U.S. Concrete says future uncertain without a successful restructuring

By Stephanie N. Rotondo

Portland, Ore., March 10 - U.S. Concrete Inc. released its fourth-quarter results Wednesday, in which the company expressed concerns about its ability to survive without a successful restructuring.

"Absent a successful restructuring, there is substantial doubt about our ability to continue to operate as a going concern," Robert D. Hardy, chief financial officer, said in the earnings release.

The Houston-based cement manufacturer hired Lazard Freres & Co. LLC and AlixPartners as its financial advisers and Kirkland & Ellis LLP as its legal adviser to "assist the company in assessing potential alternatives to strengthen its balance sheet," according to a press release issued on Feb. 19.

At that time, the company also announced it had amended its senior credit facility, giving it an additional $5 million in liquidity until April 30.

"From a restructuring perspective, we are working diligently to right size our capital structure and enhance our liquidity position," Michael Harlan, president and chief executive officer, said in Wednesday's earnings release. "In light of these circumstances, we have initiated discussions with the lenders under our credit agreement, representatives of our 8 3/8% senior subordinated notes and others regarding a permanent restructuring of our balance sheet.

"Such a restructuring would likely affect the 8 3/8% senior subordinated notes, our credit agreement and our outstanding common stock, and may be effected through negotiated modifications to the agreements related to those debt obligations or through other forms of in or out of court restructurings."

In its effort to restructure its balance sheet, U.S. Concrete has undertaken several "cost-reduction initiatives," according to Harlan. The reductions resulted in a 25% decline in selling, general and administrative expenses over the course of 2009, he noted in the earnings conference call.

And while those "cost-control measures remain in place," Harlan added that "several [of the initiatives] are more temporary in nature," such as the company's moratorium on salary increases and its 401(k) match program. Such programs will be reinstated once the economy stabilizes, he said, but it is not expected that 100% of the costs already cut will be brought back.

Also, U.S. Concrete saw its net debt fall $8.4 million from the end of 2008 to the end of 2009. However, debt increased $4.2 million between Sept. 30 and Dec. 31. This was attributed to a reduction in cash balances.

Net debt as of Dec. 31 came to $292.3 million.

"As of December 31, 2009, we have $4.2 million of cash on hand and $45.3 million of available borrowing capacity under our revolving credit facility" Hardy said during the call. "We had $16.7 million outstanding on our revolving credit facility and $11.6 million of letters of credit.

"However, the company's liquidity has dropped significantly, to less than $25 million as of the end of February. Additional letters of credit to support our self insurance and surety bond programs and a reduction in the borrowing base computation due to significantly reduced sales volumes reduced our revolver availability."

Net loss improves

For the quarter, U.S. Concrete posted a net loss of $16.7 million, or 46 cents per share. That compared with a net loss of $132.2 million, or $3.63 per share, for the same quarter of 2008.

Fourth-quarter revenue declined 30.9% to $119.9 million from $173.3 million the year before. Sales volumes decreased just over 33% for the whole year.

"The primary reason for this continues to be attributable to the depressed economic conditions in the construction industry overall, which was further exacerbated by severe winter weather in the month of December," Harlan said during the call.

However, the company did see a modest increase in the average sales price per cubic yard as well as an increase in raw material spreads. Still, Harlan was only cautiously optimistic about those positive trends.

"While our pricing and raw material spread trends are positive, we do remain concerned about future pricing levels, particularly moving here into 2010," he said.

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