other independent contractors who
provide services to us.
The incentive plan generally treats awards to employees and awards to
independent contractors alike, and the following discussion of employee awards
applies, except as noted, equally to awards to independent contractors. For
purposes of Section 16(b) of the Securities Exchange Act of 1934, 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 from that
section which Exchange Act Rule 16b-3 provides.
The compensation committee of the board of directors will administer the
incentive plan, except as it applies to nonemployee directors. This committee
will consist of at least two nonemployee directors. It has the exclusive power
to:
o administer the incentive plan and take all actions the plan
specifically contemplates or are necessary or appropriate in the
administration of the plan;
o interpret the plan;
o adopt such rules, regulations and guidelines as it deems necessary,
proper or in keeping with the objectives of the plan.
This committee may, in its discretion:
o extend or accelerate the exercisability of, accelerate the vesting
of or eliminate or make less restrictive any restrictions contained
in any employee award;
53
<PAGE>
o waive any restriction or other provision of the incentive plan or
in any employee award;
o amend or modify any employee award in any manner that is (1) not
adverse to the holder of that award or (2) consented to by that
holder; or
o delegate some of its duties under the plan to our senior executive
officers.
EMPLOYEE AWARDS. Employee awards may be in the form of:
o options to purchase a specified number of shares of common stock at
a specified price which may be denominated in either or both of
common stock or units denominated in common stock;
o stock appreciation rights, or SARs, to receive a payment, in cash
or common stock, equal to the fair market value or other specified
value of a number of shares of common stock on the rights exercise
date over a specified strike price;
o restricted or unrestricted stock awards consisting of common stock
or units denominated in common stock;
o cash awards; and
o performance awards denominated in cash, common stock, units
denominated in common stock or any other property which are subject
to the attainment of one or more performance goals.
Subject to parameters the incentive plan sets forth, the compensation
committee will determine the recipients of employee awards and the terms,
conditions and limitations applicable to each employee award, which conditions
may, but need not, include continuous service, achievement of specific business
objectives or goals, increases in specified indices or other comparable measures
of performance.
The incentive plan parameters respecting employee awards include the
following:
o an option may be either an incentive stock option that meets, or a
nonqualified stock option that does not meet, the requirements of
Section 422 of the Internal Revenue Code and, unless the
compensation committee specifies otherwise, must have an exercise
price of not less than the fair market value of a share of common
stock on the date of grant;
o the compensation committee must establish the performance goal or
goals for each employee performance award while it is substantially
uncertain whether the goal or goals will be met and prior to the
earlier to occur of (1) 90 days after the commencement of the
performance measurement period for that award and (2) the elapse of
25% of that period; and
o the Committee may not grant any employee: (1) during any one-year
period, (a) options or SARs covering more than 250,000 shares of
common stock or (b) stock awards covering or relating to more than
10,000 shares of common stock (the limitations referred to in this
clause (1) being the "stock-based awards limitations"); or (2)
cash awards, including performance awards denominated in cash,
having a value determined on the date of grant in excess of $1.0
million.
Except for the parameter respecting the initial exercise price of options, these
parameters do not apply to independent-contractor awards.
The exercise price of an option may be paid with cash or, according to
methods determined by the committee, with common stock or with any other
employee award the exerciser has owned for at least six months.
We are currently developing a performance-based annual cash bonus program
under the incentive plan. Participants in that program would be eligible to earn
bonuses equal to specified percentages of their annual base salaries.
NONEMPLOYEE DIRECTOR AWARDS. Nonemployee director awards will be granted
either automatically or at the option of nonemployee directors in lieu of
director's fees. When this offering closes, we will automatically grant each
nonemployee director who is not an owner of a business we initially will acquire
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<PAGE>
nonqualified stock options to purchase 10,000 shares of common stock. In
addition, on the first business day of the month following the date on which we
hold each annual meeting of our stockholders, we will automatically grant each
nonemployee director nonqualified stock options to purchase 5,000 shares of
common stock. The board of directors may increase subsequent annual director
awards to not more than 15,000 shares. The incentive plan also provides for the
grant of prorated option awards to persons who become nonemployee directors
otherwise than at an annual meeting of stockholders.
Each nonqualified stock option granted to a nonemployee director will:
o have a five-year term;
o have a cash exercise price per share equal to the fair market value
of a share of common stock on the date of its grant; and
o become exercisable on the date that is 180 days after the date of
grant.
The initial price to the public in this offering will be the exercise price of
the nonemployee-director options we will grant when this offering closes.
Each year, any nonemployee director may elect to receive a restricted award
of common stock in lieu of the director's fees he or she otherwise would receive
during the next year.
OTHER PROVISIONS. If the compensation committee approves, payments in
respect of employee awards may be deferred by any employee. At the discretion of
the the compensation committee, an employee may be offered an election to
substitute an award for another award or awards of the same or different type.
We will have the right to deduct applicable taxes from any employee award
payment and withhold, at the time of delivery or vesting of cash or shares of
common stock under the incentive plan, an appropriate amount of cash or number
of shares of common stock, or combination thereof, for the payment of taxes. The
compensation committee may permit withholding to be satisfied by the transfer to
us of shares of common stock previously owned by the holder of the employee
award for which withholding is required and/or cause us to make a short-term or
demand loan to an employee or independent contractor to permit the payment of
taxes required by law.
The board of directors may amend, modify, suspend or terminate the
incentive plan for the purpose of addressing any changes in legal requirements
or for any other lawful purpose, except that no change that would impair the
rights of any holder of an award with respect to that award may be made without
the consent of that holder.
If any subdivision, split or consolidation of outstanding shares of common
stock, or any declaration of a stock dividend payable in shares of common stock,
occurs, the board of directors will make appropriate adjustments to the
following:
o the number of shares of common stock reserved under the incentive
plan;
o the number of shares of common stock covered by outstanding awards
in the form of common stock or units denominated in common stock;
o the exercise or other price in respect of such awards;
o the appropriate fair market value and other price determinations
for awards in order to reflect such transactions;
o the number of shares of common stock covered by options
automatically granted to nonemployee directors;
o the number of shares of common stock covered by restricted stock
awards automatically granted to nonemployee directors; and
o the stock-based awards limitations.
If we recapitalize or effect a capital reorganization, consolidate or merge
with another entity, adopt any plan of exchange affecting the common stock or
make any distribution to holders of common stock of securities or property,
other than normal cash dividends, if any, the board of directors will make such
adjustments or other provisions as it may deem equitable to give effect to such
transaction, including adjustments to the amounts or other items referred to in
the immediately preceding paragraph other than with respect to the number of
shares of common stock reserved under the incentive plan. In the event of a
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<PAGE>
corporate merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation, the board of directors will be authorized in its
sole discretion, to:
o issue or assume awards by means of substitution of new awards for
previously issued awards or to assume previously issued awards as
part of such adjustment;
o make provisions, prior to the transaction, for the acceleration of
the vesting and exercisability of, or lapse of restrictions with
respect to, awards and the termination of options that remain
unexercised at the time of such transaction; or
o provide for the acceleration of the vesting and exercisability of
options and their cancellation in exchange for such payment as the
board of directors determines is a reasonable approximation of the
value thereof.
TAX IMPLICATIONS OF AWARDS. The following summarizes the United States
federal income tax consequences to employees, nonemployee directors and us from
the grant and exercise of incentive plan awards. It does not address the effect
of any other tax law.
The grant of an option or SAR is not a taxable event. The exercise of a
nonqualifed stock option or an SAR will result in taxable ordinary compensation
income. The exercise of an incentive stock option will not result in taxable
ordinary compensation income, but may subject the exerciser to the alternative
minmum tax. The disposition of stock issued on the exercise of an incentive
stock option will be a taxable event. How long that stock has been held will
determine whether that event will result in capital gain or ordinary
compensation income. If the holder of an option uses common stock he already
owns to pay any part of the execise price of that option, he will not recognize
capital gain as a result of that use.
Cash awarded under the incentive plan will constitute taxable ordinary
compensation income when delivered or made available to the awardee. Common
stock delivered as a stock or performance award also will constitute taxable
ordinary compensation income when delivered. If the stock is both
nontransferable and subject to a substantial risk of forfeiture at the time of
delivery, the awardee may elect to defer recognizing that income until such time
as the stock becomes transferable and is no longer subject to that risk.
When an employee recognizes compensation income as a result of an award, he
will be subject to withholding for federal income tax at that time.
We generally will be entitled to a deduction for federal income tax
purposes which corresponds as to amount and timing to the compensation income
realized by others as a result of incentive-plan awards. The Internal Revenue
Code, however, will limit our deductions to amounts constituting both reasonable
compensation for services rendered or to be rendered and ordinary, necessary
business expenses and will disallow deductions of amounts constituting excess
parachute payments made or deemed made in connection with a change in control of
an employer. In addition, Section 162(m) of the Internal Revenue Code may
preclude us from claiming a federal income tax deduction for total remuneration
we may pay in excess of $1.0 million to our chief executive officer or to any of
our other four most highly compensated officers in any one year. Total
renumeration would include income these officers recognize as a result of awards
under the incentive plan. In the case of performance-based compensation,
exceptions to Section 162(m) currently apply if designated requirements are met.
We intend generally to satisfy these requirements in connection with the grant
and payment of performance-based awards, including options and SARS, and have
included this description of the incentive plan to satisfy one of those
requirements. We may not be able to satisfy these requirements in all cases and
may, in our sole discretion, determine in one or more cases that it is in our
best interests not to satisfy these requirements even if we are able to do so.
OTHER PLANS
We intend to adopt deferred compensation, supplemental disability,
supplemental life and retirement or other benefit or welfare plans in which our
executive officers will be eligible to participate.
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CERTAIN TRANSACTIONS
ORGANIZATIONAL TRANSACTIONS
We issued and sold 200 shares of common stock in October 1997 to Main
Street Merchant Partners II, L.P. for $10 per share. Mr. Foster, the chairman of
our board, is a managing director of Main Street. In December 1998, we issued
and sold 20 shares of common stock to Mr. Martineau, our chief executive officer
and one of our directors, for $10 per share. At that time, we also issued and
sold 15 shares of common stock to Mr. Harlan, our chief financial officer and
one of our directors, together with his family trust, for $10 per share. As a
result of a March 1999 10,000-for-1 stock split of all these shares and a
subsequent reclassification of Main Street's shares, Main Street now owns one
share of Class A common stock, Mr. Martineau owns 200,000 shares of common stock
and Mr. Harlan, together with his family trust, owns 150,000 shares of common
stock. The share of Class A common stock automatically will convert into
1,602,255 shares of common stock before this offering closes.
In March 1999, following the stock split, we issued 801,000 shares of
common stock to American Ready-Mix, L.L.C., a company formed by Auburn Capital,
L.L.C. and National Acquisition Services, L.L.C., for nominal consideration. Mr.
Martineau and Murray S. Simpson, who will become one of our directors when this
offering closes, each own an equity interest in American Ready-Mix. Also in
March 1999, we issued 50,000 shares to Charles Sommer, our corporate controller,
and 25,000 shares to each of John R. Colson and Peter T. Dameris, who will
become members of our board, in each case for nominal consideration. As a result
of these issuances, Messrs. Martineau, Harlan, Sommer, Colson and Dameris, Main
Street and American Ready-Mix collectively will own 18.9% of the total shares
outstanding immediately after this offering closes.
Since August 1998, Main Street has advanced funds to enable us to pay our
expenses in connection with our efforts to effect our initial acquisitions and
this offering. At April 30, 1999, these advances totaled $1.6 million. Our $3.0
million of estimated expenses of this offering include these advances, and we
will repay them, plus interest accrued at the rate of 6% per year, from our
gross proceeds from this offering.
When this offering closes, we then will pay a total of $23.3 million in
cash and issue 8,985,288 shares of common stock to acquire six businesses. We
also then will assume all the indebtedness of the six businesses. That
indebtedness totaled approximately $14.7 million as of March 31, 1999 on a
combined historical basis.
The table below sets forth the consideration we will pay to purchase each
of the six businesses, excluding increases or decreases in cash amounts which
may result from post-closing working-capital adjustments. In the case of each of
Central, Walker's, Bay Cities and Opportunity, we have agreed that if that
business has working capital when this offering closes which (1) exceeds a
specified minimum and (2) includes cash and cash equivalents that also exceed a
specified minimum, we will pay the owners of that business additional cash
consideration in an amount equal to the lesser of that excess in cash or cash
equivalents or the following amount: Central -- $3.7 million; Walker's -- $1.8
million; Bay Cities -- $2.1 million; and Opportunity -- $1.4 million. The cash
column also excludes approximately $0.6 million the owner of Baer will use
immediately after this offering closes to purchase from Baer for cash at no more
than their respective fair market values life insurance policies, notes owed by
his family members and other assets.
SHARES OF
CASH COMMON STOCK
----------- ------------
(DOLLARS IN THOUSANDS)
Central.............................. $ 3,888 3,120,130
Walker's............................. 6,331 2,234,339
Bay Cities........................... 8,602 1,871,310
Opportunity.......................... 1,430 1,034,291
Baer................................. 1,200 423,529
Santa Rosa........................... 1,861 301,689
----------- ------------
Total........................... $23,312 8,985,288
=========== ============
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Central, Opportunity and Santa Rosa are S corporations. Before this
offering closes, they will make distributions in cash or other assets or
short-term notes to their owners in amounts equal to the balances of their
retained earnings on which those owners have paid or will pay income taxes,
including 1999 earnings. At March 31, 1999, those balances were as follows:
Central -- $8.0 million; Opportunity -- $2.0 million; and Santa Rosa -- $0.7
million.
We negotiated the purchase price we will pay for each of the six businesses
through arm's-length negotiations between us and one or more owners or
representatives of that business. We used the same general valuation methodology
to determine the purchase price we were willing to pay for each business. Our
valuation methodology included a combination of discounted cash flow analyses,
comparisons to other recent acquisition transactions in our industry and
comparisons of the resulting valuation multiples to other acquisitions. We did
not rely on any independent appraisal to determine our valuations.
The closing of each acquisition is subject to customary conditions,
including, among others:
o the continuing accuracy of the representations and warranties made
by the applicable business, its stockholders and us;
o the performance of each of their respective covenants their
acquisition agreement contains; and
o the absence of any legal action or proceeding reasonably likely to
result in a material adverse change in the business, results of
operations or financial condition of the business prior to the
closing date.
When this offering closes, some of the businesses we will acquire will have
indebtedness outstanding which their owners have personally guaranteed. We
intend to use borrowings under our credit facility to repay substantially all
that indebtedness.
In the acquisition agreements, all principal owners of each of the
businesses have agreed not to compete with us for a period of five years
commencing on the date this offering closes. We will grant registration rights
to the former owners of the businesses. See "Shares Eligible for Future Sale."
ACQUISITIONS INVOLVING DIRECTORS, OFFICERS AND STOCKHOLDERS
Persons who will become our directors, executive officers or beneficial
owners of 5% or more of our common stock will receive the following
consideration in the acquisitions for their equity interests in their
businesses, excluding increases or decreases in cash amounts which may result
from post-closing adjustments:
SHARES OF
NAME CASH COMMON STOCK
- ------------------------------------- --------- ------------
(DOLLARS IN THOUSANDS)
William T. Albanese(1)............... $ 1,637 1,313,575
Thomas J. Albanese(1)................ 1,637 1,313,575
Michael D. Mitschele(2).............. 1,200 423,529
Gloria Satterfield................... 4,126 897,667
Murray S. Simpson(3)................. 327 233,760
Neil J. Vannucci..................... 4,126 897,667
Robert S. Walker(4).................. 6,331 2,234,339
--------- ------------
Total........................... $ 19,384 7,314,112
========= ============
- ------------
(1) Includes amounts received as co-trustee of a trust.
(2) Excludes approximately $600,000 in cash Mr. Mitschele will use immediately
after this offering closes to purchase life insurance policies and other
assets from Baer.
(3) Includes amounts received by Mr. Simpson or his wife as trustees of trusts
and amounts deemed received by Mr. Simpson or his family through American
Ready-Mix.
(4) Includes amounts deemed beneficially received as co-trustee of a trust and
as general partner of a limited partnership.
For a discussion of how we determined the amount of consideration we will
pay for each of the six businesses we initially will acquire, see
"-- Organizational Transactions."
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REAL ESTATE AND OTHER TRANSACTIONS
When this offering closes, we will enter into new facilities leases or, in
some cases, extend existing leases, with stockholders or affiliates of
stockholders of Central and Baer. Those leases generally will provide for
initial lease terms of 15 to 20 years, with one or more extension options we may
exercise. The following summarizes the initial annual rentals to be paid to the
stockholders, or affiliates of stockholders, of the indicated businesses during
the initial lease terms:
NUMBER OF AGGREGATE
FACILITIES ANNUAL RENTALS
--------- --------------
Central......................... 2 $272,400
Baer............................ 2 228,000
We believe the rentals we will pay under each of these leases are at fair-market
rates. William T. Albanese, an owner of Central, and Michael D. Mitschele, the
owner of Baer, will become members of our board of directors when this offering
closes.
In January 1999, Central distributed to its stockholders one of the
facilities we will lease from them. The facility had a book value of
approximately $1.1 million at the time of distribution.
Central purchases aggregates and related services from time to time from a
company owned by two trusts of which William T. Albanese and Thomas J. Albanese
are co-trustees. Central's purchases from this company totaled $81,000 in 1996,
$104,000 in 1997 and $274,000 in 1998. We expect to continue these purchases on
customary terms.
Walker's historically has used a company Robert S. Walker owns for raw
materials trucking services. Walker's paid this company $293,000 in 1996,
$657,000 in 1997 and $772,000 in 1998 for these hauling services. We believe the
financial and other terms on which this company performs these services are fair
and substantially equivalent to terms we could obtain from an unaffiliated third
party. We expect to continue this arrangement following the closing of this
offering. Mr. Walker will become one of our directors when this offering closes.
Bay Cities sells materials from time to time to a contracting company in
which Gloria Satterfield, an owner of Bay Cities, has a 50% ownership interest.
Its sales to this company totaled $157,000 in 1996, $62,000 in 1997 and $87,000
in 1998. At December 31, 1998, Bay Cities had an outstanding account receivable
from this company in the amount of $309,000 which we expect Bay Cities will
collect before this offering closes. Bay Cities may continue to make sales to
this company on substantially equivalent terms we could obtain from an
unaffiliated third party.
Immediately following the closing of this offering, Michael D. Mitschele,
the current owner of Baer, will use approximately $600,000 of his cash proceeds
from our acquisition of Baer to purchase from Baer life insurance policies,
notes owed by his family members and other assets for their respective fair
market values. Mr. Mitschele will become one of our directors when this offering
closes.
COMPANY POLICY
Except as we describe above, we expect any future transactions with our
directors, officers, employees or affiliates will be minimal and will, in any
case, be approved by a majority of our board, including a majority of its
disinterested members.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the beneficial ownership of our common stock
immediately after this offering closes of: (1) each person who then will
beneficially own more than 5% of the shares of our common stock then
outstanding; (2) each of our executive officers; (3) each person who then will
be one of our directors; and (4) all our directors and executive officers as a
group.
SHARES TO BE
BENEFICIALLY OWNED
----------------------
BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------- ----------- -------
Robert S. Walker(1).................. 2,234,339 14.3%
Main Street Merchant Partners II,
L.P.(2)............................ 1,602,255 10.2%
Vincent D. Foster(3)................. 1,602,255 10.2%
Thomas J. Albanese(4)................ 1,313,575 8.4%
William T. Albanese(5)............... 1,313,575 8.4%
Gloria Satterfield................... 897,667 5.7%
Neil J. Vannucci..................... 897,667 5.7%
American Ready-Mix L.L.C. ........... 801,000 5.1%
Michael D. Mitschele................. 423,529 2.7%
Murray S. Simpson(6)................. 301,845 1.9%
Eugene P. Martineau(7)............... 300,000 1.9%
Michael W. Harlan(8)................. 150,000 *
Charles W. Sommer.................... 50,000 *
John R. Colson(9).................... 25,000 *
Peter T. Dameris(9).................. 25,000 *
Directors and executive officers as a
group (11 persons)................. 7,323,210 46.8%
- ------------
* Less than one percent.
(1) Includes amounts deemed beneficially received by Mr. Walker as co-trustee of
the Walker Family Trust and as general partner of Karob Investment Co., L.P.
(2) Main Street Merchant Partners II, L.P., is a Delaware limited partnership
whose only general partner is Main Street Management Partners, L.P., a
Delaware limited partnership whose only general partner is Main Street
Merchant Advisors, L.L.C., a Delaware limited liability company whose only
members are Sam W. Humphreys and Vincent D. Foster, one of our directors.
(3) Includes 1,602,255 shares issued to Main Street Merchant Partners, II, L.P.,
of which Mr. Foster is a managing director.
(4) Includes amounts deemed beneficially received by Mr. Albanese as co-trustee
of the Thomas J. Albanese Trust.
(5) Includes amounts deemed beneficially received by Mr. Albanese as co-trustee
of the William T. Albanese 1981 Trust.
(6) Includes (1) 116,880 shares deemed beneficially owned by Mr. Simpson's wife
as trustee of the MSS 1998 GRAT, (2) 116,880 shares deemed beneficially
owned by Mr. Simpson as trustee of the CSS 1998 GRAT and (3) 68,085 shares
deemed beneficially owned by Mr. Simpson through his family's ownership in
American Ready-Mix, L.L.C. Mr. Simpson disclaims beneficial ownership of
128,880 of those shares.
(7) Includes 100,000 shares owned by American Ready-Mix L.L.C., of which Mr.
Martineau owns a 12.5% interest.
(8) Includes 50,000 shares owned by Mr. Harlan, as trustee of the Michael and
Bonnie Harlan 1996 Trust.
(9) Shares shown do not include shares that Messrs. Colson and Dameris intend to
acquire directly from the underwriters in connection with this offering.
Except as otherwise indicated, the address of each person listed in the
above table is U.S. Concrete, Inc., 1360 Post Oak Blvd., Suite 800, Houston,
Texas 77056. All persons listed have sole voting and investment power with
respect to their shares unless otherwise indicated.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The market price of our common stock could drop because of sales of a large
number of shares in the open market after this offering or the perception that
those sales could occur. These factors also could make it more difficult for us
to raise funds through future offerings of common stock.
When this offering closes, 15,638,543 shares of common stock will be
outstanding. The public may freely trade the shares we sell in this offering. We
have not registered our remaining outstanding shares under the Securities Act,
and their holders may resell them only following their effective registration
under the Securities Act or an available exemption from the Securities Act's
registration requirements.
Holders of our currently outstanding shares and those to whom we issue
shares in connection with our initial acquisitions generally will be able to
sell these shares in the open market beginning in , 2000 if they comply
with Securities Act Rule 144. From that time and until , 2001, Rule
144 generally will permit each holder of these shares to sell any number of
shares that does not exceed the greater of the following within any three-month
period:
o 1% of the then-outstanding shares, which will be 156,385 shares
immediately on closing of this offering; and
o the average weekly trading volume during a preceding period of four
calendar weeks.
Beginning in , 2001, these volume limitations will not apply to holders of
these shares who are not, at the time of sale or at any time during the
preceding three months, our affiliates.
It is possible that the SEC will amend Rule 144 to permit holders of our
unregistered shares to sell them sooner and in larger amounts than Rule 144
currently permits.
For a period of 180 days following the date of this prospectus, we may not
issue any shares without the prior written consent of Scott & Stringfellow,
Inc., except in connection with acquisitions and incentive-plan awards. See
"Underwriting."
Our executive officers, directors and current stockholders and the owners
of the businesses we will initially acquire have agreed with us that they will
not sell any shares of common stock they own when this offering closes for a
period of one year following that closing. After that time, they may exercise
"piggyback" registration rights we have granted them which would enable them
to sell those shares, generally at our expense, as a part of any public offering
we register under the Securities Act to sell additional unissued shares of
common stock. We may limit the number of shares we have to register on behalf of
these holders in any offering if the managing underwriter or our financial
advisor determines that market conditions so require.
We intend to register 3,000,000 shares of common stock under the Securities
Act shortly after this offering closes for issuance in connection with future
acquisitions. Under Securities Act Rule 145, the volume limitations and other
applicable requirements of Rule 144 will apply to resales of these shares by
affiliates of the businesses we acquire for (1) a period of one year from the
date of their acquisition or (2) such shorter period as the SEC may prescribe.
Otherwise, holders of these shares who are not our affiliates could resell these
shares without restriction in the open market unless we contractually restrict
their sale. Sales of these shares during the 180 days following the date of this
prospectus would require the prior written consent of Scott & Stringfellow, Inc.
When this offering closes, we will have (1) incentive-plan options
outstanding to purchase up to a total of 1,150,000 shares of common stock and
(2) warrants outstanding to purchase up to 200,000 shares of common stock which
we will issue to the representatives of the underwriters for this offering for
services they will render through the date this offering closes. See
"Underwriting." We will file a registration statement on Form S-8 under the
Securities Act to register the shares of common stock we will issue under the
incentive plan. Holders of these shares generally may resell them publicly,
subject to the volume and other limitations of Rule 144 in the case of holders
who are our affiliates.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
When this offering closes, our certificate of incorporation will authorize
us to issue 60,000,000 shares of common stock and 10,000,000 shares of preferred
stock. Each authorized share has a par value of $.001. Our board does not
presently intend to seek the approval of our stockholders before we issue any of
our currently authorized stock, unless law or the applicable rules of any stock
exchange or market otherwise require. We refer you to our certificate of
incorporation, which is an exhibit to the registration statement of which this
prospectus is a part and which qualifies the following summary in its entirety
by this reference.
COMMON STOCK
Each share of common stock has one vote in the election of each director
and on other corporate matters, other than any matter that (1) solely relates to
the terms of any outstanding series of preferred stock or the number of shares
of that series and (2) does not affect the number of authorized shares of
preferred stock or the powers, privileges and rights pertaining to the common
stock. No share of common stock affords any cumulative voting or preemptive
rights or is convertible, redeemable, assessable or entitled to the benefits of
any sinking or repurchase fund. Holders of common stock will be entitled to
dividends in such amounts and at such times as our board in its discretion may
declare out of funds legally available for the payment of dividends. See
"Dividend Policy."
PREFERRED STOCK
At the direction of our board, we may issue shares of preferred stock from
time to time. Our board may, without any action by holders of the common stock:
o adopt resolutions to issue preferred stock in one or more classes
or series;
o fix or change the number of shares constituting any class or series
of preferred stock; and
o establish or change the rights of the holders of any class or
series of preferred stock.
The rights any class or series of preferred stock may evidence may include:
o general or special voting rights;
o preferential liquidation or preemptive rights;
o preferential cumulative or noncumulative dividend rights;
o redemption or put rights; and
o conversion or exchange rights.
We may issue shares of, or rights to purchase, preferred stock the terms of
which might:
o adversely affect voting or other rights evidenced by, or amounts
otherwise payable with respect to, the common stock;
o discourage an unsolicited proposal to acquire us; or
o facilitate a particular business combination involving us.
Any such action could discourage a transaction that some or a majority of our
stockholders might believe to be in their best interests or in which our
stockholders might receive a premium for their stock over its then market price.
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STOCKHOLDER RIGHTS PLAN
Each share of common stock offered hereby includes one right to purchase
from us a unit consisting of one one-hundredth of a share of our Series A junior
participating preferred stock at an exercise price of $35.00 per unit, subject
to adjustment. We refer you to the rights agreement between a rights agent and
us, the form of which is an exhibit to the registration statement of which this
prospectus is a part and which qualifies the following summary of the rights in
its entirety.
The rights are attached to all certificates representing our currently
outstanding common stock and will attach to all common stock certificates we
issue prior to the "rights distribution date." That date would occur, except
in some cases, on the earlier of:
o 10 days following a public announcement that a person or group of
affiliated or associated persons (collectively, an "acquiring
person") has acquired or obtained the right to acquire beneficial
ownership of 15% or more of the outstanding common stock; or
o 10 business days following the start of a tender or exchange offer
that would result, if closed, in a person becoming an acquiring
person.
Our board may defer the rights distribution date in some circumstances, and some
inadvertent acquisitions will not result in a person becoming an acquiring
person if the person promptly divests itself of sufficient common stock.
Until the rights distribution date:
o common stock certificates will evidence the rights;
o the rights will be transferable only with those certificates;
o those certificates will contain a notation incorporating the rights
agreement by reference; and
o the surrender for transfer of any of those certificates also will
constitute the transfer of the rights associated with the stock
that certificate represents.
The rights are not exercisable until after the rights distribution date and
will expire at the close of business on April 30, 2009, unless we earlier redeem
or exchange them as we describe below.
As soon as practicable after the rights distribution date, the rights agent
will mail certificates representing the rights to holders of record of common
stock as of the close of business on that date and, from and after that date,
only separate rights certificates will represent the rights.
We will not issue rights with any shares of common stock we issue after the
rights distribution date, except (1) as our board otherwise may determine and
(2) together with shares of common stock we issue as a result of previously
established incentive plans or convertible securities.
A "flip-in event" will occur under the rights agreement when a person
becomes an acquiring person otherwise than pursuant to a "permitted offer."
The rights agreement defines "permitted offer" to mean a tender or exchange
offer for all outstanding shares of common stock at a price and on terms that a
majority of the independent members of our board determines to be fair to and
otherwise in our best interests and the best interests of our stockholders.
If a flip-in event occurs, we may, at any time until 10 days following the
first date that the flip-in event is publicly announced, redeem the rights in
whole, but not in part, at a redemption price of $.01 per right. At our option,
we may pay that redemption price in cash, shares of common stock or any other
consideration our board selects. If our board timely orders the redemption of
the rights, the rights will terminate on the effectiveness of that action.
If a flip-in event occurs and we do not redeem the rights, each right,
other than any right that has become null and void as we describe below, will
become exercisable, at the time we no longer may redeem it, to receive the
number of shares of common stock (or, in some cases, cash, property or other of
our securities) which has a "current market price" (as the rights agreement
defines that term) equal to two times the exercise price of the right.
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<PAGE>
When a flip-in event occurs, all rights that then are, or under the
circumstances the rights agreement specifies previously were, beneficially owned
by an acquiring person or specified related parties will become null and void in
the circumstances the rights agreement specifies.
A "flip-over event" will occur under the rights agreement when, at any
time from and after the time a person becomes an acquiring person, (1) we are
acquired in a merger or other business combination transaction, other than
specified mergers that follow a permitted offer of the type we describe above,
or (2) 50% or more of our assets or earning power is sold or transferred. If a
flip-over event occurs, each holder of a right (except rights that previously
have become void as we describe above) thereafter will have the right to
receive, on exercise of that right, the number of shares of common stock of the
acquiring company which has a current market price equal to two times the
exercise price of the right.
The number of outstanding rights associated with a share of common stock,
the number of fractional shares of junior participating preferred stock issuable
on exercise of a right and the exercise price of the rights are subject to
adjustment in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the common stock occurring prior to the rights distribution
date. The exercise price of the rights and the number of fractional shares of
junior participating preferred stock or other securities or property issuable,
on exercise of the rights also are subject to adjustment from time to time to
prevent dilution in the event of some transactions affecting the junior
participating preferred stock.
With some exceptions, the rights agreement will not require us to adjust
the exercise price of the rights until cumulative adjustments amount to at least
1% of that exercise price. It also will not require us to issue fractional
shares of junior participating preferred stock that are not integral multiples
of one one-hundredth and, in lieu thereof, we will make a cash adjustment based
on the market price of the junior participating preferred stock on the last
trading date prior to the date of exercise. The rights agreement reserves to us
the right to require prior to the occurrence of any flip-in event or flip-over
event that, on any exercise of rights, a number of rights must be exercised so
that we will issue only whole shares of junior participating preferred stock.
At any time after the occurrence of a flip-in event and prior to a person's
becoming the beneficial owner of 50% or more of the shares of common stock then
outstanding or the occurrence of a flip-over event, we may, at our option,
exchange the rights (other than rights owned by an acquiring person or an
affiliate or an associate of an acquiring person, which will have become void),
in whole or in part, at an exchange ratio of one share of common stock, and/or
other equity securities we deem to have the same value as one share of common
stock, per right, subject to adjustment.
During the time we may redeem the rights, we may, at the direction of our
board, amend any of the provisions of the rights agreement other than the
redemption price. Thereafter, we may amend the provisions of the rights
agreement, other than the redemption price, only as follows:
o to cure any ambiguity, defect or inconsistency;
o to make changes that do not materially adversely affect the
interests of holders of rights, excluding the interests of any
acquiring person; or
o to shorten or lengthen any time period under the rights agreement;
provided, however, that we cannot lengthen the time period
governing redemption if the rights are no longer redeemable.
Until a right is exercised, the holder thereof, as such, will have no
rights to vote or receive dividends or any other rights as a stockholder.
The rights will have antitakeover effects. They will cause substantial
dilution to any person or group that attempts to acquire us without the approval
of our board. As a result, the overall effect of the rights may be to render
more difficult or discourage any attempt to acquire us, even if that acquisition
may be favorable to the interests of our stockholders. Because our board can
redeem the rights or approve a permitted offer, the rights should not interfere
with a merger or other business combination the board approves. We are issuing
the rights to protect our stockholders from coercive or abusive takeover tactics
and to afford our board more negotiating leverage in dealing with prospective
acquirers.
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STATUTORY BUSINESS COMBINATION PROVISION
As a Delaware corporation, we are subject to Section 203 of the Delaware
General Corporation Law. Section 203 prevents an "interested stockholder,"
which is defined generally as a person owning 15% or more of a Delaware
corporation's outstanding voting stock or any affiliate or associate of that
person, from engaging in a broad range of "business combinations" with the
corporation for three years following the date that person became an interested
stockholder unless:
o before that person became an interested stockholder, the board of
directors of the corporation approved the transaction in which that
person became an interested stockholder or approved the business
combination;
o on completion of the transaction that resulted in that person's
becoming an interested stockholder, that person owned at least 85%
of the voting stock of the corporation outstanding at the time the
transaction commenced, other than stock held by (1) directors who
are also officers of the corporation or (2) any employee stock plan
that does not provide employees with the right to determine
confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or
o following the transaction in which that person became an interested
stockholder, both the board of directors of the corporation and the
holders of 66 2/3% of the outstanding voting stock of the
corporation not owned by that person approve the business
combination.
Under Section 203, the restrictions described above also do not apply to
specific business combinations proposed by an interested stockholder following
the announcement or notification of designated extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors, if a
majority of the directors who were directors prior to any person becoming an
interested stockholder during the previous three years or were recommended for
election or elected to succeed those directors by a majority of those directors
approve or do not oppose that extraordinary transaction.
OTHER MATTERS
Delaware law authorizes Delaware corporations to limit or eliminate the
personal liability of their directors to them and their stockholders for
monetary damages for breach of a director's fiduciary duty of care. The duty of
care requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations Delaware law authorizes,
directors of Delaware corporations are accountable to those corporations and
their stockholders for monetary damages for conduct constituting gross
negligence in the exercise of their duty of care. Delaware law enables Delaware
corporations to limit available relief to equitable remedies such as injunction
or rescission. Our certificate of incorporation limits the liability of our
directors to us or our stockholders to the fullest extent Delaware law permits,
and no member of our board will be personally liable for monetary damages for
breach of the member's fiduciary duty as a director, except for liability:
o for any breach of the member's duty of loyalty to us or our
stockholders;
o for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
o for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
o for any transaction from which the member derived an improper
personal benefit.
This provision could have the effect of reducing the likelihood of derivative
litigation against our directors and may discourage or deter our stockholders or
management from bringing a lawsuit against our directors for breach of their
duty of care, even though such an action, if successful, might otherwise have
benefited
65
<PAGE>
our stockholders and us. Our bylaws provide indemnification to our officers and
directors and other specified persons with respect to their conduct in various
capacities, and we have entered into agreements with each of our directors and
executive officers which indemnify them to the fullest extent Delaware law and
our certificate of incorporation permit.
Our certificate of incorporation provides that our stockholders may act
only at an annual or special meeting of stockholders and may not act by written
consent. Our bylaws provide that only the chairman of our board or a majority of
the board may call a special meeting of our board or of our stockholders.
Our certificate of incorporation provides that our board will consist of
three classes of directors serving for staggered terms. We contemplate that
stockholders will elect approximately one-third of the board each year. Board
classification 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 that party obtains that control.
Our certificate of incorporation provides that the number of directors will
be as the board determines from time to time, but will not be less than three.
It also provides that directors may be removed only for cause and then only by
the affirmative vote of the holders of at least a majority of all outstanding
voting stock entitled to vote. This provision, along with the provisions
authorizing the board to fill vacant directorships, will prevent stockholders
from removing incumbent directors without cause and filling the resulting
vacancies with their own nominees.
STOCKHOLDER PROPOSALS
Our bylaws contain advance-notice and other procedural requirements that
apply to stockholder nominations of persons for election to the board at any
annual or special meeting of stockholders and to stockholder proposals that
stockholders take any other action at any annual meeting. In the case of any
annual meeting, a stockholder proposing to nominate a person for election to the
board or proposing that any other action be taken must give our corporate
secretary written notice of the proposal not less than 90 days and not more than
120 days before the anniversary date of the immediately preceding annual
meeting. These stockholder proposal deadlines are subject to exceptions (1)
respecting the 2000 annual meeting and (2) if the pending annual meeting date
differs by more than specified periods from that anniversary date. If the
chairman of our board or a majority of the board calls a special meeting of
stockholders for the election of directors, a stockholder proposing to nominate
a person for that election must give our corporate secretary written notice of
the proposal not earlier than 120 days prior to that special meeting and not
later than the last to occur of (1) 90 days prior to that special meeting or (2)
the 10th day following the day we publicly disclose the date of the special
meeting. Our bylaws prescribe the specific information any advance written
stockholder notice must contain. We refer to our bylaws, which are an exhibit to
the registration statement of which this prospectus is a part and qualify the
foregoing summary by this reference.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company will serve as the transfer agent
and registrar for the common stock.
66
<PAGE>
UNDERWRITING
Scott & Stringfellow, Inc. and Sanders Morris Mundy Inc. are acting as
representatives of the underwriters named below. Subject to the terms and
conditions in the underwriting agreement by and between the underwriters and us,
we agreed to sell to the underwriters and the underwriters have severally agreed
to purchase from us the number of shares of common stock indicated below
opposite their respective names, at the public offering price less the
underwriting discount set forth on the cover page of this prospectus:
NUMBER
UNDERWRITER OF SHARES
- ---------------------------------------- ---------
Scott & Stringfellow, Inc...............
Sanders Morris Mundy Inc................
---------
Total.............................. 3,800,000
=========
The underwriting agreement provides that the obligations of the
underwriters are subject to conditions precedent, and that the underwriters are
committed to purchase all the shares of common stock offered hereby if they
purchase any. If an underwriter fails to keep its purchase commitment, the
underwriting agreement provides that, in some circumstances, the purchase
commitments of the nondefaulting underwriters may be increased or the
underwriting agreement may be terminated.
The shares of common stock are being offered by the underwriters, subject
to prior sales, when, as and if issued to and accepted by them, subject to
approval of specified legal matters by counsel for the underwriters and other
conditions the underwriting agreement describes. The underwriters reserve the
right to withdraw, cancel or modify such offer and to reject orders in whole or
in part.
The representatives have advised us that the underwriters propose initially
to offer the common stock to the public at the public offering price set forth
on the cover page of this prospectus, and to specified dealers at that price
less a concession of not more than $ per share. The underwriters may allow,
and such dealers may reallow, a discount of not more than $ per share to
other specified dealers. After the initial public offering, the representatives
may change the public offering price and the other selling terms. The common
stock is offered subject to receipt and acceptance by the underwriters, and to
other specified conditions, including the right to reject orders in whole or in
part.
We have granted an option to the underwriters, exercisable during the
30-day period after the date of this prospectus, to purchase up to a maximum of
570,000 additional shares of common stock to cover over-allotments, if any, at
the same price per share as the initial shares to be purchased by the
underwriters. To the extent the underwriters exercise that option, each of the
underwriters will be committed, subject to the conditions the underwriting
agreement describes, to purchase such additional shares in approximately the
same proportion as the number of shares to be purchased initially by that
underwriter bears to the total number of shares to be purchased initially by all
the underwriters.
We have agreed to grant the representatives of the underwriters warrants to
purchase an aggregate of 200,000 shares of our common stock at the initial
public offering price. The managing underwriters may exercise the warrants at
any time after the first anniversary of this offering. The warrants will expire
on the third anniversary of this offering. The warrants provide that the
representatives may not transfer the warrants for a period of one year from the
effective date of the registration statement relating to this offering;
provided, however, that during that period the warrants and any shares issued
pursuant to the exercise of the warrants may be transferred to any member of the
National Association of Securities Dealers who is participating in the offering
and their officers or partners.
67
<PAGE>
The following table shows the per share and total public offering price,
the underwriting discount we will pay to the underwriters and the proceeds we
will receive. This information is presented assuming either no exercise or full
exercise by the underwriters of their over-allotment option.
WITH
PER SHARE WITHOUT OPTION OPTION
--------- -------------- ------
Public Offering Price............. $ $ $
Underwriting Discount............. $ $ $
Proceeds to U.S. Concrete......... $ $ $
We estimate our expenses of this offering, exclusive of the underwriting
discount, will be $ .
Our executive officers and directors beneficially holding shares of common
stock prior to the offering have agreed that during the 180-day period following
the date of the prospectus, they will not (1) directly or indirectly, offer,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant for the sale of,
or otherwise dispose of or transfer any shares of common stock or any securities
convertible into or exchangeable or exercisable for common stock or file any
registration statement under the Securities Act with respect to any of the
foregoing or (2) enter into any swap or other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic consequence
of ownership of the common stock or any securities convertible into or
exercisable or exchangeable for common stock whether any such swap or
transaction described in clause (1) or (2) above is to be settled by delivery of
common stock or such other securities, in cash or otherwise, without the prior
written consent of Scott & Stringfellow, Inc., on behalf of the underwriters. In
evaluating any request for such a consent, Scott & Stringfellow, Inc. has
advised us that it will consider, in accordance with its customary practice, all
relevant facts and circumstances at the time of the request, including the
recent trading market for our common stock, the number of shares to which the
request relates and, in the case of a request we make to issue additional equity
securities, the purpose of that issuance.
We have agreed that, for a period of 180 days from the date of this
prospectus we will not, without the prior written consent of Scott &
Stringfellow, Inc., offer, sell, contract to sell or otherwise dispose of any
shares of common stock or any securities convertible into, or exercisable or
exchangeable for, common stock, except that we may issue shares of common stock
(1) in connection with acquisitions and (2) under the incentive plan.
The representatives have informed us that the underwriters do not expect to
make sales of common stock offered by this prospectus to accounts over which
they exercise discretionary authority in excess of 5% of the number of shares of
common stock offered hereby.
The underwriting agreement provides that we will indemnify the underwriters
against specified liabilities, including civil liabilities under the Securities
Act, or will contribute to payments the underwriters may be required to make in
respect thereof.
The underwriters have reserved for sale, at the initial public offering
price, up to 380,000 shares of common stock for our employees, directors and
business associates, and other persons we have designated, who have expressed an
interest in purchasing shares of our common stock. The number of shares
available for sale to the general public in this offering will be reduced to the
extent those persons purchase the reserved shares. Any reserved shares not so
purchased will be offered to the general public on the same basis as other
shares offered hereby.
Prior to this offering, there has been no public trading market for the
common stock. Consequently, the initial public offering price of the common
stock will be determined by negotiations between the representatives and us.
Among the factors they and we will consider in those negotiations are:
o the operating histories of the six businesses we initially will
acquire viewed on a combined basis;
o the future prospects for U.S. Concrete and the ready-mixed concrete
industry;
o the present state of U.S. Concrete's development;
68
<PAGE>
o an assessment of U.S. Concrete's management;
o the general condition of the economy and the securities markets at
the time of this offering; and
o the market prices of and demand for publicly traded common stock of
comparable companies in recent periods.
Our common stock has been approved for quotation on the Nasdaq National
Market, subject to official notice of issuance, under the symbol "RMIX."
Until the distribution of the common stock is completed, rules of the SEC
may limit the ability of the underwriters and specified selling group members to
bid for and purchase the common stock. As an exception to these rules, the
representatives are permitted to engage in specified transactions that stabilize
the price of the common stock. These transactions consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of the common stock.
If the underwriters create a short position in the common stock in connection
with this offering, that is, if they sell more shares of common stock than are
set forth on the cover page of this prospectus, the representatives may reduce
that short position by purchasing common stock in the open market. The
representatives may also elect to reduce any short position by exercising all or
part of the over-allotment option described above. The representatives may also
impose a penalty bid on underwriters and selling group members in some cases.
This means that if the representatives purchase shares of common stock in the
open market to reduce the underwriters' short position or to stabilize the price
of the common stock, they may reclaim the amount of the selling concession from
the underwriters and selling group members who sold those shares as part of this
offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of those purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security. Neither we nor any of the underwriters
make any representation or predictions as to the direction or magnitude of any
effect that the transactions described above may have on the price of the common
stock. In addition, neither we nor any of the underwriters make any
representation that the underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
Two shareholders and directors of Sanders Morris Mundy Inc. are limited
partners in Main Street Merchant Partners II, L.P. The shares of common stock
these two individuals beneficially own represent less than 1% of the common
stock to be outstanding immediately after this offering closes. These two
individuals purchased their limited partnership interests in Main Street in
1997.
LEGAL MATTERS
Certain legal matters in connection with the sale of the common stock
offered hereby are being passed on for U.S. Concrete by Baker & Botts, L.L.P.,
Houston, Texas, and for the underwriters by Andrews & Kurth L.L.P., Houston,
Texas.
EXPERTS
The audited financial statements of U.S. Concrete and each of the companies
we initially will acquire which are included in this prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance on such
reports given upon the authority of said firm as experts in accounting and
auditing in giving said reports.
69
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
This prospectus constitutes a part of a registration statement on Form S-1
we have filed under the Securities Act with the SEC with respect to this
offering. This prospectus does not contain all the information the registration
statement sets forth or its exhibits, in accordance with the rules and
regulations of the SEC, and we refer you to that omitted information. The
statements this prospectus makes respecting the content of any contract,
agreement or other document that is an exhibit to the registration statement
necessarily are summaries of their material provisions, and we qualify them in
their entirety by reference to those exhibits for complete statements of their
provisions. Interested persons may (1) inspect the registration statement and
its exhibits, without charge, at the public reference facilities of the SEC at
its principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at its regional offices at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center,
13th Floor, New York, New York 10048 and (2) obtain copies of all or any part of
the registration statement at prescribed rates from the Public Reference Section
of the SEC at its principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. The SEC maintains an Internet web site that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. The address of that
site is http://www.sec.gov.
As a result of this offering, we will become subject to the full
informational requirements of the Exchange Act. We will fulfill our obligations
with respect to those requirements by filing periodic reports and other
information with the SEC. We intend to furnish our stockholders with annual
reports that will include a description of our operations and audited
consolidated financial statements certified by an independent public accounting
firm.
70
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Unaudited Pro Forma Combined
Financial Statements
Basis of Presentation........... F-2
Unaudited Pro Forma Combined
Balance Sheet -- March 31,
1999........................... F-3
Unaudited Pro Forma Combined
Statement of Operations for the
Year Ended December 31, 1998... F-4
Unaudited Pro Forma Combined
Statement of Operations for the
Three Months Ended March 31,
1999 F-5
Unaudited Pro Forma Combined
Statement of Operations for the
Three Months Ended March 31,
1998........................... F-6
Notes to Unaudited Pro Forma
Combined Financial
Statements..................... F-7
Historical Financial Statements
U.S. Concrete, Inc.
Report of Independent Public
Accountants.................... F-15
Balance Sheets.................. F-16
Statements of Operations........ F-17
Statements of Stockholders'
Equity......................... F-18
Statements of Cash Flows........ F-19
Notes to Financial Statements... F-20
Central Concrete Supply Co., Inc.
Report of Independent Public
Accountants.................... F-24
Balance Sheets.................. F-25
Statements of Operations........ F-26
Statements of Stockholders'
Equity......................... F-27
Statements of Cash Flows........ F-28
Notes to Financial Statements... F-29
Walker's Concrete, Inc.
Report of Independent Public
Accountants.................... F-38
Balance Sheets.................. F-39
Statements of Operations........ F-40
Statements of Stockholder's
Equity......................... F-41
Statements of Cash Flows........ F-42
Notes to Financial Statements... F-43
Bay Cities Building Materials Co.,
Inc. And Subsidiary
Report of Independent Public
Accountants.................... F-51
Consolidated Balance Sheets..... F-52
Consolidated Statements of
Operations..................... F-53
Consolidated Statements of
Stockholders' Equity........... F-54
Consolidated Statements of Cash
Flows.......................... F-55
Notes to Consolidated Financial
Statements..................... F-56
Opportunity Concrete Corporation
Report of Independent Public
Accountants.................... F-63
Balance Sheets.................. F-64
Statements of Operations........ F-65
Statements of Stockholders'
Equity......................... F-66
Statements of Cash Flows........ F-67
Notes to Financial Statements... F-68
Baer Concrete, Incorporated
Report of Independent Public
Accountants.................... F-74
Balance Sheets.................. F-75
Statements of Operations and
Other Comprehensive Income..... F-76
Statements of Stockholders'
Equity......................... F-77
Statements of Cash Flows........ F-78
Notes to Financial Statements... F-79
F-1
<PAGE>
U.S. CONCRETE, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to (1) the acquisitions by U.S. Concrete, Inc. ("U.S. Concrete" or the
"Company") of the outstanding capital stock of Central Concrete Supply Co.,
Inc. ("Central"), Walker's Concrete, Inc. ("Walker's"), Bay Cities Building
Materials Co., Inc. ("Bay Cities"), Opportunity Concrete Corporation
("Opportunity"), Baer Concrete, Incorporated ("Baer"), and R. G.
Evans/Associates d/b/a Santa Rosa Cast Products Co. ("Santa Rosa") (together,
the "Founding Companies"), and related transactions and (2) the closing of
U.S. Concrete's initial public offering. The acquisitions of the Founding
Companies (the "Acquisitions") will occur simultaneously with the closing of
the offering and will be accounted for using the purchase method of accounting.
Central has been identified as the accounting acquirer for financial statement
presentation purposes as its former stockholders will represent the largest
voting interest within U.S. Concrete.
The unaudited pro forma combined balance sheet gives effect to the
acquisitions, various other transactions and events, the offering and
application of the net proceeds, therefrom, and borrowings under the credit
facility, as if they had occurred on March 31, 1999. The unaudited pro forma
combined statement of operations gives effect to these transactions and events
as if they had occurred on January 1, 1998 and 1999, respectively.
U.S. Concrete has preliminarily analyzed the savings that is expected to be
realized from reductions in salaries, bonuses and certain benefits to the
owners. To the extent the owners of the Founding Companies have contractually
agreed to prospective reductions in salary, bonuses, benefits and lease
payments, these reductions have been reflected in the unaudited pro forma
combined statement of operations.
U.S. Concrete expects that integration of the Founding Companies will
present opportunities to realize cost savings through elimination of duplicative
functions and the development of economies of scale. Management believes the
Company should be able to (1) obtain greater discounts from suppliers, (2)
borrow at lower interest rates, (3) consolidate insurance programs and (4)
generate savings in other general and administrative areas. U.S. Concrete cannot
quantify these savings until completion of the acquisitions and expects that
they will be substantially offset by U.S. Concrete's corporate management and
administration costs associated with being a public company and the systems
integration, upgrading and replacement. Because these costs cannot be adequately
quantified at this time, they have not been included in the pro forma financial
information of U.S. Concrete.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that Company management deems appropriate
and may be revised as additional information becomes available. Management,
however, does not expect the revisions, if any, to materially affect the
accompanying pro forma information and does not believe that there are any other
identifiable intangible assets to which any material purchase price can be
allocated. The pro forma financial data do not purport to represent what U.S.
Concrete's financial position or results of operations would actually have been
if such transactions in fact had occurred on those dates and are not necessarily
representative of U.S. Concrete's financial position or results of operations
for any future periods. Since the Founding Companies were not under common
control or management, the pro forma combined financial statements should be
read in conjunction with the historical financial statements and notes thereto
of U.S. Concrete and certain of the Founding Companies included elsewhere in
this Prospectus. See also "Risk Factors" included elsewhere herein.
F-2
<PAGE>
U.S. CONCRETE, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET -- MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
U.S.
CONCRETE CENTRAL WALKER BAY CITIES OPPORTUNITY BAER SANTA ROSA COMBINED
-------- -------- --------- ---------- ----------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ -- $ 5,439 $ 2,223 $ 2,868 $ 1,465 $ 195 $ 192 $12,382
Trade accounts and notes
receivable....................... -- 8,517 4,507 8,763 619 1,304 272 23,982
Receivable from owners of the
Founding Companies............... -- -- -- -- -- -- -- --
Other receivables.................. -- 2 94 -- 14 120 -- 230
Inventories........................ -- 815 255 124 79 96 316 1,685
Prepaid expenses................... -- 737 173 12 140 -- 3 1,065
Other current assets............... -- 38 106 500 3 58 5 710
Deferred tax asset................. -- 12 110 -- -- 55 -- 177
-------- -------- --------- ---------- ----------- --------- ---------- --------
Total current assets............. -- 15,560 7,468 12,267 2,320 1,828 788 40,231
Property, plant and equipment, net... -- 9,674 9,321 5,651 2,002 3,546 137 30,331
Other assets, net.................... 7,356 1,155 545 230 42 765 -- 10,093
Goodwill............................. -- -- -- -- -- -- -- --
-------- -------- --------- ---------- ----------- --------- ---------- --------
Total assets..................... $ 7,356 $ 26,389 $ 17,334 $ 18,148 $ 4,364 $ 6,139 $ 925 $80,655
======== ======== ========= ========== =========== ========= ========== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
debt............................. $ -- $ 1,083 $ 692 $ 337 $ 303 $ 454 $ -- $ 2,869
Line of credit..................... -- -- 2,764 -- -- -- -- 2,764
Payable to owners of the Founding
Companies........................ -- -- -- -- -- -- -- --
Accounts payable and accrued
liabilities...................... 1,564 6,792 4,020 9,586 796 1,524 212 24,494
-------- -------- --------- ---------- ----------- --------- ---------- --------
Total current liabilities........ 1,564 7,875 7,476 9,923 1,099 1,978 212 30,127
New credit facility.................. -- -- -- -- -- -- -- --
Long-term debt....................... -- 4,029 1,158 2,171 607 1,091 -- 9,056
Deferred tax liability............... -- 46 1,096 196 69 482 -- 1,889
Stockholders' equity
Subscription receivable............ (2) -- -- -- -- -- -- (2)
Common stock....................... 1 70 4 41 14 12 1 143
Additional paid-in capital......... 9,572 554 38 38 7 10 -- 10,219
Treasury stock..................... -- -- -- -- -- (936) -- (936)
Retained earnings.................. (3,779) 13,815 7,562 5,779 2,568 3,502 712 30,159
-------- -------- --------- ---------- ----------- --------- ---------- --------
Total stockholders' equity....... 5,792 14,439 7,604 5,858 2,589 2,588 713 39,583
-------- -------- --------- ---------- ----------- --------- ---------- --------
Total liabilities and
stockholders' equity........... $ 7,356 $ 26,389 $ 17,334 $ 18,148 $ 4,364 $ 6,139 $ 925 $80,655
======== ======== ========= ========== =========== ========= ========== ========
<CAPTION>
PRO FORMA PRO FORMA POST MERGER AS
ADJUSTMENTS COMBINED ADJUSTMENTS ADJUSTED
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ (12,382) a,d,e $ -- $ -- f,g $ --
Trade accounts and notes
receivable....................... -- 23,982 -- 23,982
Receivable from owners of the
Founding Companies............... -- c,d -- -- --
Other receivables.................. (120) c 110 -- 110
Inventories........................ -- 1,685 -- 1,685
Prepaid expenses................... -- 1,065 -- 1,065
Other current assets............... (11) c 699 -- 699
Deferred tax asset................. -- 177 -- 177
----------- --------- ----------- ---------
Total current assets............. (12,513) 27,718 -- 27,718
Property, plant and equipment, net... 14,250d 44,581 -- 44,581
Other assets, net.................... (8,775) a,c,d 1,318 (1,228) g 90
Goodwill............................. 51,610d 51,610 -- 51,610
----------- --------- ----------- ---------
Total assets..................... $ 44,572 $125,227 $ (1,228) $ 123,999
=========== ========= =========== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
debt............................. $ (2,869) e $ -- $ -- $ --
Line of credit..................... (2,764) e -- -- --
Payable to owners of the Founding
Companies........................ 23,312 b,d,e 23,312 (23,312) g --
Accounts payable and accrued
liabilities...................... (1,564) d,e 22,930 -- 22,930
----------- --------- ----------- ---------
Total current liabilities........ 16,115 46,242 (23,312) 22,930
New credit facility.................. 16,449 e 16,449 (3,727) g 12,722
Long-term debt....................... (9,056) e -- -- --
Deferred tax liability............... -- 1,889 -- 1,889
Stockholders' equity
Subscription receivable............ 2 d -- -- --
Common stock....................... (25) b,d 118 38 f 156
Additional paid-in capital......... 53,370 b,d 63,589 25,773 f,g 89,362
Treasury stock..................... 936 d -- -- --
Retained earnings.................. (33,219) a,b,c,d (3,060) -- (3,060)
----------- --------- ----------- ---------
Total stockholders' equity....... 21,064 60,647 25,811 86,458
----------- --------- ----------- ---------
Total liabilities and
stockholders' equity........... $ 44,572 $125,227 $ (1,228) $ 123,999
=========== ========= =========== =========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-3
<PAGE>
U.S. CONCRETE, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
U.S.
CONCRETE CENTRAL WALKER BAY CITIES OPPORTUNITY BAER SANTA ROSA COMBINED
-------- ------- ------- ----------- ----------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SALES................................ $ -- $66,499 $41,615 $53,600 $16,180 $ 11,973 $4,209 $194,076
COST OF GOODS SOLD................... -- 53,974 34,528 46,766 11,296 9,910 2,439 158,913
-------- ------- ------- ----------- ----------- --------- ---------- --------
Gross profit......................... -- 12,525 7,087 6,834 4,884 2,063 1,770 35,163
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 198 4,712 3,022 3,962 2,352 1,195 1,024 16,465
STOCK COMPENSATION CHARGE............ 2,678 -- -- -- -- -- -- 2,678
DEPRECIATION AND AMORTIZATION........ -- 930 896 505 245 412 18 3,006
-------- ------- ------- ----------- ----------- --------- ---------- --------
Income (loss) from operations........ (2,876) 6,883 3,169 2,367 2,287 456 728 13,014
OTHER INCOME
(EXPENSE)..........................
Interest income (expense),
net............................. -- (165) (377) (156) 8 (105) (15) (810)
Other income, net.................. -- 36 307 141 14 379 23 900
-------- ------- ------- ----------- ----------- --------- ---------- --------
Income (loss) before provision for
income taxes....................... (2,876) 6,754 3,099 2,352 2,309 730 736 13,104
PROVISION FOR INCOME TAXES........... -- 100 1,262 962 187 307 12 2,830
-------- ------- ------- ----------- ----------- --------- ---------- --------
NET INCOME (LOSS).................... $ (2,876) $ 6,654 $ 1,837 $ 1,390 $ 2,122 $ 423 $ 724 $ 10,274
======== ======= ======= =========== =========== ========= ========== ========
<CAPTION>
PRO FORMA AS
ADJUSTMENTS ADJUSTED
----------- ----------
<S> <C> <C>
SALES.......................................................... $ -- $ 194,076
COST OF GOODS SOLD............................................. -- 158,913
----------- ----------
Gross profit................................................... -- 35,163
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES..................................................... (3,144) a 13,321
STOCK COMPENSATION CHARGE...................................... -- 2,678
DEPRECIATION AND AMORTIZATION.................................. 1,989 b 4,995
----------- ----------
Income (loss) from operations.................................. 1,155 14,169
OTHER INCOME
(EXPENSE)....................................................
Interest income (expense),
net....................................................... (17) c (827)
Other income, net............................................ -- 900
----------- ----------
Income (loss) before provision for
income taxes................................................. 1,138 14,242
PROVISION FOR INCOME TAXES..................................... 3,507 d 6,337
----------- ----------
NET INCOME (LOSS).............................................. $(2,369) $ 7,905
=========== ==========
NET INCOME PER SHARE........................................................ $ 0.51
SHARES USED IN COMPUTING NET INCOME PER SHARE............................... 15,638,543 e
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-4
<PAGE>
U.S. CONCRETE, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
U.S.
CONCRETE CENTRAL WALKER BAY CITIES OPPORTUNITY BAER SANTA ROSA COMBINED
-------- ------- ------ ----------- ----------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SALES................................ $ -- $12,956 $8,244 $12,548 $ 2,164 $ 2,024 $ 525 $38,461
COST OF GOODS SOLD................... -- 10,625 6,944 10,555 1,619 1,870 373 31,986
-------- ------- ------ ----------- ----------- --------- ---------- --------
Gross profit......................... -- 2,331 1,300 1,993 545 154 152 6,475
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 138 1,323 850 553 575 260 176 3,875
STOCK COMPENSATION CHARGE............ 765 -- -- -- -- -- -- 765
DEPRECIATION AND AMORTIZATION........ -- 292 220 103 59 137 11 822
-------- ------- ------ ----------- ----------- --------- ---------- --------
Income (loss) from operations........ (903) 716 230 1,337 (89) (243) (35) 1,013
OTHER INCOME (EXPENSE)...............
Interest income (expense), net..... -- 38 (75) (40) (16) (49) (1) (143)
Other income (expense), net........ -- 189 8 120 83 95 2 497
-------- ------- ------ ----------- ----------- --------- ---------- --------
Income (loss) before provision for
income taxes....................... (903) 943 163 1,417 (22) (197) (34) 1,367
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. -- 17 76 599 (2) (51) -- 639
-------- ------- ------ ----------- ----------- --------- ---------- --------
NET INCOME (LOSS).................... $ (903) $ 926 $ 87 $ 818 $ (20) $ (146) $ (34) $ 728
======== ======= ====== =========== =========== ========= ========== ========
<CAPTION>
PRO FORMA AS
ADJUSTMENTS ADJUSTED
----------- ----------
<S> <C> <C>
SALES.......................................................... $ -- $ 38,461
COST OF GOODS SOLD............................................. -- 31,986
----------- ----------
Gross profit................................................... -- 6,475
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES..................................................... (557) a 3,318
STOCK COMPENSATION CHARGE...................................... -- 765
DEPRECIATION AND AMORTIZATION.................................. 498 b 1,320
----------- ----------
Income (loss) from operations.................................. 59 1,072
OTHER INCOME (EXPENSE).........................................
Interest income (expense), net............................... (64) c (207)
Other income (expense), net.................................. -- 497
----------- ----------
Income (loss) before provision for
income taxes................................................. (5) 1,362
PROVISION (BENEFIT) FOR INCOME
TAXES........................................................ 48 d 687
----------- ----------
NET INCOME (LOSS).............................................. $ (53) $ 675
=========== ==========
NET INCOME PER SHARE........................................................ $ 0.04
SHARES USED IN COMPUTING NET INCOME PER SHARE............................... 15,638,543 e
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-5
<PAGE>
U.S. CONCRETE, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
U.S.
CONCRETE CENTRAL WALKER BAY CITIES OPPORTUNITY BAER SANTA ROSA COMBINED
-------- ------- ------ ---------- ----------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SALES................................ $ -- $ 9,918 $5,842 $ 10,908 $ 4,266 $ 2,084 $ 163 $ 33,181
COST OF GOODS SOLD................... -- 8,537 5,270 9,440 3,005 1,901 124 28,277
-------- ------- ------ ---------- ----------- --------- ---------- --------
Gross profit......................... 1,381 572 1,468 1,261 183 39 4,904
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... -- 600 707 697 586 286 44 2,920
STOCK COMPENSATION CHARGE............ -- -- -- -- -- -- -- --
DEPRECIATION AND
AMORTIZATION....................... -- 188 285 121 61 104 4 763
-------- ------- ------ ---------- ----------- --------- ---------- --------
Income (loss) from operations........ -- 593 (420) 650 614 (207) (9) 1,221
OTHER INCOME (EXPENSE)............... -- --
Interest income (expense), net..... -- 43 (58) (45) 6 (23) -- (77)
Other income (expense), net........ -- 53 9 66 (3) 9 -- 134
-------- ------- ------ ---------- ----------- --------- ---------- --------
Income (loss) before provision for
income taxes....................... -- 689 (469) 671 617 (221) (9) 1,278
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. -- 6 (229) 315 50 (96) -- 46
-------- ------- ------ ---------- ----------- --------- ---------- --------
NET (INCOME) LOSS.................... $ -- $ 683 $ (240) $ 356 $ 567 $ (125) $ (9) $ 1,232
======== ======= ====== ========== =========== ========= ========== ========
<CAPTION>
PRO FORMA AS
ADJUSTMENTS ADJUSTED
----------- ----------
<S> <C> <C>
SALES.............................................................. $ -- $ 33,181
COST OF GOODS SOLD................................................. -- 28,277
----------- ----------
Gross profit....................................................... -- 4,904
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES......................................................... (766) a 2,154
STOCK COMPENSATION CHARGE.......................................... -- --
DEPRECIATION AND AMORTIZATION...................................... 498 b 1,261
----------- ----------
Income (loss) from operations...................................... 268 1,489
OTHER INCOME (EXPENSE).............................................
Interest income (expense), net................................... (130) c (207)
Other income (expense), net...................................... -- 134
----------- ----------
Income (loss) before provision for
income taxes..................................................... 138 1,416
PROVISION (BENEFIT) FOR INCOME
TAXES............................................................ 664 d 710
----------- ----------
NET (INCOME) LOSS.................................................. $ (526) $ 706
=========== ==========
NET INCOME PER SHARE............................................................ $ 0.05
SHARES USED IN COMPUTING NET INCOME PER SHARE................................... 15,638,543 e
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-6
<PAGE>
U.S. CONCRETE, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. GENERAL:
U.S. Concrete, Inc. was founded to create a leading provider of ready-mixed
concrete and related services to the construction industry in major markets in
the United States. U.S. Concrete has conducted no operations to date and will
acquire the Founding Companies concurrently with, and as a condition to, the
closing of this offering.
The historical financial statements reflect the financial position and
results of operations of the Founding Companies and were derived from the
respective Founding Companies' financial statements. The periods included in
these financial statements for the individual Founding Companies are as of, and
for the year ended, December 31, 1998. The audited historical financial
statements in this prospectus are included in accordance with Staff Accounting
Bulletin (SAB) No. 80, promulgated by the Securities and Exchange Commission.
2. ACQUISITIONS:
When the offering closes, U.S. Concrete will pay a total of $23.3 million
in cash and issue 8,985,288 shares of its common stock to the owners of the
Founding Companies in exchange for all the outstanding capital stock of the
Founding Companies, as set forth in the following table. The estimated purchase
price is based upon preliminary estimates and is subject to certain purchase
price adjustments at and following closing. In this table, the estimated fair
value of U.S. Concrete's common stock is $7.65 per share, which reflects a 10%
discount from the assumed initial public offering price of $8.50 per share
because of the restrictions on the sale and transferability of the shares to be
issued. The cash column in the table excludes increases or decreases in the cash
paid which may result from post-closing working capital adjustments. The cash
column also excludes the following items:
o S corporation AAA distributions of $9.5 million and of life insurance
policies having $1.2 million related to cash surrender value;
o C corporation distributions of cash surrender value of life insurance
policies and other personal assets of $0.5 million; and
o $0.6 million which one former owner will use immediately after this
offering closes to purchase life insurance policies, notes owed by
his family members and other assets at their respective fair values.
U.S. Concrete will account for its acquisition of the Founding Companies
using the purchase method of accounting, with Central being reflected as the
accounting acquirer because its owners will represent the largest voting
interest in U.S. Concrete. As the accounting acquirer, Central is presented as
the purchaser of the other Founding Companies and the issuance by U.S. Concrete
of 2,453,255 shares of its common stock to Main Street and American Ready Mix is
presented as a purchase transaction by Central and included in the total
purchase price paid by Central. Also, included in these shares are 50,000 shares
issued to U.S. Concrete management.
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------
VALUE OF
CASH SHARES SHARES
--------- ----------- --------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Accounting Acquirer:
Central......................... $ 3,888 3,120,130 $ 23,869
Remaining Founding Companies:
Walker's........................ 6,331 2,234,339 17,093
Bay Cities...................... 8,602 1,871,310 14,316
Opportunity..................... 1,430 1,034,291 7,912
Baer............................ 1,200 423,529 3,240
Santa Rosa...................... 1,861 301,689 2,308
--------- ----------- --------
Subtotal................... $ 19,424 5,865,158 $ 44,869
--------- ----------- --------
Total...................... $ 23,312 8,985,288 $ 68,738
========= =========== ========
</TABLE>
F-7
<PAGE>
U.S. CONCRETE, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the total purchase price paid and residual
goodwill resulting from these purchase transactions:
<TABLE>
<CAPTION>
U.S. CONCRETE WALKER'S BAY CITIES OPPORTUNITY BAER SANTA ROSA TOTAL
-------------- --------- ----------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Total purchase price...... $ 18,767 $25,504 $ 25,060 $ 9,527 $ 4,404 $ 4,169 $ 87,161
Historical net assets..... (5,792) (7,604) (5,858) (2,589) (2,588) (713) (25,144)
Purchase adjustments...... -- (4,958) (4,966) 630 (2,500) 703 (10,407)
-------------- --------- ----------- ------------ --------- ----------- ---------
Residual goodwill......... $ 12,975 $12,642 $ 14,236 $ 7,598 $ -- $ 4,159 $ 51,610
============== ========= =========== ============ ========= =========== =========
</TABLE>
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
(a) Records (i) the distribution of $10.7 million by Central ($8.0
million), Opportunity ($2.0 million) and Santa Rosa ($0.7 million),
which represents the portions of their retained earnings as of March
31, 1999, on which their owners have paid or will pay income taxes,
and (ii) the elimination of these amounts from their retained
earnings. The distribution is comprised of cash of $9.5 million and
cash surrender value of certain life insurance policies of $1.2
million.
(b) Records the liability for the cash portion of the consideration to be
paid to Central, (net of a $0.5 million working capital adjustment)
the accounting acquirer, and the combination of U.S. Concrete with
Central. Additionally records $3.1 million as the effect of a
non-cash, non-recurring compensation charge for the issuance of
400,000 shares of common stock to management and two non-employee
directors.
(c) Records the transfer of the cash surrender value of certain insurance
policies and other personal assets to the Founding Companies
concurrent with the Acquisition at a price equal to the net book value
of such assets, and a receivable from one former owner for the
purchase of life insurance policies, notes owed by his family members
and other assets at their respective fair values. Management believes
that the historical carrying value of such net non-operating assets
approximates fair value.
(d) Records the purchase transactions at a total estimated purchase price
of $87.2 million consisting of:
(i) $19.5 million payable to Founding Company owners (other than
Central);
(ii) $4.0 million representing the net post-closing adjustment for
working capital changes in the Founding Companies (excluding $0.5
million payable by Central); and
(iii) $44.9 million consisting of 5.9 million shares of U.S. Concrete
common stock isssued to owners of the Founding Companies (other
than Central);
(iv) $18.8 million consisting of 2.5 million shares issued to the
current stockholders of U.S. Concrete.
This transaction results in an excess purchase price of $51.6 million over the
$34.6 million of net assets acquired. It also records the $0.5 million repayment
of notes receivables from stockholders. Based on its initial assessment,
management believes that the historical carrying value of the Founding
Companies' assets and liabilities, with the exception of property, plant and
equipment, approximates fair value and that there are no other identifiable
intangible assets to which any material purchase price can be allocated.
Included in the entry is an adjustment to the net assets acquired of $14.3
million to reflect the estimated fair value of the property, plant and
equipment.
F-8
<PAGE>
U.S. CONCRETE, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table reflects the historical assets acquired and liabilities
to be assumed in the acquisitions of the Founding Companies (excluding Central
and U.S. Concrete). The table does not reflect (i) the payment of the
distribution of the S corporation AAA, (ii) the transfer of the cash surrender
value of certain insurance policies and other personal assets, and (iii) the
excess cash balances.
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....... $ 6,943
Trade accounts and notes
receivable...................... 15,465
Other receivables............... 228
Inventories..................... 870
Prepaid expenses................ 328
Other current assets............ 672
Deferred tax asset.............. 165
---------
Total current assets....... 24,671
Property, plant and equipment, net... 20,657
Other assets, net.................... 1,582
---------
Total assets............... $ 46,910
=========
LIABILITIES
Current liabilities:
Current portion of long-term
debt............................ $ 1,786
Line of credit.................. 2,764
Accounts payable and accrued
liabilities..................... 16,138
---------
Total current
liabilities.................. 20,688
Long-term debt....................... 5,027
Deferred tax liability............... 1,843
---------
Total liabilities.......... $ 27,558
=========
</TABLE>
(e) Records the refinancing of $14.7 million of historical indebtedness of the
Founding Companies, the $3.5 million payment to the Founding Companies of
additional cash consideration and the payment of $1.6 million of
acquisition costs with borrowings under the credit facility.
(f) Records the cash proceeds of $27.0 million from the issuance of shares of
common stock net of estimated offering costs of $3.0 million. Offering
costs primarily consist principally of underwriting discounts and
commissions, accounting fees, legal fees and printing expenses.
(g) Records (i) payment of the cash portion of the consideration to the
stockholders of the Founding Companies (including Central) of $23.3
million which is net of the receivable from a former owner of $0.6 million
and (ii) the repayment of $3.7 million of borrowings under the new credit
facility using the remaining proceeds from the offering.
F-9
<PAGE>
U.S. CONCRETE, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the unaudited pro forma combined balance
sheet adjustments (in thousands):
<TABLE>
<CAPTION>
PRO FORMA
A B C D E ADJUSTMENTS
--------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets --
Cash and cash equivalents........ $ (9,508) $ -- $ -- $ 455 $ (3,329) $(12,382)
Other receivables................ -- -- (120) -- -- (120)
Receivable from owners of
Founding Companies............. -- -- 638 (638) -- --
Other current assets............. -- -- (11) -- -- (11)
--------- --------- --------- --------- --------- ------------
Total current assets........ (9,508) -- 507 (183) (3,329) (12,513)
Property, plant and equipment........ -- -- -- 14,250 -- 14,250
Other long-term assets............... (1,155) -- (1,037) (6,583) -- (8,775)
Goodwill............................. -- -- -- 51,610 -- 51,610
--------- --------- --------- --------- --------- ------------
Total assets................ $ (10,663) $ -- $ (530) $ 59,094 $ (3,329) $ 44,572
========= ========= ========= ========= ========= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities --
Current maturities of long-term
debt........................... $ -- $ -- $ -- $ -- $ (2,869) $ (2,869)
Line of credit................... -- -- -- -- (2,764) (2,764)
Payables to owners of Founding
Companies...................... -- 3,352 -- 23,487 (3,527) 23,312
Accounts payable and accrued
liabilities.................... -- -- -- (2) (1,562) (1,564)
--------- --------- --------- --------- --------- ------------
Total current liabilities... -- 3,352 -- 23,485 (10,722) 16,115
New credit facility.................. -- -- -- -- 16,449 16,449
Long-term debt....................... -- -- -- -- (9,056) (9,056)
Subscription receivable.............. -- -- -- 2 -- 2
Common stock......................... -- (36) 11 -- (25)
Additional paid-in capital........... -- 5,609 -- 47,761 -- 53,370
Treasury stock....................... -- -- -- 936 -- 936
Retained earnings.................... (10,663) (8,925) (530) (13,101) -- (33,219)
--------- --------- --------- --------- --------- ------------
Total stockholders'
equity.................... (10,663) (3,352) (530) 35,609 -- 21,064
--------- --------- --------- --------- --------- ------------
Total liabilities and
stockholders' equity...... $ (10,663) $ -- $ (530) $ 59,094 $ (3,329) $ 44,572
========= ========= ========= ========= ========= ============
</TABLE>
F-10
<PAGE>
U.S. CONCRETE, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
ADJUSTMENT
-------------------- POST MERGER
F G ADJUSTMENTS
--------- --------- -----------
<S> <C> <C> <C>
ASSETS
Current assets --
Cash and cash equivalents........ $ 27,039 $ (27,039) $ --
--------- --------- -----------
Total current assets........ 27,039 (27,039) --
Other long-term assets............... -- (1,228) (1,228)
--------- --------- -----------
Total assets................ $ 27,039 $ (28,267) $ (1,228)
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities --
Payables to owners of Founding
Companies...................... $ -- $ (23,312) $ (23,312)
--------- --------- -----------
Total current liabilities... -- (23,312) (23,312)
--------- --------- -----------
New credit facility.................. -- (3,727) (3,727)
Common stock......................... 38 -- 38
Additional paid-in capital........... 27,001 (1,228) 25,773
--------- --------- -----------
Total stockholders'
equity.................... 27,039 (1,228) 25,811
--------- --------- -----------
Total liabilities and
stockholders' equity...... $ 27,039 $ 28,267 $ (1,228)
========= ========= ===========
</TABLE>
4. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS:
YEAR ENDED DECEMBER 31, 1998
(a) Reflects the $3.5 million reduction in salaries, bonuses and benefits
to the owners of the Founding Companies. These reductions in salaries,
bonuses and benefits have been agreed to prospectively in accordance
with the terms of employment agreements. Such employment agreements
are primarily for three years, contain restrictions related to
competition and provide severance for termination of employment in
certain circumstances. This reduction is partially offset by a
$330,000 charge for recurring contractual salaries of management.
(b) Reflects the amortization of goodwill to be recorded as a result of
these Acquisitions over a 40-year estimated life. Also records $0.7
million in additional depreciation expense to reflect the impact of
the fair value adjustment of equipment.
(c) Reflects interest expense of $0.8 million on borrowings of $12.7
million necessary to fully fund the acquisition of the Founding
Companies, net of interest savings of $1.2 million on $14.7 million of
historical debt to be repaid using proceeds from the offering and
borrowings under our credit facility, and the elimination of $0.4
million of interest income reflected in the historical financial
statements. The additional $0.8 million of interest expense was
calculated utilizing an annual effective interest rate of 6.5%.
(d) Reflects the incremental provision for federal and state income taxes
at an approximate 40.8% overall tax rate before goodwill and other
permanent items, relating to the other statement of operations
adjustments and for income taxes on S corporation income not provided
for in the historical financial statements.
(e) Includes: (i) 2,853,255 shares issued by U.S. Concrete prior to the
offering, (ii) 8,985,288 shares to be issued to the stockholders of
the Founding Companies in connection with the Acquisitions, and (iii)
3,800,000 shares to be issued in connection with the offering.
Excludes (a) options to purchase an aggregate of 1,150,000 which U.S.
Concrete expects to grant on consummation of this offering and (b) a
warrant for 200,000 shares which U.S. Concrete will issue to the
managing underwriters for this offering for services it will render
through the date this offering closes. The 1,150,000 options to
purchase common stock will have an exercise price equal to the initial
public offering price, will vest in 25% annual increments, beginning
on the first anniversary of the date this offering closes, and will be
issued to the following persons or groups of persons: (i) 540,000
shares to U.S. Concrete's executive officers and key management
employees; (ii) 20,000 shares to U.S. Concrete's nonemployee
directors; (iii) 503,000 shares to employees of the Founding
Companies, and (iv) 87,000 shares to other employees in U.S.
Concrete's corporate office.
F-11
<PAGE>
U.S. CONCRETE, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes unaudited pro forma combined statements of
operations adjustments (in thousands):
<TABLE>
<CAPTION>
ADJUSTMENTS
------------------------------------------ PRO FORMA
A B C D ADJUSTMENTS
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Selling, general and administrative
expenses........................... $ (3,144) $ -- $ -- $ -- $(3,144)
Depreciation and amortization........ -- 1,989 -- -- 1,989
--------- --------- --------- --------- -----------
Income (loss) from operations........ 3,144 (1,989) -- -- 1,155
Interest income................. -- -- (442) -- (442)
Interest expense................ -- -- 459 -- 459
--------- --------- --------- --------- -----------
Interest, net........................ -- -- (17) -- (17)
--------- --------- --------- --------- -----------
Income before provision for income
taxes.............................. 3,144 (1,989) (17) -- 1,138
Provision for income taxes........... -- -- -- 3,507 3,507
--------- --------- --------- --------- -----------
Net income (loss).................... $ 3,144 $ (1,989) $ (17) $ (3,507) $(2,369)
========= ========= ========= ========= ===========
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999
(a) Reflects the $0.7 million reduction in salaries, bonuses and benefits
to the owners of the Founding Companies. These reductions in salaries,
bonuses and benefits have been agreed to prospectively in accordance
with the terms of employment agreements. Such employment agreements
are primarily for three years, contain restrictions related to
competition and provide severance for termination of employment in
certain circumstances. This reduction is partially offset by a $0.1
million charge for recurring contractual salaries of U.S. Concrete
management.
(b) Reflects the amortization of goodwill to be recorded as a result of
these Acquisitions over a 40-year estimated life. Also records $0.2
million in additional depreciation expense to reflect the impact of
the fair market adjustment of equipment.
(c) Reflects interest expense of $0.2 million on borrowings of $12.7
million necessary to fully fund the acquisition of the Founding
Companies, net of interest savings of $0.2 million on $14.7 million of
historical debt to be repaid using proceeds from the offering and
borrowings under our credit facility, and the elimination of $0.1
million of interest income reflected in the historical financial
statements. The additional $0.2 million of interest expense was
calculated utilizing an annual effective interest rate of 6.5%.
(d) Reflects the incremental provision for federal and state income taxes
at an approximate 40.8% overall tax rate before goodwill and other
permanent items, relating to the other statement of operations
adjustments and for income taxes on S corporation income not provided
for in the historical financial statements.
(e) Includes: (i) 2,853,255 shares issued by U.S. Concrete prior to the
offering, (ii) 8,985,288 shares to be issued to the stockholders of
the Founding Companies in connection with the Acquisitions, and (iii)
3,800,000 shares to be issued in connection with the offering.
Excludes (a) options to purchase an aggregate of 1,150,000 which U.S.
Concrete expects to grant on consummation of this offering and (b) a
warrant for 200,000 shares which U.S. Concrete will issue to the
managing underwriters for this offering for services it will render
through the date this offering closes. The 1,150,000 options to
purchase common stock will have an exercise price equal to the initial
public offering price, will vest in 25% annual increments, beginning
on the first anniversary of the date this offering closes, and will be
issued to the following persons or groups of persons: (i) 540,000
shares to U.S. Concrete's executive officers and key management
employees; (ii) 20,000 shares to U.S. Concrete's nonemployee
directors; (iii) 503,000 shares to the employees of the Founding
Companies, and (iv) 87,000 shares to other employees in U.S.
Concrete's corporate office.
F-12
<PAGE>
U.S. CONCRETE, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes unaudited pro forma combined statements of
operations adjustments (in thousands):
<TABLE>
<CAPTION>
ADJUSTMENTS
--------------------------------------------------------
PRO FORMA
A B C D ADJUSTMENTS
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Selling, general and administrative
expenses........................... $ (557) $ -- $ -- $ -- $ (557)
Depreciation and amortization........ -- 498 -- -- 498
--------- --------- --------- --------- -----------
Income (loss) from operations........ 557 (498) -- -- 59
Interest income................. -- -- (74) -- (74)
Interest expense................ -- -- 10 -- 10
--------- --------- --------- --------- -----------
Interest, net........................ -- -- (64) -- (64)
--------- --------- --------- --------- -----------
Income (loss) before provision for
income taxes....................... 557 (498) (64) -- (5)
Provision for income taxes........... -- -- -- 48 48
--------- --------- --------- --------- -----------
Net income (loss).................... $ 557 $ (498) $ (64) $ (48) $ (53)
========= ========= ========= ========= ===========
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998
(a) Reflects the $0.9 million reduction in salaries, bonuses and benefits
to the owners of the Founding Companies. These reductions in salaries,
bonuses and benefits have been agreed to prospectively in accordance
with the terms of employment agreements. Such employment agreements
are primarily for three years, contain restrictions related to
competition and provide severance for termination of employment in
certain circumstances. This reversal is partially offset by a $0.1
million charge for recurring contractual salaries of U.S. Concrete
management.
(b) Reflects the amortization of goodwill to be recorded as a result of
these Acquisitions over a 40-year estimated life. Also records $0.2
million in additional depreciation expense to reflect the impact of
the fair market adjustment of equipment.
(c) Reflects interest expense of $0.2 million on borrowings of $12.7
million necessary to fully fund the acquisition of the Founding
Companies, net of interest savings of $0.2 million on $14.1 million of
historical debt to be repaid using proceeds from the offering and
borrowings under our credit facility, and the elimination of $0.1
million in interest income reflected in the historical financial
statements. The additional $0.2 million of interest expense was
calculated utilizing an annual effective interest rate of 6.5%.
(d) Reflects the incremental provision for federal and state income taxes
at an approximate 40.8% overall tax rate before goodwill and other
permanent items, relating to the other statement of operations
adjustments and for income taxes on S corporation income not provided
for in the historical financial statements.
(e) Includes: (i) 2,853,255 shares issued by U.S. Concrete prior to the
offering, (ii) 8,985,288 shares to be issued to the stockholders of
the Founding Companies in connection with the Acquisitions, and (iii)
3,800,000 shares to be issued in connection with the offering.
Excludes (a) options to purchase an aggregate of 1,150,000 which U.S.
Concrete expects to grant on consummation of this offering and (b) a
warrant for 200,000 shares which U.S. Concrete will issue to the
managing underwriters for this offering for services it will render
through the date this offering closes. The 1,150,000 options to
purchase common stock will have an exercise price equal to the initial
public offering price, will vest in 25% annual increments beginning on
the first anniversary of the date this offering closes, and will be
issued to the following persons or groups of persons: (i) 540,000
shares to U.S. Concrete's executive officers and key management
employees; (ii) 20,000 shares to U.S. Concrete's nonemployee
directors; (iii) 503,000 shares to the employees of the Founding
Companies, and (iv) 87,000 shares to other employees in U.S.
Concrete's corporate office.
F-13
<PAGE>
U.S. CONCRETE, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes unaudited pro forma combined statements of
operations adjustments (in thousands):
<TABLE>
<CAPTION>
ADJUSTMENTS
------------------------------------------ PRO FORMA
A B C D ADJUSTMENTS
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Selling, general and administrative
expenses........................... $ (766) $ -- $ -- $ -- $ (766)
Depreciation and amortization........ -- 498 -- -- 498
--------- --------- --------- --------- -----------
Income from operations............... 766 (498) -- -- 268
Interest income................. -- -- (120) -- (120)
Interest expense................ -- -- (10) -- (10)
--------- --------- --------- --------- -----------
Interest, net........................ -- -- (130) -- (130)
--------- --------- --------- --------- -----------
Income (loss) before provision for
income taxes....................... 766 (498) (130) -- 138
Benefit for income taxes............. -- -- -- 664 664
--------- --------- --------- --------- -----------
Net income (loss).................... $ 766 $ (498) $ (130) $ (664) $ (526)
========= ========= ========= ========= ===========
</TABLE>
5. SUPPLEMENTAL PRO FORMA DATA:
During December 1998 and March 1999, the Company issued 350,000 and 100,000
shares of common stock to management and non-employee directors and recorded a
stock compensation charge of $2.7 million and $0.8 million, respectively, which
has been recorded in the historical financial statements of U.S. Concrete during
those periods. The value associated with these shares was determined using an
estimated fair value of $7.65 per share which reflects a 10% discount from the
assumed initial public offering price of $8.50 per share due to the restrictions
on the sale and transferability of the shares issued. Upon consummation of the
Acquisitions, the Company will record a stock compensation charge of $3.1
million related to 400,000 shares issued to management and non-employee
directors. Goodwill will be recorded on the additional 50,000 shares issued for
services related to the Acquisitions.
F-14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To U.S. Concrete, Inc.:
We have audited the accompanying balance sheets of U.S. Concrete, Inc., (a
Delaware corporation), as of December 31, 1997 and 1998, and the related
statements of operations, cash flows and stockholders' equity (deficit) for the
period from inception (July 15, 1997) through December 31, 1997 and for the year
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 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 financial position of U.S. Concrete, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the period from inception (July 15, 1997) through December 31, 1997 and for
the year ended December 31, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 16, 1999
F-15
<PAGE>
U.S. CONCRETE, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
---------------- MARCH 31
1997 1998 1999
---- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CASH AND CASH EQUIVALENTS............ $ -- $ -- $ --
DEFERRED OFFERING COSTS.............. -- 355 1,228
OTHER ASSETS......................... -- -- 6,128
---- --------- -----------
Total assets............... $ -- $ 355 $ 7,356
==== ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCRUED LIABILITIES AND AMOUNTS DUE
TO STOCKHOLDER..................... $ -- $ 553 $ 1,564
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par
value, 10,000,000 authorized,
none issued and outstanding... -- --
Class A Common stock, $.001 par
value, one share authorized,
issued and outstanding........ -- --
Common stock, $.001 par value,
60,000,000 shares authorized,
350,000, and 1,251,000 shares
issued and outstanding,
respectively.................. -- -- 1
Receivable from stockholders.... (2) (2) (2)
Additional paid-in capital...... 2 2,680 9,572
Retained deficit................ -- (2,876) (3,779)
---- --------- -----------
Total stockholders' equity
(deficit)............... -- (198) 5,792
---- --------- -----------
Total liabilities and
stockholders' equity.... $ -- $ 355 $ 7,356
==== ========= ===========
</TABLE>
Reflects a 10,000 for-one stock split effected in March 1999.
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
U.S. CONCRETE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
INCEPTION
(JULY 15, 1997) THREE MONTHS ENDED
THROUGH YEAR ENDED MARCH 31
DECEMBER 31 DECEMBER 31 --------------------
1997 1998 1998 1999
----------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED)
SALES................................ $ -- $ -- $ -- $ --
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... -- 198 -- 138
STOCK COMPENSATION CHARGE............ -- 2,678 -- 765
----- ------------- --------- ---------
Loss Before Provision for Income
Taxes......................... -- (2,876) -- (903)
Provision for Income Taxes...... -- -- -- --
----- ------------- --------- ---------
NET LOSS............................. $ -- $(2,876) $ -- $ (903)
===== ============= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
U.S. CONCRETE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK COMMON STOCK RECEIVABLE ADDITIONAL
------------------- ------------------- FROM PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT STOCKHOLDERS CAPITAL DEFICIT
-------- ------- -------- ------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, INCEPTION (July 15, 1997)... -- $ -- -- $ -- $-- $ -- $ --
ISSUANCE OF SHARES................... 1 -- -- -- (2) 2 --
NET INCOME (LOSS).................... -- -- -- -- -- -- --
-------- ------- -------- ------- --- ----------- ---------
BALANCE, December 31, 1997........... 1 $ -- -- $ -- $(2) $ 2 $ --
ISSUANCE OF ADDITIONAL SHARES TO
MANAGEMENT......................... -- -- 350,000 -- -- 2,678 --
NET LOSS............................. -- -- -- -- -- -- (2,876)
-------- ------- -------- ------- --- ----------- ---------
BALANCE, December 31, 1998........... 1 -- 350,000 -- (2) 2,680 (2,876)
ISSUANCE OF SHARES TO AMERICAN
READY-MIX, L.L.C. (UNAUDITED)...... -- -- 801,000 1 -- 6,127 --
ISSUANCE OF SHARES TO MANAGEMENT AND
NONEMPLOYEE DIRECTORS
(UNAUDITED)........................ -- -- 100,000 -- -- 765 --
NET LOSS (UNAUDITED)................. -- -- -- -- -- -- (903)
-------- ------- -------- ------- --- ----------- ---------
BALANCE, March 31, 1999
(UNAUDITED)........................ 1 $ -- 1,251,000 $ 1 $(2) $ 9,572 $(3,779)
======== ======= ======== ======= === =========== =========
Reflects a 10,000 for-one stock split effected in March 1999.
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C>
BALANCE, INCEPTION (July 15, 1997)... $ --
ISSUANCE OF SHARES................... --
NET INCOME (LOSS).................... --
-------------
BALANCE, December 31, 1997........... $ --
ISSUANCE OF ADDITIONAL SHARES TO
MANAGEMENT......................... 2,678
NET LOSS............................. (2,876)
-------------
BALANCE, December 31, 1998........... (198)
ISSUANCE OF SHARES TO AMERICAN
READY-MIX, L.L.C. (UNAUDITED)...... 6,128
ISSUANCE OF SHARES TO MANAGEMENT AND
NONEMPLOYEE DIRECTORS
(UNAUDITED)........................ 765
NET LOSS (UNAUDITED)................. (903)
-------------
BALANCE, March 31, 1999
(UNAUDITED)........................ $ 5,792
=============
Reflects a 10,000 for-one stock split
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
U.S. CONCRETE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
INCEPTION THREE MONTHS ENDED
(JULY 15, 1997) MARCH 31
THROUGH YEAR ENDED --------------------
DECEMBER 31, 1997 DECEMBER 31, 1998 1998 1999
----------------- ----------------- --------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................... $ -- $(2,876) $ -- $ (903)
Non-cash stock compensation
charge........................... -- 2,678 -- 765
Adjustments to reconcile net loss
to net cash used in operating
activities --
Changes in assets and
liabilities --
Increase in deferred
offering costs........ -- (355) -- (873)
Increase in amounts due
to stockholder........ -- 553 -- 1,011
-------- ----------------- --------- ---------
Net cash provided
by operating
activities....... -- -- -- --
-------- ----------------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............... -- -- -- --
-------- ----------------- --------- ---------
Net cash used in
investing
activities....... -- -- -- --
CASH FLOWS FROM FINANCING ACTIVITIES:
Initial capitalization............. 2 -- -- --
Receivable from stockholders....... (2) -- -- --
-------- ----------------- --------- ---------
Net cash provided
by financing
activities....... -- -- -- --
-------- ----------------- --------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................... -- -- -- --
CASH AND CASH EQUIVALENTS, beginning of
period................................ -- -- -- --
-------- ----------------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period................................ $ -- $ -- $ -- $ --
======== ================= ========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH
FINANCING ACTIVITIES:
Common stock issued for
acquisition-related services..... $ -- $ -- $ -- $ 6,128
======== ================= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
U.S. CONCRETE, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
U.S. Concrete, Inc., a Delaware corporation ("U.S. Concrete" or the
"Company"), was founded in July 1997 to create a leading provider of
ready-mixed concrete and related services to the construction industry in its
selected markets throughout the United States. U.S. Concrete intends to acquire
certain businesses (the "Acquisitions"), complete an initial public offering
(the "Offering") of its common stock and, subsequent to the Offering, continue
to acquire through merger or purchase similar companies to expand its national
and regional operations.
U.S. Concrete has not conducted any operations, and all activities to date
have related to the Offering and the Acquisitions. All expenditures of the
Company to date have been funded by the primary stockholder, on behalf of the
Company. The primary stockholder has also committed to fund future organization
expenses and offering costs. As of December 31, 1998 and March 31, 1999, costs
of approximately $355,000 and $1,228,000 (unaudited) respectively, have been
incurred in connection with the Offering, and such costs will be treated as a
reduction of the proceeds from the Offering. U.S. Concrete has treated costs
incurred through December 31, 1998 and March 31, 1999, as deferred offering
costs in the accompanying balance sheet. U.S. Concrete is dependent upon the
Offering to execute the pending Acquisitions and to repay its current primary
stockholder for funding deferred offering costs. There is no assurance that the
pending Acquisitions will be completed. The ability of U.S. Concrete to generate
future operating revenues is dependent upon the ability of the Company to manage
the effect on the combined companies of changes in demand for ready-mixed
concrete. The Company's future success is dependent upon a number of factors
which include, among others, the ability to integrate operations, reliance on
the identification and integration of satisfactory acquisition candidates,
reliance on acquisition financing, the ability to manage growth and attract and
retain qualified management and employees, the ability to comply with government
regulations and other regulatory requirements or contract specifications, and
risks associated with competition, seasonality and quarterly fluctuations. The
risk factors are discussed in more detail in "Risk Factors."
In August 1998, the Company entered into a funding agreement with the
primary stockholder, to finance organizational fees and expenses associated with
the Acquisitions. The funding agreement allows advances up to $3.0 million and
bears interest at a rate of 6% per annum. The entire principal amount and
accrued interest is due on the earliest of i) September 30, 1999, ii) the date
on which the Company effects the first acquisition of one of the Founding
Companies, or iii) the tenth calendar day after either party terminates the
agreement. At December 31, 1998 and March 31, 1999, these advances totaled
$553,000 and $1,564,000 (unaudited) respectively.
2. INTERIM FINANCIAL INFORMATION:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of March 31, 1999, and for the three
months ended March 31, 1999 and 1998, 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 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. Due to seasonality and other factors, the results of operations
for the interim periods are not necessarily indicative of the results for the
entire fiscal year.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles require 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
F-20
<PAGE>
U.S. CONCRETE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
3. STOCKHOLDERS' EQUITY:
COMMON STOCK AND PREFERRED STOCK
In connection with its organization and initial capitalization, the Company
issued 2,000,000 shares (as restated for the 10,000 for-one stock split
discussed in Note 6) of common stock at $.001 par value for $2,000. In March
1999, the 2,000,000 shares were recapitalized into one share of Class A common
stock which will automatically convert into 1,602,255 shares of common stock at
the effective time of the Mergers as more fully described in Note 6. In December
1998, the Company issued 350,000 shares of common stock (as restated for the
10,000 for-one stock split) to certain members of Company management for $350.
As a result of the issuance of shares to management for nominal consideration,
the Company recorded in December 1998, a non-cash, non-recurring compensation
charge of $2.7 million, which has been based on a fair value of such shares
which has been determined to be $7.65 per share (a discount of 10% from the
initial public offering price). The fair value of such shares was based on
specific factors related to the Company and the transactions including
restrictions on transferability and sale of the shares issued.
4. STOCK-BASED COMPENSATION:
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation," allows entities to choose between a new fair
value method of accounting for employee stock options or similar equity
instruments and the current method of accounting prescribed by Accounting
Principles Board (APB) Opinion No. 25, under which compensation expense is
recorded to the extent that the fair value of the related stock is in excess of
the options' exercise price at date of grant. Entities electing to remain with
the accounting in APB Opinion No. 25 must make pro forma disclosures of net
income and earnings per share as if the fair value method of accounting
prescribed in SFAS No. 123 had been applied. The Company will measure
compensation expense attributable to stock options based on the method
prescribed in APB Opinion No. 25 and will provide the required pro forma
disclosure of net income and earnings per share, as applicable, in the notes to
future consolidated annual financial statements.
5. NEW ACCOUNTING PRONOUNCEMENTS:
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" requires that companies report separately information about each
significant operating segment reviewed by the chief operating decision maker.
Management has chosen to organize segments based on differences in products and
services. All segments that meet a threshold of 10% of revenues, reported profit
or loss, or combined assets are defined as significant segments. The Company
will provide the required disclosures of its segments in the notes to future
consolidated annual financial statements.
6. SUBSEQUENT EVENT:
U.S. Concrete effected a 10,000 for-one stock split in March 1999 for each
share of common stock of the Company then outstanding. In addition, the Company
increased the number of authorized shares of common stock to 60,000,000 and
increased the number of authorized shares of $.001 par value preferred stock to
10,000,000. The effects of the common stock split and the increase in the shares
of authorized common stock have been retroactively reflected on the balance
sheet, statement of stockholders' equity and in the accompanying notes.
F-21
<PAGE>
U.S. CONCRETE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. SUBSEQUENT EVENTS TO THE DATE OF AUDITOR'S REPORT (UNAUDITED):
In March 1999, following the 10,000 for-one stock split, the Company
effected a recapitalization which resulted in the primary shareholders 2,000,000
shares of common stock being recapitalized as one share of Class A common stock.
The Class A common stock will, immediately prior to the effective time of the
first acquisition by the Company of a Founding Company, automatically convert
into 1,602,255 shares of common stock.
In March 1999, following the stock split, the Company issued 801,000 shares
of common stock to American Ready-Mix, L.L.C. for acquisition-related services
and has reflected the fair value of such shares of approximately $6.1 million in
other assets in the accompanying March 31, 1999 unaudited balance sheet. The
Company accounted for such shares issued as deferred acquisition costs. The fair
value of such shares has been determined to be $7.65 per share (a discount of
10% from the assumed initial offering price). The fair value of such shares was
based on specific factors related to the Company and the transactions including
restrictions on transferability and sale of the shares issued.
In addition, when the Offering closes, the Company will issue warrants to
purchase up to 200,000 shares of common stock to the managing underwriters for
this Offering for services they will render through the date the Offering
closes.
In March 1999, following the 10,000 for-one split, the Company issued
50,000 shares of common stock to a member of management and 25,000 shares each
to two prospective non-employee directors for nominal consideration. As a result
of the issuance of shares to management and the non-employee directors for
nominal consideration, the Company recorded in March 1999, a non- cash,
non-recurring compensation charge of $0.8 million, based on a fair value of such
shares, which has been determined to be $7.65 per share (a discount of 10% from
the assumed initial offering price). The fair value of such shares was based on
specific factors related to the Company and the transactions, including
restrictions on transferability and sale of the shares issued.
In March 1999, the Company reserved 2,000,000 shares of common stock for
use under an incentive plan (the "Incentive Plan"). Beginning with the first
calendar quarter after the closing of the Offering and continuing each quarter
thereafter, the number of shares available for that use will be the greater of
2,000,000 shares or 15% of the number of shares of common stock outstanding on
the last day of the immediately preceding calendar quarter.
Persons eligible for awards are (1) employees holding positions of
responsibility with the Company and whose performance can have a significant
effect on the success of the Company as well as individuals who have agreed to
become employees within six months of the date of grant, (2) nonemployee
Directors and (3) nonemployee consultants and other independent contractors
providing, or who will provide, services to the Company.
Except as it applies to nonemployee directors, the compensation committee
of the Company's board of directors will administer the Incentive Plan.
Employee Awards may be in the form of:
o options to purchase a specified number of shares of common stock at a
specified price which may be denominated in either or both of common
stock or units denominated in common stock;
o stock appreciation rights, or SARs, to receive a payment, in cash or
common stock, equal to the fair market value or other specified value
of a number of shares of common stock on the rights exercise date over
a specified strike price;
o restricted or unrestricted stock awards consisting of common stock or
units denominated in common stock;
o cash awards; and
F-22
<PAGE>
U.S. CONCRETE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
o performance awards denominated in cash, common stock, units denominated
in common stock or any other property which are subject to the
attainment of one or more performance goals.
Under the Incentive Plan, the Company intends to grant options to purchase
an aggregate of 1,150,000 shares of common stock on the consummation of this
Offering.
U.S. Concrete has signed definitive agreements to acquire the following
entities (the Founding Companies) to be effective concurrently with the
Offering. The entities to be acquired are:
Central Concrete Supply Co., Inc.
Walker's Concrete, Inc.
Bay Cities Building Materials Co., Inc.
Opportunity Concrete Corporation
Baer Concrete, Incorporated
Santa Rosa Cast Products Company
The aggregate consideration that will be paid by U.S. Concrete to acquire
the Founding Companies consists of (1) approximately $23.3 million in cash,
subject to post-closing increases or decreases attributable to working capital
changes, the maximum amount of which will be approximately 9.0 million, and (2)
8,985,288 shares of common stock.
In addition, the Company will enter into employment agreements with certain
key executives of the Founding Companies and the executive officers of U.S.
Concrete. The initial term of these employment agreements is three years with
provisions for automatic annual extensions beginning at the end of the initial
term. The Company will also enter into one year consulting agreements with
certain key employees of the Founding Companies.
The Company will enter into a $75,000,000 three-year revolving credit
facility effective concurrent with the closing of the Offering to provide funds
to be used for working capital, to finance acquisitions and for other general
corporate purposes. The subsidiaries of the Company will guarantee the repayment
of all amounts due under the facility, and the Company will secure the facility
with the capital stock and assets of the subsidiaries and accounts receivable
and inventories. The Company expects that the credit facility will require the
consent of the lenders for acquisitions, prohibit the payment of cash dividends,
restrict the ability to incur additional indebtedness and require compliance
with stringent financial covenants. The failure to comply with these covenants
and restrictions would constitute an event of default under the facility.
F-23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Central Concrete Supply Co., Inc.:
We have audited the accompanying balance sheets of Central Concrete Supply Co.,
Inc. (the Company) (a California corporation), as of December 31, 1997 and 1998,
and the related statements of operations, stockholders' equity and cash flows
for the three years ended December 31, 1996, 1997 and 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 Central Concrete Supply Co.,
Inc., as of December 31, 1997 and 1998, and the results of its operations and
its cash flows for the three years ended December 31, 1996, 1997 and 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
February 4, 1999
F-24
<PAGE>
CENTRAL CONCRETE SUPPLY CO., INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- MARCH 31
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 1,945 $ 4,213 $ 5,439
Trade accounts receivable, net
of allowance for doubtful
accounts of $80, $97, and $97,
respectively.................. 6,650 7,641 6,480
Receivables from related
parties......................... 2,091 2,712 2,037
Inventories..................... 941 792 815
Prepaid expenses................ 273 833 737
Other current assets............ 187 156 52
--------- --------- ---------
Total current assets....... 12,087 16,347 15,560
PROPERTY, PLANT AND EQUIPMENT, net... 6,784 9,138 9,674
CASH SURRENDER VALUE OF LIFE
INSURANCE............................ 966 1,155 1,155
--------- --------- ---------
Total assets............... $ 19,837 $ 26,640 $26,389
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term
debt............................ $ 776 $ 1,006 $ 1,083
Accounts payable................ 5,427 7,042 5,662
Accrued compensation and
benefits........................ 985 868 1,130
--------- --------- ---------
Total current
liabilities................ 7,188 8,916 7,875
LONG-TERM DEBT, net of current
portion.............................. 1,884 2,524 4,029
DEFERRED TAX LIABILITY............... 34 46 46
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value;
100,000 shares authorized,
4,572 shares issued and
outstanding................... 70 70 70
Additional paid-in capital...... 554 554 554
Retained earnings............... 10,107 14,530 13,815
--------- --------- ---------
Total stockholders'
equity..................... 10,731 15,154 14,439
--------- --------- ---------
Total liabilities and
stockholders' equity....... $ 19,837 $ 26,640 $26,389
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
CENTRAL CONCRETE SUPPLY CO., INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
SALES................................ $ 39,204 $ 53,631 $ 66,499 $ 9,918 $ 12,956
COST OF GOODS SOLD................... 33,402 43,794 53,974 8,537 10,625
--------- --------- --------- --------- ---------
Gross profit............... 5,802 9,837 12,525 1,381 2,331
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 3,644 4,265 4,712 600 1,323
DEPRECIATION......................... 1,203 1,330 930 188 292
--------- --------- --------- --------- ---------
Income from operations..... 955 4,242 6,883 593 716
OTHER INCOME (EXPENSE):
Interest expense, net........... (185) (226) (165) 43 38
Other income (expense), net..... (3) 26 36 53 189
--------- --------- --------- --------- ---------
Income before provision for
income taxes............ 767 4,042 6,754 689 943
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 303 (457) 100 6 17
--------- --------- --------- --------- ---------
Net income................. $ 464 $ 4,499 $ 6,654 $ 683 $ 926
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
CENTRAL CONCRETE SUPPLY CO., INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995........... 4,572 $ 70 $ 554 $ 5,384 $ 6,008
Net income...................... -- -- -- 464 464
------ ------ ---------- --------- -------------
BALANCE, December 31, 1996........... 4,572 70 554 5,848 6,472
Net income...................... -- -- -- 4,499 4,499
Distributions................... -- -- -- (240) (240)
------ ------ ---------- --------- -------------
BALANCE, December 31, 1997........... 4,572 70 554 10,107 10,731
Net income...................... -- -- -- 6,654 6,654
Distributions................... -- -- -- (2,231) (2,231)
------ ------ ---------- --------- -------------
BALANCE, December 31, 1998........... 4,572 70 554 14,530 15,154
Net income (Unaudited).......... -- -- -- 926 926
Distributions (Unaudited)....... -- -- -- (1,641) (1,641)
------ ------ ---------- --------- -------------
BALANCE, March 31, 1999
(Unaudited).......................... 4,572 $ 70 $ 554 $ 13,815 $14,439
====== ====== ========== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
CENTRAL CONCRETE SUPPLY CO., INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 464 $ 4,499 $ 6,654 $ 683 $ 926
Adjustments to reconcile net income
to net cash provided by operating
activities --
Depreciation................... 1,203 1,330 930 188 292
Net gain on sale of property,
plant and equipment......... (9) (27) (36) (28) (189)
Change in allowance for
doubtful accounts........... (159) -- 17 -- --
Deferred income tax provision
(benefit)................... (78) (481) 12 -- --
Changes in operating assets and
liabilities --
Trade accounts and
related-party notes
receivable, net of
allowances................ 408 (4,135) (1,836) 2,828 1,836
Income taxes and other
receivables............... (535) (505) 139 14 (2)
Prepaid expenses............ (60) (6) (560) 51 96
Other current assets........ 13 (372) 41 (418) 79
Accounts payable............ 29 1,991 1,615 (452) (1,380)
Accrued compensation and
benefits.................. 177 (46) (117) (443) 262
--------- --------- --------- --------- ---------
Net cash provided by
operating
activities............ 1,453 2,248 6,859 2,423 1,920
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment........................ (1,842) (2,222) (3,300) (624) (1,768)
Proceeds from disposals of
property, plant and equipment.... 78 91 52 -- 1,129
Increase in cash surrender value of
life insurance................... (117) (177) (189)
--------- --------- --------- --------- ---------
Net cash used in
investing
activities............ (1,881) (2,308) (3,437) (624) (639)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt....... 1,207 1,570 2,006 1,373 1,613
Repayments on long-term debt....... (622) (640) (1,136) -- (31)
Distributions to stockholders...... -- (240) (2,024) -- (1,637)
--------- --------- --------- --------- ---------
Net cash provided by
(used in) financing
activities............ 585 690 (1,154) 1,373 (55)
--------- --------- --------- --------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................ 157 630 2,268 3,172 1,226
CASH AND CASH EQUIVALENTS, at
beginning of period................ 1,158 1,315 1,945 1,945 4,213
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, at end of
period............................. $ 1,315 $ 1,945 $ 4,213 $ 5,117 $ 5,439
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for
interest......................... $ 221 $ 285 $ 344 $ 6 $ 18
Cash paid during the periodfor
income taxes..................... 938 749 78 20 40
NONCASH FINANCING ACTIVITY:
Distribution of note receivable to
stockholder...................... -- -- $ 207 -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
CENTRAL CONCRETE SUPPLY CO., INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Central Concrete Supply Co., Inc. (the "Company"), a California
corporation, is engaged in the production and distribution of ready-mixed
concrete and the sale of building materials and related concrete products in the
San Francisco Bay Area, where the Company has six ready-mixed concrete plants in
three sales areas.
The Company and its stockholders intend to enter into a definitive
agreement with U.S. Concrete, Inc. ("U.S. Concrete"), an entity organized to
acquire ready-mixed concrete companies, pursuant to which, the Company's
stockholders will exchange all the outstanding common stock of the Company for
cash and shares of USC common stock concurrent with the closing of U.S.
Concrete's initial public offering.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The Company has prepared these financial statements on the accrual basis of
accounting. Effective December 31, 1996, the Company was merged with Central
Transport, Inc. ("CTI"), which was wholly-owned by the Company's stockholders.
The statement of operations for the period ended December 31, 1996 reflects the
combined operations of the Company and CTI.
INTERIM FINANCIAL STATEMENTS
The interim financial statements as of March 31, 1999, and for the three
months ended March 31, 1999 and 1998, 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
necessarily indicative of the results for the entire fiscal year.
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,
disclosures 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable and long-term debt. The
Company believes that the carrying values of these instruments on the
accompanying balance sheets approximate their fair values, because of the length
of their maturities or the existence of interest rates that approximate market
rates.
CASH AND CASH EQUIVALENTS
The Company records as cash equivalents all highly liquid investments
having maturities of three months or less at the date of purchase. At December
31, 1997 and 1998, the Company maintained cash balances in various financial
institutions in excess of federally insured limits.
F-29
<PAGE>
CENTRAL CONCRETE SUPPLY CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATION OF CREDIT RISK
The Company sells to various construction contractors that may be affected
by changes in economic or other external conditions. The Company manages its
exposure to credit risk through ongoing credit evaluations and, where
appropriate, requires that its customers furnish adequate collateral before
credit is granted.
INVENTORIES
Inventories consist primarily of raw materials, repair parts and building
materials that the Company holds for use or sale in the ordinary course of
business. The Company uses the first-in, first out method to value inventories
at the lower of cost or market. At December 31, 1997 and 1998, management
believes the Company had incurred no material impairments in the carrying values
of its inventories.
PREPAID EXPENSES
Prepaid expenses primarily include amounts the Company has paid for fuel,
property taxes, licenses and insurance. The Company expenses or amortizes all
prepaid amounts as used or over the period of benefit, as applicable.
PROPERTY, PLANT AND EQUIPMENT, NET
The Company states property, plant and equipment at cost. It uses the
straight-line method to compute depreciation of these assets over their
estimated useful lives.
The Company expenses maintenance and repair cost when incurred and
capitalizes and depreciates expenditures for major renewals and betterments that
extend the useful lives of existing assets. When the Company retires or disposes
of property, plant and equipment, it removes the related cost and accumulated
depreciation from the accounts and reflects any resulting gain or loss in its
statements of operations.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company provides an allowance for accounts receivable that it believes
may not be fully collectible.
CASH SURRENDER VALUE OF LIFE INSURANCE
The Company owns various life insurance policies covering its stockholders.
It records the cash surrender value of these policies as an asset. It expenses
the premiums related to these policies to the extent that they exceed the
increase in the underlying cash surrender value of the policies.
SALES AND EXPENSES
The Company derives its sales primarily from the production and delivery of
ready-mixed concrete and distribution of related building materials. The Company
recognizes sales when products are delivered. Cost of goods sold consists
primarily of product costs and operating expenses. Operating expenses consist of
wages and benefits of union employees, and expenses attributable to plant
operations, repairs and maintenance and trucks. Selling expenses consist
primarily of sales commissions, salaries of sales managers, travel and
entertainment expenses and trade show expenses. General and administrative
expenses consist primarily of executive compensation and related benefits,
administrative salaries and benefits, office rent and utilities, communication
expenses and professional fees.
F-30
<PAGE>
CENTRAL CONCRETE SUPPLY CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
Effective May 1, 1997, the Company elected S Corporation status under the
Internal Revenue Code, whereby the Company is not subject to federal income
taxes and its stockholders report their respective shares of the Company's
taxable earnings or losses in their personal tax returns. As an S Corporation,
the Company is subject to taxation at a rate of 1.5% in the state of California.
The Company will terminate its S Corporation status when U.S. Concrete acquires
it.
Prior to May 1, 1997, the Company was a C Corporation and followed the
liability method of accounting for income taxes. Under this method, the Company
recorded deferred income taxes based on temporary differences between the
financial reporting and tax bases of assets and liabilities and measured those
taxes using enacted tax rates and laws that will be in effect when the Company
recovers those assets or settles those liabilities, as the case may be.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its plant assets for impairment. The Company assesses
the recoverability of assets based on its anticipated future cash flows from its
assets. If facts and circumstances lead the Company's management to believe 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 that 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 has 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, and, therefore, that those values were not impaired at that date.
COLLECTIVE BARGAINING AGREEMENTS
The Company is 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 through 2002.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES ---------------------
IN YEARS 1997 1998
------------ --------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
Land................................. -- $ 296 $ 584
Building and improvements............ 10-40 476 1,019
Machinery and equipment.............. 10-15 5,443 5,827
Mixers, trucks and other vehicles.... 6-12 9,854 11,313
Furniture and fixtures............... 3-10 422 512
--------- ----------
16,491 19,255
Less -- Accumulated depreciation..... (9,707) (10,117)
--------- ----------
Property, plant and equipment,
net........................... $ 6,784 $ 9,138
========= ==========
</TABLE>
F-31
<PAGE>
CENTRAL CONCRETE SUPPLY CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Rollforward of allowance for doubtful accounts is as follows (in
thousands):
<TABLE>
<S> <C>
December 31, 1996............... $ 80
Change in allowance for
doubtful accounts --
------
December 31, 1997............... 80
Increase in allowance for
doubtful accounts......... 17
------
December 31, 1998............... $ 97
Change in allowance for
doubtful accounts......... --
------
March 31, 1999 (unaudited)...... $ 97
======
</TABLE>
Receivables from related parties consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Trade accounts receivable from
related party................. $ 1,739 $ 2,712
Notes receivable from
employees/stockholders........ 352 --
--------- ---------
$ 2,091 $ 2,712
========= =========
</TABLE>
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Raw materials........................ $ 236 $ 259
Building materials................... 705 533
--------- ---------
$ 941 $ 792
========= =========
</TABLE>
5. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Notes payable to various financial
institutions, secured by mixer
trucks, payable in monthly
installments ranging from $6,670 to
$26,313, including interest from
6.95% to 9.7%, maturing from
December 1999 to May 2003.......... $ 2,363 $ 2,860
Notes payable to various financial
institutions, secured by various
equipment and guaranteed by
stockholders, payable in monthly
installments ranging from $2,746 to
$5,949, including interest from
4.73% to 8.8%, maturing from
October 2000 to September 2003..... 243 670
Notes payable to a vendor, secured by
automobiles, payable in monthly
installments ranging from $845 to
$988, including interest from 6.9%
to 8.8%, maturing September 2000... 54 --
--------- ---------
2,660 3,530
Less -- Current portion.............. (776) (1,006)
--------- ---------
$ 1,884 $ 2,524
========= =========
</TABLE>
F-32
<PAGE>
CENTRAL CONCRETE SUPPLY CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
For the year ending December 31 --
1999............................ $ 1,006
2000............................ 1,083
2001............................ 806
2002............................ 532
2003............................ 103
---------
$ 3,530
=========
</TABLE>
The Company maintains a $1.2 million line-of-credit with a bank. It did not
make any draws on this line during 1997 or 1998 and did not have a balance as of
December 31, 1997 or 1998. The line of credit will remain in effect until
notification of termination from either party.
6. LEASES:
The Company leases equipment and vehicles under operating lease agreements.
These leases are noncancelable and expire on various dates throughout 2003.
Future minimum lease payments are as follows (in thousands):
<TABLE>
<S> <C>
For the year ending December 31 --
1999............................ $ 321
2000............................ 200
2001............................ 197
2002............................ 160
2003............................ 160
---------
$ 1,038
=========
</TABLE>
The Company has certain leases with contingent rentals based on monthly
sales volume.
Total rent expense under all operating leases was approximately $282,000,
$320,000 and $322,000 for the years ended December 31, 1996, 1997 and 1998,
respectively. The contingent portion of rental expense was $47,000, $48,000 and
$68,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
7. INCOME TAXES:
The components of provision (benefit) for federal and state income taxes
are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Federal --
Current......................... $ 296 $ (32) $ --
Deferred........................ (62) (393) --
State --
Current......................... 87 58 89
Deferred........................ (18) (90) 11
--------- --------- ---------
$ 303 $ (457) $ 100
========= ========= =========
</TABLE>
F-33
<PAGE>
CENTRAL CONCRETE SUPPLY CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Actual income tax expense differs from the income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 35 percent to income
before provision for income taxes due to state income tax, non-deductible
expenses and the Company's 1997 conversion from C Corporation to S Corporation
status.
The deferred state income tax assets result from temporary timing
differences for depreciation calculations. The deferred tax liabilities result
from temporary differences in accruals and reserves.
8. RELATED-PARTY TRANSACTIONS:
The Company made sales to a relative of the stockholders of $5,061,000,
$7,693,000 and $10,654,000 for the years ended December 31, 1996, 1997, and
1998, respectively. This relative has no ownership interest in the Company. The
transactions were completed under terms and prices similar to transactions with
other third parties.
The Company also made purchases of aggregate supplies from a company in
which two stockholders have a financial interest. Purchases from this company
were $81,000, $104,000 and $274,000 for the years ended December 31, 1996, 1997
and 1998, respectively. The payable related to these purchases was $1,000 and
$10,000 at December 31, 1997 and 1998.
The Company leases a facility from its stockholders. The rent paid under
this related party lease was $144,000 for each of the three years ended December
31, 1996, 1997 and 1998.
9. EMPLOYEE BENEFIT PLANS:
RETIREMENT PLANS
The Company maintains defined contribution profit-sharing and money
purchase pension plans (together, the "Plans"), both effective as amended May
1, 1997. Employees who are over 21 years old and whose wages are not governed by
a collective bargaining agreement become participants in the Plans after one
year of service. A participant is 20% vested after three years of service and
100% vested after seven years. The profit-sharing plan allows for the Company to
make discretionary contributions. Under the money purchase pension plan, the
Company makes a minimum contribution equal to 10% of all compensation of all
participants. Contributions for the Plans were $310,000, $404,000 and $404,000
for the years ended December 31, 1996, 1997 and 1998, respectively.
The Company made contributions to employee pension, health and welfare
plans for employees under collective bargaining agreements were $1,628,000,
$2,027,000 and $2,279,000 for the years ended December 31, 1996, 1997 and 1998,
respectively.
10. COMMITMENTS AND CONTINGENCIES:
INSURANCE
The Company carries a standard range of insurance coverages, including
business auto liability, general liability, medical, workers' compensation,
excess liability and commercial property. The Company also has an umbrella
policy. During 1996, 1997 and 1998, the Company has not had any significant
claims or losses on any of these insurance policies.
LITIGATION
In the normal course of doing business, the Company occasionally becomes a
party to a legal case. Specifically, the Company is a party to a legal case
regarding construction defects and delay damages. In the opinion of management,
pending or threatened litigation involving the Company will not have a material
adverse effect on its financial condition or results of operations.
F-34
<PAGE>
CENTRAL CONCRETE SUPPLY CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PURCHASE COMMITMENTS
On July 29, 1998, the Company ordered 12 mixer trucks for a total purchase
price of $1,635,000. As of December 31, 1998, the Company had paid a $146,000
deposit to the vendor. It accepted delivery of all 12 trucks during the first
quarter of 1999.
11. SIGNIFICANT CUSTOMERS:
Significant customers of the Company represented sales (as a percentage of
total sales) as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
-------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Customer A.............................. 13% 14% 16%
Customer B (related party).............. 12 20 22
</TABLE>
12. SIGNIFICANT SUPPLIERS:
Significant suppliers of the Company represented purchases (as a percent of
total purchases) as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
-------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Supplier A.............................. 22% 23% 22%
Supplier B.............................. 13 16 19
Supplier C.............................. 19 22 18
Supplier D.............................. 13 10 9
</TABLE>
The Company purchased all its lightweight aggregates from a single supplier
in 1997 and 1998.
13. SEGMENT REPORTING:
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" requires that companies report separately information about each
significant operating segment reviewed by the chief operating decision maker.
Management has elected to organize segments based on differences in products and
services. All segments that meet a threshold of 10% of revenues, reported profit
or loss, or combined assets are defined as significant segments. Based on these
requirements, management has identified two reportable segments.
The Ready-Mixed segment derives its revenues from the manufacture and sale
of ready-mixed concrete and related concrete products. The Westside segment
generates revenues through the sale of building materials. Information about
other business activities and operating segments that do not meet the reporting
thresholds described above are included in the "Other" category. The "Other"
category for the Company consists of the administrative and accounting
departments.
The Company recognizes sales and cost of goods sold by segment. Selling,
general and administrative, depreciation, interest costs, and other income
(expense) are not monitored by segment. Refer to Note 2 for discussion of types
of costs included in the cost categories. The Company does not maintain balance
sheet information by segment.
F-35
<PAGE>
CENTRAL CONCRETE SUPPLY CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Also in 1998, the Company began recording sales discounts, purchase
discounts and miscellaneous charges in the Ready-Mixed and Westside segments
rather than the administrative department.
<TABLE>
<CAPTION>
MARCH 31, 1998 (UNAUDITED) MARCH 31, 1999 (UNAUDITED)
----------------------------------------------- -----------------------------------
READY-MIXED WESTSIDE OTHER TOTAL READY-MIXED WESTSIDE OTHER
------------ --------- ------ --------- ------------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales................................ $8,639 $ 1,367 $ (88 ) $ 9,918 $ 11,259 $ 1,697
Cost of Goods Sold................... 7,116 1,201 220 8,537 9,245 1,210 170
------------ --------- ------ --------- ------------ --------- ------
Gross profit......................... 1,523 166 (308) 1,381 $ 2,014 $ 487 (170)
============ ========= ============ =========
Selling, general, and administrative
expenses........................... 600 600 1,323
Depreciation......................... 188 188 292
Interest income...................... 49 49 56
Interest expense..................... (6) (6) (18)
Other income (expense)............... 53 53 189
---------
Income before provision for income
taxes.............................. 689
Provision for income taxes........... 6
---------
Net income........................... $ 683
=========
<CAPTION>
TOTAL
---------
<S> <C>
Sales................................ $ 12,956
Cost of Goods Sold................... 10,625
---------
Gross profit......................... 2,331
Selling, general, and administrative
expenses........................... 1,323
Depreciation......................... 292
Interest income...................... 56
Interest expense..................... (18)
Other income (expense)............... 189
---------
Income before provision for income
taxes.............................. 943
Provision for income taxes........... 17
---------
Net income........................... $ 926
=========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------------------------------------------
1996 1997
------------------------------------------- -------------------------------------------
READY- READY-
MIXED WESTSIDE OTHER TOTAL MIXED WESTSIDE OTHER TOTAL
------- -------- --------- --------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................................ $33,112 $6,135 $ (43) $ 39,204 $46,077 $8,255 $ (701) $ 53,631
Cost of goods sold................... 26,923 5,064 1,415 33,402 36,301 6,261 1,232 43,794
------- -------- --------- --------- ------- -------- --------- ---------
Gross profit......................... $ 6,189 $1,071 (1,458) 5,802 $ 9,776 $1,994 (1,933) 9,837
======= ======== ======= ========
Selling, general and administrative
expenses............................ 3,644 3,644 4,265 4,265
Depreciation......................... 1,203 1,203 1,330 1,330
Interest income...................... 36 36 60 60
Interest expense..................... (221) (221) (286) (286)
Other income (expense)............... (3) (3) 26 26
--------- ---------
Income before provision for income
taxes............................... 767 4,042
Provision (benefit) for income
taxes............................... 303 (457)
--------- ---------
Net income........................... $ 464 $ 4,499
========= =========
<CAPTION>
1998
-------------------------------------------
READY-
MIXED WESTSIDE OTHER TOTAL
------- -------- --------- ---------
<S> <C> <C> <C> <C>
Sales................................ $57,339 $9,162 $ (2) $ 66,499
Cost of goods sold................... 46,465 7,049 460 53,974
------- -------- --------- ---------
Gross profit......................... $10,874 $2,113 (462) 12,525
======= ========
Selling, general and administrative
expenses............................ 4,712 4,712
Depreciation......................... 930 930
Interest income...................... 179 179
Interest expense..................... (344) (344)
Other income (expense)............... 36 36
---------
Income before provision for income
taxes............................... 6,754
Provision (benefit) for income
taxes............................... 100
---------
Net income........................... $ 6,654
=========
</TABLE>
14. SUBSEQUENT EVENT:
In January, 1999, the Company made cash distributions to its stockholders
totaling approximately $551,000. In addition, the Company made a distribution to
stockholders of a building with a carrying amount of approximately $1,087,000.
The Company now leases the building from its stockholders.
F-36
<PAGE>
CENTRAL CONCRETE SUPPLY CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
15. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In March 1999, the Company and its stockholders entered into a definitive
agreement with U.S. Concrete providing for U.S. Concrete's acquisition of the
Company.
In connection with the acquisition, certain assets with a net book value of
$1,155,000 will be retained by the stockholders. If this transaction had been
recorded at December 31, 1998, the effect on the accompanying balance sheet
would be a decrease in assets and a decrease in stockholders' equity of
$1,155,000.
In addition, prior to the closing of the acquisition, the Company will make
distributions of the Company's estimated S Corporation Accumulated Adjustment
Account which at December 31, 1998 was approximately $8,665,000.
Upon the closing of the acquisition of the Company by U.S. Concrete, the
Company will enter into two new lease agreements with its former stockholders.
These leases will provide for $22,700 in combined monthly rentals over an
initial lease term of 15 years.
F-37
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Walker's Concrete, Inc.:
We have audited the accompanying balance sheets of Walker's Concrete, Inc. (the
"Company") (a California corporation) as of December 31, 1997 and 1998, and
the related statements of operations, stockholder's equity, and cash flows for
the years ended December 31, 1996, 1997, and 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 Walker's Concrete, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the years ended December 31, 1996, 1997, and 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
March 8, 1999
F-38
<PAGE>
WALKER'S CONCRETE, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- MARCH 31
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 1,192 $ 1,805 $ 2,223
Trade accounts and notes
receivable, net of allowance
for doubtful accounts of $151,
$238 and $230, respectively... 4,670 5,376 4,601
Inventories..................... 257 212 255
Prepaid expenses................ 148 228 279
Deferred tax assets............. 125 134 110
--------- --------- -----------
Total current assets....... 6,392 7,755 7,468
NOTE RECEIVABLE FROM STOCKHOLDER..... 384 -- --
PROPERTY, PLANT, AND EQUIPMENT,
net................................ 7,315 8,414 9,321
CASH SURRENDER VALUE OF LIFE
INSURANCE POLICIES................. 426 530 530
OTHER ASSETS, net.................... 48 19 15
--------- --------- -----------
Total assets............... $ 14,565 $ 16,718 $17,334
========= ========= ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term
debt............................ $ 555 $ 567 $ 692
Line of credit.................. 3,232 3,005 2,764
Accounts payable and accrued
liabilities..................... 3,186 3,125 3,723
Income tax payable.............. 26 590 297
--------- --------- -----------
Total current
liabilities................ 6,999 7,287 7,476
LONG-TERM DEBT, net of current
portion.............................. 870 813 1,158
DEFERRED TAX LIABILITY............... 976 1,101 1,096
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $1 par: 100,000
shares authorized; 4,000
shares outstanding............ 4 4 4
Additional paid-in capital...... 38 38 38
Retained earnings............... 5,678 7,475 7,562
--------- --------- -----------
Total stockholder's
equity..................... 5,720 7,517 7,604
--------- --------- -----------
Total liabilities and
stockholder's equity....... $ 14,565 $ 16,718 $17,334
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-39
<PAGE>
WALKER'S CONCRETE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
SALES................................ $ 31,008 $ 37,990 $ 41,615 $ 5,842 $ 8,244
COST OF GOODS SOLD................... 26,162 31,141 33,756 5,113 6,788
COST OF GOODS SOLD FROM RELATED
PARTY................................ 293 657 772 157 156
--------- --------- --------- --------- ---------
Gross profit............... 4,553 6,192 7,087 572 1,300
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,155 2,953 3,022 707 850
DEPRECIATION AND AMORTIZATION
EXPENSE............................ 767 828 896 285 220
--------- --------- --------- --------- ---------
Income from operations..... 1,631 2,411 3,169 (420) 230
OTHER INCOME (EXPENSE):
Interest expense, net........... (339) (379) (377) (58) (75)
Other income, net............... 412 137 307 9 8
--------- --------- --------- --------- ---------
Income (loss) before
provision for taxes........ 1,704 2,169 3,099 (469) 163
PROVISION (BENEFIT) FOR TAXES........ 793 860 1,262 (229) 76
--------- --------- --------- --------- ---------
Net income (loss).......... $ 911 $ 1,309 $ 1,837 $ (240) $ 87
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-40
<PAGE>
WALKER'S CONCRETE, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995........... 4,000 $ 4 $ 38 $3,518 $3,560
Net income...................... -- -- -- 911 911
Distributions................... -- -- -- (20) (20)
------ ------ --- -------- --------------
BALANCE, December 31, 1996........... 4,000 4 38 4,409 4,451
Net income...................... -- -- -- 1,309 1,309
Distributions................... -- -- -- (40) (40)
------ ------ --- -------- --------------
BALANCE, December 31, 1997........... 4,000 4 38 5,678 5,720
Net income...................... -- -- -- 1,837 1,837
Distributions................... -- -- -- (40) (40)
------ ------ --- -------- --------------
BALANCE, December 31, 1998........... 4,000 4 38 7,475 7,517
Net loss (unaudited)............ -- -- -- 87 87
------ ------ --- -------- --------------
BALANCE, March 31, 1999
(unaudited)........................ 4,000 $ 4 $ 38 $7,562 $7,604
====== ====== === ======== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-41
<PAGE>
WALKER'S CONCRETE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................... $ 911 $ 1,309 $ 1,837 $ (240) $ 87
Adjustments to reconcile net income to
net cash provided by operating
activities:.........................
Depreciation and amortization..... 767 828 896 285 220
Net loss (gain) on sale of
property, plant and
equipment...................... (73) 63 (60) -- --
Deferred income tax provision..... 13 250 115 (27) 19
Changes in operating assets and
liabilities:
Trade accounts and notes
receivable, net of
allowances................... (901) (870) (717) 1,487 775
Inventories.................... (34) (74) 45 3 (43)
Prepaid expenses and other
assets....................... (69) 4 (64) (347) (50)
Accounts payable and accrued
liabilities.................. (639) 567 (61) 777 598
Income tax payable............. 134 (348) 564 (27) (293)
--------- --------- --------- --------- ---------
Net cash provided by
operating activities..... 109 1,729 2,555 1,911 1,313
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in cash surrender
value of life insurance............. (100) 18 (104) (49) --
Purchases of property, plant, and
equipment........................... (1,187) (1,541) (2,066) (1,321) (1,124)
Proceeds from sales of property,
plant, and equipment................ 87 40 145 -- --
--------- --------- --------- --------- ---------
Net cash used in investing
activities............... (1,200) (1,483) (2,025) (1,370) (1,124)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from line of credit.... 663 929 (227) (1,357) (241)
Proceeds from long-term debt.......... 710 317 598 597 643
Repayments on long-term debt.......... (432) (570) (643) (150) (173)
Dividends paid to stockholders........ -- -- (40) -- --
Repayments on notes receivable to
stockholders........................ 150 270 395 59 --
--------- --------- --------- --------- ---------
Net cash provided by (used
in) financing
activities............... 1,091 946 83 (851) 229
--------- --------- --------- --------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................... -- 1,192 613 (310) 418
CASH AND CASH EQUIVALENTS, at beginning
of the period......................... -- -- 1,192 1,192 1,805
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, at end of the
period................................ $ -- $ 1,192 $ 1,805 $ 882 $ 2,223
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest................ $ 334 $ 377 $ 376 $ 85 $ 68
Cash paid for income taxes............ 638 962 583 110 380
SUPPLEMENTAL DISCLOSURE OF NONCASH
TRANSACTION:
Dividend and reduction of notes
receivable to stockholder........... (20) (40) -- -- --
</TABLE>
The accompanying notes are an integral part of these statements.
F-42
<PAGE>
WALKER'S CONCRETE, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Walker's Concrete, Inc. (the "Company"), a California corporation, is
engaged in the production and distribution of ready-mix concrete. The Company
operates four plant locations in Hayward, Oakland, and San Jose, California.
The Company and its stockholders intend to enter into a definitive
agreement with U.S. Concrete, Inc. ("U.S. Concrete"), a recently formed entity
organized to acquire ready mixed companies. Pursuant to this transaction, the
Company's stockholders will exchange all the outstanding common stock of the
Company for cash and shares of U.S. Concrete common stock concurrent with the
closing of U.S. Concrete's initial public offering.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The Company has prepared these financial statements on the accrual basis of
accounting.
INTERIM FINANCIAL STATEMENTS
The interim financial statements as of March 31, 1999, and for the three
months ended March 31, 1999 and 1998, 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
necessarily indicative of the results for the entire fiscal year.
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,
disclosures 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, trade accounts and notes receivable, note receivable from
stockholder, a loan receivable, the cash surrender value of life insurance
policies, accounts payable, lines of credit, and long-term debt. The Company
believes that the carrying values of these instruments on the accompanying
balance sheets approximate their fair values, because of the length of their
maturities or existence of interest rates that approximate market rates.
CASH AND CASH EQUIVALENTS
The Company records as cash equivalents all highly liquid investments
having maturities of three months or less at the date of purchase. At December
31, 1997 and 1998, the Company maintained cash balances in various financial
institutions in excess of federally insured limits.
CONCENTRATION OF CREDIT RISK
The Company sells to various construction contractors that may be affected
by changes in economic or other external conditions. The Company manages its
exposure to credit risk through ongoing credit evaluations and, where
appropriate, requires that its customers furnish adequate collateral before
credit is
F-43
<PAGE>
WALKER'S CONCRETE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
granted. As of December 31, 1997 and 1998, one customer represented 19% and 11%
of trade accounts receivable, respectively.
INVENTORIES
Inventories consist primarily of raw materials, repair parts, and building
materials for resale that the Company holds for use or sale in the ordinary
course of business. The Company uses the first-in, first out method to value
inventories at the lower of cost or market. At December 31, 1997 and 1998,
management believes the Company had incurred no material impairments in the
carrying values of its inventories.
PREPAID EXPENSES
Prepaid expenses primarily include amounts the Company has paid for fuel,
tires, shop parts, licenses, and insurance. The Company expenses or amortizes
all prepaid amounts as used or over the period of benefit, as applicable.
PROPERTY, PLANT, AND EQUIPMENT, NET
The Company records property, plant, and equipment at cost or, in the case
of equipment acquired under capital leases, at the present value of future lease
payments. It uses the straight-line method to compute depreciation of these
assets over their estimated useful lives or remaining lease terms.
The Company expenses maintenance and repair cost when incurred and
capitalizes and depreciates expenditures for major renewals and betterments that
extend the useful lives of existing assets. When the Company retires or disposes
of property, plant, and equipment, it removes the related cost and accumulated
depreciation from the accounts and reflects any resulting gain or loss in its
statements of operations.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company provides an allowance for accounts receivable that it believes
may not be fully collectible.
CASH SURRENDER VALUE OF LIFE INSURANCE POLICIES
The Company owns various life insurance policies covering its stockholder.
It records the cash surrender value of these policies as an asset. It expenses
the premiums related to these policies to the extent that they exceed the
increase in the underlying cash surrender value of the policies.
SALES AND EXPENSES
The Company derives its sales primarily from supplying ready-mixed concrete
to contractors. The Company recognizes sales when products are delivered. Costs
of goods sold consist primarily of product costs and operating expenses.
Operating expenses consist primarily of repairs and maintenance, gas and oil,
and insurance. Selling expenses consist primarily of sales commissions, salaries
of sales managers, travel and entertainment expenses, trade show expenses, and
automobile allowances. General and administrative expenses consist primarily of
executive compensation and related benefits, administrative salaries and
benefits, office rent and utilities, communication expenses, and professional
fees.
INCOME TAXES
The Company follows the liability method of accounting for income taxes.
Under this method, the Company records deferred income taxes based on temporary
differences between the financial reporting and tax bases of assets and
liabilities and measures those taxes using enacted tax rates and laws that will
be in effect when the Company recovers those assets or settles those
liabilities, as the case may be.
F-44
<PAGE>
WALKER'S CONCRETE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its plant assets for impairment. The Company assesses
the recoverability of assets other than plant based on its anticipated future
cash flows from its assets. If facts and circumstances lead the Company's
management to believe 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
that 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 has determined that the cash flows from each
plant would be sufficient to recover the carrying value of the Company's
long-lived assets as of December 31, 1997 and 1998, and therefore that those
values were not impaired at those dates.
COLLECTIVE BARGAINING AGREEMENTS
The Company is 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 through 2002.
3. PROPERTY, PLANT, AND EQUIPMENT, NET:
Property, plant, and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES --------------------
IN YEARS 1997 1998
------------ --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Land................................. -- $ 1,757 $ 1,757
Building and improvements............ 7-30 412 412
Machinery and equipment.............. 5-20 4,938 5,811
Mixers, trucks, and other vehicles... 5-12 8,292 9,223
Furniture and fixtures............... 7 129 143
--------- ---------
15,528 17,346
Less: Accumulated depreciation....... (8,213) (8,932)
--------- ---------
Property, plant, and equipment,
net........................... $ 7,315 $ 8,414
========= =========
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Trade accounts receivable and notes receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- MARCH 31,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
(IN THOUSANDS) (UNAUDITED)
Accounts receivable, trade........... $ 4,639 $ 5,518 $ 4,737
Notes receivable..................... 182 96 94
--------- --------- -----------
4,821 5,614 4,831
Less: Allowance for doubtful
accounts............................. (151) (238) (230)
--------- --------- -----------
Trade accounts and notes receivable,
net.................................. $ 4,670 $ 5,376 $ 4,601
========= ========= ===========
</TABLE>
Notes receivable consist mainly of a note receivable from a third party.
This note is payable in minimum monthly installments of $5,000, with interest
accruing at the rate of 10%. The final payment is due June 2000.
F-45
<PAGE>
WALKER'S CONCRETE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable, trade.............. $ 2,376 $ 2,110
Accrued compensation and benefits.... 509 706
Other accrued liabilities............ 301 309
--------- ---------
$ 3,186 $ 3,125
========= =========
</TABLE>
5. DEBT:
LINE OF CREDIT
The Company has a line of credit agreement with a bank that provides for
borrowings of up to $4,000,000 secured by the Company's accounts receivable.
This agreement expires on October 31, 1999. Interest is paid monthly at the
reference rate plus 1.0%.
This Company is subject to covenants under this debt agreement, including
minimum tangible net worth, maximum ratio of debt to tangible net worth, minimum
debt service coverage ratio, and profitability requirements.
The following information relates to the line of credit for each of the
following periods:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Maximum amount outstanding........... $ 3,575 $ 3,572
Average amount outstanding........... $ 2,846 $ 2,494
Weighted average interest rate....... 9.7% 9.5%
Effective interest rate at end of
period............................... 9.5% 9.5%
Prime interest rate at end of
period............................... 8.5% 8.5%
</TABLE>
On February 19, 1999, the Company restructured their debt lines. The effect
of this restructure was to extend the expiration date of the line of credit to
October 31, 2001, modify the debt covenants and grant an additional equipment
loan.
F-46
<PAGE>
WALKER'S CONCRETE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM DEBT
Long-term debt consists of the following as of December 31:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Mortgage, payable in monthly
principal installments of $6
through July 2004, plus interest at
1.5% over the bank's index rate.
The
interest rate at December 31, 1998,
was 10.6%. This loan is secured by
land............................... $ 450 $ 331
Equipment loan, payable in monthly
principal installments of $13, plus
interest at 8.6%. This loan is
secured by equipment; all unpaid
principal and interest is due on
July 1, 1999....................... 244 90
Equipment loan, payable in monthly
principal installments of $10, plus
interest at 8.59%. This loan is
secured by equipment. All unpaid
principal and interest is due on
April 3, 2000...................... 277 158
Equipment loan, payable in monthly
principal installments of $5, plus
interest at 8.76%. This loan is
secured by equipment; all unpaid
principal and interest is due on
August 3, 2000..................... 158 99
Equipment loan, payable in monthly
principal installments of $7, plus
interest at 9.04%. This loan is
secured by equipment; all unpaid
principal and interest is due on
May 1, 2001........................ 272 192
Equipment loan, payable in monthly
principal installments of $12, plus
interest at 7.8%. This loan is
secured by equipment; all unpaid
principal and interest is due on
May 5, 2002........................ -- 510
Other, payable in monthly principal
installments of $5, including
interest
at 5%. Final payment was made on
May 5, 1998........................ 24 --
--------- ---------
1,425 1,380
Less: Current portion................ (555) (567)
--------- ---------
$ 870 $ 813
========= =========
</TABLE>
Scheduled maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
For the year ending December 31 --
1999............................ $ 567
2000............................ 378
2001............................ 253
2002............................ 132
2003............................ 50
---------
$ 1,380
=========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
The Company leases certain operating and office facilities under operating
lease agreements. These leases are noncancellable and expire on various dates
throughout 2001. Minimum lease payments under these agreements are as follows
(in thousands):
<TABLE>
<S> <C>
For the year ending December 31 --
1999............................ $ 85
2000............................ 1
2001............................ 1
---
$ 87
===
</TABLE>
F-47
<PAGE>
WALKER'S CONCRETE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Total rent expense under all operating leases was approximately $1,000,
$8,000, and $85,000 for the years ended December 31, 1996, 1997, and 1998,
respectively.
Pursuant to the lease agreement for the San Jose site, the Company is
required to purchase an annual minimum volume of coarse aggregate of $796,000
from the lessor, through December 31, 1999.
7. INCOME TAXES:
The provision for federal and state income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Federal:
Current......................... $ 604 $ 474 $ 897
Deferred........................ 9 199 92
State:
Current......................... 177 136 250
Deferred........................ 3 51 23
--------- --------- ---------
$ 793 $ 860 $ 1,262
========= ========= =========
</TABLE>
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 35% to income before
provision for income taxes as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Provision at the statutory rate......... $ 597 $ 759 $ 1,085
Increase (decrease) resulting from:
State income tax, net of federal
benefit.......................... 117 121 178
Non-deductible expenses............ 79 (20) (1)
--------- --------- ---------
$ 793 $ 860 $ 1,262
========= ========= =========
</TABLE>
F-48
<PAGE>
WALKER'S CONCRETE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences representing deferred tax assets
and liabilities result principally from the following:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Deferred income tax assets --
Accrued Expenses................... $ 128 $ 49 $ 68
Capital Loss Carryover............. 18 18 18
Inventory.......................... -- 15 25
Allowance for Doubtful Accounts.... 68 61 41
Other.............................. 18 -- --
--------- --------- ---------
Total deferred income tax
assets...................... 232 143 152
Valuation Allowance................ (18) (18) (18)
--------- --------- ---------
Total deferred income tax
assets...................... 214 125 134
Deferred income tax liabilities --
Property, Plant & Equipment........ (816) (976) (1,101)
--------- --------- ---------
Net deferred income tax
liabilities................. $ (602) $ (851) $ (967)
========= ========= =========
</TABLE>
8. RELATED-PARTY TRANSACTIONS:
The Company's sole stockholder owns a transport business that hauls
material for the Company. For the years ended December 31, 1996, 1997, and 1998,
payments for hauling services totaled $293,000, $657,000, and $772,000,
respectively.
The Company's sole stockholder owns a charter service that provides
executive aircraft services to the Company. For the years ended December 31,
1997 and 1998, payments for executive aircraft services totaled $40,000 and
$38,000, respectively. No services were provided during 1996.
In 1993, the transport company described above loaned the Company $250,000.
The note was payable in minimum monthly principal installments of $5,000 plus
interest at the rate of 7%. The final payment was made on December 31, 1997.
During the year ended December 31, 1997, principal and interest payments made
totaled $60,000 and $2,000, respectively.
In 1994, the Company loaned the sole stockholder $797,000. An additional
amount of $82,000 was loaned on January 1, 1997. The note is payable in minimum
monthly installments of $3,000, with interest accruing at the rate of 7% per
annum. During the years ended December 31, 1997 and 1998, principal payments
totaled $310,000 and $395,000, respectively. Interest earned for the years ended
December 31, 1997 and 1998, was $42,000 and $11,000, respectively.
On January 1, 1997, a life insurance policy was transferred from the
Company to its stockholder for consideration of $82,000. This transfer resulted
in a loss to the Company of $68,000 which was expensed in 1997.
9. EMPLOYEE BENEFIT PLANS:
The Company has a money purchase pension plan. The Company annually
contributes a mandatory 15 percent of each eligible employee's salary. To be
eligible, an employee must be nonunion and must accumulate 1,000 hours of
service per year in addition to obtaining age 21.
Benefit expense for the years ended December 31, 1996, 1997, and 1998, was
approximately $128,000, $135,000, and $152,000, respectively.
F-49
<PAGE>
WALKER'S CONCRETE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company made contributions to employee pension, health, and welfare
plans for employees under collective bargaining agreements of $674,000,
$840,000, and $908,000 for the years ended December 31, 1996, 1997, and 1998,
respectively.
10. COMMITMENTS AND CONTINGENCIES:
INSURANCE
The Company carries a standard range of insurance coverages, including
business auto liability, general liability, medical, workers' compensation,
excess liability and commercial property. The Company also has an umbrella
policy. During 1996, 1997 and 1998, the Company has not had any significant
claims or losses on any of these insurance policies.
LITIGATION
In the normal course of doing business, the Company occasionally becomes a
party to litigation. In the opinion of management, pending or threatened
litigation involving the Company will not have a material adverse material
effect on its financial condition.
11. SIGNIFICANT CUSTOMERS:
The Company had sales of approximately 12% of total sales to one major
customer for the year ended December 31, 1996, sales of approximately 17% and
11% of total sales to two major customers for the years ended December 31, 1997,
and sales of approximately 17% of total sales to one major customer for the year
ended December 31, 1998.
12. SIGNIFICANT SUPPLIERS:
The Company purchased approximately 39%, 28%, 15%, and 12% of its materials
from four suppliers for 1996; 35%, 30%, and 12% of its materials from three
suppliers for 1997; and 26%, 22%, 18%, and 13% of its materials from four
suppliers for 1998.
13. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In March 1999, the Company and its stockholders entered into a definitive
agreement with U.S. Concrete providing for U.S. Concrete's acquisition of the
Company.
In connection with the acquisition, certain non-operating assets with a net
book value of $500,000 will be retained by the stockholders. Had this
transaction been recorded at December 31, 1998, the effect on the accompanying
balance sheet would be a decrease in assets and a decrease in stockholder's
equity of $500,000.
F-50
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Bay Cities Building Materials Co., Inc.:
We have audited the accompanying consolidated balance sheets of Bay Cities
Building Materials Co., Inc. (a California corporation) and subsidiary
(collectively, the "Company") as of December 31, 1997 and 1998, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 1996, 1997 and 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 consolidated financial position of Bay Cities
Building Materials Co., Inc. and subsidiary as of December 31, 1997 and 1998,
and the results of their consolidated operations and their consolidated cash
flows for the years ended December 31, 1996, 1997 and 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
January 29, 1999
F-51
<PAGE>
BAY CITIES BUILDING MATERIALS CO., INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- MARCH 31
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 343 $ 2,642 $ 2,868
Trade accounts and notes
receivable, net of allowance
for doubtful accounts of
$50........................... 8,503 7,871 8,529
Receivables from
related-party................... 250 309 234
Inventories..................... 106 124 124
Prepaid expenses................ 18 15 12
Short-term investment........... 200 500 500
--------- --------- -----------
Total current assets....... 9,420 11,461 12,267
NOTE RECEIVABLE FROM STOCKHOLDERS,
net of unamortized discount of $42,
$34 and $32, respectively.......... 193 201 203
PROPERTY, PLANT AND EQUIPMENT, net... 4,206 5,494 5,651
LONG-TERM INVESTMENT................. 500 -- --
OTHER ASSETS, net.................... 11 11 27
--------- --------- -----------
Total assets............... $ 14,330 $ 17,167 $18,148
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term
debt.......................... $ 297 $ 335 $ 337
Accounts payable................ 6,513 6,995 8,387
Related-party accounts
payable....................... 122 59 --
Accrued liabilities and other
payables...................... 1,295 1,823 1,199
--------- --------- -----------
Total current
liabilities................ 8,227 9,212 9,923
LONG-TERM DEBT, net of current
portion............................ 1,875 2,209 2,171
DEFERRED TAX LIABILITIES............. 578 706 196
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $10 par; 20,000
shares authorized, 4,088.58
shares issued and
outstanding................... 41 41 41
Additional paid-in capital...... 38 38 38
Retained earnings............... 3,571 4,961 5,779
--------- --------- -----------
Total stockholders'
equity................... 3,650 5,040 5,858
--------- --------- -----------
Total liabilities and
stockholders' equity..... $ 14,330 $ 17,167 $18,148
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-52
<PAGE>
BAY CITIES BUILDINGS MATERIALS CO., INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
SALES................................ $ 30,496 $ 45,312 $ 53,600 $ 10,908 $ 12,548
COST OF GOODS SOLD................... 27,287 40,292 46,766 9,440 10,555
--------- --------- --------- --------- ---------
Gross profit............... 3,209 5,020 6,834 1,468 1,993
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,090 2,778 3,962 697 553
DEPRECIATION AND AMORTIZATION........ 458 458 505 121 103
--------- --------- --------- --------- ---------
Income from operations..... 661 1,784 2,367 650 1,337
OTHER INCOME (EXPENSE):
Interest expense, net.............. (186) (136) (156) (45) (40)
Other income, net.................. 177 49 141 66 120
--------- --------- --------- --------- ---------
Income before provision for
income taxes............ 652 1,697 2,352 671 1,417
PROVISION FOR INCOME TAXES........... 260 696 962 315 599
--------- --------- --------- --------- ---------
Net income................. $ 392 $ 1,001 $ 1,390 $ 356 $ 818
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-53
<PAGE>
BAY CITIES BUILDING MATERIALS CO., INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995........... 4,088.58 $ 41 $ 38 $2,178 $ 2,257
Net income...................... -- -- -- 392 392
---------- ------ --- -------- -------------
BALANCE, December 31, 1996........... 4,088.58 41 38 2,570 2,649
Net income...................... -- -- -- 1,001 1,001
---------- ------ --- -------- -------------
BALANCE, December 31, 1997........... 4,088.58 41 38 3,571 3,650
Net income...................... -- -- -- 1,390 1,390
---------- ------ --- -------- -------------
BALANCE, December 31, 1998........... 4,088.58 41 38 4,961 5,040
---------- ------ --- -------- -------------
Net income (unaudited).......... -- -- -- 818 818
---------- ------ --- -------- -------------
BALANCE, March 31, 1999
(unaudited)........................ 4,088.58 $ 41 $ 38 $5,779 $ 5,858
========== ====== === ======== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-54
<PAGE>
BAY CITIES BUILDING MATERIALS CO., INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 392 $ 1,001 $ 1,390 $ 356 $ 818
Adjustments to reconcile net income
to net cash provided by operating
activities --
Depreciation and
amortization................ 458 458 505 121 103
Deferred income tax provision
(benefit)................... 156 420 (25) (576) (510)
Net gain on sale of property
and equipment............... (155) (12) 128 -- --
Changes in operating assets and
liabilities --
Trade accounts and notes
receivable, net of
allowances................ 250 (4,709) 573 472 (583)
Inventories................. (21) 152 (18) -- --
Prepaid expenses............ (53) 55 3 (35) 3
Other assets................ 33 (5) (9) 301 (18)
Accounts payable............ (847) 3,066 419 (862) 971
Accrued liabilities and
other payables............ 276 100 528 (260) (262)
--------- --------- --------- --------- ---------
Net cash provided by
(used in) operating
activities............ 489 526 3,494 (483) 522
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant, and
equipment........................ (465) (807) (1,806) (66) (260)
Proceeds from sales of property,
plant and equipment.............. 163 12 39 -- --
Increase in note receivable from
stockholders, net of unamortized
discount......................... -- (188) -- -- --
Purchase of long-term
investments...................... (700) -- -- -- --
Proceeds from liquidation of
investment....................... -- -- 200 200 --
Repayments on note receivable from
stockholders..................... 1,053 -- -- -- --
--------- --------- --------- --------- ---------
Net cash provided by
(used in) investing
activities............ 51 (983) (1,567) 134 (260)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt....... 179 214 913 545 106
Repayments on long-term debt....... (295) (334) (541) (132) (142)
--------- --------- --------- --------- ---------
Net cash provided by
(used in) financing
activities............ (116) (120) 372 413 (36)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 424 (577) 2,299 64 226
CASH AND CASH EQUIVALENTS, at
beginning of the period............ 496 920 343 343 2,642
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, at end of
the period......................... $ 920 $ 343 $ 2,642 $ 407 $ 2,868
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest............. $ 226 $ 197 $ 217 $ 59 $ 49
Cash paid for income taxes......... -- 182 315 190 291
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-55
<PAGE>
BAY CITIES BUILDING MATERIALS CO., INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Bay Cities Building Materials Co., Inc., a California corporation and its
wholly owned subsidiary (together, the "Company"), as of March 6, 1957, is
engaged in the production and distribution of ready-mixed concrete products in
the San Francisco Bay Area and Sacramento metropolitan area. The Company has 10
batch plants.
The Company and its stockholders intend to enter into a definitive
agreement with U.S. Concrete, Inc. ("U.S. Concrete"), a recently formed entity
organized to acquire ready mixed companies. Pursuant to this transaction, the
Company's stockholders will exchange all the outstanding common stock of the
Company for cash and shares of U.S. Concrete common stock concurrent with the
closing of U.S. Concrete's initial public offering.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The Company has prepared these consolidated financial statements on the
accrual basis of accounting.
INTERIM FINANCIAL STATEMENTS
The interim consolidated financial statements as of March 31, 1999, and for
the three months ended March 31, 1999 and 1998, 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 necessarily indicative of the results for the entire
fiscal year.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Bay Cities
Building Materials Co., Inc., and its subsidiary, B.C.B.M. Transport, Inc.
("BCBM"). BCBM's September 30, 1997 and 1998, year-end balances are
consolidated in these financial statements. All material intercompany
transactions have been eliminated in consolidation.
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,
disclosures 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and
investments in certificates of deposit, accounts receivable, notes receivable,
accounts payable and long-term debt. The Company believes that the carrying
values of these instruments on the accompanying consolidated balance sheets
approximates their fair values because of the length of their maturities or the
existence of interest rates that approximates market rates.
F-56
<PAGE>
BAY CITIES BUILDING MATERIALS CO., INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company records as cash equivalents all highly liquid investments
having maturities of three months or less at the date of purchase. At December
31, 1997 and 1998, the Company maintained cash balances in various financial
institutions in excess of federally insured limits.
INVESTMENTS
The Company classifies securities with maturities longer than three months
that the Company intends to hold to maturity as investments and, classifies them
as either current or noncurrent assets based on the maturity date of the
security. As of December 31, 1997 and 1998, the Company held $700,000 and
$500,000, respectively, of interest-bearing certificates of deposit, which were
classified as "held-to-maturity" securities. The carrying basis of these
investments approximated fair value.
CONCENTRATION OF CREDIT RISK
The Company sells to various construction contractors that may be affected
by changes in economic or other external conditions. The Company manages its
exposure to credit risk through ongoing credit evaluations and, where
appropriate, requires that its customers furnish adequate collateral before
credit is granted. The Company did not have any significant concentration of
credit in any customers as of December 31, 1997 and 1998. The Company had
revenues from one project with multiple contractors that represented 28.1%,
24.9% and 4.0%, of revenues for 1998, 1997 and 1996, respectively.
INVENTORIES
Inventories consist primarily of raw materials for resale that the Company
holds for use in the ordinary course of business. The Company uses the first-in,
first-out method to value inventories at the lower of cost or market. At
December 31, 1997 and 1998, management believes the Company had incurred no
material impairments in the carrying values of its inventories.
PROPERTY, PLANT AND EQUIPMENT, NET
The Company states property, plant and equipment at cost and uses the
straight-line method to compute depreciation of these assets over their
estimated useful lives or remaining lease terms.
Expenditures for maintenance and repairs are charged to expense when
incurred, and the Company capitalizes and depreciates expenditures for major
renewals and betterments that extend the useful lives of existing assets. When
the Company retires or disposes of property, plant and equipment, it removes the
related cost and accumulated depreciation from the accounts, and reflects any
resulting gain or loss in the consolidated statements of operations.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company provides an allowance for accounts receivable that it believes
may not be fully collectible. At December 31, 1997 and 1998, the allowance was
$50,000.
SALES AND EXPENSES
The Company derives its sales primarily from the production and delivery of
ready-mix concrete, building materials for resale and related concrete products.
The Company recognizes sales when products are delivered. Cost of goods sold
consists primarily of product costs and operating expenses. Operating expenses
consist of wages and benefits of union employees, plant operations, repairs and
maintenance, and truck expenses. Selling expenses consist primarily of sales
commissions, salaries of sales managers, travel and entertainment expenses, and
trade show expenses. General and administrative expenses consist primarily of
executive compensation and related benefits, administrative salaries and
benefits, office rent and utilities, communication expenses, and professional
fees.
F-57
<PAGE>
BAY CITIES BUILDING MATERIALS CO., INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company follows the liability method of accounting for income taxes.
Under this method, the Company records deferred income tax balances based on
temporary differences between the financial reporting and tax bases of assets
and liabilities and measures those taxes using enacted tax rates and laws that
will be in effect when the Company recovers those assets or settles those
liabilities, as the case may be.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its plant assets for impairment. The Company assesses
the recoverability of assets based upon anticipated future cash flows from its
assets. 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 that 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, and, therefore, that those values were not impaired at that date.
COLLECTIVE BARGAINING AGREEMENTS
The Company is 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 through 2002.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES --------------------
IN YEARS 1997 1998
-------------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Land................................. -- $ 1,766 $ 2,256
Building and improvements............ 7-30 3,577 4,431
Machinery and equipment.............. 3-15 468 468
Mixers, trucks and other vehicles.... 3-12 5,417 5,705
Furniture and fixtures............... 3-15 29 29
--------- ---------
11,257 12,889
Less -- Accumulated depreciation..... (7,051) (7,395)
--------- ---------
Property, plant and equipment,
net........................... $ 4,206 $ 5,494
========= =========
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Trade accounts receivable and notes receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Trade accounts receivable............ $ 8,548 $ 7,889
Notes and other receivables.......... 5 32
Less -- Allowance for doubtful
accounts........................... (50) (50)
--------- ---------
$ 8,503 $ 7,871
========= =========
</TABLE>
F-58
<PAGE>
BAY CITIES BUILDING MATERIALS CO., INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accrued liabilities and other payables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Accrued compensation and benefits.... $ 355 $ 611
Sales tax payable.................... 373 392
Income taxes payable................. 554 754
Other accrued liabilities............ 13 66
--------- ---------
$ 1,295 $ 1,823
========= =========
</TABLE>
5. LONG-TERM DEBT:
Long-term debt, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Notes payable to bank with interest
ranging from 6.0% to 10.25%, with
monthly principal and interest
payments, maturing January 1998
through 2005, and ranging from
8.25% to prime plus 1.5% (prime of
7.75% at December 31, 1998), with
monthly principal and interest
payments, maturing January 1999
through 2005, for the years ended
December 31, 1997 and 1998,
respectively, secured by machinery
equipment and land................. $ 1,552 $ 1,704
Note payable at 7.50%, interest only
payable monthly, principal
due 2002, secured by property...... 620 620
Note payable at 7.58%, with monthly
principal and interest payments,
due 2001, secured by equipment..... -- 220
--------- ---------
2,172 2,544
Less -- Current portion.............. (297) (335)
--------- ---------
$ 1,875 $ 2,209
========= =========
</TABLE>
Scheduled maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
For the year ending December 31 --
1999............................ $ 335
2000............................ 336
2001............................ 349
2002............................ 218
2003............................ 754
Thereafter...................... 552
---------
$ 2,544
=========
</TABLE>
F-59
<PAGE>
BAY CITIES BUILDING MATERIALS CO., INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LEASES:
The Company leases land, equipment, and vehicles under operating lease
agreements. These leases are noncancelable and expire on various dates through
2003. Minimum lease payments under these agreements are as follows (in
thousands):
<TABLE>
<S> <C>
For the year ending December 31 --
1999............................ $ 1,334
2000............................ 1,160
2001............................ 800
2002............................ 602
2003............................ 223
---------
$ 4,119
=========
</TABLE>
Total rent expense under all operating leases was $713,000, $1,045,000, and
$1,296,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
7. INCOME TAXES:
The provision for federal and state income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Federal --
Current......................... $ 164 $ 243 $ 655
Deferred........................ 36 302 98
State --
Current......................... 76 32 180
Deferred........................ (16) 119 29
--------- --------- ---------
$ 260 $ 696 $ 962
========= ========= =========
</TABLE>
Actual income tax expense differs from the income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 35% to income before
income taxes as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Provision at the statutory rate...... $ 228 $ 595 $ 823
Increase (decrease) resulting from --
State income tax, net of federal
benefit....................... 38 98 136
Nondeductible expenses.......... (6) 3 3
--------- --------- ---------
$ 260 $ 696 $ 962
========= ========= =========
</TABLE>
F-60
<PAGE>
BAY CITIES BUILDING MATERIALS CO., INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences representing deferred tax assets
and liabilities principally from the following:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Deferred tax assets --
Minimum tax credit.............. $ 10 $ 95 $ 103
NOL............................. 188 -- --
Other........................... -- 2 --
Allowance for doubtful
accounts...................... 84 20 20
--------- --------- ---------
Total deferred tax
assets..................... 282 117 123
Deferred tax liabilities --
Depreciation expense............ (415) (462) (653)
Investments..................... -- (233) (175)
Other........................... (25) -- --
--------- --------- ---------
Total deferred tax
liabilities.............. (440) (695) (828)
--------- --------- ---------
Net deferred tax
liabilities.............. $ (158) $ (578) $ (705)
========= ========= =========
</TABLE>
The Company believes that all tax assets are realizable and therefore has
not offset any of these balances with a valuation allowance.
8. RELATED-PARTY TRANSACTIONS:
The Company's sales include $157,000, $62,000 and $87,000 in 1996, 1997 and
1998, respectively, for sales to a contracting company in which one of the
Company's stockholders has an ownership interest.
In 1997, the Company advanced its two principal stockholders $188,000 in
return for a note receivable in the amount of $235,000 and for interest on the
advance at an annual interest rate of 4%. Principal payments to the Company are
not due until February 1, 2003, which is the maturity date of the note. The note
is secured by an apartment building that is owned by the stockholders. As of
December 31, 1997 and 1998, the note receivable from stockholders, net of
unamortized discount, was $193,000 and $201,000, respectively. During the years
ended December 31, 1997 and 1998, the Company recorded interest income of
approximately $10,000 and $16,000, respectively, including discount amortization
of $5,000 and $8,000, respectively.
9. EMPLOYEE BENEFIT PLANS:
The Company offers its nonunion employees a profit-sharing plan (the
"Plan"), which covers all employees who have completed at least 1,000 hours of
service in a 12-month period subsequent to employment. The Company may declare a
discretionary contribution annually, which is placed into a trust fund for the
benefit of Plan participants. The Company made discretionary profit-sharing
contributions of $142,000, $215,000 and $200,000 for the years ended December
31, 1996, 1997 and 1998, respectively.
The Company made contributions to employee pension, health and welfare
plans for employees under collective bargaining agreements were $619,000,
$759,000 and $838,000 for the years ended December 31, 1996, 1997 and 1998,
respectively.
F-61
<PAGE>
BAY CITIES BUILDING MATERIALS CO., INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES:
INSURANCE
The Company carries a standard range of insurance coverage, including
business auto liability, general liability, medical, workers' compensation,
excess liability and commercial property. The Company also has an umbrella
policy. During 1996, 1997 and 1998, the Company has not had any significant
claims or losses on any of these insurance policies.
LITIGATION
In the normal course of doing business, the Company occasionally becomes a
party to litigation. In the opinion of management, pending or threatened
litigation involving the Company as of December 31, 1998, will not have a
material effect on its financial condition or results of operations.
11. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In February 1999, the Company and its stockholders entered into a
definitive agreement with U.S. Concrete providing for U.S. Concrete's
acquisition of the Company.
F-62
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Opportunity Concrete Corporation:
We have audited the accompanying balance sheets of Opportunity Concrete
Corporation (the Company) (a District of Columbia corporation) as of December
31, 1997 and 1998, and the related statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement 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 Opportunity Concrete
Corporation as of December 31, 1997 and 1998, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.
January 29, 1999
F-63
<PAGE>
OPPORTUNITY CONCRETE CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
-------------------- ------------
1997 1998 1999
--------- --------- ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 1,819 $ 1,634 $ 1,465
Accounts receivable............. 704 504 633
Inventories..................... 93 72 79
Prepaid expenses................ 127 134 140
Other current assets............ 25 3 3
--------- --------- ------------
Total current assets....... 2,768 2,347 2,320
PROPERTY, PLANT AND EQUIPMENT, net... 1,844 2,060 2,002
OTHER ASSETS, net.................... 35 42 42
--------- --------- ------------
Total assets............... $ 4,647 $ 4,449 $ 4,364
========= ========= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term
debt.......................... $ 206 $ 298 $ 303
Accounts payable and accrued
liabilities................... 719 509 796
--------- --------- ------------
Total current
liabilities.............. 925 807 1,099
LONG-TERM DEBT, net of current
portion............................ 633 684 607
DEFERRED TAX LIABILITY............... 52 69 69
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $100 par; 500
shares authorized, 140 shares
outstanding................... 14 14 14
Additional paid-in capital...... 7 7 7
Retained earnings............... 3,016 2,868 2,568
--------- --------- ------------
Total stockholders'
equity................... 3,037 2,889 2,589
--------- --------- ------------
Total liabilities and
stockholders' equity..... $ 4,647 $ 4,449 $ 4,364
========= ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-64
<PAGE>
OPPORTUNITY CONCRETE CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31 MARCH 31
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED)
SALES................................ $ 15,550 $ 16,180 $ 4,266 $ 2,164
COST OF GOODS SOLD................... 10,698 11,296 3,005 1,619
--------- --------- --------- ---------
Gross profit............... 4,852 4,884 1,261 545
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,380 2,352 586 575
DEPRECIATION AND AMORTIZATION
EXPENSE............................ 232 245 61 59
--------- --------- --------- ---------
Operating (loss) income.... 2,240 2,287 614 (89)
OTHER INCOME:
Interest, net................... 5 8 6 (16)
Other income, net............... (2) 14 (3) 83
--------- --------- --------- ---------
Income (loss) before
provision for income
taxes................... 2,243 2,309 617 (22)
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 173 187 50 (2)
--------- --------- --------- ---------
Net income (loss)............... $ 2,070 $ 2,122 $ 567 $ (20)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-65
<PAGE>
OPPORTUNITY CONCRETE CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------- ------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996........... 140 $ 14 $ 7 $ 2,339 $ 2,360
Net income...................... -- -- -- 2,070 2,070
Distributions................... -- -- -- (1,393) (1,393)
------- ------- --- --------- -------------
BALANCE, December 31, 1997........... 140 14 7 3,016 3,037
Net income...................... -- -- -- 2,122 2,122
Distributions................... -- -- -- (2,270) (2,270)
------- ------- --- --------- -------------
BALANCE, December 31, 1998........... 140 14 7 2,868 2,889
Net income (unaudited).......... -- -- -- (20) (20)
Distributions (unaudited)....... -- -- -- (280) (280)
------- ------- --- --------- -------------
BALANCE, March 31, 1999
(unaudited).......................... 140 $ 14 $ 7 $ 2,568 $ 2,589
======= ======= === ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE>
OPPORTUNITY CONCRETE CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31 MARCH 31
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ 2,070 $ 2,122 $ 567 $ (20)
Adjustments to reconcile net
income to net cash provided by
operating activities --
Depreciation and
amortization............ 232 245 61 59
Net loss (gain) on sale of
property, plant and
equipment............... (16) 3 (2) (1)
Equity in loss of joint
venture................. 18 7 -- --
Deferred income tax
provision............... 10 17 -- --
Changes in operating assets
and liabilities:
Accounts receivable... (48) 200 (540) (129)
Inventories........... (11) 21 4 (7)
Prepaid expenses...... (29) (7) (22) (6)
Other current
assets............. (17) 14 9 --
Accounts payable and
accrued
liabilities........ (41) (210) 538 287
--------- --------- --------- ---------
Net cash
provided by
operating
activities.... 2,168 2,412 615 183
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment..................... (389) (463) (45) --
Increase in cash surrender value
of life insurance............. (6) (7) -- --
Investment in joint venture..... 21 -- -- --
--------- --------- --------- ---------
Net cash
provided by
(used in)
investing
activities.... (374) (470) (45) --
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.... 306 377 --
Repayments on long-term debt.... (254) (234) (48) (72)
Distributions to stockholders... (1,393) (2,270) -- (280)
--------- --------- --------- ---------
Net cash used in
financing
activities.... (1,341) (2,127) (48) (352)
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 453 (185) 522 (169)
CASH AND CASH EQUIVALENTS, at
beginning of the period............ 1,366 1,819 1,819 1,634
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, at end of
the period......................... $ 1,819 $ 1,634 $ 2,341 $ 1,465
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 65 $ 75 $ 17 $ 19
Cash paid for income taxes...... 162 187 -- 7
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE>
OPPORTUNITY CONCRETE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Opportunity Concrete Corporation (the "Company"), a District of Columbia
("D.C.") corporation, is engaged in the production and distribution of
ready-mixed concrete throughout the D.C. metropolitan area.
The Company and its stockholders intend to enter into a definitive
agreement with U.S. Concrete, Inc. ("U.S. Concrete"), an entity organized to
acquire ready-mixed concrete companies, pursuant to which the Company's
stockholders will exchange all the outstanding common stock of the Company for
cash and shares of U.S. Concrete common stock concurrent with the closing of
U.S. Concrete's initial public offering.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The Company has prepared these financial statements on the accrual basis of
accounting.
INTERIM FINANCIAL STATEMENTS
The interim financial statements as of March 31, 1999, and for the three
months ended March 31, 1999 and 1998, 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
necessarily indicative of the results for the entire fiscal year.
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,
disclosures 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable and long-term debt. The
Company believes that the carrying values of these instruments on the
accompanying balance sheet approximate their fair values, because of the length
of their maturities or the existence of interest rates that approximate market
rates.
CASH AND CASH EQUIVALENTS
The Company records as cash equivalents all highly liquid investments
having maturities of three months or less at the date of purchase. The Company
maintains cash and cash equivalents in various financial institutions in excess
of federally insured limits. Although in excess of these limits, the Company
believes these financial institutions are of high credit quality, reducing risk
of loss.
CONCENTRATION OF CREDIT RISK
The Company sells to various construction contractors that may be affected
by changes in economic or other external conditions. The Company manages its
exposure to credit risk through ongoing credit evaluations and, where
appropriate, requires that its customers furnish adequate collateral before
credit is granted.
F-68
<PAGE>
OPPORTUNITY CONCRETE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES
Inventories consist primarily of raw materials, repair parts and building
materials for resale that the Company holds for use or sale in the ordinary
course of business. The Company uses the first-in, first out method to value
inventories at the lower of cost or market. At December 31, 1997 and 1998,
management believes the Company had incurred no material impairments in the
carrying values of its inventories.
PREPAID EXPENSES
Prepaid expenses primarily include amounts the Company has paid for
licenses and insurance. The Company expenses or amortizes all prepaid amounts as
used or over the period of benefit, as applicable.
PROPERTY, PLANT AND EQUIPMENT, NET
The Company states property, plant and equipment at cost. It uses the
straight-line method to report depreciation of these assets over their estimated
useful lives or remaining lease terms.
The Company expenses maintenance and repairs cost when incurred and
capitalizes and depreciates expenditures for major renewals and betterments that
extend the useful lives of existing assets. When the Company retires or disposes
of property, plant and equipment, it removes the related cost and accumulated
depreciation from the accounts and reflects any resulting gain or loss in its
statements of operations.
SALES AND EXPENSES
The Company derives its sales primarily from the production and delivery of
ready-mixed concrete to commercial customers in the D.C. metropolitan area. The
Company recognizes sales when products are delivered. Costs of goods sold
consist primarily of product costs, ready-mixed concrete purchases and operating
expenses. Operating expenses consist primarily of salaries and related benefits,
plant operations and repairs and maintenance expenses. Selling expenses consist
primarily of salaries of sales manager and travel and entertainment expenses.
General and administrative expenses consist primarily of administrative salaries
and benefits, office rent and utilities, communication expenses and professional
fees.
INCOME TAXES
The Company's stockholders has elected S Corporation status pursuant to the
Internal Revenue Code. As such, the Company is not subject to federal income
taxes and its stockholders report their respective shares of the Company's
taxable earnings or losses in their personal tax returns. The Company is still
subject to certain state and local income taxes for those areas that do not
recognize S Corporations (D.C. being one). The Company will terminate its S
Corporation status when U.S. Concrete acquires it.
The Company follows the liability method of accounting for income taxes.
Under this method, the Company records deferred income taxes based on temporary
differences between the financial reporting and tax bases of assets and
liabilities and measures those taxes using enacted tax rates and laws that will
be in effect when the Company recovers those assets or settles those
liabilities, as the case may be.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its plant assets for impairment. The Company assesses
the recoverability of assets based on its anticipated future cash flows from its
assets. 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 that 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 has 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, and, therefore, that those values were not impaired at those dates.
F-69
<PAGE>
OPPORTUNITY CONCRETE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT, NET:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES --------------------
IN YEARS 1997 1998
------------ --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Leasehold improvements............... 5-7 $ 49 $ 49
Machinery and equipment.............. 3-20 1,423 1,423
Mixers, trucks and other vehicles.... 3-12 2,242 2,223
Furniture and fixtures............... 3-8 405 374
--------- ---------
4,119 4,069
Less -- Accumulated depreciation..... (2,275) (2,009)
--------- ---------
Property, plant and equipment,
net........................... $ 1,844 $ 2,060
========= =========
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Accounts receivable, trade........... $ 672 $ 477
Other receivables.................... 32 27
--------- ---------
$ 704 $ 504
========= =========
</TABLE>
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Accounts payable, trade.............. $ 639 $ 324
Accrued compensation and benefits.... 51 82
Other accrued liabilities............ 29 103
--------- ---------
$ 719 $ 509
========= =========
</TABLE>
F-70
<PAGE>
OPPORTUNITY CONCRETE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Financing institution, at variable
rates averaging 8.2%, maturing July
2001, monthly installments of
$7,760 including interest, secured
by an Erie Strayer Mobile Central
Mix Plant.......................... $ 283 $ 214
Bank debt, nine (9) notes, maturing
in various amounts between 1999 and
2002, bearing interest at fixed
rates, which range from 8.0% to
8.5%, secured by Company trucks.... 551 676
Financing institution, interest at
7.64%, monthly principal and
interest payments of $2,023,
maturing July 2003, secured by a
Company truck...................... -- 92
Financing institution, interest at
9.75%, monthly principal and
interest payments of $484, maturing
December 1998, secured by a Company
truck.............................. 5 --
--------- ---------
839 982
Less -- Current portion.............. (206) (298)
--------- ---------
$ 633 $ 684
========= =========
</TABLE>
Scheduled maturities of long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
For the year ending December 31 --
<S> <C>
1999............................ $ 298
2000............................ 319
2001............................ 239
2002............................ 113
2003............................ 13
------------
$ 982
============
</TABLE>
At December 31, 1997 and 1998, the Company had lines of credit with a bank
totaling $500,000, which expire on July 31, 1999. There were no borrowings
against this credit at December 31, 1998 and 1997.
F-71
<PAGE>
OPPORTUNITY CONCRETE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. LEASES
The Company leases office space, garage, plant site, equipment and vehicles
under operating lease agreements. These leases are noncancelable and expire on
various dates over the next ten years. Future minimum lease payments under these
agreements are as follows (in thousands):
<TABLE>
<CAPTION>
For the year ending December 31 --
<S> <C>
1999............................ $ 177
2000............................ 136
2001............................ 140
2002............................ 143
2003............................ 146
------------
$ 742
============
</TABLE>
Total rent expense under all operating leases was approximately $362,000
and $264,000 for the years ended December 31, 1997 and 1998, respectively.
7. INCOME TAXES:
The accompanying statement of operations includes a provision for state
income taxes related to Washington, D.C., which does not recognize the S
Corporation status. The deferred tax liability of $52,000 and $69,000 for
December 31, 1997 and 1998, respectively, primarily results from different
depreciation and amortization methods used for tax purposes to record fixed
assets.
The components of the provision for state income taxes follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDING
DECEMBER 31
--------------------
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
State:
Current............................ $ 163 $ 170
Deferred........................... 10 17
--------- ---------
$ 173 $ 187
========= =========
</TABLE>
8. EMPLOYEE BENEFIT PLANS:
The Company maintains a 401(k) plan covering substantially all employees of
the Company who have attained age 21, after completion of one year of continuous
employment. Participants' interests in employer contributions become 100% vested
after five years of service. Benefit expense for the years ended December 31,
1997 and 1998, was approximately $123,000 and $125,000, respectively.
9. COMMITMENTS AND CONTINGENCIES:
INSURANCE
The Company carries a standard range of insurance coverages, including
business auto liability, general liability, medical, workers' compensation,
excess liability and commercial property. The Company also has an umbrella
policy. The Company has not had any significant claims or losses on any of these
insurance policies.
F-72
<PAGE>
OPPORTUNITY CONCRETE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LITIGATION
In the normal course of doing business, the Company occasionally becomes a
party to litigation. The Company has received two demand letters from attorneys
representing a former employee claiming wrongful termination.
In November 1998, a grand jury subpoena issued out of the U.S. District
Court was served on the Company for specified documents. The Company is
cooperating with federal authorities to provide the information requested. The
Company has been informed that they are not the target of the grand jury
investigation, but, is considered a subject of the investigation because the
target(s) appear to have used documents in connection with their alleged
misconduct that may have come from the Company's premises. It is impossible to
predict accurately the outcome of such a proceeding because its full nature and
scope have not been disclosed. In the opinion of management, pending or
threatened litigation involving the Company will not have a material effect on
its financial condition or results of operations.
10. SIGNIFICANT CUSTOMERS:
Sales from significant customers consist of the following:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
------------------------
1997 1998
----------- -----------
<S> <C> <C>
Company A............................... 15% 14%
Company B............................... 4 18
Company C............................... 3 20
Company D............................... 20 --
</TABLE>
11. SIGNIFICANT SUPPLIERS:
The Company purchased approximately 38% and 34% of its materials from two
suppliers in 1997 and 1998, respectively.
12. SUBSEQUENT EVENT:
On January 14, 1999, the Company made distributions to stockholders
totaling $280,000.
13. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In March 1999, the Company and its stockholders entered into a definitive
agreement with U.S. Concrete providing for U.S. Concrete's acquisition of the
Company.
In addition, prior to the closing of the acquisition, the Company will make
distributions of the Company's estimated S Corporation Accumulated Adjustment
Account which at December 31, 1998 is approximately $2,868,000.
F-73
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Baer Concrete, Incorporated:
We have audited the accompanying balance sheet of Baer Concrete, Incorporated
(the Company) (a New Jersey corporation), as of December 31, 1998, and the
related statements of operations and comprehensive income, stockholders' equity
and cash flows for the year then ended. 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 financial position of Baer Concrete, Incorporated, as
of December 31, 1998, and the results of its operations and comprehensive income
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 5, 1999
F-74
<PAGE>
BAER CONCRETE, INCORPORATED
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1998 1999
------------ ----------
<S> <C> <C>
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents....... $1,410 $ 195
Available for sale securities... 20 11
Accounts receivable, net of
allowance for doubtful accounts
of $52 and $43, respectively... 1,754 1,304
Receivable from related party... 50 120
Inventories..................... 104 96
Deferred tax assets............. 46 55
Other current assets............ 30 47
------------ ----------
Total current assets....... 3,414 1,828
PROPERTY, PLANT AND EQUIPMENT, net... 3,518 3,546
CASH SURRENDER VALUE OF LIFE
INSURANCE.......................... 401 413
STOCKHOLDER'S NOTES RECEIVABLE....... 252 252
OTHER ASSETS......................... 94 100
------------ ----------
Total assets............... $7,679 $6,139
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term
debt........................... $ 755 $ 419
Current portion of other
long-term obligations.......... 53 35
Accounts payable and accrued
liabilities.................... 1,747 1,524
------------ ----------
Total current
liabilities............. 2,555 1,978
LONG-TERM DEBT, net of current
portion............................ 1,675 1,045
OTHER LONG-TERM OBLIGATIONS.......... 99 46
DEFERRED TAX LIABILITY............... 482 482
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
6% cumulative preferred stock,
$100 par; 3,000 shares
authorized, 1,225 and 120
shares outstanding,
respectively................... 123 12
5% noncumulative preferred
stock, $1 par; 14,000 shares
authorized, 14,000 and 0 shares
outstanding, respectively...... 14 --
Common stock, no par; 2,500
shares authorized, 1,580 shares
outstanding................... -- --
Additional paid-in capital...... 10 10
Treasury stock, at cost (1,350
common shares and 775 preferred
shares)........................ (936) (936)
Unrealized loss on securities
available for sale............. (181) (190)
Retained earnings............... 3,838 3,692
------------ ----------
Total stockholders'
equity.................. 2,868 2,588
------------ ----------
Total liabilities and
stockholders' equity.... $7,679 $6,139
============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-75
<PAGE>
BAER CONCRETE, INCORPORATED
STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31
DECEMBER 31 --------------------
1998 1998 1999
------------ --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
SALES................................... $ 11,973 $ 2,084 $ 2,024
COST OF GOODS SOLD...................... 9,910 1,901 1,870
------------ --------- ---------
Gross profit.................. 2,063 183 154
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 1,195 286 260
DEPRECIATION EXPENSE.................... 412 104 137
------------ --------- ---------
Income (loss) from
operations................. 456 (207) (243)
OTHER INCOME (EXPENSE):
Interest expense, net.............. (105) (23) (49)
Other income, net.................. 379 9 95
------------ --------- ---------
Income (loss) before provision
for income taxes........... 730 (221) (197)
PROVISION FOR (BENEFIT) INCOME TAXES.... 307 (96) (51)
------------ --------- ---------
NET INCOME (LOSS)....................... 423 (125) (146)
OTHER COMPREHENSIVE INCOME:
Unrealized loss on securities
available for sale............... (24) (21) (9)
------------ --------- ---------
COMPREHENSIVE INCOME (LOSS)............. $ 399 $ (146) $ (155)
============ ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-76
<PAGE>
BAER CONCRETE, INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
5%
6% CUMULATIVE NONCUMULATIVE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------- --------------- --------------- PAID-IN TREASURY RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK EARNINGS
------ ------ ------ ------ ------ ------ ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997........... 1,225 $123 14,000 $ 14 1,580 $ -- $ 10 $ (936) $ 3,423
Net income......................... -- -- -- -- -- -- -- -- 423
Dividends.......................... -- -- -- -- -- -- -- -- (8)
Unrealized loss on securities
available for sale............... -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ --- -------- ---------
BALANCE, December 31, 1998........... 1,225 123 14,000 14 1,580 -- 10 (936) 3,838
------ ------ ------ ------ ------ ------ --- -------- ---------
Net loss (unaudited)............... -- -- -- -- -- -- -- -- (146)
Redemption of preferred stock
(unaudited)...................... (1,105) (111) (14,000) (14) -- -- -- -- --
Unrealized loss on securities
available for sale (unaudited)... -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ --- -------- ---------
BALANCE, March 31, 1999
(unaudited)......................... 120 $ 12 -- $ -- 1,580 $ -- $ 10 $ (936) $ 3,692
====== ====== ====== ====== ====== ====== === ======== =========
<CAPTION>
UNREALIZED
LOSS ON
SECURITIES TOTAL
AVAILABLE FOR STOCKHOLDERS'
SALE EQUITY
------------- -------------
<S> <C> <C>
BALANCE, December 31, 1997........... $(157) $ 2,477
Net income......................... -- 423
Dividends.......................... -- (8)
Unrealized loss on securities
available for sale............... (24) (24)
------------- -------------
BALANCE, December 31, 1998........... (181) 2,868
------------- -------------
Net loss (unaudited)............... -- (146)
Redemption of preferred stock
(unaudited)...................... -- (125)
Unrealized loss on securities
available for sale (unaudited)... (9) (9)
------------- -------------
BALANCE, March 31, 1999
(unaudited)......................... $(190) $ 2,588
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-77
<PAGE>
BAER CONCRETE, INCORPORATED
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31
DECEMBER 31 --------------------
1998 1998 1999
------------ --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $ 423 $ (125) $ (146)
Adjustments to reconcile net income
to net cash provided by
operating activities --
Depreciation and amortization... 412 104 137
Net gain on sale of property,
plant and equipment............. (323) -- (80)
Deferred income tax provision... 244 114 (9)
Changes in operating assets and
liabilities --
Accounts receivable, net of
allowance..................... (106) 150 450
Inventories................... (12) (12) 8
Other assets.................. 37 (32) (35)
Accounts payable and accrued
liabilities................... 450 (60) (223)
------------ --------- ---------
Net cash provided by
operating activities....... 1,125 139 102
------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property,
plant and equipment................ 323 -- 80
Purchases of property, plant and
equipment.......................... (1,022) (48) (165)
------------ --------- ---------
Net cash used in investing
activities................. (699) (48) (85)
------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of stockholder notes
receivable, net.................. 1,257 116 --
Repayments of receivable from
related party, net............... 8 -- (70)
Borrowings on line of credit....... 125 125 --
Payments on line of credit......... (125) -- --
Proceeds from long-term debt....... 714 -- --
Repayments on long-term debt....... (901) (211) (1,074)
Repayments on other long-term
obligations...................... (100) -- (71)
Dividends paid..................... (8) -- --
Redemption of preferred stock...... -- -- (17)
------------ --------- ---------
Net cash provided by
financing activities..... 970 30 (1,232)
------------ --------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................ 1,396 121 (1,215)
CASH AND CASH EQUIVALENTS, at
beginning of the period............ 14 14 1,410
------------ --------- ---------
CASH AND CASH EQUIVALENTS, at end of
the period......................... $ 1,410 $ 135 $ 195
============ ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest............. $ 211 $ -- $ --
Cash paid for income taxes......... 39 52 43
Unrealized loss on securities
available for sale.............. (24) (21) (9)
SUPPLEMENTAL DISCLOSURE OF NONCASH
TRANSACTION (unaudited)
Redemption of preferred stock for
notes........................... $ -- $ -- $ 108
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-78
<PAGE>
BAER CONCRETE, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Baer Concrete, Incorporated (the "Company"), a New Jersey corporation, is
engaged in the production and distribution of ready mixed concrete, throughout
New Jersey, where the Company has four batch plants.
The Company and its stockholders intend to enter into a definitive
agreement with U.S. Concrete, Inc. ("U.S. Concrete"), a recently formed entity
organized to acquire ready-mixed concrete companies, pursuant to which the
Company's stockholders will exchange all the outstanding common stock of the
Company for cash and shares of U.S. Concrete common stock concurrent with the
closing of U.S. Concrete's initial public offering.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
BASIS OF PRESENTATION
The Company has prepared these financial statements on the accrual basis of
accounting.
INTERIM FINANCIAL STATEMENTS
The interim financial statements as of March 31, 1999, and for the three
months ended March 31, 1999 and 1998, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting princples, 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
necessarily indicative of the results for the entire fiscal year.
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,
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and
short-term investments, accounts receivable, accounts payable, line of credit
and long-term debt. The Company believes that the carrying value of these
instruments on the accompanying balance sheet approximates their fair values,
because of the length of their maturities or the existence of interest rates
that approximates market rates.
CASH AND CASH EQUIVALENTS
The Company records as cash equivalents all highly liquid investments
having maturities of three months or less at the date of purchase. At December
31, 1998, the Company maintained cash balances in various financial institutions
in excess of federally insured limits.
CONCENTRATION OF CREDIT RISK
The Company sells to various construction contractors that may be affected
by changes in economic or other external conditions. The Company manages its
exposure to credit risk through ongoing credit evaluations and, where
appropriate, requires that its customers furnish adequate collateral before
credit is granted or obtains a lien on the customer's assets.
F-79
<PAGE>
BAER CONCRETE, INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES
Inventories consist primarily of raw materials and are stated at the lower
of cost or market, using the first-in, first out (FIFO) method. At December 31,
1998, management believes the Company had incurred no material impairments in
the carrying values of its inventories.
PROPERTY, PLANT AND EQUIPMENT, NET
The Company states property, plant and equipment at cost. The Company uses
the straight-line method to compute depreciation of these assets over their
estimated useful lives.
The Company expenses maintenance and repair cost when incurred and
capitalizes and depreciates expenditures for major renewals and betterments that
extend the useful lives of existing assets. When the Company retires or disposes
of property, plant and equipment, it removes the related cost and accumulated
depreciation from the accounts and reflects any resulting gain or loss in the
statement of operations.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company provides an allowance for accounts receivable that it believes
may not be fully collectible.
CASH SURRENDER VALUE OF LIFE INSURANCE
The Company owns life insurance policies on its primary stockholder. It
records the cash surrender value of these policies as an asset. It expenses the
premiums related to these policies to the extent that they exceed the increase
in the underlying cash surrender value of the policies.
SALES AND EXPENSES
The Company derives its sales primarily from the production and delivery of
ready-mixed concrete. The Company recognizes sales when products are delivered.
Cost of goods sold consists primarily of product costs and operating expenses.
Operating expenses consist of wages and benefits of union employees, and
expenses attributable to plant operations, repairs and maintenance and trucks.
Selling expenses consist primarily of sales commissions, salaries of sales
managers, travel and entertainment expenses, and trade show expenses. General
and administrative expenses consist primarily of executive compensation and
related benefits, administrative salaries and benefits, office rent and
utilities, communication expenses and professional fees.
INCOME TAXES
The Company follows the liability method of accounting for income taxes.
Under this method, the Company records deferred income tax balances based on
temporary differences between the financial reporting and tax bases of assets
and liabilities and measures those taxes using enacted tax rates and laws that
will be in effect when the Company recovers those assets or settles those
liabilities, as the case may be.
COLLECTIVE BARGAINING AGREEMENTS
The Company is party to various collective bargaining agreements with
certain employees. The agreements require the Company to pay specified wages and
provide certain benefits to its union employees. These agreements will expire at
various times through 2002.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its plant assets for impairment. The Company assesses
the recoverability of assets based on its anticipated future cash flows from its
assets. 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 that asset's carrying
amount and (b) write-down that carrying
F-80
<PAGE>
BAER CONCRETE, INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
amount to market value or discounted cash flow value to the extent necessary.
Using this approach, the Company's management has determined that the cash flows
would be sufficient to recover the carrying value of the Company's long-lived
assets as of December 31, 1998, and, therefore, that those values were not
impaired at that date.
COMPREHENSIVE INCOME
In 1997, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income," which requires companies to
report all changes in equity during a period in a financial statement for the
period in which they are recognized. The Company has chosen to disclose
comprehensive income, which encompasses unrealized loss on securities available
for sale in the statement of stockholders' equity.
3. PROPERTY, PLANT AND EQUIPMENT, NET:
Property, plant and equipment at December 31, 1998, consists of the
following (dollars in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
IN YEARS
------------
<S> <C> <C>
Building and improvements............ 7-30 $ 1,839
Machinery and equipment.............. 3-15 1,735
Mixers, trucks and other vehicles.... 3-12 4,585
Furniture and fixtures............... 3-15 232
---------
8,391
Less -- Accumulated
depreciation.................. (4,873)
---------
Property, plant and
equipment, net.......... $ 3,518
=========
</TABLE>
During 1998, the Company sold various trucks and mixers, which resulted in
a gain of $323,000. The gain is classified as other income in the statement of
operations.
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable at December 31, 1998, consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
<S> <C> <C>
(UNAUDITED)
Accounts receivable, trade........... $1,714 $ 1,255
Refund receivable.................... 92 92
Less: Allowance for doubtful
accounts........................... (52) (43)
------------ -----------
$1,754 $ 1,304
============ ===========
</TABLE>
Accounts payable and accrued liabilities at December 31, 1998, consist of
the following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Accounts payable, trade.............. $ 1,503
Accrued compensation and benefits.... 244
---------
$ 1,747
=========
</TABLE>
F-81
<PAGE>
BAER CONCRETE, INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LINE OF CREDIT AND LONG-TERM DEBT:
The Company has a $350,000 line of credit payable on demand from a bank.
Interest is payable monthly on any outstanding balance at the bank's prime rate.
The line is secured by the Company's accounts receivable and inventory. There
was no outstanding balance as of December 31, 1998.
Long-term debt at December 31, 1998, consists of the following (in
thousands):
<TABLE>
<S> <C>
Notes payable to banks at a range of
7.91% to 10.5% with monthly principal
and interest payments, maturing from
April 2000 through August 2003,
secured by machinery and equipment.... $ 1,837
Notes payable to bank at prime plus 1%
(prime of 7.75% at December 31, 1998),
with monthly principal and interest
payments, maturing from October 2000
through December 2001, secured by
vehicles.............................. 116
Note payable at a range of 5.6% to 9.5%,
with monthly principal and interest
payments, maturing from May 2000
through November 2001, collateralized
by equipment and vehicles............. 477
---------
2,430
Less -- Current portion................. (755)
---------
$ 1,675
=========
</TABLE>
Scheduled maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
For the year ending December 31 --
1999............................... $ 755
2000............................... 620
2001............................... 497
2002............................... 389
2003............................... 129
Thereafter......................... 40
---------
$ 2,430
=========
</TABLE>
6. OTHER LONG-TERM OBLIGATIONS:
In February 1993, the Company entered into noncompete covenants with two of
the employees/stockholders whose shares were redeemed as part of a
reorganization of the Company. The covenants of these former employees provide
for annual payments over a period of nine years. The related noncompete
covenants were amortized by the Company over five years and expired in 1998.
Future annual payments under these agreements are as follows (in
thousands):
<TABLE>
<S> <C>
For the year ending December 31 --
1999............................... $ 53
2000............................... 53
2001............................... 34
2002............................... 12
---------
$ 152
=========
</TABLE>
F-82
<PAGE>
BAER CONCRETE, INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES:
The components of provision for federal and state income taxes follow:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1998
------------------
<S> <C>
(IN THOUSANDS)
Federal --
Current............................ $ 63
Deferred........................... 177
State --
Current............................ --
Deferred........................... 67
------
$ 307
======
</TABLE>
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 35% to income before
provision for income taxes as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1998
------------------
<S> <C>
(IN THOUSANDS)
Provision at the statutory rate......... $ 255
Increase resulting from --
State income tax, net of federal
benefit.......................... 44
Nondeductible expenses............. 8
------
$ 307
======
</TABLE>
The tax effects of temporary differences representing deferred tax assets
and liabilities result principally from the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
(IN THOUSANDS)
Current deferred income taxes:
Allowance for doubtful accounts.... $ 21
Accrued expenses................... 19
Other.............................. 6
-------
Net current deferred income
tax assets................. $ 46
=======
Noncurrent deferred income taxes:
Noncurrent assets --
Net operating loss................. 57
Capital loss....................... 146
Minimum tax credit................. 14
-------
217
Valuation allowance................ (146)
-------
Total noncurrent assets....... 71
Noncurrent liabilities
Depreciation....................... (479)
Loss on investment................. (74)
-------
Total noncurrent
liabilities................ (553)
-------
Net noncurrent deferred income
tax liabilities............ $ (482)
=======
</TABLE>
F-83
<PAGE>
BAER CONCRETE, INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. RELATED-PARTY TRANSACTIONS:
In December 1998, the Company entered into two debt agreements with the
primary stockholders for a total of $252,000. The agreement stipulates the notes
will accrue interest at 7%, payable annually. The notes are payable upon demand.
The balance outstanding was $252,000 at December 31, 1998.
The Company loaned funds to a company owned by the primary stockholder's
brother. The loan is noninterest bearing and has no scheduled repayments. The
balance outstanding was $50,000 at December 31, 1998.
9. EMPLOYEE BENEFIT PLANS:
During 1995, the Company established a 401(k) plan. All employees not
subject to collectively bargained agreements are eligible to participate in the
plan. The Company contributes 50% of the first 5% of the employee's elective
deferral. Company contributions for December 31, 1998, totaled $7,000.
Effective March 1, 1998, the Company established an employee stock
ownership plan (ESOP). No contributions were made to the ESOP for the year ended
December 31, 1998.
The Company made contributions to employee pension, health and welfare
plans for employees under collective bargaining agreements of $189,000 for the
year ended December 31, 1998.
10. COMMITMENTS AND CONTINGENCIES:
GUARANTEES
The Company has provided a guarantee for a mortgage for a company owned by
its principal stockholder. At December 31, 1998, the mortgage totaled $1.5
million.
OPERATING LEASE AGREEMENTS
The Company leases one of its operating facilities from the principal
stockholder under a long-term noncancelable operating lease agreement. The lease
expires in 2,015. Total rent paid for the year ended December 31, 1998, was
$156,000. The lease require the Company to pay taxes, maintenance, insurance and
certain operating costs of the properties. The Company also leases certain
office equipment under long term noncancelable operating lease agreements which
expire in 2001. Total rent paid under these leases was approximately $2,000 for
the year ended December 31, 1998.
Future minimum lease payments required under noncancelable operating leases
(including related party lease) are as follows (in thousands):
<TABLE>
<S> <C>
For the year ending December 31 --
1999............................ $ 167,000
2000............................ 167,000
2001............................ 165,000
2002............................ 156,000
2003............................ 156,000
Thereafter...................... 1,876,000
------------
$ 2,687,000
============
</TABLE>
INSURANCE
The Company carries a standard range of insurance coverage, including
business auto liability, general liability, medical, workers' compensation,
excess liability and commercial property. The Company also has an umbrella
policy. During 1998, the Company has not incurred significant claims or losses
on any of these insurance policies.
F-84
<PAGE>
BAER CONCRETE, INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LITIGATION
The Company has been named as a co-defendant in a lawsuit whereby the
plaintiff alleges, among other things, deficiencies in the design and
construction of a parking structure completed in 1989. The Company supplied
concrete to the general contractor on the project who has also been named as a
defendant. The plaintiff is alleging damages of approximately $1.1 million.
Management intends to vigorously defend itself and believes the Company has
meritorious defenses. Management believes the loss, if any, would be partially
covered by insurance. The ultimate outcome of this matter, however, can not be
determined at this time.
11. SUBSEQUENT EVENT:
On January 1, 1999 the Company entered into a noncancelable operating lease
agreement with a company owned by the principal stockholder for one of its
operating facilities. For the plant lot, the lease term is twenty years and
requires monthly payments of $3,750. For the two expansion lots, the lease term
is month-to-month and requires 180 day notification of cancellation. The monthly
payment on each expansion lot is $1,750.
12. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In March, 1999, the Company and its stockholders entered into a definitive
agreement with U.S. Concrete providing for U.S. Concrete's acquisition of the
Company.
In connection with the acquisition, certain assets with a net book value of
$600,000 will be retained by the stockholders. Had this transaction been
recorded at December 31, 1998, the effect on the accompanying balance sheet
would be a decrease in assets and a decrease in stockholders' equity of
$600,000.
Upon the closing of the acquisition of the Company by U.S. Concrete, the
Company will enter into new lease agreements with its former stockholders. These
leases will provide for $19,000 in combined monthly rentals over initial lease
terms of 20 years, excluding the month-to-month leases discussed above.
On March 31, 1999, the Company redeemed 1,105 shares of 6% cumulative
preferred stock and 14,000 shares of 5% noncumulative preferred stock for
$16,500 in cash and $108,000 in notes. The notes bear interest at an annual rate
of 6%, and mature 2009. All shares were retired.
F-85
<PAGE>
INNOVATIVE
USES OF
CONCRETE
[GRAPHIC OF PRECAST CONCRETE PRODUCTS OMITTED]
Precast Concrete
Insulated Concrete Forms
[GRAPHIC OF PRECAST CONCRETE PRODUCTS OMITTED]
Flowable Fill
[GRAPHIC OF FLOWABLE FILL OMITTED]
[GRAPHIC OF CONCRETE FRAME CONSTRUCTION OMITTED]
Concrete Frame Construction
<PAGE>
================================================================================
Through and including , 1999 (the 25th day after the date
of this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this 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.
3,800,000 SHARES
[LOGO--U.S. CONCRETE, INC.--LOGO]
COMMON STOCK
-------------------
PROSPECTUS
-------------------
SCOTT & STRINGFELLOW, INC.
SANDERS MORRIS MUNDY
, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION(1)
The following table sets forth the expenses (other than underwriting
discounts and commissions) in connection with this offering, all of which shall
be paid by U.S. Concrete. All of these amounts, except the SEC registration fee,
the NASD filing fee and the NASDAQ National Market listing fee, are estimated.
SEC Registration Fee................. $ 11,542
NASD Filing Fee...................... 4,652
NASDAQ National Market Listing Fee... 90,500
Accounting Fees and Expenses......... 2,380,000
Legal Fees and Expenses.............. 850,000
Printing Expenses.................... 250,000
Transfer Agent's Fees................ 7,500
Directors and Officers Insurance..... 85,000
Miscellaneous........................ 520,800
------------
Total........................... $ 4,200,000
============
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
DELAWARE GENERAL CORPORATION LAW
Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party 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 the corporation, by
reason of the fact that he 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, partnership, joint
venture, trust or other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he 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, partnership, joint venture, trust or other
enterprise against expenses, including attorneys' fees, actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
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Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses, including attorneys'
fees, actually and reasonably incurred by him in connection therewith.
Section 145(d) of the DGCL states that any indemnification under
subsections (a) and (b) of Section 145, unless ordered by a court, shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in subsections (a) and (b). Such determination shall be made (1) by a
majority vote of the directors who were not parties to such action, suit or
proceeding, even though less than a quorum, or (2) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (3) by the stockholders.
Section 145(e) of the DGCL provides that expenses, including attorneys'
fees, incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in Section 145. Such
expenses, including attorneys' fees, incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the power
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, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145.
Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent, and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director provided that such provision shall not eliminate
or limit the liability of a director (1) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (2) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (3) under Section 174 of the DGCL or (4) for any transaction from which the
director derived an improper personal benefit.
CERTIFICATE OF INCORPORATION
Article Eighth of U.S. Concrete's Amended and Restated Certificate of
Incorporation states that:
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty by such director as a director; provided, however, that this Article Eighth
shall not eliminate or limit the liability of a director to the extent provided
by applicable law (1) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (2) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law,
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(3) under Section 174 of the DGCL or (4) for any transaction from which the
director derived an improper personal benefit. No amendment to or repeal of this
Article Eighth shall apply to, or have any effect on, the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal. If the
DGCL is amended to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the DGCL, as so amended.
In addition, Article VI of U.S. Concrete's Bylaws further provides that
U.S. Concrete shall indemnify its officers, directors and employees to the
fullest extent permitted by law.
INDEMNIFICATION AGREEMENTS
U.S. Concrete intends to enter into indemnification agreements with each of
its executive officers and directors.
The Underwriting Agreement filed as exhibit 1.1 to this registration
statement provides that the underwriters will indemnify U.S. Concrete, its
officers and directors, and persons who control U.S. Concrete within the meaning
of the Securities Act against liabilities in some cases.
U.S. Concrete intends to maintain liability insurance for the benefit of
its directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is information concerning all sales of securities we issued
during the past three years that were not registered under the Securities Act.
We issued and sold 200 shares of common stock on October 15, 1997 to Main
Street Merchant Partners II, L.P. for $10.00 per share. Vincent D. Foster, the
chairman of our board, is a managing director of Main Street. In December 1998,
we issued and sold 20 shares of common stock to Eugene P. Martineau, our chief
executive officer and one of our directors, for $10 per share. At that time, we
also issued and sold 15 shares of common stock to Michael W. Harlan, our chief
financial officer and one of our directors, together with his family trust, for
$10 per share. As a result of a March 1999 10,000-for-1 stock split of all these
shares and a subsequent reclassification of Main Street's shares, Main Street
now owns one share of Class A common stock, Mr. Martineau owns 200,000 shares of
common stock and Mr. Harlan, together with his family trust, owns 150,000 shares
of common stock. The share of Class A common stock automatically will convert
into 1,602,255 shares of common stock before this offering closes. Those sales
were exempt from the registration requirements of the Securities Act by virtue
of Section 4(2) thereof as transactions not involving any public offering.
In March 1999, following the stock split, we sold 801,000 shares of common
stock to American Ready Mix, L.L.C., 50,000 shares of common stock to our
controller, Charles W. Sommer, and 25,000 shares of common stock to two of our
nonemployee directors, John R. Colson and Peter T. Dameris, in each case for a
purchase price of $.001 per share. Those sales were exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof as
transactions not involving any public offering.
Concurrently with the closing of this offering, we will issue 8,985,288
shares of common stock in connection with the acquisitions of the six
businesses. Those issuances will be exempt from the registration requirements of
the Securities Act by virtue of Section 4(2) thereof as transactions not
involving any public offering.
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ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION
- -------------------------------------------------------------
1.1* -- Form of Underwriting Agreement.
1.2* -- Form of Warrant Agreement among U.S.
Concrete, Scott & Stringfellow, Inc.
and Sanders Morris Mundy, Inc.
2.1* -- Agreement and Plan of Reorganization
dated as of March 22, 1999 by and
among U.S. Concrete, OCC Acquisition,
Inc., Opportunity Concrete
Corporation and the stockholders
named therein.
2.2* -- Agreement and Plan of Reorganization
dated as of March 22, 1999 by and
among U.S. Concrete, Walker's
Acquisition, Inc., Walker's Concrete,
Inc. and the stockholders named
therein.
2.3* -- Agreement and Plan of Reorganization
dated as of March 22, 1999 by and
among U.S. Concrete, Central Concrete
Acquisition, Inc., Central Concrete
Supply Co., Inc. and the stockholders
named therein.
2.4* -- Agreement and Plan of Reorganization
dated as of March 22, 1999 by and
among U.S. Concrete, Bay Cities
Acquisition, Inc., Bay Cities
Building Materials Co., Inc. and the
stockholders named therein.
2.5* -- Agreement and Plan of Reorganization
dated as of March 22, 1999 by and
among U.S. Concrete, Baer
Acquisition, Inc., Baer Concrete
Incorporated and the stockholders
named therein.
2.6* -- Agreement and Plan of Reorganization
dated as of March 22, 1999 by and
among U.S. Concrete, Santa Rosa
Acquisition, Inc., R. G.
Evans/Associates d/b/a Santa Rosa
Cast Products Co. and the
stockholders named therein.
2.7* -- Uniform Provisions for the
Acquisitions (incorporated into the
agreements filed as Exhibits 2.1
through 2.6 hereto).
3.1* -- Restated Certificate of Incorporation
of U.S. Concrete.
3.2* -- Bylaws of U.S. Concrete.
4.1* -- Form of Certificate representing
common stock.
4.2* -- Form of Registration Rights Agreement
by and among U.S. Concrete and the
stockholders listed on the signture
pages thereto.
4.3* -- Funding Agreement dated as of
September 10, 1999 by and between
U.S. Concrete and Main Street
Merchant Partners II, L.P.
4.4* -- Rights Agreement by and between U.S.
Concrete and American Stock Transfer
& Trust Company, including form of
Rights Certificate attached as
Exhibit B thereto.
4.5* -- Commitment Letter and Term Sheet
dated as of April 16, 1999 by and
among U.S. Concrete, Chase Bank of
Texas, National Association and Chase
Securities Inc.
U.S. Concrete and some of its
subsidiaries are parties to debt
instruments under which the total
amount of securities authorized does
not exceed 10% of the total assets of
U.S. Concrete and its subsidiaries on
a consolidated basis. Pursuant to
paragraph 4(iii)(A) of Item 601(b) of
Regulation S-K, U.S. Concrete agrees
to furnish a copy of such instruments
to the SEC on request.
5.1* -- Opinion of Baker & Botts, L.L.P.
10.1* -- 1999 Incentive Plan of U.S. Concrete,
Inc.
10.2* -- Employment Agreement between U.S.
Concrete and William T. Albanese.
10.3* -- Form of Employment Agreement between U.S.
Concrete and Michael W. Harlan
10.4* -- Form of Employment Agreement between U.S.
Concrete and Eugene P. Martineau
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EXHIBIT
NUMBER DESCRIPTION
- -------------------------------------------------------------
10.5* -- Employment Agreement between U.S.
Concrete and Michael D. Mitschele.
10.6* -- Employment Agreement between U.S.
Concrete and Charles W. Sommer.
10.7* -- Employment Agreement between U.S.
Concrete and Neil J. Vannucci.
10.8* -- Employment Agreement between U.S.
Concrete and Robert S. Walker.
10.9* -- Form of Indemnification Agreement
between U.S. Concrete and each of its
directors and officers.
10.10* -- Form of Employment Agreement between U.S.
Concrete and Terry Green.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Intentionally omitted.
23.3* -- Consent of Baker & Botts, L.L.P.
(contained in Exhibit 5.1 hereto).
23.4* -- Consent of William T. Albanese, as a
nominee for directorship.
23.5* -- Consent of John R. Colson, as a
nominee for directorship.
23.6* -- Consent of Peter T. Dameris, as a
nominee for directorship.
23.7* -- Consent of Michael D. Mitschele, as a
nominee for directorship.
23.8* -- Consent of Murray S. Simpson, as a
nominee for directorship.
23.9* -- Consent of Neil J. Vannucci, as a
nominee for directorship.
23.10* -- Consent of Robert S. Walker, as a
nominee for directorship.
24.1* -- Power of Attorney (included on the
signature page hereto).
27.1* -- Financial Data Schedule.
- ------------
* Previously filed.
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
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 SEC 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.
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the
Securities Act, 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.
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(2) That for the purpose of determining any liability under the
Securities Act, 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.
(3) To provide to the underwriters, at the closing specified in the
underwriting agreement, certificates representing the shares of common
stock offered hereby in such denominations and registered in such names as
required by the Underwriters to permit prompt delivery to each purchaser.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on May 21, 1999.
U.S. CONCRETE, INC.
By: /s/ EUGENE P. MARTINEAU
EUGENE P. MARTINEAU
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this amendment
to registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
CAPACITY IN
SIGNATURE WHICH SIGNED DATE
- ------------------------------------------------------ ------------------------------------- ---------------
<C> <S> <C>
/s/ EUGENE P. MARTINEAU President and Chief Executive Officer May 21, 1999
EUGENE P. MARTINEAU and Director
(Principal Executive Officer)
/s/ MICHAEL W. HARLAN Chief Financial Officer and May 21, 1999
MICHAEL W. HARLAN Director (Principal Financial
and Accounting Officer)
/s/ VINCENT D. FOSTER Director May 21, 1999
VINCENT D. FOSTER
</TABLE>
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
May 18, 1999
