U.S. Aggregates, Inc.
U.S. Aggregates, Inc.
Incorporated: 1994 as USAI Acquisition Corporation
Sales: $291.7 million (2000)
Stock Exchanges: New York
Ticker Symbol: AGA
NAIC: 212321 Construction Sand and Gravel Mining; 212322 Industrial Sand Mining; 212319 Other Crushed and Broken Stone Mining and Quarrying; 32732 Ready-Mix Concrete Manufacturing
U.S. Aggregates, Inc. is one of the country’s major producers of aggregates, defined as crushed stone, sand, and gravel. It serves customers in the southeastern states of Florida, Mississippi, Georgia, Tennessee, and Alabama, and the Mountain states of Arizona, Idaho, Nevada, and Utah. The federal government is the most important ultimate customer for the company’s products, since about 50 percent of all aggregates are used to build federal highways and related infrastructure projects. The company ships about half of its products to commercial and residential contractors, so it plays a key role in the construction of homes, office buildings, industrial facilities, and institutional structures. The Golder, Thoma, Cressey, Rauner Fund IV, L.P. owns a majority of the company’s common stock.
Origins and Early Operations
On January 13, 1994, USAI Acquisition Corp. was incorporated under Delaware law. Then on February 24, 1994, company President James A. Harris and Treasurer Michael J. Stone certified an amendment to the company’s certificate of incorporation that changed the company’s name to U.S. Aggregates, Inc.
Harris became the chief executive officer and chairman of the board. Harris previously had served in several executive positions at Koppers Company, Inc., where he oversaw many acquisitions that helped make Koppers the nation’s second largest aggregates producer in 1988.
Stone also came to the new company with considerable experience in the aggregates industry. Before 1994 he had been the chief financial officer for Genstar Building Materials and Services Group, a $1 billion division of Genstar Corporation that included Genstar Stone Products, the nation’s tenth largest producer of crushed stone.
The third founder was an investment group, Chicago’s Golder, Thoma, Cressey, Rauner Fund IV, L.P. (GTCR). Bruce V. Rauner and David A. Donnini, two of its principals, served on the board of directors from the time the new company was started. On January 24, 1994 the fund made its first purchase of the new firm’s common stock and thus became its major owner.
The private equity firm of Golder, Thoma, Cressey, Rauner, Inc., the general partner of GTCR IV, was formed in 1980 but then split in 1997, creating GTCR Golder Rauner and Thoma, Cressey Equity Partners. In 1999 GTCR Golder Rauner remained the largest owner of U.S. Aggregates. Limited partners of GTCR Golder Rauner included Bell Atlantic Asset Management Company, Endowment Advisors, The Ford Foundation, Iowa Public Employees Retirement System, Hughes Aircraft Retirement Fund, JP Morgan Private Equity Group, Northwestern University, and Yale University.
Charles Pullin, former chairman of Koppers Company, became a member of U.S. Aggregates’ board of directors in 1994. He served until October 30, 2000, when he resigned due to illness; at that time, he was given the title of director emeritus.
U.S. Aggregates from its origin grew by acquisitions. In the summer of 1994 it bought Southern Ready Mix Inc. (SRM) from Finland’s Metra Oy. SRM, a producer of rock materials and concrete, had annual revenue of about $49.4 million.
U.S. Aggregates’ goal was to help meet the demands of the highway and building construction industries for aggregates. For example, it took about 85,000 tons of aggregates to build just one mile of a four-lane interstate highway. Aggregates made up about 90 percent of asphaltic concrete and about 80 percent of portland cement concrete by volume. Construction of an average six-room house took 90 tons of aggregates, while an average school or hospital needed 15,000 tons. The U.S. aggregates market in 1998 was about 2.8 billion tons.
Expansion in the Late 1990s
On June 5, 1998, U.S. Aggregates completed its merger with Monroc, Inc. for $57.6 million. Monroc was U.S. Aggregates’ largest acquisition at the time. In 1997 Monroc reported net sales of $61.4 million. It operated mainly in Utah, Idaho, and Wyoming. The purchase of Monroc was part of the company’s general expansion. It completed 28 acquisitions from January 1994 when it was founded to May 1999. In addition, it began since 1996 eight large greenfield aggregate production sites to serve big cities.
Its growth was fueled by above average demand for aggregates in the nine states it served. While the national compound annual increase in consumption was 5.1 percent, it was 6.7 percent in the nine states from 1993 to 1998, according to the U.S. Geological Survey.
In June 1998 the federal government passed the Transportation Equity Act for the 21st Century (TEA-21), which provided $218 billion for federal highway construction and maintenance for the six years of 1998 through 2003. TEA-21 increased highway spending 44 percent compared to the previous six years. However, spending was expected to increase 61 percent in the nine states served by U.S. Aggregates, thus the significance of what the company called “the largest federal public works spending bill in the history of the United States.” At the end of 1998, the corporation recorded net sales of $228.7 million, up from $163.2 million in 1997 and $131.7 million in 1996.
In the 1980s and 1990s the aggregates industry became more consolidated. In 1980 there were about 1,865 independent crushed stone producers. In 1998 that number had declined 22 percent to about 1,450 producers, while the consumption of crushed stone had grown by 71 percent. The number of independent sand and gravel producers decreased 19 percent from 4,512 in 1980 to 3,642 in 1998 at the same time the consumption of sand and gravel increased 47 percent.
In spite of this consolidation, the aggregates industry remained quite fragmented and decentralized. For example, in 1997 the five major aggregates producers together controlled just 25 percent of the total market. The main reason was the local nature of the aggregates business. Since transporting gravel, sand, and other aggregates products was a major expense, local producers had a major competitive advantage.
In some areas, however, no local aggregate sources were available. In the Gulf Coast region that was the case, so large companies like U.S. Aggregates had a significant advantage because of their ability to handle the higher transportation costs.
Developments As a Public Corporation: 1999–2001
In August 1999 U.S. Aggregates, Inc. became a public corporation, with its IPO on the New York Stock Exchange under the ticker symbol of AGA. U.S. Aggregates later in 1999 opened its ninth new greenfield aggregates site through its subsidiary Southern Ready Mix in Pride, Alabama. With operations beginning in October, the site located in northwest Alabama was close to railroad and land transportation facilities, and also water transportation since it was next to the Tennessee River.
The leaders of U.S. Aggregates used high-tech methods to promote their company. For example, in 1999 the company launched its web site at www.usaggregates.com. In May 2000 it participated in the Financial Relations Board/BSMG Worldwide Virtual CEO Summit, a webcast that allowed potential investors and media representatives to learn more about a number of companies. Each CEO took about 30 minutes for a slide presentation and then answered online questions.
The company’s financial performance in 2000 proved disappointing. Net sales declined 5.5 percent from $308.6 million in 1999 to $291.7 million in 2000. Compared with 1999 operating profits of $39.6 million, the company lost $5 million from its 2000 operations. The loss came from an $18.2 million decline in the company’s asphalt and construction business due to increased fuel costs, the economic downturn, more competition in the Mountain states, and bad weather. U.S. Aggregates also sold its Alabama ready-mix business, resulting in a $9.6 million decline in that segment of the company’s operations.
On April 3, 2001, U.S. Aggregates issued a press statement that restated its earnings for its first three quarters of fiscal 2000. In the first quarter, the company’s net loss of $2.6 million was changed to $5.1 million. Second quarter net income of $6.8 million was restated as $3.1 million. The third quarter net income of $5.5 million was changed to $1.7 million. This restatement, not surprisingly, led to a 79 percent decrease in the price of U.S. Aggregates’stock.
- USAI Acquisition Corporation is formed; name is changed to U.S. Aggregates, Inc.
- U.S. Aggregates completes its IPO in August and in December starts its web site.
- Restatement of 2000 finances leads to shareholder lawsuit; Stanford Springel is chosen as the company’s new CEO; company announces a definitive agreement to sell its southeastern operations to Florida Rock Industries, Inc.
By early May 2001 a class-action lawsuit was filed against U.S. Aggregates on behalf of those who purchased its common stock between April 25, 2000 through April 2, 2001. Filed in the U.S. District Court for the Northern District of California, the lawsuit alleged that the company released false and misleading financial statements. The company’s shareholders were represented by several law firms, including Schiffrin & Barroway, LLP of Bala Cynwyd, Pennsylvania; The Law Offices of Marc S. Henzel of Philadelphia, Pennsylvania; and Cauley Geller Bowman & Coates, LLP of Little Rock, Arkansas.
In response to its legal and financial difficulties, U.S. Aggregates announced on May 11, 2001, that its board had selected Stanford Springel as its new CEO. He replaced James Harris, who remained as the company’s board chairman. Springel had spent the previous 14 years helping other companies deal with similar financial challenges, and from 1969 to 1986 he worked for General Electric in financial management positions.
In July 2001 Florida Rock Industries Inc. of Jacksonville, Florida, announced that it planned to acquire certain assets of U.S. Aggregates for about $105 million in cash and debts and equipment leases valued at about $45 million. The deal, expected to close before October of that year, required U.S. Aggregates to sell substantially all assets of its southeastern subsidiaries, including SRM Aggregates, Inc.; Bradley Stone & Sand, Inc.; BHY Ready Mix, Inc.; Mulberry Rock Corporation; Bama Crushed Corporation; Grove Materials Corporation, and DeKalb Stone, Inc. The operations in 2000 produced about 9.1 million tons of aggregates.
In 2000 and 2001 U.S. Aggregates faced some serious challenges as its financial performance declined. It had to borrow more money and sell some of its business assets to reduce debt. The good news was that increased federal government spending on highway and infrastructure projects led to more demand for the company’s products. Although the company lost money and its sales declined in the first quarter of 2001, its leaders hoped to return the company to profitability as soon as possible.
Western Aggregates Holding Corporation; SRM Holding Corporation; Western Acquisition, Inc.
Florida Rock Industries Inc.; Giant Cement Holding, Inc.; Edw. C. Levy Co.
Benjamin, Ericka, “GTCR Golder Rauner, L.L.C.,” Venture Capital Journal, June 1, 1999, pp. 50–51.
“Metra Oy Sells U.S. Subsidiary,” Wall Street Journal [European Edition], July 15, 1994.
“Shareholder Class Action Filed Against U.S. Aggregates, Inc. by the Law Firm of Schiffrin & Barroway, LLP,” PR Newswire, May 1, 2001.
“U.S. Aggregates Announces Resignation of Charles R. Pullin from Board of Directors,” PR Newswire, November 14, 2000.
“U.S. Aggregates’ Board of Directors Names Stanford Springel Chief Executive Officer,” PR Newswire, May 11, 2001.
—David M. Walden