RMX Ready Mix

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-K

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to           

 

Commission file number 001-32440

READY MIX, INC.

(Exact name of registrant as specified in its charter)

 

 

Registrant’s telephone number, including area code: (602) 957-2722

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act:

 

 

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes  o No  x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  o No  x

 

Indicate by check mark if the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  o      No  x

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o No  x

 

The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates was $4,447,580. The aggregate market value was computed using the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter.

 

Determination of stock ownership by non-affiliates was made solely for the purpose of this requirement, and the registrant is not bound by these determinations for any other purpose.

 

On March 22, 2010, there were 3,809,500 shares of common stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

The information required by Part III of this Form 10-K, to the extent not set forth herein, is incorporated herein by reference from the registrant’s definitive proxy statement to be disseminated in connection with its Annual Meeting of Shareholders for the year ended December 31, 2009, which definitive proxy statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Form 10-K relates.

 

 

READY MIX, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2009

TABLE OF CONTENTS

 

Special Note Regarding Forward Looking Statements

 

This Annual Report on Form 10-K and the documents we incorporate by reference herein include forward-looking statements. All statements other than statements of historical facts contained in this Form 10-K and the documents we incorporate by reference, including statements regarding our future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements within the meaning of the “safe harbor” provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.

 

These forward-looking statements are subject to a number of risks, uncertainties and assumptions described in “Risk Factors” and elsewhere in this Annual Report on Form 10-K. In addition, our past results of operations do not necessarily indicate our future results. Moreover, the ready-mix concrete business is very competitive and rapidly changing. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any risk factor, or combination of risk factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

Except as otherwise required by applicable laws, we undertake no obligation to publicly update or revise any forward-looking statements or the risk factors described in this Annual Report on Form 10-K or in the documents we incorporate by reference, whether as a result of new information, future events, changed circumstances or any other reason after the date of this Annual Report on Form 10-K. You should not rely upon forward-looking statements as predictions of future events or performance. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

PART I

 

 

General

 

Ready Mix, Inc. (“Company,” “Ready Mix,” “RMI,” “we,” “us” and “our”), is based in Phoenix, Arizona, and is engaged in the construction industry as a supplier of construction materials. We provide ready-mix concrete, sand and gravel products to a variety of customers, including but not limited to, contractors, subcontractors, individuals and owners of both private and public construction projects. We have operations in the Las Vegas, Nevada and Phoenix, Arizona metropolitan areas. Our operations consist of five permanent ready-mix concrete batch plants and two portable facilities, two sand and gravel crushing and screening facilities and a fleet of approximately 125 ready-mix concrete trucks and other assorted support vehicles for transporting cement powder, fly ash, sand and gravel, as well as maintenance and service vehicles. From our two aggregate production facilities located in the vicinity of Las Vegas, Nevada, we expect to supply approximately 95% of the total sand and gravel that are part of the raw materials for the ready-mix concrete that we manufacture and deliver. Our ready-mix batch plants in the Phoenix, Arizona area are located on or near sand and gravel production sites operated by third parties from whom we purchase our sand and gravel. In most instances, these third-party batch plant site leases also include long-term sand and gravel purchase obligations which serve to assure a supply of key raw materials and to provide advantageous geographic locations in proximity to areas of concentrated construction activity. Cement is the most expensive and important raw material used in the production of ready-mix concrete. We purchase our cement from a variety of suppliers with whom we share strong relationships and we may, on occasion, obtain firm supply agreements from cement suppliers. Since 1997, our operations have consisted principally of formulating, preparing and delivering ready-mix concrete to the job sites of our customers. We also provide services to reduce our customers’ overall construction costs by lowering the installed, or “in-place,” cost of concrete. These services include the formulation of new

mixtures for specific design uses, on-site and lab-based product quality control and delivery programs configured to meet our customers’ needs.

 

We produce rock and sand for our Las Vegas area ready-mix plants from two separate production facilities. One quarry, located approximately 50 miles northeast of Las Vegas in Moapa, Nevada, has historically produced all of our sand requirements and approximately 60% of the coarse aggregate requirements of our Nevada concrete batch plants. During 2008, our second aggregate production facility located approximately 15 miles north of Las Vegas began to share in the production and supply of sand and gravel needs for our Las Vegas plants. In the Phoenix metropolitan area, all three of our existing ready-mix concrete plants are currently supplied rock and sand from third parties.

 

Prior to the completion of our public offering in August of 2005, we had been funded, owned and controlled by Meadow Valley Corporation (“Meadow Valley”). On February 2, 2009, Meadow Valley affected a dividend of its ownership interest in Ready Mix, Inc. to Meadow Valley’s parent entity, Meadow Valley Parent Corp. (“Parent”). As a result, Parent now owns 69.4% of our common stock. We continue to share some common executive management and administrative support functions. As a provider of construction services in the heavy construction sector, Meadow Valley, on occasion, purchases our products for its construction projects. Purchases for the years ended December 31, 2009, 2008 and 2007 represented 0%, .9% and 2.3% of revenue and amounted to $10 thousand, $.55 million and $1.74 million, respectively with Meadow Valley. Our business has not been dependent upon Meadow Valley, but as our needs change and to the extent that Meadow Valley is awarded projects within the competitive sphere of our batch plant locations, sales to Meadow Valley may increase.

 

For the years ended December 31, 2009, 2008 and 2007, our revenue was $27.0 million, $60.7 million and $77.4 million, respectively. Our revenue mix is comprised of the following:

 

 

* Percentages are approximate.

 

Business Strategy

 

Current economic conditions have made it imperative that we focus our planning and operating strategies on the near-term in order to effectively navigate through the next few quarters during which we expect continued diminished business opportunities and decreased demand for our product. For the foreseeable future, our primary objectives are to:

 

 

We intend to continue to manage our operations on a relatively decentralized basis to allow the local management within our state markets to focus on their existing customer relationships and local strategy. Our executive management team is responsible for executing our company-wide strategy and overseeing operational improvements.

 

Overview

 

The continued weakening economic conditions, including ongoing softness in residential construction, further reduction of demand in the commercial sector and, to a certain degree, delays in anticipated public works projects, have placed significant distress on our liquidity position. Our credit agreements governing our secured credit facilities require us to maintain a minimum fixed-charge coverage ratio and a minimum adjusted earnings before interest, taxes, depreciation and amortization expense debt coverage ratio, among other covenants. As of December 31, 2009, we were not in compliance with these two covenants and we have not obtained any waivers of these requirements at this time. Although we have continued to make timely payments on these loans and we have not been formally notified of any default or acceleration of any payments due, we have classified all long-term portions of notes payable as currently due in the accompanying balance sheets and the related notes to the financial statements.

 

We have also received our 2009 fiscal year financial statements with a report from our independent registered public accounting firm containing an explanatory paragraph with their conclusion regarding substantial doubt about our ability to continue as a going concern. More information regarding this report is contained in Item 7 -“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Item 8- “Financial Statements and Supplementary Data.”

 

Recent Developments

 

In February 2010, we sold several pieces of underutilized equipment at auction. We also sold several mixer trucks that were previously leased with leases near expiration. We purchased and sold these mixer trucks within the process of the auction itself. We realized $2.7 million in proceeds, net of repairs and commissions, from the auction and paid $1.3 million to its lender to pay off existing loans and paid $0.6 million to the lessor as a buyout of the leased mixer trucks.

 

As previously announced, on January 29, 2010, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Skanon Investments, Inc., (“Skanon”) pursuant to which we will sell substantially all of our assets comprising of our ready-mix concrete business to Skanon for a purchase price of $9,750,000 in cash (the “Asset Sale”). Skanon will also assume certain of our liabilities. We will retain some assets in the form of our office building, certain written agreements and certain other assets identified in the Purchase Agreement. The Purchase Agreement provides that under specified circumstances the purchase price will be subject to a downward adjustment. On February 1, 2010, we filed a current report on Form 8-K, which summarized the principal terms of the Asset Sale and attached a copy of the Purchase Agreement in our filing.

 

On January 29, 2010, our Board of Directors unanimously adopted the Purchase Agreement and recommended that the Asset Sale be consummated. In connection with the execution of the Purchase Agreement, Parent, the beneficial holder of the majority of the outstanding shares of our common stock, entered into a voting agreement, dated as of January 29, 2010 (the “Voting Agreement”) with Skanon. Pursuant to the terms of the Voting Agreement, Parent agreed to vote or give written consent with respect to its shares of our common stock in favor of adoption of the Purchase Agreement and approval of the Asset Sale. Action by written consent is sufficient to approve the Asset Sale and the transactions contemplated by the Purchase Agreement without any further action or vote of our stockholders. Parent may materially breach or terminate the Voting Agreement with or without cause at any time and without penalty, and consequently could determine not to vote in favor of the Asset Sale.

The Purchase Agreement contains certain termination rights for us and Skanon and provides that, following the termination of the Purchase Agreement, under specified circumstances, including a breach by us of certain representations and warranties contained in the Purchase Agreement where such breach, collectively with all other breaches, would result in a material adverse effect on our business, or the failure of Parent to vote or give written consent in favor of adoption of the Purchase Agreement and the Asset Sale, we will be required to pay a termination fee of $500,000 to Skanon.

 

Our independent financial advisor, Lincoln International LLC, rendered an opinion to our Board of Directors that the consideration to be received pursuant to the Purchase Agreement is fair, from a financial point of view, to us.

 

On February 23, 2010, we filed with the Securities and Exchange Commission (“SEC”) a definitive information statement (the “Information Statement”) regarding the adoption of the Purchase Agreement and other matters related to the Asset Sale. Under SEC rules, the Information Statement must be mailed to the Company’s stockholders at least 20 days before the closing of the Asset Sale. We mailed the Information Statement to our stockholders on March 2, 2010.

 

More information regarding the Purchase Agreement and the Asset Sale can be found in our Current Report on Form 8-K filed with the SEC on February 1, 2010 and our definitive information statement on Schedule 14C filed with the SEC on February 23, 2010. There can be no assurance that we will close the transactions contemplated in the Purchase Agreement. Additionally, if we do not maintain adequate liquidity as a result of not closing the transactions contemplated in the Purchase Agreement, we may seek protection pursuant to a voluntary bankruptcy filing under Chapter 11 of the United States Bankruptcy Code.

 

Our financial statements have been prepared assuming that we will continue as a going concern, which implies that we will continue to meet our obligations and continue our operations for at least the next 12 months. This requires that our lenders do not accelerate amounts due pursuant to our credit agreements. We also evaluated the recoverability of all our long-lived assets related to the execution of the Purchase Agreement. We measured recoverability by comparing the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the closing of the Asset Sale. We identified an impairment related to the property and equipment included in the Asset Sale and recorded a charge of $6.2 million, which represents the amount that the carrying value of these assets exceeded estimated fair value at December 31, 2009.

 

Products and Services

 

Ready-mix Concrete

 

Dry batched concrete is mixed in the mixer truck en route to the job site, whereas wet batched concrete is mixed at the plant and then delivered to the job site. We produce dry batched ready-mix concrete products which require us to proportion the dry components, add water when the components are in the ready-mix truck and then deliver the product in an unhardened state, which we refer to as a plastic state, for placement into designed forms at the job site. Selecting the optimum mix for a job entails determining not only the ingredients that will produce the desired strength, durability, permeability, 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 can achieve product differentiation for the mixes we offer because of the variety of mixes we are able to produce, our production capacity and our scheduling, delivery and placement reliability. We also believe we 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-mix concrete manufacturer and the 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-mix 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 concrete technology, we assist our customers in reducing the amount of reinforcing steel and labor required in various applications.

We provide a variety of services in connection with our sale of ready-mix concrete which can help reduce our customers’ in-place cost of concrete. These services include:

 

 

We produce ready-mix 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 use a variety of chemical admixtures to achieve one or more of five basic purposes:

 

 

We 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. We may also use fibers, such as steel, glass, synthetic and carbon filaments, as an additive in various formulations of concrete. Fibers help to control shrinkage and 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-mix concrete, these additives generate comparatively high margins.

 

Operations

 

We have made substantial capital investments in equipment, systems and personnel at our concrete plants to facilitate continuous multi-customer deliveries of a highly perishable product.

 

Our ready-mix concrete plants consist of five permanent installations and two portable facilities. Several factors govern the choice of plant type, including:

 

 

We produce ready-mix 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 stationary mixer from which the operator loads the already mixed concrete into the mixer truck, which then promptly leaves for the job site.

 

Mixer trucks slowly rotate their loads en route to job sites in order to maintain product consistency. A mixer truck typically has a load capacity of ten cubic yards, or approximately 20 tons, and a useful life of approximately 10 to 12 years; although for accounting purposes we depreciate them over 10 years based on the southwest desert environment of extreme heat, in which the mixer trucks operate. In addition to normal maintenance, after five to seven years, some components of the mixer trucks require refurbishment. New mixer trucks currently cost approximately $150,000 to $165,000. We currently operate a fleet of approximately 125 owned and leased mixer trucks.

 

In our manufacture and delivery of ready-mix concrete, we emphasize quality control, pre-job planning, customer service and coordination of supplies and delivery. A typical order contains various specifications that the contractor requires the concrete to meet. After receiving the specifications for a particular job, we formulate a variety of mixtures of cement, aggregates, water and admixtures which will meet or exceed the contractor’s

specifications. We perform testing to determine which mix design is most appropriate to meet the required specifications. The test results enable us to select the mixture that has the lowest cost and meets or exceeds the job specifications. We also maintain a project file that details the mixture to be used when the concrete for the job is actually prepared. For quality control purposes, we maintain batch samples of concrete from selected job sites.

 

We prepare bids for particular jobs based on the size of the job, location, desired profit margin, cost of raw materials and the design mixture identified in our testing process or project specifications. 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 established. Several months may elapse from the time a contractor has accepted our bid until actual delivery of the ready-mix concrete begins. During this time, we 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 many customers at various locations throughout its area of operation. To fill an order:

 

 

We track the status of each mixer truck as to whether a particular truck is:

 

 

We are continuously updated by the individual mixer truck operators as to their status. In this manner, we are able to determine the optimal routing and timing of subsequent deliveries by each mixer truck and to monitor the performance of each driver. We also are implementing a GPS and onboard sensor system which allows us to track the location and status of each truck.

 

A plant manager oversees the operation of each plant. Our employees also include:

 

 

We generally operate on a single shift although we have the capability of conducting 24 hour a day operations during times of heavy demand.

 

Cement and Raw Materials

 

We obtain most of the materials necessary to manufacture ready-mix 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 at least one day. Cement represents the single most expensive raw material used in manufacturing a cubic yard of ready-mix

concrete. In each of our markets, we purchase cement from any one of several suppliers and do not have any written supply agreements with any cement supplier. However, the symbiotic relationship between ourselves and the cement suppliers provides us with some assurance that we will be able to obtain the cement to produce ready-mix concrete to meet our customers’ demands.

 

We lease, on a royalty basis, and operate two sand and gravel production facilities in the Las Vegas, Nevada vicinity, which provide the majority of the rock and sand used in our Las Vegas area concrete plants. These aggregate leases have remaining durations ranging from one to nine years. Each lease provides certain rights to extend the lease under certain conditions. At our Arizona locations, our supply contracts for sand and gravel have remaining terms ranging from approximately one to six years. Since we do not self-produce rock and sand used in our ready-mix concrete at our Arizona locations, we have entered into lease agreements with third party sand and gravel producers to establish our ready-mix plants on their properties in exchange for our agreeing to purchase their rock and sand as a raw material for our concrete. These leases are long-term in nature, from five to ten years, and generally have renewal options for additional terms. The obligations to purchase the rock and sand from these lessors may contain provisions to pay minimum monthly amounts regardless of our consumption levels, but in some cases, do allow for past payments to apply toward future use. These types of leases reduce the amount of capital equipment we would otherwise need to perform our own crushing and screening and also eliminate the need to own or lease our own mining properties. The leases also specify parameters for the quality of the rock and sand to be supplied by the lessors. These leases are important to us as they are the basis upon which we obtain rock and sand used to produce ready-mix concrete at these plant locations.

 

Customers

 

We target concrete subcontractors, prime contractors, homebuilders and commercial and industrial property developers in the Las Vegas, Nevada and Phoenix, Arizona metropolitan areas. Revenue generated from our top ten customers represented approximately 45% of our revenue. The discontinuance of service to any of these customers or a general economic downturn could have, and in the latter case has had, a material adverse effect on our business, financial condition and results of operations.

 

Historically, we have relied heavily on repeat customers. Management and dedicated sales personnel at each of our locations have been responsible for developing and maintaining successful long-term relationships with key customers. We believe that by operating in more markets and locations, we will be in a better position to market to and service larger regional contractors.

 

Competition

 

The ready-mix concrete industry is highly competitive. Our ability to compete in our market depends largely on the proximity of our customers’ job sites to our ready-mix concrete plant locations, our plant operating costs and the prevailing ready-mix concrete prices in each 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 range from small, owner-operated private companies to subsidiaries or operating units of large, vertically integrated cement manufacturing and concrete products companies.

 

Our primary direct competitors in Nevada include Cemex, Nevada Ready Mix, Silver State Materials, Sierra Ready Mix and Service Rock Products. In Arizona, we primarily compete against Cemex, Arizona Materials, Maricopa Ready Mix, Vulcan Materials, Hanson Materials, Fort McDowell Ready Mix and Rock Solid. We also face significant competition from several smaller ready-mix concrete providers. We believe we adequately compete with all of our competitors due to our plant locations, quality of our raw materials, our delivery and service, and our competitive prices. Some competitors may have competitive advantages over us if they have lower operating costs or their financial resources enable them to accept lower margins on jobs that are particularly price-sensitive. Competitors having greater financial resources to invest in new mixer trucks or build plants in new areas may also have competitive advantages over us.

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, we have supported and funded continuing education programs for our employees. We intend to continue to expand these programs. We require all field employees to attend periodic safety training meetings and all drivers to participate in training seminars.

 

Sales and Marketing

 

General contractors and subcontractors, who self perform their own concrete work, typically select their suppliers of ready-mix 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 generally in government-funded projects, the general contractor or subcontractor usually awards supply orders on the basis of either direct negotiation or competitive bidding. We believe that the purchasing decision in many cases ultimately is relationship-based. Our marketing efforts target general contractors, concrete subcontractors, design engineers and architects whose focus extends beyond the price of ready-mix concrete to product quality and consistency and reducing their in-place cost of concrete.

 

We currently have seven full-time sales persons. We have implemented training programs to increase the marketing and sales expertise and technical abilities of our staff. Our goal is to maintain a sales force whose service-oriented approach and technical expertise will appeal to our targeted prospective customers and differentiate us from our competitors.

 

Seasonality

 

The construction industry is seasonal, generally due to inclement weather and length of daylight hours occurring in the winter months. Accordingly, we may experience a seasonal pattern in our operating results with lower revenue in the first and fourth quarters of each calendar year. Results for any one particular quarter, therefore, may not be indicative of results for other quarters or for the year.

 

Insurance

 

Our business is subject to claims and litigation brought by employees, customers and third parties for personal injuries, property damage, product defects and delay damages, that have, or allegedly have, resulted from the conduct of our operations.

 

Our operations involve providing blends of ready-mix concrete that are required to meet building code or other regulatory requirements and contractual specifications for durability, compressive strength, 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 we have not experienced any material claims of this nature, we may experience such claims in the future. In addition, our employees perform a significant portion of their work moving and storing large quantities of heavy raw materials, driving large mixer trucks in heavy traffic conditions and pouring 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 maintain insurance coverage in amounts and against the risks we believe are consistent 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.

 

Equipment

 

Currently, we operate a fleet of approximately 125 owned and leased ready-mix trucks, which are serviced by our mechanics. We believe these vehicles are generally well-maintained and adequate for our operations. The

average age of our ready-mix trucks is approximately eight years. Since inception, we have elected to finance the purchase of our trucks and other plant equipment upon terms generally available in the industry and at rates disclosed in our financial statements. In addition, we also utilize operating leases to acquire our mixer trucks and equipment. We expect to utilize the financing and leasing facilities available to us to acquire equipment and trucks in the future if they are needed. Currently, we have more mixer trucks than what is currently needed for current levels of production.

 

We have used a broad range of financing arrangements to acquire the equipment necessary for our business. We commonly lease our trucks and other operating equipment, which we believe has allowed us to minimize the initial cash outlay for such equipment when we commenced our business operations. The terms of these equipment leases are similar to other equipment leases and specify a term, a monthly payment, usually require a down payment, and may or may not specify a buyout option.

 

Government Regulation

 

A wide range of federal, state and local laws apply to our operations, which include the regulation of:

 

 

In many instances, we are required to have certificates, permits or licenses in order to conduct our business. Our 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 certain of our operations.

 

Environmental laws that 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 laws impose strict liability in some cases without regard to negligence or fault. Sanctions for non-compliance 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 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 not aware of any environmental issues which we believe are likely to have a material adverse effect on our business, financial condition or results of operations, but we can provide no assurance that material liabilities will not occur. There also can be no assurance that 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. Additionally, the Occupational Safety and Health Administration (OSHA) and the Mining Safety and Health Agency (MSHA) have established requirements for our training programs and dictate working conditions which we must meet.

 

We have all material permits and licenses required to conduct our operations and are in substantial compliance with applicable regulatory requirements relating to our operations. Our capital expenditures relating to environmental matters have not been material. 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.

 

We also require permits to obtain and use water in connection with our production of ready-mix concrete. We believe we have access to, and permitting for, sufficient water supplies to maintain our operations in Arizona and Nevada for the foreseeable future.

 

Employees

 

As of January 30, 2010, we employed 169 employees including executive officers, management personnel, sales personnel, technical personnel, administrative staff, clerical personnel, production personnel and drivers, of

which 23 were full-time salaried employees and 146 were hourly personnel generally employed on an as-needed basis, including 100 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 and length of daylight hours throughout the year. During the year ended December 31, 2009, the number of employees ranged from approximately 168 to approximately 248 and averaged approximately 200. None of our employees belongs to a labor union and we believe our relationship with our employees is satisfactory.

 

Website Access

 

Our website address is www.readymixinc.com. On our website we make available, free of charge, our annual report on Form 10-K, our most recent quarterly reports on Form 10-Q, current reports on Form 8-K, Forms 3, 4, and 5 related to beneficial ownership of securities, our code of ethics and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the United States Securities and Exchange Commission. The information on our website is not incorporated into, and is not part of, this report.

 

 

The risk factors listed in this section and other factors noted herein or incorporated by reference could cause our actual results to differ materially from those contained in any forward-looking statements. The following risk factors, in addition to the information discussed elsewhere herein, should be carefully considered in evaluating us and our business:

 

Risks Related to Our Business

 

Our independent auditors have expressed a reservation that we can continue as a going concern.

 

We are reporting net losses for the year ended December 31, 2009 and currently anticipate losses for 2010. These cumulative losses, in addition to our current liquidity situation, raise substantial doubt as to our ability to continue as a going concern for a period longer than the current fiscal year. Our ability to continue as a going concern depends on the achievement of profitable operations or the success of our financial and strategic alternatives process, which includes the Asset Sale. Until the possible completion of the financial and strategic alternatives process, the Company’s future remains uncertain, and there can be no assurance that our efforts in this regard will be successful.

 

We may file for bankruptcy protection, or an involuntary petition for bankruptcy may be filed against us.

 

If our debt is accelerated due to a default by us, our assets may not be sufficient to repay our debt in full, and our available cash flow may not be adequate to maintain our current operations. Under those circumstances, or if we believe those circumstances are likely to occur, we may be required to seek protection under court supervision pursuant to a voluntary bankruptcy filing under Chapter 11 of the U.S. Bankruptcy Code. In addition, under certain circumstances creditors may file an involuntary petition for bankruptcy against us.

 

If we file for bankruptcy protection, our business and operations will be subject to certain risks.

 

A bankruptcy filing under Chapter 11 of the U.S. Bankruptcy Code would subject our business and operations to various risks, including but not limited to, the following:

 

 

As with any judicial proceeding, a Chapter 11 proceeding (even if there is a pre-packaged or pre-arranged plan of reorganization) involves the potential for significant delays in reaching a final resolution. In a Chapter 11 proceeding, there are risks of delay with the confirmation of the plan of reorganization and there are risks of objections from certain stakeholders, including any creditors that vote to reject the plan, that could further delay the process and potentially cause a plan of reorganization to be rejected by the court. Any material delay in the confirmation of a Chapter 11 proceeding would compound the risks described above and add substantial expense and uncertainty to the process.

 

Our success in meeting our obligations and obtaining waivers of covenant violations from our lenders in the next twelve months relies in large part, upon whether our business continues to experience significant declines in revenue. If we continue to experience similar significant declines in revenue, our ability to obtain waivers of covenant violations may be unsuccessful and we may be unable to meet our payment obligations, especially if payment requirements are accelerated by our lenders.

 

Our ability to meet covenant restrictions on our loan agreements is primarily based on current conditions in our market and expected future developments, especially if we continue to experience significant declines in revenue, as well as other factors. Whether actual future results and developments will be consistent with our recent financial performance depends on a number of factors, including but not limited to:

 

 

Inadequate liquidity could materially adversely affect our business operations in the future and threaten our ability to continue as a going concern.

 

We require substantial liquidity to maintain our production facilities, meet scheduled term debt and lease obligations and run our normal business operations. If we continue to operate at or close to the minimum cash levels necessary to support our normal business operations, we will be forced to further curtail capital spending and other programs that are important to the future success of our business. Our suppliers might respond to an apparent weakening of our liquidity position by requesting quicker payment of invoices or other assurances. If this were to happen, our need for cash would be intensified, and we might be unable to make payments to our suppliers as they become due.

Our efforts to continue to maintain adequate liquidity will be very challenging given the current business environment and the immediate working capital requirements of our business. We anticipate that the effect on working capital of reductions in production volume will result in significant liquidity needs during 2010. Our ability to maintain adequate liquidity through 2010 will depend significantly on the volume and sales prices of cubic yards of concrete sold, the continuing curtailment of operating expenses and capital spending and the availability of additional short-term financing and the completion of some of our planned asset sales.

 

We are not in compliance with certain covenants in of our credit agreements with our lenders.

 

At December 31, 2009, we are not in compliance with various covenants that are required pursuant to our credit agreements with our lenders. We are not pursuing waivers and amendments with our lenders at this time. Our loans could become immediately due and payable and our lenders could proceed against our property and equipment securing the loans. If our lenders were to accelerate the payment requirements, we would not have sufficient liquidity to pay off the related debt and there would be a material adverse effect on our financial condition and results of operations. Further, if we are not able to refinance the debt and our lenders seized our property and equipment, we may not be able to continue as a going concern.

 

We are currently losing money, may need additional financing, and may not be able to obtain it on favorable terms or at all.

 

As a result of the expansion efforts after our initial public offering in August 2005, we entered into debt and operating lease obligations which, in turn, increased our total fixed minimum monthly payment obligations. As a result of the downturn in the economy, operations did not provide the cash flow needed to meet the monthly obligations and cash reserves were utilized. Our ability to meet our debt and lease obligations and to fund our working capital needs will depend on the state of the economy generally and on our future operating performance and financial results, all of which will be subject in part to factors beyond our control. We cannot assure you that our cash flow from operations, combined with our existing cash and cash equivalents, will be adequate to meet our debt and operating lease obligations and our working capital needs over the next 12 months, particularly if our lenders accelerate our payment requirements. If we are unable to generate cash flow from operations sufficient to cover these obligations and needs, and if we are unable to borrow sufficient funds, we may be required to sell assets, reduce capital expenditures, refinance all or a portion of our existing debt or obtain additional financing. We cannot assure you that we will be able to refinance our debt, sell assets or borrow more money on terms acceptable to us, if at all. In addition, the terms of certain of our debt restricts our ability to sell assets and our use of the proceeds therefrom.

 

We are and will continue to be subject to conflicts of interest resulting from Meadow Valley Parent Corp.’s control of us, and we do not have any procedures in place to resolve such conflicts.

 

Meadow Valley Parent Corp. (“Parent”) owns approximately 69% of our outstanding common stock and may be able to control our business. Parent also wholly owns Meadow Valley and Meadow Valley’s chief executive officer, chief administrative officer and chief financial officer also serve us in similar capacities. We also sell a small amount of concrete to Meadow Valley. These relationships could create, or appear to create, potential conflicts of interest when Meadow Valley’s officers are faced with decisions that could have different implications for Meadow Valley and us. These decisions could result in reducing our profitability. Also, the appearance of conflicts, even if such conflicts do not materialize, might adversely affect the investing public’s perception of us. We do not have any formal procedure for resolving such conflicts of interest.

 

We are at risk of a change in control of ownership.

 

Based on a Schedule 13D filed by Parent on February 5, 2009, Parent pledged 100% of the shares of Common Stock it owns in Ready Mix (the “Ready Mix Shares”) to LBC Credit Partners II, L.P., as agent (“Agent”), as security for a portion of the debt financing obtained in connection with the recent acquisition of Meadow Valley by affiliates of Insight Equity Holdings LLC pursuant to a pledge agreement dated February 2, 2009 (the “Pledge Agreement”). The pledge of the Ready Mix Shares includes all rights associated with the ownership of the Ready Mix Shares, including the right to receive or the power to direct the receipt of dividends from, or the proceeds from

the sale of, the Ready Mix Shares. In the event the Agent exercises its rights under the Pledge Agreement to take ownership of the Ready Mix Shares, a change in control of the Company could occur.

 

At any given time, one or a limited number of customers may account for a large percentage of our revenue, which means that we face a greater risk of loss of revenue and a reduction in our profitability if we lose a major customer or if a major customer faces financial difficulties.

 

At times a small number of customers have generated a large percentage of our revenue in any given period. For the year ended December 31, 2009, our largest customer provided approximately 9.9% of our revenue and our ten largest customers collectively provided approximately 44.7% of our revenue. In 2008, one customer provided approximately 9.1% of our revenue and our ten largest customers collectively provided approximately 49.4% of our revenue. In 2007, one customer provided approximately 7.7% of our revenue and our ten largest customers collectively provided approximately 47.8% of our revenue. Companies that constitute our largest customers vary from year to year, and our revenue from individual customers fluctuates each year. If we lose one or more major customers or if any of these customers face financial difficulties, our revenue could be substantially reduced, thereby reducing our profitability.

 

We may not meet our minimum purchase agreement obligations.

 

Our purchase agreement obligations require us to purchase a minimum quantity of aggregate product in any given purchase year. If we fail to meet this minimum requirement the purchase agreement obligator has the right to charge us the equivalent of the required minimum quantity purchases, as stipulated in the agreement, less our actual purchases without providing any additional product.

 

We may lose business to competitors who underbid us or who have greater resources to supply larger jobs than we have, and we may be otherwise unable to compete favorably in our highly competitive industry.

 

Our competitive position in a given market depends largely on the location and operating costs of our ready-mix concrete plants and prevailing prices in that market. Price is a primary competitive factor among suppliers for small or simple jobs, principally in residential construction, while timeliness of delivery and consistency of quality and service, in addition to price, are the principal competitive factors among suppliers for large or complex jobs. Our competitors range from small, owner-operated private companies offering simple mixes to subsidiaries or operating units of large, vertically integrated cement manufacturing and concrete products companies. Our vertically integrated competitors generally have greater manufacturing, financial and marketing resources than we, providing them with a competitive advantage. 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 larger jobs which are particularly price-sensitive. Competitors having greater financial resources than we do to invest in new mixer trucks or build plants in new areas also have competitive advantages over us.

 

We depend on third parties for cement, fly ash, aggregates and other supplies essential to operate our business. The loss of any such suppliers could impact our ability to provide concrete to, or otherwise service our customers, as well as our ability to retain and attract customers.

 

We rely on third parties to provide us with supplies, including cement and other raw materials, necessary for our operations. We cannot be sure that these relationships will continue in the future or that raw materials will continue to be available to us when required and at a reasonable price. If shortages of cement or other raw materials were to occur, we might be unable to meet our supply commitments to our customers which would severely impact our ability to retain and attract new customers.

Our operating results may vary significantly from reporting period to reporting period and may be adversely affected by the cyclical nature of the ready-mix concrete markets we serve, causing significant reductions in our revenue.

 

Our business and the business environment which supports the ready-mix concrete business can be cyclical in nature. As a result, our revenue may be significantly reduced as a result of declines in construction in Nevada and Arizona caused by:

 

 

As a result, our operating results in any particular quarter may not be indicative of the results that you can expect for any other quarter or for the entire year. Furthermore, negative trends in the ready-mix concrete industry or in our markets could reduce our revenue, thereby decreasing our gross profit and reducing our profitability.

 

Our business is seasonal, causing quarterly variations in our revenue and earnings, which in turn could negatively affect our stock price.

 

The construction industry, even in Arizona and Nevada, is seasonal in nature, often as a result of adverse weather conditions, with significantly stronger construction activity in the second and third calendar quarters, than in the first and fourth quarters. Such seasonality or unanticipated inclement weather could cause our quarterly revenue and earnings to vary significantly. Because of our relatively small size, even a short acceleration or delay in filling customers’ orders can have a material adverse effect on our financial results in a given reporting period. Our varying quarterly results may result in a decline in our common stock price if investors react to our reporting operating results which are less favorable than in a prior period or than those anticipated by investors or the financial community generally.

 

Governmental regulations covering the ready-mix concrete industry, 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 apply to our production of ready-mix concrete, including:

 

 

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. Governmental requirements that impact our ready-mix concrete operations also 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 may otherwise have 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, thereby decreasing our earnings, if any.

There are special risks related to our operating and internal growth strategies that could adversely affect our operating practices and overall profitability.

 

One key component of our strategy is to operate our businesses on a decentralized basis, with local Phoenix and Las Vegas metro-wide management retaining responsibility for day-to-day operations, profitability and the internal growth of the local business. If we do not maintain proper overall internal controls, this decentralized operating strategy could result in inconsistent operating and financial practices and our overall profitability could be adversely affected. Our internal growth will also be affected by local management’s ability to:

 

 

The departure of key personnel could disrupt our business and limit our growth, as this growth requires the hiring of new local senior managers and executive officers.

 

We depend on the continued efforts of our executive officers, some of whom are executive officers of Meadow Valley, and, in many cases, on our local senior management. In addition, any future growth will impose significant additional responsibilities on members of our senior management and executive officers. The success of our operations, which is based upon a decentralized management, will depend on recruiting new local senior level managers and officers, and we cannot be certain that we can recruit and retain such additional managers and officers. To the extent we are unable to attract and retain qualified management personnel, our growth could be limited and our business could be disrupted, resulting in decreased revenue and increased costs associated with the loss of experienced managers responsible for generating new clients, marketing and cost containment efforts.

 

If some or all of our employees unionize, it could result in increases in our operating costs, disruptions in our business and decreases in our earnings.

 

If our employees were to become represented by a labor union, we could experience disruptions of our operations caused by labor strikes or slow downs as well as higher ongoing labor costs, which could increase our overall costs to do business. In addition, the coexistence of union and non-union employees on particular jobs may lead to conflicts between these employees or impede our ability to integrate our operations efficiently. Labor relations matters affecting our suppliers could increase our costs, disrupt our supply chains and adversely impact our business.

 

Our operations are subject to special hazards that may cause personal injury or property damage, subjecting us to liabilities and possible losses which may not be covered by insurance.

 

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 our plant personnel are subject to the hazards associated with moving and storing large quantities of heavy raw materials. Operating hazards can cause personal injury and loss of life, damage to or destruction of property, plant and equipment and environmental damage. We maintain insurance coverage in amounts and against the risks we believe are consistent with industry practice, but this insurance may not be adequate to cover all losses or liabilities we may incur in our operations. Our insurance policies are subject to varying levels of deductibles. Losses up to our deductible amounts will be accrued based upon our estimates of the ultimate liability for claims incurred and an estimate of claims incurred but not reported. However, insurance liabilities are difficult to assess and estimate due to unknown factors, including the severity of an injury, the determination of our liability in proportion to other parties, the number of incidents not reported and the effectiveness of our safety program. If we were to experience insurance claims or costs above our estimates, we might also be required to use working capital to satisfy these claims rather than using the working capital to maintain or expand our operations.

We may incur material costs and losses as a result of claims that our products do not meet regulatory requirements or contractual specifications.

 

One of the services we provide to our customers is the formulation of specific mix designs for ready-mix concrete that meet building code or other regulatory requirements and contractual specifications for durability, compressive strength, weight-bearing capacity and other characteristics. If we fail or are unable to provide products meeting these requirements and specifications, material claims may arise against us and our reputation could be damaged. Additionally, if a significant uninsured or non-indemnified mix design or product-related claim is resolved against us in the future, that resolution may increase our costs and reduce our profitability and cash flows.

 

Our revenue attributable to public works projects could be negatively impacted by a decrease or delay in governmental spending.

 

Our business depends to some extent on the level of federal, state and local spending on public works projects in our markets. Reduced levels of governmental funding for public works projects or delays in that funding could significantly reduce our revenue and thereby reduce our cash flow and profitability.

 

Meadow Valley Parent Corp. beneficially owns a significant number of shares of our common stock which will have an impact on all major decisions on which our shareholders may vote and which may discourage an acquisition of the Company.

 

Meadow Valley Parent Corp. (“Parent”) currently owns 69.4% of our outstanding common stock. As a result, Parent will have the ability to significantly impact virtually all corporate actions requiring shareholder approval, including the following actions:

 

 

The interests of Parent may differ from the interests of our other shareholders. Further, Parent’s beneficial stock ownership may discourage potential investors from investing in shares of our common stock due to the lack of influence they could have on our business decisions, which in turn could reduce our stock price.

 

The application of the “penny stock” rules could adversely affect the market price of our common stock and increase your transaction costs to sell those shares.

 

When the trading price of our common stock is below $5.00 per share, the open-market trading of our common stock will be subject to the “penny stock” rules. The “penny stock” rules impose additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of securities and have received the purchaser’s written consent to the transaction before the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the broker-dealer must deliver, before the transaction, a disclosure schedule prescribed by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information on the limited market in penny stocks. These additional burdens imposed on broker-dealers may restrict the ability or decrease the willingness of broker-dealers to sell the common stock, and may result in decreased liquidity for our common stock and increased transaction costs for sales and purchases of our common stock as compared to other securities.

 

We do not intend to pay dividends on our common stock.

 

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future.

Failure to maintain adequate general liability, commercial and product liability insurance could subject us to adverse financial results.

 

Any general, commercial and/or product liability claim which is not covered by such policy, or is in excess of the limits of liability of such policy, could have a material adverse effect on our financial condition. There can be no assurance that we will be able to maintain our general liability, product liability, and commercial insurance on reasonable terms.

 

If we fail to implement effective internal controls required by the Sarbanes-Oxley Act of 2002, to remedy any material weaknesses in our internal controls that we may identify or to obtain the attestation required by Section 404 of the Sarbanes-Oxley Act of 2002, such failure could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial information and have a negative effect on the trading price of our common stock.

 

Section 404 of the Sarbanes-Oxley Act of 2002 requires management of public companies to develop and implement internal controls over financial reporting and evaluate the effectiveness thereof, and the independent auditors to attest to the effectiveness of such internal controls. We have not yet been required to obtain the independent auditor attestation required by the Sarbanes-Oxley Act of 2002.

 

Any failure to complete our assessment of our internal controls over financial reporting, to remediate any material weaknesses that we may identify or to implement new or improved controls, or difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Any such failure also could adversely affect the results of the periodic management evaluations of our internal controls and, in the case of a failure to remediate any material weaknesses that we may identify, would adversely affect our ability to obtain the annual auditor attestation reports regarding the effectiveness of our internal controls over financial reporting that are required under Section 404 of the Sarbanes-Oxley Act. Inadequate internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

 

Our articles of incorporation and bylaws contain provisions that could delay or prevent a change in control even if the change in control would be beneficial to our shareholders.

 

In addition to the ownership of a significant amount of the Company’s outstanding common stock by Parent, our articles of incorporation and bylaws contain provisions that could delay or prevent a change in control of our Company, even if it were beneficial to our shareholders to do so. These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. Among other things, these provisions:

 

 

Risks Related to the Asset Sale

 

Except for Parent, our current stockholders have no opportunity to approve or disapprove the Asset Sale.

 

The Purchase Agreement has been adopted and the consequent Asset Sale has been approved by our Board of Directors and we anticipate that Parent will, by written consent, adopt the Purchase Agreement and approve the Asset Sale on or before April 30, 2010 in accordance with the terms of the Voting Agreement. Thus the Purchase Agreement and the Asset Sale will not be presented to our other stockholders for adoption and approval. Accordingly, stockholders are not being asked to approve or disapprove the Purchase Agreement and the Asset Sale.

 

If the closing of the Asset Sale does not occur, we will not benefit from the expenses we have incurred in the pursuit of the Asset Sale.

 

We have incurred substantial expenses in connection with the Asset Sale. The completion of the Asset Sale depends on the satisfaction of specified conditions in the Purchase Agreement. We cannot guarantee that these

conditions will be met. If the Asset Sale is not completed, these expenses could have a material adverse impact on our financial condition and results of operations. In addition, the market price of our common stock could decline in the event that the Asset Sale is not consummated as our current market price may reflect an assumption that the Asset Sale will be completed.

 

If the Asset Sale is not completed, we may have to revise our business strategy.

 

During the past several months, our management has been focused on, and has devoted significant resources to, the Asset Sale. This focus is continuing and we have not pursued certain business opportunities which may have been beneficial to us. If the Asset Sale is not completed, we will have to revisit our business strategy in an effort to determine what changes may be required in order for us to continue its operations. We may need to consider raising additional capital or financing in order to continue as a going concern if the Asset Sale is not completed. No assurance can be given whether we would be able to successfully raise capital or financing in such circumstances or, if so, under what terms.

 

Termination of the Purchase Agreement could negatively impact the Company.

 

If the Purchase Agreement is terminated, there may be various consequences. For example, the Company’s business may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Asset Sale, without realizing any of the anticipated benefits of completing the Asset Sale, or the market price of the Company’s common stock could decline to the extent that the current market price reflects a market assumption that the Asset Sale will be completed. If the Purchase Agreement is terminated and the Company’s Board of Directors seeks another transaction or business combination, the Company’s stockholders cannot be certain that the Company will be able to find a party willing to pay an equivalent or more attractive price than the price Skanon has agreed to pay in the Asset Sale. Furthermore, under certain specified circumstances, the Company will be required to pay a termination fee of $500,000 if the Purchase Agreement is terminated and it is likely that the Company would have insufficient liquidity to pay such termination fee when due.

 

If the Asset Sale is not consummated by April 30, 2010, either Skanon or the Company may choose not to proceed with the Asset Sale.

 

Either Skanon or the Company may terminate the Purchase Agreement if the Asset Sale has not been completed by April 30, 2010 (subject to specified automatic extensions), unless the failure of the Asset Sale to be completed has resulted from the material failure of the party seeking to terminate the Purchase Agreement to perform its obligations.

 

The Purchase Agreement limits the Company’s ability to pursue alternatives to the Asset Sale.

 

The Purchase Agreement contains provisions that limit the Company’s ability to solicit competing third-party proposals to acquire all or a significant part of the Company. These provisions, which include a $500,000 termination fee payable under certain circumstances, might discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of the Company from considering or proposing that acquisition even if it were prepared to pay more consideration for the Assets than that proposed in the Purchase Agreement.

 

The opinion obtained by the Company from its financial advisor will not reflect changes in circumstances between signing the Purchase Agreement and completion of the Asset Sale.

 

The Company has not obtained an updated opinion as of the date of this Form 10-K from its financial advisor, Lincoln International LLC. Changes in the operations and prospects of the Company, general market and economic conditions and other factors that may be beyond the control of the Company, and on which the Company’s financial advisor’s opinion was based, may significantly alter the value of the Company by the time the Asset Sale is completed. The opinion does not speak as of the time the Asset Sale will be completed or as of any date other than the date of such opinion. Because the Company does not currently anticipate asking its financial advisor to update its opinion, the opinion will not address the fairness of the Purchase Price from a financial point of view at the time the Asset Sale is completed.

The Company will be subject to business uncertainties and contractual restrictions while the Asset Sale is pending.

 

Uncertainty about the effect of the Asset Sale on employees and customers may have an adverse effect on the Company. These uncertainties may impair the Company’s ability to attract, retain and motivate key personnel until the Asset Sale is consummated, and could cause customers and others that deal with the Company to seek to change existing business relationships with the Company. Retention of certain employees may be challenging during the pendency of the Asset Sale, as certain employees may experience uncertainty about their future roles, if any, with Skanon. In addition, the Purchase Agreement restricts the Company from making certain acquisitions and taking other specified actions until the Asset Sale occurs without the consent of Skanon. These restrictions may prevent the Company from pursuing attractive business opportunities that may arise prior to the completion of the Asset Sale.

 

Following the announcement of the Asset Sale, legal proceedings may be instituted against the Company challenging the Asset Sale, and an adverse ruling in such legal proceedings may prevent the Asset Sale from closing.

 

The Company, the members of the Board of Directors and others may become parties to legal proceedings challenging the proposed Asset Sale, seeking, among other things, to enjoin the Company from consummating the Asset Sale on the agreed-upon terms. The Purchase Agreement provides that either the Company or Skanon could terminate the Purchase Agreement if a court or other agency of competent jurisdiction has issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the Asset Sale. In addition, the Company could incur substantial legal fees in connection with the defense of any legal proceedings against the Company or the members of the Board of Directors or could become responsible for significant monetary damages.

 

The Company may not have adequate liquidity to maintain its operations while the Asset Sale is pending.

 

We require substantial liquidity to maintain our production facilities, meet scheduled term debt and lease obligations and run our normal business operations. While the Asset Sale is pending and we continue to operate at or close to the minimum cash levels necessary to support our normal business operations, our need for cash might continue to intensify and we might be unable to make payments to our suppliers, which could severely limit our ability to close the Asset Sale and may result in the termination of the Purchase Agreement that could require us to pay a $500,000 termination fee.

 

The Company cannot be certain of the exact amount of the Purchase Price as it is subject to downward adjustment under specified circumstances described in the Purchase Agreement.

 

The Purchase Agreement provides that the purchase price for the assets subject to the Asset Sale will be subject to substantial downward adjustment if (1) the amount of cash the Company is entitled to retain under the Purchase Agreement is not sufficient to satisfy certain liabilities specified in the Purchase Agreement, or (2) if the Company breaches any of its obligations pursuant to Section 5.1 of the Purchase Agreement (regarding interim operations of the Company) and such breach results in (a) actual damages to the Assets of greater than $10,000 but less than $500,000, or (b) an increase of the dollar amount of liabilities to be assumed by Skanon at the closing by more than $10,000 but less than $500,000.

 

The completion of the Asset Sale is subject to the satisfaction or waiver of conditions.

 

The Asset Sale is subject to the satisfaction or waiver of a number of closing conditions set forth in the Purchase Agreement. If these conditions are not satisfied or waived, the Asset Sale will not be completed. Also, even if all of these conditions are satisfied, the Asset Sale may not be completed, as each of the Company and Skanon has the right to terminate the Purchase Agreement under certain circumstances specified in the Purchase Agreement.

Parent may elect to terminate the Voting Agreement.

 

Parent may materially breach or terminate the Voting Agreement with or without cause at any time and without penalty, and consequently could determine not to vote or give written consent in favor of adoption of the Purchase Agreement and the Asset Sale. We anticipate that Parent will, by written consent, adopt the Purchase Agreement and approve the Asset Sale on or before April 30, 2010 in accordance with the terms of the Voting Agreement, but there can be no assurance to this effect.

 

 

None.

 

 

We owned or leased the following properties at December 31, 2009:

 

 

 

 

We have determined that the above properties are sufficient to meet our current needs.

 

 

None.

 

 

There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the year ended December 31, 2009.

 

 

Our common stock is listed on the NYSE Alternext US and trades under the symbol “RMX.” The following table represents the high and low closing prices for our common stock on the NYSE Alternext US. As of January 29, 2010, there were approximately 1,300 record and beneficial owners of our common stock. On January 29, 2010, our common stock closed at $2.10 per share. Our common stock began trading on August 24, 2005, at the completion of our initial public offering.

 

 

 

We have never declared or paid cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our board of directors and will be dependent upon our financial condition, results of operations, capital requirements, general business conditions and other such factors as our board of directors deems relevant.

 

The following table represents equity compensation plans approved by our security holders as of December 31, 2009:

 

 

 

Our approved equity compensation plan, which we refer to as the 2005 Plan, permits the granting of any or all of the following types of awards: (1) incentive and nonqualified stock options, (2) stock appreciation rights, (3) stock awards, restricted stock and stock units and (4) other stock or cash-based awards. In connection with any award or any deferred award, payments may also be made representing dividends or their equivalent.

 

The 2005 Plan permits the granting of up to 675,000 shares of our common stock for issuance. As of December 31, 2009, 122,625 shares were available for future grant under the 2005 Plan. The common terms of the stock options are five years and may be exercised after issuance as follows: 33.3% after one year of continuous service, 66.6% after two years of continuous service and 100% after three years of continuous service. The exercise

price of each option is no less than the market price of the Company’s common stock on the date of grant. The board of directors has full discretion to modify these terms.

 

Except for issuances of options under the 2005 Plan, we did not sell any unregistered securities during the year ended December 31, 2009, nor did we repurchase any of our equity securities during the same period.

 

The graph below compares the cumulative 52-month total return of holders of the Company’s common stock with the cumulative total returns of the NYSE Amex Composite Index, and a customized peer group of five companies that includes: Eagle Materials, Inc., Martin Marietta Materials, Texas Industries, Inc., US Concrete, Inc. and Vulcan Materials Corp. The graph tracks the performance of a $100 investment in our common stock, in the peer group, and the index* (with the reinvestment of all dividends) from August 24, 2005 to December 31, 2009.

 

COMPARISON OF 52 MONTH CUMULATIVE TOTAL RETURN*
Among Ready Mix. Inc. The NYSE Amex Composite Index
And A Peer Group

 

 

*$100 invested on 8/24/05 in stock or 7/31/05 in index, including reinvestment of dividends.
 Fiscal year ending December 31.

 

 

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

 

Statement of Operations Information:

 

The selected financial data as of and for each of the five years ended December 31, 2009, is derived from the financial statements of the Company and should be read in conjunction with the financial statements included elsewhere in this Annual Report on Form 10-K and the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

Statement of Operations Information:

 

 

Balance Sheet Information:

 

 

Financial Position Information:

 

 

 

The following discussion of our results of operations and financial condition should be read in conjunction with our financial statements and notes thereto included elsewhere herein. Historical results and percentage relationships among accounts are not necessarily an indication of trends in operating results for any future period. In these discussions, most percentages and dollar amounts have been rounded to aid presentation. As a result, all such figures are approximations.

Executive Overview

 

Our revenue is directly related to the level of construction activity in our markets. Ordinarily, the construction segments that affect our business the most are: the single-family residential segment, the commercial construction segment and, to a lesser degree, the public works infrastructure segment, both highway and non-highway. Accordingly, the significant reduction in residential construction during 2009 has caused a corresponding drop in demand for our product. Unfortunately, the construction activity in the non-residential sectors began to decline during 2008 which compounded the effect of the residential slowdown. A prolonged decline in residential activity coinciding with a decline in one or more of the other sectors of the construction market could result in significant additional reductions in demand for our product.

 

Results of Operations

 

The following table sets forth statement of operations data expressed as a percentage of revenue for the periods indicated:

 

 

 

Year Ended December 31, 2009 Compared to Year Ended December 31, 2008

 

Revenue.   Revenue declined 55.5% to $27.0 million for the year ended December 31, 2009, which we refer to as “2009,” from $60.7 million for the year ended December 31, 2008, which we refer to as “2008.” The decrease in revenue resulted from a 51.5% decrease in sales of cubic yards of concrete, which we refer to as “units,” aggravated by a decrease of 14.1% in the average unit sales price. The decreased volume in 2009 was due to the continued decline in the housing market, which has negatively affected our residential concrete customers and has created an overall slowdown in the construction sector of our market. The overall demand for ready-mix concrete has decreased and the average number of ready-mix concrete providers has remained relatively the same in our market. The result of this intense market competition has been a decreased average unit sales price. We expect the intense level of competition in our market to continue until the market recovers from the current economic downturn or there is a decrease in the number of ready-mix providers in our market.

 

We also provide ready-mix concrete to a related party. Related party revenue represented a negligible part of our 2009 revenue compared to .9% of our 2008 revenue. Location of the project, type of product needed and the availability of product and personnel are factors which we consider when quoting prices to our customers, including our related party. Based on that criteria, future sales to the related party could increase or decrease in any given year, but are not anticipated to be material.

 

Gross Profit (Loss).   Gross profit (loss) decreased to ($7.3) million for 2009 from $.1 million for 2008 and gross margin, as a percent of revenue, decreased to (27.1%) in 2009 from .1% in 2008. The decrease in the gross profit margin during 2009 when compared to 2008 was primarily due to reduced sales volume, reduced average selling price and higher fixed costs associated with the increased capacity completed during 2007 and early 2008.

The fixed costs will continue to impact our gross profit and margin until our volume reaches an adequate and consistent level.

 

Depreciation and Amortization.   Depreciation and amortization expense decreased $.3 million, or 6.4%, to $4.4 million for 2009 from $4.7 million for 2008. This decrease resulted from us selling some of our under-utilized equipment.

 

General and Administrative Expenses.   General and administrative expenses decreased $1.3 million for 2009 to $3.3 million from $4.6 million in 2008. The decrease resulted primarily from a decrease in administrative salaries, wages, related payroll taxes and benefits and cost reductions in office, sales, marketing and advertising expenses and bad debt expenses. This was offset in part by an increase in public company related expenses and an increase in legal expense due to our efforts in marketing the Company for sale.

 

Interest Income and Expense.   Interest income decreased $.14 million, or 91.9%, to $.01 million for 2009 from $.15 million for 2008. The decrease in interest income was primarily due to the decrease in the amount of our invested cash reserves. Interest expense decreased in 2009 to $.10 million compared to $.11 million for 2008. The decrease in interest expense was related to the repayment of a portion of our outstanding balance on our mortgage associated with our corporate building, thereby reducing interest expense. Interest expense associated with assets used to generate revenue is included in cost of revenue. The interest included in cost of revenue during 2009 was $.43 million compared to $.60 million for 2008. The decrease in interest expense included in cost of revenue represents the decrease in debt obligations used to finance our plant, property and equipment. We do not anticipate entering into any material financing agreements to acquire additional equipment or to fund working capital.

 

Income Tax Benefit.   The income benefit amount in 2009 increased to $3.5 million from $1.4 million in 2008. For 2009, our effective income tax rate differed from the statutory rate due primarily to state income taxes and non-deductible stock-based compensation expense associated with employee incentive stock options.

 

Net Loss.   Net loss was $13.5 million for 2009 as compared to net loss of $2.9 million for 2008. A substantial portion of the net loss, $6.2 million of the $13.5 million loss, was due to the impairment charge we realized upon our agreement to sell substantially all of our assets and liabilities. The remaining increase in net loss resulted from a decrease in the volume of units sold, the reduced average selling price and under utilization of equipment as discussed above, which resulted from the continued slump of the residential construction sector and the overall decreased demand for ready-mix concrete products as a result of the economic recession.

 

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

 

Revenue.   Revenue declined 21.5% to $60.7 million for the year ended December 31, 2008, which we refer to as “2008,” from $77.4 million for the year ended December 31, 2007, which we refer to as “2007.” The decrease in revenue resulted from a 16.4% decrease in sales of cubic yards of concrete, which we refer to as “units,” aggravated by a decrease of 6.8% in the average unit sales price. The overall demand for ready-mix concrete has decreased and the average number of ready-mix concrete providers has remained relatively the same in our market. The result of this intense market competition has been a decreased average unit sales price. The decreased volume in 2008 was due to the decline in the housing market, which has negatively affected our residential concrete customers and has created an overall slowdown in the construction sector of our market. Housing permits in our market have declined approximately 59% when comparing 2008 to 2007. New home closings have declined approximately 47% for the same period. The commercial sector has experienced a severe slowdown resulting from the lack of available credit to continue to finance projects. We also provide ready-mix concrete to a related party. Related party revenue represented .9% of our 2008 revenue compared to 2.3% of our 2007 revenue. Location of the project, type of product needed and the availability of product and personnel are factors which we consider when quoting prices to our customers, including our related party. Based on that criteria, future sales to the related party could increase or decrease in any given year, but are not anticipated to be material.

 

Gross Profit.   Gross profit decreased by 99.0% to $.1 million for 2008 from $6.2 million for 2007 and gross margin, as a percent of revenue, decreased to .1% in 2008 from 8.0% in 2007. Gross profit margin can be affected by a variety of factors including utilization of our equipment, customers’ construction schedules, weather conditions and availability of raw materials. The decrease in the gross profit margin during 2008 when compared to 2007 was primarily due to reduced sales volume, reduced average selling price, and higher fixed costs associated with the increased capacity completed during 2007 and early 2008.

Depreciation and Amortization.   Depreciation and amortization expense increased $.3 million, or 7.2%, to $4.7 million for 2008 from $4.4 million for 2007. This increase resulted from the additional plant, equipment and vehicles we placed in service in 2008 and the later part of 2007.

 

General and Administrative Expenses.   General and administrative expenses remained flat at $4.6 million for 2008 when compared to 2007. Although the total remained consistent, the expenses which made up the total were different. The primary expenses which changed year over year consisted of the following: a $.7 million decrease in administrative salaries, wages, bonuses and related payroll taxes and a $.1 million decrease in public company expense, offset by a $.8 million increase in our bad debt expense.

 

Interest Income and Expense.   Interest income decreased $.23 million, or 60.2%, to $.15 million for 2008 from $.39 million for 2007. This decrease resulted from a decrease in our cash reserves compounded by the decrease in the rate of return paid by financial institutions. Interest expense decreased in 2008 to $.11 million compared to $.14 million for 2007. The decrease in interest expense was related to the repayment of a portion of our outstanding balance on our mortgage associated with our corporate building, thereby reducing interest expense. Interest expense associated with assets used to generate revenue is included in cost of revenue. The interest included in cost of revenue during 2008 was $.60 million compared to $.74 million for 2007. The decrease in interest expense included in cost of revenue represents the decrease in debt obligations used to finance our plant, property and equipment.

 

Income Taxes.   The income tax provision for 2008 decreased from an expense to a benefit in the amount of $1.4 million, from $.8 million income tax expense for 2007. For 2008, our effective income tax rate differed from the statutory rate due primarily to state income taxes and non-deductible expenses.

 

Net Income (Loss).   Net loss was $2.9 million for 2008 as compared to net income of $1.4 million for 2007. The decrease in net income resulted from a decrease in the volume of units sold, the reduced average selling price and under utilization of equipment as discussed above, which resulted from the continued slump of the residential construction sector and the overall decreased demand for ready-mix concrete products as a result of the economic recession.

 

Liquidity and Capital Resources

 

Historically, our primary need for capital has been to increase the number of mixer trucks in our fleet, to increase the number of concrete batch plant locations, purchase support equipment at each location, secure and equip aggregate sources to allow a long-term source and quality of the aggregate products used to produce our concrete and provide working capital to support the expansion of our operations.

 

Currently, we do not anticipate expanding our operations in the near term. Our current need for capital will be to supplement our lack of cash flow from operations to meet our debt repayment obligations. Historically, our largest provider of financing has been Wells Fargo Equipment Financing, Inc., who we refer to as “WFE.”

 

Our credit facility with WFE which provided a $5.0 million revolving credit facility, as well as a $15.0 million capital expenditure commitment, expired December 31, 2008. As of December 31, 2008, we had $.25 million outstanding on our expired revolving credit facility. On February 2, 2009, we repaid $.25 million, the outstanding principal, on the revolving credit facility. Our capital expenditure commitment from WFE remains outstanding and as of December 31, 2009, we have drawn the principal amount of $5.0 million on such commitment. In addition, we amended the master security agreement with WFE to remove Meadow Valley’s guarantee.

Listed below are the amended covenants which are required to be maintained by the Company as of December 31, 2009 and thereafter:

 

 

 

Our amended security agreement also calls for a prepayment penalty. The prepayment penalty is calculated on any prepaid principal balances paid prior to their scheduled due date. The prepayment penalty is as follows:

 

 

If we prepay any amounts due under our separate lease agreement with WFE on or before January 1, 2011, we must pay all remaining rents and all purchase option amounts contained in the lease agreement.

 

As of December 31, 2009, we were not in compliance with the fixed charge coverage ratio. Currently, we are not in discussions with WFE to obtain a waiver and amendment from WFE. The WFE loan could become immediately due and payable and WFE could proceed against our equipment securing the loan. We have classified our obligations with WFE as current liabilities pursuant to the terms of the credit agreement. If WFE were to accelerate the payment requirements, we would not have sufficient liquidity to pay off the related debt and there would be a material adverse effect on our financial condition and results of operations. Further, if we were not able to refinance the debt and WFE seized our equipment, we may not be able to continue as a going concern.

 

We also have a covenant requirement with our lender National Bank of Arizona (“NBA”). The NBA loan is secured by our headquarters building in Phoenix, Arizona. The covenant requirement is a minimum adjusted earnings before interest, taxes, depreciation and amortization expense debt coverage ratio evaluated at year end. We believe that we are not in compliance of this covenant requirement for the year 2009, however, NBA has not notified us of any default. We continue to make timely payments, however, we have classified all long-term portions of amounts due as current liabilities. If NBA accelerates the payment requirements, the $1.3 million note payable that is currently outstanding to NBA would become immediately due and payable and NBA could proceed against collateral granted to it to secure that debt if we were not able to repay it. If NBA accelerates the payment requirements, we may not have sufficient liquidity to pay off the related debt and there could be a material adverse effect on our financial condition and results of operations.

In light of this situation, we are working diligently to close the sale of substantially all its assets as soon as possible. If we are unable to close this sale or if we do not maintain adequate liquidity prior to closing this sale, it may be necessary to seek legal protection pursuant to a voluntary bankruptcy filing under Chapter 11 of the U.S. Bankruptcy Code.

 

We are reporting net losses for the year ended December 31, 2009 and currently anticipate losses for 2010. These cumulative losses, in addition to our current liquidity situation, raise substantial doubt as to our ability to continue as a going concern for a period longer than the current fiscal year. Our ability to continue as a going concern depends on the achievement of profitable operations or the success of our financial and strategic alternatives process, which may include the sale of substantially all of our assets and liabilities. Until the possible completion of the financial and strategic alternatives process, our future remains uncertain, and there can be no assurance that our efforts in this regard will be successful.

 

Our financial statements have been prepared assuming we will continue as a going concern, which implies that we will continue to meet our obligations and continue our operations for at least the next 12 months. Realization values may be substantially different from carrying values as shown, and our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

The following table sets forth, for the periods presented, certain items from our Statements of Cash Flows:

 

 

Cash used in operating activities during 2009 of $1.3 million represents a $.2 million increase from the amount used in operating activities during 2008. The change was primarily due to the net loss incurred in 2009.

 

Cash provided by investing activities during 2009 of $.5 million represents a $1.1 million increase from the amount used by investing activities during 2008. The increase in investing activities during 2009 was due primarily to the sale of equipment.

 

Cash used in financing activities during 2009 of $2.3 million represents a $1.0 million decrease from the amount used in financing activities during 2008. The decrease in cash used in financing activities during 2009 was the result of the repayment of debt obligations.

 

Cash used in operating activities during 2008 of $1.1 million represents an $8.4 million decrease from the amount provided by operating activities during 2007. The change was primarily due to the net loss incurred in 2008, coupled with an increase in our days sales outstanding and maintaining our payables within good credit terms.

 

Cash used in investing activities during 2008 of $.6 million represents a $3.0 million decrease from the amount used by investing activities during 2007. The decrease in investing activities during 2008 was due primarily to the completion of the expansion of our production facilities and equipment to be used at those locations.

 

Cash used in financing activities during 2008 of $3.2 million represents a $.3 million increase from the amount used in financing activities during 2007. The increase in cash used in financing activities during 2008 was the result of the repayment of debt obligations.

 

Summary of Contractual Obligations and Commercial Commitments

 

Contractual obligations at December 31, 2009, and the effects such obligations are expected to have on liquidity and cash flow in future periods, are summarized as follows:

 

 

 

Impact of Inflation

 

We may experience increases in the cost of our raw materials and the transport of those materials. Given the current downward pressure on pricing due to the dramatic decrease in demand, we are not always able to pass on additional costs, thereby possibly decreasing our margins. Increases in labor costs, worker compensation rates and employee benefits, equipment costs, or material or subcontractor costs could also adversely affect our operations in future periods. Therefore, inflation may have a negative material impact on our operations to the extent that we cannot pass on higher costs to our customers.

 

Critical Accounting Estimates

 

General

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our financial statements, which have been prepared in accordance with accounting policies generally accepted in the United States of America, or “GAAP.” We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates under different assumptions or conditions.

 

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our financial statements. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our financial statements. Our significant accounting policies are described below and in Note 1 – Summary of Significant Accounting Policies and Use of Estimates to our financial statements included in Item 8.

 

Reportable Segments

 

We currently operate our business within one reportable segment of operation. All of the revenue from our customers is substantially from the sale of ready-mix concrete. Ready-mix concrete can have many different variations and characteristics, from the strength of the concrete to its color and consistency. However, we do not maintain the quantity or dollar amount of each variation of our product sold as the variations in the ready-mix concrete sales are simply variations of ready-mix concrete. We also sell sand, aggregate and decorative colored rock from our production

facility in Moapa, Nevada, but the primary purpose of this production facility is to provide us with more control over quality and assurance of timely availability of a portion of the raw materials used in the product we sell to customers. The revenue generated from the sale of sand, aggregate and decorative colored rock represented 9.7% and 3.7% of our gross revenue for the years ended December 31, 2009 and 2008, respectively. In addition, we view the market similarities between the Phoenix, Arizona and the Las Vegas, Nevada metropolitan areas to be of such a similar nature that we do not distinguish between them for financial statement reporting purposes.

 

Collectability of Account Receivables

 

We are required to estimate the collectability of our account receivables. A considerable amount of judgment is required in assessing the realization of these receivables, including the current credit worthiness of each customer and the related aging of the past due balances. Our provision for bad debt as of December 31, 2009 and 2008 amounted to $706,942 and $1,210,246, respectively. We determine our reserve by using percentages, derived from our collection history, applied to certain types of revenue generated, as well as a review of the individual accounts outstanding. The decrease in the provision for bad debt for the year ended December 31, 2009 represented a decrease in the specific account balances identified as potentially uncollectible during the year ended December 31, 2009, as well as the decision to write off certain accounts receivable deemed uncollectable. Should our estimate for the provision of bad debt not be sufficient to allow for the write-off of future bad debts we will incur additional bad debt expense, thereby reducing net income in a future period. If, on the other hand, we determine in the future that we have over estimated our provision for bad debt we will reduce bad debt expense, thereby increasing net income in a future period. Furthermore, if one or more major customers fail to pay us, it would significantly affect our current results as well as future estimates. We pursue our lien rights to minimize our exposure to delinquent accounts.

 

Valuation of Property and Equipment

 

We are required to report property and equipment, net of depreciation and amortization expense. We expense depreciation and amortization utilizing the straight-line method over what we believe to be the estimated useful lives of the assets. Leasehold improvements are amortized over their estimated useful lives or the lease term, whichever is shorter. The estimated useful lives of property and equipment are:

 

 

The useful life on any piece of equipment can vary, even within the same category of equipment, due to the quality of the maintenance, care provided by the operator and the general environmental conditions, such as temperature, weather severity and the terrain in which the equipment operates. We maintain, service and repair the majority of our equipment through the use of our mechanics. If we inaccurately estimate the life of any given piece of equipment or category of equipment we may be overstating or understating earnings in any given period.

 

We also review our property and equipment, including land and water rights, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. The impairments are recognized in the period during which they are identified. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

 

The Company evaluated the recoverability of all of its long-lived assets during the fourth quarter of 2009. Since the Company agreed to sell substantially all of its assets and liabilities on January 29, 2010, the Company measured recoverability by comparing the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the closing of the Purchase Agreement. The Company identified an impairment related to the property and equipment included in the Purchase Agreement and recorded a charge of $6.2 million, which represents the amount that the carrying value of these assets exceeded estimated fair value at December 31, 2009.

Income Taxes

 

We are required to estimate our income taxes in each jurisdiction in which we operate. This process requires us to estimate the actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These temporary differences result in deferred tax assets and liabilities on our balance sheets. We must calculate the blended tax rate, combining all applicable tax jurisdictions, which can vary over time as a result of the allocation of taxable income between the tax jurisdictions and the changes in tax rates. We must also assess the likelihood that the deferred tax assets, if any, will be recovered from future taxable income and, to the extent recovery is not likely, must establish a valuation allowance. As of December 31, 2009, the Company had total deferred tax assets of $1.4 million with no valuation allowance and total deferred tax liabilities of $.4 million. The deferred tax asset does not contain a valuation allowance as we believe we will be able to utilize the deferred tax asset through future taxable income.

 

Furthermore, we are subject to periodic review by domestic tax authorities for audit of our income tax returns. These audits generally include questions regarding our tax filing positions, including the amount and timing of deductions and the allocation of income among various tax jurisdictions. In evaluating the exposures associated with our various tax filing positions, including federal and state taxes, we believe we have complied with the rules of the service codes and therefore have not recorded reserves for any possible exposure. Typically the taxing authorities can audit the previous three years of tax returns and in certain situations audit additional years, therefore a significant amount of time may pass before an audit is conducted and fully resolved. Although no audits are currently being conducted, if a taxing authority would require us to amend a prior year’s tax return we would record the increase or decrease in our tax obligation in the year in which it is more likely than not to be realized.

 

Classification of Leases

 

We follow the authoritative guidance issued by FASB as it relates to the classification of leases. One factor when determining if a lease is an operating lease or a capital lease is the intention from the inception of the lease regarding the final ownership, or transfer of title, of the asset to be leased. We are currently leasing 40 ready-mix trucks under operating lease agreements, since at the inception of those leases we had not intended to take title to those vehicles at the conclusion of the leases. Therefore, we did not request transfer of ownership provisions at the conclusion of the leases such as bargain purchase options or direct transfers of ownership. Since we do not intend to take ownership at the conclusion of the leases and we do not meet additional criteria for capitalization, the leases are classified as operating leases. If we had desired at the inception of the leases to have the ownership transferred to us at the conclusion of the leases, we would have classified those leases as capital leases and would have recorded the ready-mix trucks as assets on our balance sheet as well as recording the liability as capital lease obligations. We believe that the lease expense under the operating lease classification approximates the depreciation expense which would have been incurred if the leases had been classified as capital leases.

 

Stock based Compensation

 

We value share-based payment awards according to the fair value recognition provisions of the stock-based compensation authoritative guidance. Under this guidance we recognize compensation expense for all share-based payments granted. Accordingly, we use the Black-Scholes option valuation model to value the share-based payment awards. Under fair value recognition provisions, we recognize stock-based compensation net of an estimated forfeiture rate and only recognize compensation cost for those shares expected to vest on a straight-line basis over the requisite service period of the award.

 

Determining the appropriate fair value model and calculating the fair value of share-based payment awards requires the input of highly subjective assumptions, including the expected life of the share-based payment awards and stock price volatility. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If our actual forfeiture rate is materially different from our estimate, the stock-based compensation expense could be significantly different from what we have recorded in the current period. See Note 3 – Stock-Based Compensation in the accompanying Notes to the Financial Statements for a further discussion on stock-based compensation.

Recent Accounting Pronouncements

 

In April 2009, the FASB issued the following authoritative guidance intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities:

 

 

In May 2009, the FASB issued authoritative guidance intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires disclosure of the date through which an entity has evaluated subsequent events and the basis for selecting that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. This guidance became effective for our quarter ended June 30, 2009. We have evaluated subsequent events through March 30, 2010, which is the date the financial statements were issued.

 

In June 2009, the FASB issued authoritative guidance surrounding accounting for transfers of financial assets. This guidance removes the concept of a qualifying special-purpose entity arising from existing guidance determining accounting for transfers and servicing of financial assets and extinguishments of liabilities and removes the exception from additional existing guidance. This guidance also clarifies the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. This guidance is effective for our fiscal year beginning January 1, 2010. We are currently evaluating the impact of this guidance on our financial statements.

 

In June 2009, the FASB issued authoritative guidance changing how a reporting company determines when an entity that is insufficiently capitalized or is not controlled through voting should be consolidated. The guidance requires a number of new disclosures about a reporting company’s involvement with variable interest entities, any significant changes in risk exposure due to that involvement and how that involvement affects the reporting company’s financial statements. This guidance is effective beginning January 1, 2010. As this guidance amends provisions surrounding the consolidation of reporting companies’ financial statements; its adoption is not expected to affect our financial position and results of operations.

 

In June 2009, the FASB established the FASB Accounting Standards Codification ^tm (the “Codification”) as the single source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification did not have a material impact on our financial statements upon its adoption. Accordingly, our notes to financial statements explain accounting concepts rather than cite specific GAAP standards.

 

In August 2009, the FASB issued authoritative guidance, which provides additional guidance on measuring the fair value of liabilities. This guidance reaffirms that the fair value measurement of a liability assumes the transfer of a liability to a market participant as of the measurement date. This guidance became effective October 1, 2009. This guidance did not have a material impact on our financial statements.

In January 2010, the FASB issued authoritative guidance which clarifies and provides additional disclosure requirements on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons for and the timing of the transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). This guidance is effective for us in 2010, except for the requirements to provide Level 3 activity which will become effective for us in 2011. We do not expect the adoption of this guidance to have a material effect on our financial statements.

 

Off-Balance Sheet Arrangements

 

The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Known and Anticipated Future Trends and Contingencies

 

We grew steadily since our inception until 2007 and we plan to continue to exploit opportunities within our markets. In the current housing downturn, there are few alternatives other than to keep our costs to a minimum, do our best to maintain our existing customer base and effectively compete for the projects that are going forward. In the long-term, the key dynamics of employment and population growth within our geographic markets appear to present us with continued growth opportunities. We believe that demand for construction materials will steadily improve once the residential sector recovers from its current downturn. We also believe that the supply of raw materials has increased and shortages of key raw materials will be less likely in the future than we experienced in the past.

 

In light of the rising need for infrastructure work throughout the nation and the tendency of the current need to out-pace the supply of funds, it is anticipated that alternative funding sources will continue to be sought. Funding for infrastructure development in the United States is coming from a growing variety of innovative sources. An increase of funding measures is being undertaken by various levels of government to help solve traffic congestion and related air quality problems. Sales taxes, fuel taxes, user fees in a variety of forms, vehicle license taxes, private toll roads and quasi-public toll roads are examples of how transportation funding is evolving. Transportation norms are being challenged by federally mandated air quality standards. Improving traffic movement, eliminating congestion, increasing public transit, adding or designating high occupancy vehicle (HOV) lanes to encourage car pooling and other solutions are being considered in order to help meet EPA-imposed air quality standards. There is also a trend toward local and state legislation regulating growth and urban sprawl. The passage of such legislation and the degree of growth limits imposed by legislation could dramatically affect the nature of our markets.

 

 

Market risk generally represents the risk that losses may occur in the values of financial instruments as a result of movements in interest rates, foreign currency exchange rates and commodity prices. We do not have foreign currency exchange rate or commodity price market risk.

 

Interest Rate Risk – From time to time we temporarily invest our excess cash in interest-bearing securities issued by high-quality issuers. We monitor risk exposure to monies invested in securities in our financial institutions. Due to the short time the investments are outstanding and their general liquidity, these instruments are classified as cash equivalents in the balance sheet and do not represent a material interest rate risk. Our primary market risk exposure for changes in interest rates relates to our long-term debt obligations. Currently, we do not have exposure to changing interest rates because of our use of fixed rate debt.

 

We evaluated the potential effect that near term changes in interest rates would have had on the fair value of our interest rate risk sensitive financial instruments at December 31, 2009. Normally we would assume a 100 basis point increase in the prime interest rate, however, at December 31, 2009; we did not have any financial instruments with fluctuating interest rates. See Note 8 – Line of Credit and Note 9 – Notes Payable in the accompanying December 31, 2009 financial statements included in Item 8.

 

 

Report of Independent Registered Public Accounting Firm

 

Board of Directors and Stockholders
Ready Mix, Inc.

 

We have audited the accompanying balance sheets of Ready Mix, Inc. as of December 31, 2009 and 2008 and the related statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2009, 2008 and 2007. In connection with our audits of the financial statements, we have also audited the financial statement schedules listed in the Part IV, Item 15(a)(2) for the years ended December 31, 2009, 2008 and 2007. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Ready Mix, Inc. at December 31, 2009 and 2008, and the results of its operations and cash flows for the years ended December 31, 2009, 2008 and 2007, in conformity with accounting principles generally accepted in the United States of America.

 

Also, in our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set for therein.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred losses from operations and has liquidity issues that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

Certified Public Accountants

 

Phoenix, Arizona

March 30, 2010

READY MIX, INC.
BALANCE SHEETS

 

 

The accompanying notes are an integral part of these financial statements.

READY MIX, INC.

STATEMENTS OF OPERATIONS

 

 

The accompanying notes are an integral part of these financial statements.

READY MIX, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

 

The accompanying notes are an integral part of these financial statements.

READY MIX, INC.
STATEMENTS OF CASH FLOWS

 

 

The accompanying notes are an integral part of these financial statements.

 

READY MIX, INC.
NOTES TO FINANCIAL STATEMENTS

 

 

Nature of the Corporation:

 

Ready Mix, Inc. (the “Company”) was organized under the laws of the State of Nevada on June 21, 1996. The principal business purpose of the Company is to manufacture and distribute ready-mix concrete. The Company targets prospective customers such as concrete subcontractors, prime contractors, homebuilders, commercial and industrial property developers and homeowners in the States of Nevada and Arizona. The Company began operations in March 1997 and is 69% owned by Meadow Valley Parent Corp. (the “Parent”).

 

Accounting Estimates:

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates.

 

Significant estimates are used when accounting for the allowance for doubtful accounts, depreciation and amortization, accruals, taxes, contingencies, the valuation of stock options and the determination of carrying values of long term assets, which are discussed in the respective notes to the financial statements.

 

Cash and Cash Equivalents:

 

The Company considers all highly liquid instruments purchased with an initial maturity of three months or less to be cash equivalents.

 

Accounts Receivable, net:

 

The Company follows the allowance method of recognizing uncollectible accounts receivable. The allowance method recognizes bad debt expense based on a review of the individual accounts outstanding and the Company’s prior history of uncollectible accounts receivable. As of December 31, 2009 and 2008, an allowance of $706,942 and $1,210,246, respectively, was established for potentially uncollectible accounts receivable. During the years ended December 31, 2009, 2008 and 2007, the Company recognized $555,477, $86,151 and $117,411, respectively, in written off accounts receivables. The Company records delinquent finance charges on outstanding accounts receivables only if they are collected.

 

Inventory:

 

Inventory, which consists primarily of raw materials, comprised of aggregates, fly ash, cement powder and admixture is stated at the lower of cost, determined by the first-in, first-out method, or market. Inventory quantities are determined by physical measurements. No allowance for slow moving or obsolete inventory has been established as of December 31, 2009 and 2008.

 

Reclassifications:

 

Certain balances in the accompanying financial statements were reclassified to conform to the current year’s presentation.

 

Property and Equipment:

 

Property and equipment are recorded at cost. Depreciation is provided for on the straight-line method, over the estimated useful lives of the assets. Depreciation expense for the years ended December 31, 2009, 2008 and 2007 amounted to $4,392,353, $4,691,299 and $4,376,723, respectively. Leasehold improvements are recorded at cost

 

READY MIX, INC.
NOTES TO FINANCIAL STATEMENTS

 

 

Property and Equipment (Continued):

 

and are amortized over their estimated useful lives or the lease term, whichever is shorter. Land and water rights, which are real property, are non-depreciable assets.

 

The estimated useful lives of property and equipment are:

 

 

The Company reviews property and equipment, including land and water rights, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

 

At December 31, 2009, all notes payable were collateralized by individual pieces of property and equipment per the respective note payable schedules. With respect to notes payable with Wells Fargo Equipment Finance, Inc. (“WFE”), the individual schedules of collateral are also cross collateralized for the other notes payable with WFE. See Note 9 – Notes Payable of these financial statements.

 

Income Taxes:

 

The Company accounts for income taxes in accordance with authoritative guidance issued by the FASB. Accordingly, the Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

 

If the Company is required to pay interest on the underpayment of income taxes, the Company recognizes interest expense in the first period the interest becomes due according to the provisions of the relevant tax law.

 

If the Company is subject to payment of penalties, the Company recognizes an expense for the amount of the statutory penalty in the period when the position is taken on the income tax return. If the penalty was not recognized in the period when the position was initially taken, the expense is recognized in the period when the Company changes its judgment about meeting minimum statutory thresholds related to the initial position taken.

 

With few exceptions, the Company is no longer subject to U.S. federal, state and local examinations by tax authorities for years before 2008.

 

Revenue Recognition:

 

We recognize revenue on the sale of our concrete and aggregate products at the time of delivery and acceptance and only when the following have occurred:

 

 

READY MIX, INC.
NOTES TO FINANCIAL STATEMENTS

 

 

 

Large orders requiring multiple deliveries and spanning more than one day are invoiced daily for the deliveries on that day.

 

Reportable Segments:

 

The Company currently operates its business within one reportable segment of operation. Substantially all of the revenue from its customers is from the sale of ready-mix concrete. Ready-mix concrete can have many different variations and characteristics, including strength, color and consistency. However, the Company does not maintain the quantity or dollar amount of each variation of its product sold because the variations in the ready-mix concrete sales are simply variations of ready-mix concrete. The Company also sells sand, aggregate and decorative colored rock from its production facilities, but the primary purpose of its production facilities is to provide the Company with more control over quality and assurance of timely availability of a portion of the raw materials used in the product that the Company sells to its customers. The revenue generated from the sale of sand, aggregate and decorative colored rock represented 9.7%, 3.7% and 3.3% of the Company’s gross revenue for the years ended December 31, 2009, 2008 and 2007, respectively, and are included in the table below. In addition, the Company views the market similarities between the Phoenix, Arizona and the Las Vegas, Nevada metropolitan areas to be of such a similar nature that the Company does not distinguish between them for financial reporting purposes.

 

For the years ended December 31, 2009, 2008 and 2007, Company revenue of $27.0 million, $60.7 million and $77.4 million, respectively, was approximately divided by the general type of construction work its customers typically perform as follows:

 

 

Fair Value of Financial Instruments:

 

The carrying amounts of financial instruments including cash, certain current maturities of long-term debt, accrued liabilities and long-term debt approximate fair value because of their short maturities or for long term debt based on borrowing rates currently available to the Company for loans with similar terms and maturities.

 

The balance of due to affiliate as of December 31, 2009 and 2008 was in the amounts of $7,289 and $177,825, respectively. During the year ended December 31, 2009 and 2008, no interest was paid as the balance due to or from affiliate was paid monthly. Each current month-end balance is repaid in the following month for expenditures incurred by the affiliate on behalf of the Company or sales made to the affiliate.

 

Fair Value of Financial Assets and Liabilities:

 

The Company measures and discloses certain financial assets and liabilities at fair value. Authoritative guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Authoritative guidance also establishes a fair value hierarchy which

 

READY MIX, INC.
NOTES TO FINANCIAL STATEMENTS

 

 

requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

 

Level 1  - Quoted prices in active markets for identical assets or liabilities.

 

Level 2  - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3  - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

Long-lived Assets:

 

The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to generate. If the assets are considered to be impaired, an impairment charge will be recognized equal to the amount by which the carrying value of the asset exceeds its fair value.

 

The Company evaluated the recoverability of all of its long-lived assets during the fourth quarter of 2009 and identified an impairment related to the property and equipment included in the Purchase Agreement and recorded a charge of $6.2 million, which represents the amount that the carrying value of these assets exceeded estimated fair value at December 31, 2009.

 

Earnings (Loss) per Share:

 

The earnings (loss) per share accounting guidance provides for the calculation of basic and diluted earnings (loss) per share. Basic earnings (loss) per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflect the potential dilution of securities that could share in the earnings or losses of an entity. Dilutive securities are not included in the weighted average number of shares when inclusion would be anti-dilutive.

 

Stock-Based Compensation:

 

The Company accounts for stock based compensation according to the fair value recognition provisions of the stock-based compensation accounting guidance. The Company recognizes expected tax benefits related to employee stock-based compensation as awards are granted and the incremental tax benefit or liability when related awards are deductible. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award, which is typically three years.

 

We estimate fair value using the Black Scholes valuation model. Assumptions used to estimate compensation expense are determined as follows:

 

 

READY MIX, INC.
NOTES TO FINANCIAL STATEMENTS

 

 

 

Recent Accounting Pronouncements:

 

With the exception of those discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the year ended December 31, 2009, that are of significance, or potential significance, to us.

 

In April 2009, the FASB issued the following authoritative guidance intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities: