| RE: | U.S. Concrete, Inc. Form 10-K for the fiscal year ended December 31, 2009 Filed March 16, 2010 Form 10-Q for the period ended March 31, 2010 File No. 1-34530 / 0-26025 |
Response: | In response to Comment 1, the Company confirms that, where a comment below requests revision in future filings, such comment has been addressed in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (the “June 30, 2010 Form 10-Q”), where applicable. |
Response: | In response to Comment 2, the Company confirms that future filings will reflect Commission file number 001-34530. |
Response: | In response to Comment 3, we will provide additional disclosure in future filings that cover the period in which we perform a goodwill test. |
Response: | Our annual goodwill impairment testing date is November 30. In performing step one of our annual goodwill impairment test, we use our market capitalization as a reference point in assessing the overall reasonableness of the estimated fair value of our reporting units in the aggregate. | |
| In assessing whether goodwill should be tested on an interim basis at each of our reporting units, we consider numerous factors including, but not limited to, the recent operating performance of our reporting units, the future prospects for our reporting units, the condition of the construction industry as a whole and its impact on our operating units, the market performance of our common stock and the stock of our peer companies within our industry and any meaningful changes in the competitive landscape where our reporting units operate. We do not consider any single data point, standing alone, when assessing whether goodwill should be tested on an interim basis. |
| While we filed for bankruptcy on April 29, 2010 and our stock price declined during that quarter, there had not been a significant change in the fundamental operations of our reporting units since the last testing date on November 30, 2009. The cash flow projections of our reporting units had not deteriorated, activity in the construction industry was not materially different than expectations, the competitive landscape had not changed and the stock of our peer companies was generally at levels similar to the previous testing date. At March 31, 2010, goodwill balances existed solely in our Atlantic Precast Region and South Central reporting units. Additionally, goodwill in these two reporting units had been tested for impairment twice within a seven month period, as of March 31, 2010, with no resulting write-down. The two goodwill impairment testing dates were August 31, 2009 and November 30, 2009. | ||
| After consideration of numerous factors, including those discussed above, we concluded there were no events, as referred to in ASC Topic 350-20-35-30, that occurred since December 31, 2009 that would indicate an impairment of goodwill; therefore, we did not perform a goodwill impairment test during the quarter ended March 31, 2010. |
Response: | In response to Comment 5, we will provide additional disclosure in future filings in the period where we have tested for potential impairment as required under ASC Topic 360-10-35-21. |
Response: | The Company acknowledges the requirements of ASC Topic 460-10-50-8 relating to product warranties and other guarantee contracts but believes that the product specifications set forth in its purchase orders and other customer contracts do not constitute product warranties or guarantees within the purview of this ASC Topic. While we currently are not aware of any material claims of this nature, in future filings we will provide disclosure of any claims relating to our failure to meet contractual specifications for which |
| disclosure is required by applicable accounting standards relating to loss contingencies. |
Response: | In response to Comment 7, additional disclosure has been provided in the Company’s June 30, 2010 Form 10-Q as described below. | |
| The following disclosure has been included on pages 15 and 33 under the heading “DIP Credit Agreement.” The disclosure responsive to Comment 7 appears in bold font: | ||
| “The DIP Credit Agreement requires us to maintain certain financial covenants. These covenants include the maintenance of a minimum cumulative EBITDAR calculated as consolidated net income (including Superior solely to the extent of dividends and distributions paid in cash ) plus income and franchise taxes, plus interest expense, depreciation, amortization, plus non-cash non-recurring charges, expenses and losses, plus any non-cash compensation deduction as the result of any grant of stock or other equity to employees, officers, directors or consultants and incentive compensation charges, plus reorganization and restructuring costs, charges and expenses (in an aggregate amount during the term of the DIP Credit Agreement not to exceed (i) $7.5 million in the aggregate as of June 30, 2010, (ii) $18.5 million in the aggregate as of September 30, 2010, (iii) $24.0 million in the aggregate as of December 31, 2010 and (iv) $26.0 million in the aggregate throughout the term of the DIP Credit Agreement) minus the sum of any credit for any federal, state and local income and |
| �� | franchise tax, gains from extraordinary items for such period and any other non-cash gains or other items which have been added in determining consolidated net income (“EBITDAR”), tested on a monthly basis beginning May 31, 2010 with the test period commencing May 1, 2010.The cumulative EBITDAR thresholds as of May 31, 2010 and June 30, 2010 were approximately $0.2 million and $2.0 million respectively. Our actual EBITDAR for these two months exceeded these thresholds and were approximately $2.7 million and $3.3 million, respectively.We also must not exceed established cumulative capital expenditure thresholds tested on a quarterly basis, excluding Superior.For the period from May 1, 2010 to June 30, 2010 our cumulative capital expenditures were required to be less than approximately $1.5 million. Our actual cumulative capital expenditures of approximately $0.5 million were less than this maximum.We must maintain minimum availability under the Revolving Credit Facility of $3.0 million at all times.As of June 30, 2010, we were in compliance with each of these covenants.” | |
| Additionally, the following disclosure has been included on pages 17 and 36 under the heading “Superior Credit Facility and Subordinated Debt.” The disclosure responsive to Comment 7 appears in bold font: | ||
| “Superior and each of Superior’s existing and future subsidiaries, if any, have guaranteed the repayment of all amounts owing under the Superior Credit Agreement. The Superior Credit Agreement contains covenants substantially the same as in the previous credit agreement, restricting, among other things, Superior’s and its subsidiaries’ distributions, dividends and repurchases of capital stock and other equity interests, acquisitions and investments, mergers, asset sales other than in the ordinary course of business, indebtedness, liens, changes in business, changes to charter documents and affiliate transactions. It also generally limits Superior’s capital expenditures and will require them to maintain compliance with a minimum EBITDA level as of the end of each fiscal quarter.For the trailing 12 months ended June 30, 2010, Superior was required to meet a minimum EBITDA threshold of $(5.4) million and actual EBITDA was $(3.6) million. During the trailing 12 months ended June 30, 2010, Superior was in compliance with these covenants.” |
Response: | In response to Comment 8 and in accordance with Item 303(b) of Regulation S-K, additional disclosure regarding the seasonal nature of our business has been provided on page 37 of the Company’s June 30, 2010 Form 10-Q under the heading “Cement and Other Raw Materials.” We have included the disclosure below for ease of reference. The disclosure responsive to Comment 8 appears in bold font: | |
| “We obtain most of the materials necessary to manufacture ready-mixed concrete and precast concrete products on a daily basis. These materials include cement, other cementitious materials (fly ash, blast furnace slag) and aggregates (stone, gravel and sand), in addition to certain chemical admixtures. With the exception of chemical admixtures, each plant typically maintains an inventory level of these materials sufficient to satisfy its operating needs for a few days.Our inventory levels do not decline significantly or comparatively with declines in revenue during seasonally low periods. We generally maintain inventory at specified levels to maximize purchasing efficiencies and to be able to respond quickly to customer demand.” |
Response: | In response to Comment 9, additional disclosure has been provided on page 34 of the Company’s June 30, 2010 Form 10-Q under the heading “DIP Credit Agreement.” We have included the disclosure below for ease of reference. The disclosure responsive to Comment 9 appears in bold font: | |
| “As discussed above, we entered into the DIP Credit Agreement on May 3, 2010 that provides for aggregate borrowings of up to $80.0 million, under facilities consisting of: (i) a $45.0 million term loan facility, the entire amount which was drawn on May 3, 2010, and (ii) a $35.0 million asset based revolving credit facility.As of June 30, 2010, we had $45.0 million outstanding under the term loan facility and approximately $4.0 million of borrowings under the revolving credit facility. The availability under the revolving credit facility was approximately $11.3 million at June 30, 2010 and was $13.0 million as of July 30, 2010. We currently anticipate that we will emerge from Chapter 11 within thirty days from the date of |
| our filing of this quarterly report, contingent upon obtaining our exit financing and satisfying the remaining conditions to effectiveness contemplated under the Plan. However, there can be no assurance that emergence will occur within this time frame. Our primary cash needs will include funding seasonal working capital requirements, paying interest on borrowings under the DIP Credit Agreement, purchasing property and equipment and supporting restructuring activities. The projection of our cash needs is based upon many factors, including our forecasted volume, pricing, cost of materials, capital expenditures and restructuring costs. Based on our projected cash needs, we believe that the DIP Credit Agreement will provide us with sufficient liquidity in the ordinary course as we seek emergence from Chapter 11. If we are unable to emerge from Chapter 11 in the anticipated time frame, we believe that the availability under the DIP Credit Agreement will be sufficient to fund our liquidity needs in the ordinary course through its term. The DIP Credit Agreement is scheduled to mature on May 3, 2011, which may be extended to July 3, 2011, if certain conditions are satisfied or waived. If, however, the DIP Credit Agreement is not adequate to fund our operations due to a delay in our emergence from Chapter 11 or our operating results and projected needs proved incorrect, we would need to obtain an amendment to the DIP Credit Agreement or seek other debt financing to provide additional liquidity.” |
Response:In response to Comment 10, we have revised our disclosure on page 42 of the Company’s June 30, 2010 Form 10-Q under Item 4 — Controls and Procedures. We have included the revised disclosure below for ease of reference: |
| “As of June 30, 2010, our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), which are designed to provide reasonable assurance that we are able to record, process, summarize and report the information required to be disclosed in our annual and quarterly reports |
| under the Exchange Act within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based on the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to management, and made known to our principal executive officer and principal financial officer, on a timely basis to ensure that it is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. During the three months ended June 30, 2010, there were no changes in our internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.” |
Response: | In response to Comment 11, we have revised our disclosure on page 42 of the Company’s June 30, 2010 Form 10-Q under Item 4 — Controls and Procedures. We have included the revised disclosure in our response to Comment 10. |
Response: | In response to Comment 12, additional disclosure has been provided on several pages of the Company’s June 30, 2010 Form 10-Q in accordance with ASC Topic 740-270-50. This disclosure has been included on page 17 under Note 6 — Income Taxes, page 41 under “Results of Operations — |
| Income taxes” and on page 45 under “Risk Factors — We may not be able to fully utilize our U.S. net operating loss carryforwards.” We have included the disclosure responsive to Comment 12 below for ease of reference: | ||
| “As of June 30, 2010, we have U.S. federal net operating loss carryforwards of approximately $95.9 million. In assessing the value of deferred tax assets at June 30, 2010, we considered whether it was more likely than not that some or all of the deferred tax assets would not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on these considerations, we relied upon the reversal of certain deferred tax liabilities to realize a portion of our deferred tax assets and established a valuation allowance as of June 30, 2010 for other deferred tax assets because of uncertainty regarding their ultimate realization. Our total net deferred tax liability at June 30, 2010 was $1.9 million.” |
| • | The Company is responsible for the adequacy and accuracy of the disclosure in this filing; | ||
| • | Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filing; and | ||
| • | The Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. |
| Very Truly Yours, U.S. Concrete, Inc. | ||||
| By: | /s/ Curt Lindeman | |||
| Curt Lindeman | ||||
| Vice President and General Counsel | ||||
