10-Q 1 a2019033110-q.htm 10-Q 1Q19 Document
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended March 31, 2019
 
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: 001-34530
coverpagelogoa01a01a15.jpg
U.S. CONCRETE, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
76-0586680
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)

Address of principal executive offices, including zip code: 331 N. Main Street, Euless, Texas 76039
Registrant’s telephone number, including area code: (817) 835-4105

Indicate by check mark whether 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 þ No ¨
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes þ No ¨
 
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,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol
Name of each exchange on which registered
Common Stock, par value $.001
USCR
The Nasdaq Stock Market LLC

There were 16,616,234 shares of common stock, par value $.001 per share, of the registrant outstanding as of May 1, 2019.



INDEX

 
 
Page No.
Part I – Financial Information
 
Item 1.
Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
Part II – Other Information
 
Item 1.
Item 1A.
Item 2.
Item 4.
Item 6.
 
 
 






i


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in millions)
March 31, 2019

December 31, 2018
ASSETS
(Unaudited)

 
Current assets:
 

 
Cash and cash equivalents
$
23.9


$
20.0

Trade accounts receivable, net of allowances of $5.9 as of March 31, 2019 and $6.1 as of December 31, 2018
225.6


226.6

Inventories
50.5


51.2

Other receivables
19.7


18.4

Prepaid expenses and other
10.0


7.9

Total current assets
329.7


324.1

Property, plant and equipment, net of accumulated depreciation, depletion and amortization of $246.7 as of March 31, 2019 and $236.1 as of December 31, 2018
672.6


680.2

Operating lease assets
74.0

 

Goodwill
239.5


239.3

Intangible assets, net
110.5


116.6

Other assets
11.1


11.1

Total assets
$
1,437.4


$
1,371.3

LIABILITIES AND EQUITY
 


 

Current liabilities:
 


 

Accounts payable
$
110.3


$
125.8

Accrued liabilities
109.8


96.3

Current maturities of long-term debt
30.2


30.8

Current operating lease liabilities
13.5

 

Total current liabilities
263.8


252.9

Long-term debt, net of current maturities
678.8


683.3

Long-term operating lease liabilities
62.8

 

Other long-term obligations and deferred credits
51.5


54.8

Deferred income taxes
45.1


43.1

Total liabilities
1,102.0


1,034.1

Commitments and contingencies (Note 11)





Equity:
 


 

Preferred stock



Common stock



Additional paid-in capital
331.5


329.6

Retained earnings
13.5


16.2

Treasury stock, at cost
(34.5
)

(33.4
)
Total shareholders' equity
310.5


312.4

Non-controlling interest
24.9

 
24.8

Total equity
335.4

 
337.2

Total liabilities and equity
$
1,437.4


$
1,371.3

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

1


U.S. CONCRETE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 

 
Three Months Ended
March 31,
(in millions except per share)
 
2019

2018
Revenue
 
$
333.1


$
327.8

Cost of goods sold before depreciation, depletion and amortization
 
268.4


267.2

Selling, general and administrative expenses
 
32.1


32.3

Depreciation, depletion and amortization
 
22.8


20.6

Change in value of contingent consideration
 
1.0

 
0.3

Loss (gain) on sale/disposal of assets, net
 
0.9


(0.2
)
Operating income
 
7.9


7.6

Interest expense, net
 
11.6


11.4

Other income, net
 
(0.4
)

(1.6
)
Income (loss) before income taxes
 
(3.3
)

(2.2
)
Income tax expense (benefit)
 
(0.7
)

1.7

Net income (loss)
 
(2.6
)

(3.9
)
Less: Net income attributable to non-controlling interest
 
(0.1
)
 

Net income (loss) attributable to U.S. Concrete
 
$
(2.7
)
 
$
(3.9
)

 





Earnings (loss) per share attributable to U.S. Concrete:
 
 


 

Basic earnings per share
 
$
(0.16
)
 
$
(0.23
)
Diluted earnings per share
 
$
(0.16
)
 
$
(0.23
)
 
 
 
 
 
Weighted average shares outstanding:
 
 


 

Basic
 
16.3


16.4

Diluted
 
16.3

 
16.4


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

2


U.S. CONCRETE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF TOTAL EQUITY
(Unaudited)
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
(in millions)
# of Shares
Par Value
 
Additional
Paid-In
Capital
 
Retained Earnings (Accumulated
Deficit)
 
Treasury
Stock
 
Total
Shareholders'
Equity
 
Non-controlling Interest
 
Total Equity
BALANCE, December 31, 2017
16.7

$

 
$
319.0

 
$
(13.8
)
 
$
(24.8
)
 
$
280.4

 
$
21.7

 
$
302.1

Stock-based compensation


 
2.2

 

 

 
2.2

 

 
2.2

Restricted stock grants, net of cancellations
0.1


 

 

 

 

 

 

Other treasury share purchases


 

 

 
(1.2
)
 
(1.2
)
 

 
(1.2
)
Measurement period adjustments for prior year business combinations


 

 

 

 

 
(0.1
)
 
(0.1
)
Net income (loss)


 

 
(3.9
)
 

 
(3.9
)
 

 
(3.9
)
BALANCE, March 31, 2018
16.8

$

 
$
321.2

 
$
(17.7
)
 
$
(26.0
)
 
$
277.5

 
$
21.6

 
$
299.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, December 31, 2018
16.6

$

 
$
329.6

 
$
16.2

 
$
(33.4
)
 
$
312.4

 
$
24.8

 
$
337.2

Stock-based compensation


 
1.7

 

 

 
1.7

 

 
1.7

Stock options exercised


 
0.2

 

 

 
0.2

 

 
0.2

Other treasury share purchases


 

 

 
(1.1
)
 
(1.1
)
 

 
(1.1
)
Net income (loss)


 

 
(2.7
)
 

 
(2.7
)
 
0.1

 
(2.6
)
BALANCE, March 31, 2019
16.6

$

 
$
331.5

 
$
13.5

 
$
(34.5
)
 
$
310.5

 
$
24.9

 
$
335.4


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



3


U.S. CONCRETE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in millions)
Three Months Ended
March 31,
 
2019

2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
Net income (loss)
$
(2.6
)

$
(3.9
)
Adjustments to reconcile net income to net cash provided by operating activities:
 


 

Depreciation, depletion and amortization
22.8


20.6

Amortization of debt issuance costs
0.4


0.5

Change in value of contingent consideration
1.0


0.3

Loss (gain) on sale/disposal of assets, net
0.9


(0.2
)
Deferred income taxes
2.2


(0.5
)
Provision for doubtful accounts and customer disputes
0.4


1.0

Stock-based compensation
1.7


2.2

Other, net
(0.5
)
 
(0.2
)
Changes in assets and liabilities, excluding effects of acquisitions:
 


 

Accounts receivable
0.6


(0.1
)
Inventories
0.7


1.4

Prepaid expenses and other current assets
(3.5
)

(1.8
)
Other assets and liabilities
(1.0
)

(1.3
)
Accounts payable and accrued liabilities
(1.2
)

7.9

Net cash provided by operating activities
21.9


25.9

CASH FLOWS FROM INVESTING ACTIVITIES:
 


 

Purchases of property, plant and equipment
(7.2
)

(8.4
)
Payments for acquisitions, net of cash acquired


(60.3
)
Proceeds from disposals of businesses and property, plant and equipment
0.4


0.4

Insurance proceeds from property loss claims

 
1.6

Net cash used in investing activities
(6.8
)

(66.7
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 


 

Proceeds from revolver borrowings
76.3


135.7

Repayments of revolver borrowings
(74.8
)

(69.7
)
Proceeds from stock option exercises
0.2



Payments of other long-term obligations
(3.7
)

(3.5
)
Payments for other financing
(8.1
)

(6.4
)
Other treasury share purchases
(1.1
)

(1.2
)
Net cash provided by (used in) financing activities
(11.2
)

54.9

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS

 
(0.1
)
NET INCREASE IN CASH AND CASH EQUIVALENTS
3.9


14.0

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
20.0


22.6

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
23.9


$
36.6


4


U.S. CONCRETE, INC. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
(in millions)

 
Three Months Ended
March 31,
 
2019
 
2018
Supplemental Disclosure of Cash Flow Information:
 

 
 

Net cash paid for interest
$
1.7

 
$
1.4

Net cash paid for income taxes
$

 
$
0.6

Capital expenditures funded by finance leases and promissory notes
$
1.3

 
$
2.7

Acquisitions funded by contingent consideration
$

 
$
0.9

Leased assets obtained in exchange for new operating lease liabilities
$
0.8

 
$


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

5


U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.
BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements include the accounts of U.S. Concrete, Inc. and its subsidiaries (collectively, "we," "us," "our," the "Company," or "U.S. Concrete") and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for reporting interim financial information. Some information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP") have been condensed or omitted pursuant to the SEC’s rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2018 (the "2018 10-K").  In the opinion of our management, all material adjustments necessary to state fairly the information in our unaudited condensed consolidated financial statements have been included. All adjustments are of a normal or recurring nature. All amounts are presented in United States dollars, unless otherwise noted. Certain computations may be impacted by the effect of rounding in this report. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.

The preparation of financial statements and accompanying notes in conformity with U.S. GAAP requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates. Estimates and assumptions that we consider significant in the preparation of our financial statements include those related to our allowance for doubtful accounts, business combinations, goodwill, intangibles, valuation of contingent consideration, accruals for self-insurance, income taxes, the valuation of inventory and the valuation and useful lives of property, plant and equipment.


2.
RECENT ACCOUNTING PRONOUNCEMENTS AND SIGNIFICANT ACCOUNTING POLICIES

Lease Accounting. In February 2016, the Financial Accounting Standards Board ("FASB") issued a new lease accounting standard intended to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the new guidance, lessees are required to recognize a right-of-use asset and a lease liability, measured on a discounted basis, at the commencement date for all leases, excluding mineral interest leases, with terms greater than twelve months. Additionally, this guidance requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. We adopted the guidance as of January 1, 2019, using the transition approach that permits application of the new standard at the adoption date instead of the earliest comparative period presented in the financial statements. We implemented processes and information technology tools to assist in our ongoing lease data collection and analysis and in updating internal controls that were impacted by the new guidance.

In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. We also elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements. We elected to exclude leases with an initial term of 12 months or less from the balance sheet. We made an accounting policy election to combine lease and non-lease components when calculating the lease liability under the new standard. Non-lease components, which may include taxes, maintenance, insurance and certain other expenses applicable to the leased property, are primarily considered variable costs. We did not elect the hindsight practical expedient to determine the lease term for existing leases.

As a result of adopting the new standard, we recorded additional lease assets and lease liabilities of approximately $76.9 million and $79.2 million, respectively, on the balance sheet as of January 1, 2019. The additional lease assets equal the lease liabilities, excluding the impact of deferred rent, which was previously recorded in accrued liabilities. The standard did not materially impact our consolidated net earnings and had no impact on cash flows.

For our other significant accounting policies, see Note 1 to the consolidated financial statements in our 2018 10-K.

6


U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3.    LEASES

We are the lessee in a lease contract when we obtain the right to control the asset.  We lease certain land, office space, equipment and vehicles. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years or more. The exercise of lease renewal options is primarily at our discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Certain of our lease agreements include rental payments based on a percentage of volume sold over contractual levels and others include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Where observable, we use the implicit interest rate in determining the present value of future payments. Where the implicit interest rate is not observable, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.  We give consideration to our outstanding debt as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates.

Leases ($ in millions)
 
Balance Sheet Classification
 
March 31, 2019
 
Assets:
 
 
 
 
 
Operating lease assets
 
Operating lease assets
 
$
74.0

 
     Finance lease assets
 
Property, plant and equipment, net
 
86.2

(1) 
Total lease assets
 
 
 
$
160.2

 
Liabilities:
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Operating
 
Current operating lease liabilities
 
$
13.5

 
Finance
 
Current maturities of long-term debt
 
20.4

 
Long-term liabilities
 
 
 
 
 
Operating
 
Long-term operating lease liabilities
 
62.8

 
Finance
 
Long-term debt, net of current maturities
 
46.8

 
Total lease liabilities
 
 
 
$
143.5

 

(1) Net of accumulated amortization of $21.9 million.

Lease Cost ($ in millions)
 
Statement of Operations Classification
 
Three Months Ended March 31, 2019
 
Operating lease cost
 
Selling, general and administrative expenses
 
$
6.4

(1) 
Finance lease cost
 
 
 
 
 
Amortization of leased assets
 
Depreciation, depletion and amortization
 
2.7

 
Interest on lease liabilities
 
Interest expense, net
 
0.6

 
Total finance lease cost
 
 
 
3.3

 
Total
 
 
 
$
9.7

 

(1) Includes short-term lease and variable lease costs of approximately $1.5 million.



7


U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Maturity of Lease Liabilities ($ in millions)
 
Operating Leases
 
Finance Leases
 
Total
2019 (remainder of year)
 
$
13.4

 
$
17.4

 
$
30.8

2020
 
15.7

 
21.5

 
37.2

2021
 
14.0

 
16.7

 
30.7

2022
 
11.3

 
10.7

 
22.0

2023
 
9.8

 
5.4

 
15.2

2024
 
8.1

 
0.5

 
8.6

Thereafter
 
25.1

 

 
25.1

Total lease payments
 
97.4

 
72.2

 
169.6

Less interest
 
21.1

 
5.0

 
26.1

Present value of lease liabilities
 
$
76.3

 
$
67.2

 
$
143.5

    
Lease Term and Discount Rate
 
March 31, 2019
Weighted-average remaining lease term (years):
 
 
Operating leases
 
5.9

Finance leases
 
3.6

Weighted-average discount rate:
 
 
Operating leases
 
6.1
%
Finance leases
 
3.9
%

Other Information ($ in millions)
 
Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
Operating cash flows for operating leases
 
$
4.8

Operating cash flows for finance leases
 
0.6

Financing cash flows for finance leases
 
5.1

Leased assets obtained in exchange for new finance lease liabilities
 
1.3

Leased assets obtained in exchange for new operating lease liabilities
 
0.8


4.
BUSINESS COMBINATIONS

We completed five acquisitions during 2018 that expanded our ready-mixed concrete operations in the Atlantic Region (which we define to include New York, New Jersey, Washington, D.C. and Pennsylvania) and expanded our ready-mixed concrete, aggregate products and other non-reportable operations in West Texas. The aggregate fair value consideration for these acquisitions, which were all accounted for as business combinations, was $70.8 million. The acquisitions included the assets and certain liabilities of the following:

On Time Ready Mix, Inc. ("On Time") located in Flushing, New York on January 10, 2018;
Cutrell Trucking, LLC., Dumas Concrete, LLC., Pampa Concrete Co., Inc., Panhandle Concrete, LLC., and Texas Sand & Gravel Co., Inc. (collectively "Golden Spread") located in Amarillo, Texas on March 2, 2018;
Leon River Aggregate Materials, LLC. ("Leon River") located in Proctor, Texas on August 29, 2018; and
Two individually immaterial ready-mixed concrete operations in our Atlantic Region and West Texas Region on March 5, 2018 and September 14, 2018, respectively.


8


U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The aggregate fair value consideration for these five acquisitions included $69.9 million in cash and fair value contingent consideration of $1.1 million and was net of a working capital receivable of $0.2 million. We funded the cash portion through a combination of cash on hand and borrowings under our Revolving Facility (as defined in Note 7). The combined assets acquired through these acquisitions included 149 mixer trucks, 20 concrete plant facilities and 2 aggregate facilities. To effect these transactions, during the three months ended March 31, 2018, we incurred $0.5 million of transaction costs, which were included in selling and general administrative expenses in our condensed consolidated statements of operations.

Our accounting for Leon River and the immaterial West Texas acquisition described above is preliminary, while the accounting for the other 2018 acquisitions is final. We expect to record adjustments as we accumulate information needed to estimate the fair value of assets acquired and liabilities assumed, including working capital balances, estimated fair value of identifiable intangible assets, property, plant and equipment, total consideration and goodwill. See Note 6 for a description of our measurement period adjustments.

The following table presents the total consideration for the 2018 acquisitions and the amounts related to the assets acquired and liabilities assumed based on the estimated fair values as of their respective acquisition dates:

($ in millions)
2018 Acquisitions
Inventory
$
1.1

Other current assets
0.1

Property, plant and equipment
37.4

Definite-lived intangible assets
19.8

Total assets acquired
58.4

Current liabilities
0.1

Other long-term liabilities
1.1

Total liabilities assumed
1.2

Goodwill
13.6

Total consideration (fair value) (1)
$
70.8


(1) Included $1.1 million of contingent consideration.

Acquired Intangible Assets and Goodwill
A summary of the intangible assets acquired in 2018 and their estimated useful lives is as follows:
($ in millions)
Weighted Average Amortization Period (In Years)
 
Fair Value At Acquisition Date
Customer relationships
5.8
 
$
18.5

Non-compete agreements
5.0
 
1.3

Total
 
 
$
19.8



9


U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2019, the estimated future aggregate amortization expense of definite-lived intangible assets from the 2018 acquisitions was as follows (in millions):
 
 
2019 (remainder of the year)
$
2.8

2020
3.8

2021
3.0

2022
2.8

2023
1.8

Thereafter
1.8

Total
$
16.0


During the three months ended March 31, 2019 and 2018, we recorded $0.9 million and $0.1 million of amortization expense related to these intangible assets, respectively.

The goodwill ascribed to the 2018 acquisitions is related to the synergies we expect to achieve with expansion in the markets in which we already operate as well as entry into new metropolitan areas of our existing geographic markets. The goodwill relates to our ready-mixed concrete and other non-reportable segments in the amounts of $12.8 million and $0.8 million, respectively. We generally expect all $13.6 million of goodwill from the 2018 acquisitions to be deductible for tax purposes. See Note 9 for additional information regarding income taxes.

Actual Impact of Acquisitions

During the three months ended March 31, 2019, we recorded approximately $13.3 million of revenue and $1.0 million of operating income in our condensed consolidated statements of operations related to the 2018 acquisitions following their respective dates of acquisition. During the three months ended March 31, 2018, we recorded approximately $5.0 million of revenue and $1.0 million of operating income in our condensed consolidated statements of operations in 2018 related to the 2018 acquisitions following their respective dates of acquisition.

Unaudited Pro Forma Impact of Acquisitions

The information presented below reflects the unaudited pro forma combined financial results for the 2018 acquisitions, excluding the individually immaterial acquisitions as described above, as historical financial results for these operations were not material and were impractical to obtain from the former owners. All other acquisitions have been included and represent our estimate of the 2018 results of operations as if the 2018 acquisitions had been completed on January 1, 2017. The impact to the 2019 results of operations if the 2018 acquisitions had been completed on January 1, 2017 was not material.

($ in millions except per share)
 
 
Three Months Ended March 31, 2018
Revenue
 
 
$
343.4

Net income (loss) attributable to U.S. Concrete
 
 
$
(4.1
)
 
 
 
 
Net income (loss) per share attributable to U.S. Concrete - basic
 
 
$
(0.25
)
Net income (loss) per share attributable to U.S. Concrete - diluted
 
 
$
(0.25
)

The above pro forma results are unaudited and were prepared based on the historical U.S. GAAP results of the Company and the historical results of the acquired companies for which financial information was available, based on data provided by the former owners. These results are not necessarily indicative of what the Company's actual results would have been had the 2018 acquisitions occurred on January 1, 2017.


10


U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The unaudited pro forma amounts above reflect the following adjustments:
($ in millions)
 
 
Three Months Ended March 31, 2018
Increase in intangible amortization expense
 
 
$
0.8

Exclusion of buyer transaction costs
 
 
0.5

Decrease in income tax expense
 
 
0.1


The unaudited pro forma results do not reflect any operational efficiencies or potential cost savings that may occur as a result of consolidation of the operations.

5.    INVENTORIES
 
($ in millions)
March 31, 2019
 
December 31, 2018
Raw materials
$
45.4

 
$
46.4

Building materials for resale
3.0

 
2.8

Other
2.1

 
2.0

Total
$
50.5

 
$
51.2


6.    GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill
    
The accumulated impairment was as follows:
($ in millions)
 
March 31, 2019
 
December 31, 2018
Goodwill, gross
 
$
245.3

 
$
245.1

Accumulated impairment
 
(5.8
)
 
(5.8
)
Goodwill, net
 
$
239.5

 
$
239.3


The changes in goodwill by reportable segment were as follows:
($ in millions)
 
Ready-Mixed Concrete Segment
 
Aggregate Products Segment
 
Other Non-Reportable Segments
 
Total
Goodwill, net at December 31, 2018
 
$
147.7

 
$
86.2

 
$
5.4

 
$
239.3

Measurement period adjustments for prior year business combinations (1)
 
0.2

 

 

 
0.2

Goodwill, net at March 31, 2019
 
$
147.9

 
$
86.2

 
$
5.4

 
$
239.5


(1)
Adjustments for the 2018 acquisitions recorded during 2019 included a $0.2 million reduction of property, plant, and equipment.


11


U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Other Intangible Assets

Our purchased intangible assets were as follows:
 
 
March 31, 2019
($ in millions)
 
Gross
 
Accumulated Amortization
 
Net
 
Weighted Average Remaining Life (In Years)
Definite-lived intangible assets
 
 
 
 
 
 
 
 
Customer relationships
 
$
108.5

 
$
(47.2
)
 
$
61.3

 
4.5
Trade names
 
44.5

 
(11.8
)
 
32.7

 
19.5
Non-competes
 
18.3

 
(12.9
)
 
5.4

 
2.5
Leasehold interests
 
12.5

 
(5.5
)
 
7.0

 
5.8
Favorable contracts
 
4.0

 
(3.8
)
 
0.2

 
1.7
Environmental credits
 
2.8

 
(0.1
)
 
2.7

 
16.8
Total definite-lived intangible assets
 
190.6


(81.3
)

109.3

 
9.3
Indefinite-lived intangible assets
 
 
 
 
 
 
 
 
Land rights(1)
 
1.2

 

 
1.2

 
 
Total purchased intangible assets
 
$
191.8

 
$
(81.3
)
 
$
110.5

 
 

(1)
Land rights acquired in a prior year acquisition will be reclassified to property, plant, and equipment upon the division of certain shared properties and settlement of the associated deferred payment.

 
 
December 31, 2018
($ in millions)
 
Gross
 
Accumulated Amortization
 
Net
 
Weighted Average Remaining Life (In Years)
Definite-lived intangible assets
 
 
 
 
 
 
 
 
Customer relationships
 
$
108.5

 
$
(43.1
)
 
$
65.4

 
4.7
Trade names
 
44.5

 
(11.1
)
 
33.4

 
19.6
Non-competes
 
18.3

 
(12.1
)
 
6.2

 
2.6
Leasehold interests
 
12.5

 
(5.1
)
 
7.4

 
5.9
Favorable contracts
 
4.0

 
(3.8
)
 
0.2

 
1.9
Environmental credits
 
2.8

 

 
2.8

 
17.0
Total definite-lived intangible assets
 
190.6

 
(75.2
)
 
115.4

 
9.8
Indefinite-lived intangible assets
 
 
 
 
 
 
 
 
Land rights(1)
 
1.2

 

 
1.2

 
 
Total purchased intangible assets
 
$
191.8

 
$
(75.2
)
 
$
116.6

 
 

(1)
Land rights acquired in a prior year acquisition will be reclassified to property, plant, and equipment upon the division of certain shared properties and settlement of the associated deferred payment.


12


U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2019, the estimated remaining amortization of our definite-lived intangible assets was as follows (in millions):
2019 (remainder of the year)
$
17.3

2020
21.0

2021
18.7

2022
12.8

2023
6.5

Thereafter
33.0

Total
$
109.3


Also included in other long-term obligations and deferred credits in the accompanying condensed consolidated balance sheets are unfavorable lease intangibles with a gross carrying amount of $1.5 million as of both March 31, 2019 and December 31, 2018, and a net carrying amount of $0.7 million and $0.8 million as of March 31, 2019 and December 31, 2018, respectively. These unfavorable lease intangibles had a weighted average remaining life of 4.2 years as of March 31, 2019.

We recorded $6.0 million and $5.4 million of amortization expense on our definite-lived intangible assets and unfavorable lease intangibles for the three months ended March 31, 2019 and 2018, respectively.

7.
DEBT
 
($ in millions)
March 31, 2019
 
December 31, 2018
Senior unsecured notes due 2024 and unamortized premium(1)
$
608.0

 
$
608.4

Asset based revolving credit facility
16.6

 
15.0

Finance leases
67.2

 
71.2

Other financing
25.8

 
28.5

Debt issuance costs
(8.6
)
 
(9.0
)
Total debt
709.0


714.1

Less: current maturities
(30.2
)
 
(30.8
)
Long-term debt, net of current maturities
$
678.8

 
$
683.3


(1)
The effective interest rate for these notes was 6.56% as of both March 31, 2019 and December 31, 2018.

Asset Based Revolving Credit Facility

As of March 31, 2019, we had $17.5 million of undrawn standby letters of credit under our senior secured credit facility ("Revolving Facility"). Loans under the Revolving Facility are in the form of either base rate loans or LIBOR loans denominated in U.S. dollars. The interest rate for the facility was 5.75% as of March 31, 2019.

Our actual maximum credit availability under the Revolving Facility varies from time to time and is determined by calculating the value of our eligible accounts receivable, inventory, mixer trucks and machinery, minus reserves imposed by the lenders and certain other adjustments. Our availability under the Revolving Facility at March 31, 2019 was $201.0 million. We are required, upon the occurrence of certain events, to maintain a fixed charge coverage ratio of at least 1.0 to 1.0 for each period of 12 calendar months. As of March 31, 2019, we were in compliance with all covenants under the loan agreement that governs the Revolving Facility.


13


U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8.
FAIR VALUE DISCLOSURES

Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Accounting guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes 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—Inputs other than Level 1 that are observable, either directly or indirectly, 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.

Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. We review the fair value hierarchy classification on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain assets and liabilities within the fair value hierarchy. There were no transfers of assets or liabilities between the fair value measurement levels for the quarter ended March 31, 2019 and the year ended December 31, 2018.

We estimate the fair value of acquisition-related contingent consideration arrangements using a Monte Carlo simulation model, an income approach or a discounted cash flow technique, as appropriate. The fair value of the contingent consideration arrangements is sensitive to changes in the forecasts of earnings and/or the relevant operating metrics and changes in discount rates.  The fair value of the contingent consideration is reassessed quarterly based on assumptions used in our latest projections and input provided by practice leaders and management.  Any change in the fair value estimate is recorded in our consolidated statement of operations for that period.  The current portion of contingent consideration is included in accrued liabilities while the long-term portion is included in other long-term obligations and deferred credits, both of which are in our condensed consolidated balance sheets. The use of different estimates and assumptions could increase or decrease the estimated fair value of our contingent consideration liability, which would result in different impacts to our consolidated balance sheets and consolidated statements of operations. These fair value measurements are based on significant inputs not observable in the market, and thus represent Level 3 inputs. Our recurring Level 3 fair value liability, contingent consideration, including the current portion, was $58.3 million as of March 31, 2019 and $60.7 million as of December 31, 2018.

The following tables present the valuation inputs for our three model types of acquisition-related contingent consideration arrangements.
 
 
March 31, 2019
Valuation Inputs
 
Monte Carlo Simulation
 
Income Approach
 
Discounted Cash Flow Technique
Fair value (in millions)
 
$
32.5

 
$
24.9

 
$
0.9

Discount rate
 
10.75% - 12.25%

 
3.70% - 5.00%

 
1.67% - 15.75%

Payment cap (in millions)
 
$
36.0

 
$
25.0

 
$
1.0

Expected payment period remaining (in years)
 
1-3
 
0-1
 
0-4
Management projections of the payout criteria
 
EBITDA/Volumes
 
Permitted reserves/Volumes
 
Volumes


14


U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 
December 31, 2018
Valuation Inputs
 
Monte Carlo Simulation
 
Income Approach
 
Discounted Cash Flow Technique
Fair value (in millions)
 
$
33.2

 
$
26.5

 
$
1.0

Discount rate
 
10.75% - 12.25%

 
3.70% - 5.00%

 
6.03% - 15.75%

Payment cap (in millions)
 
$
37.3

 
$
27.3

 
$
1.1

Expected payment period remaining (in years)
 
1-3
 
1
 
1-4
Management projections of the payout criteria
 
EBITDA/Volumes
 
Permitted reserves/Volumes
 
Volumes

The following table provides a reconciliation of the changes in Level 3 fair value measurements from December 31, 2018 to March 31, 2019:
($ in millions)
Contingent Consideration
Balance at December 31, 2018
$
60.7

Change in valuation
1.0

Payments of contingent consideration
(3.4
)
Balance at March 31, 2019
$
58.3


Other Financial Instruments

Our other financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and long-term debt.  We consider the carrying values of cash and cash equivalents, accounts receivable, and accounts payable to be representative of their respective fair values because of their short-term maturities or expected settlement dates.  The fair value of our 6.375% senior unsecured notes due 2024 ("2024 Notes"), which was estimated based on quoted market prices (i.e., Level 2 inputs), was $610.5 million as of March 31, 2019. The carrying value of the outstanding amounts under our Revolving Facility approximates fair value due to the floating interest rate.

Other Assets Measured on a Non-Recurring Basis

In connection with our acquisitions described in Note 4, the assets acquired were recorded at their fair value on a non-recurring basis as of their respective acquisition dates. We generally use a third party valuation firm to assist us with developing our estimates of fair value. The fair value of property, plant and equipment was based primarily on comparable sales. In determining the fair value of intangible assets, we utilized the cost approach (primarily through the cost-to-recreate method), the market approach and the income approach. The income approach may incorporate the use of a discounted cash flow method. In applying the discounted cash flow method, the estimated future cash flows and residual values for each intangible asset are discounted to a present value using a discount rate based on an estimated weighted average cost of capital for the building materials industry. These cash flow projections were based on management’s estimates of economic and market conditions including revenue growth rates, operating margins, capital expenditures and working capital requirements. The valuations were prepared using Level 3 inputs.



15


U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9.
INCOME TAXES

We recorded an income tax benefit of $0.7 million and an income tax expense of $1.7 million for the three months ended March 31, 2019 and 2018, respectively. For the three months ended March 31, 2019, our effective tax rate was impacted by (i) losses generated by certain of our Canadian subsidiaries for which no income tax benefit was recognized due to a related full valuation allowance, (ii) our estimated interest expense limitation in accordance with the Tax Cuts and Jobs Act (the "Tax Act") and related proposed regulations for which a full valuation allowance is anticipated, (iii) our estimated global intangible low-taxed income ("GILTI") inclusion for U.S. tax purposes, and (iv) unfavorable discrete items occurring in the first quarter including a net tax shortfall recognized for share-based compensation. These unfavorable items were partially offset by additional state income tax benefits recognized. For the three months ended March 31, 2018, our effective tax rate differed from the federal statutory rate primarily due to losses generated by our Canadian operations for which no income tax benefit was recognized due to a related full valuation allowance. Our other entities had net pre-tax income and recognized corresponding net income tax expense, which included cumulative adjustments to deferred income taxes resulting in additional income tax expense of $1.3 million.

In accordance with U.S. GAAP, we reduce the value of deferred tax assets to the amount that is more likely than not to be realized in future periods. The ultimate realization of the benefit of deferred tax assets from deductible temporary differences or tax carryovers depends on generating sufficient taxable income during the periods in which those temporary differences become deductible. We considered the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on these considerations, we relied upon the reversal of certain deferred tax liabilities to realize a portion of our deferred tax assets and maintained valuation allowances as of March 31, 2019 and December 31, 2018 for other deferred tax assets because of uncertainty regarding their ultimate realization. Our total net deferred tax liability was approximately $40.2 million as of March 31, 2019 and $38.0 million as of December 31, 2018, of which $45.1 million and $43.1 million were recorded as non-current liabilities. Deferred tax assets for certain state taxing jurisdictions, which were recorded as non-current assets, were $4.9 million as of March 31, 2019, and $5.1 million as of December 31, 2018.

We record changes in our unrecognized tax benefits based on anticipated federal and state tax filing positions on a quarterly basis. For the three months ended March 31, 2019 and 2018, we recorded unrecognized tax benefits of $0.3 million and $0.1 million, respectively.


10.
EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is computed by dividing net earnings (loss) attributable to U.S. Concrete by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) attributable to U.S. Concrete per share is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding during the period after giving effect to all potentially dilutive securities outstanding during the period.

The following is a reconciliation of the components of the basic and diluted earnings (loss) per share calculations:

 
Three Months Ended
March 31,
(in millions)
2019(1)
 
2018(1)
Numerator for basic and diluted earnings per share:
 
 
 
Net income (loss) attributable to U.S. Concrete
$
(2.7
)
 
$
(3.9
)
 
 
 
 
Denominator for earnings per share:
 
 
 
Basic weighted average common shares outstanding
16.3

 
16.4

Diluted weighted average common shares outstanding
16.3

 
16.4


(1)
We reported a loss attributable to U.S. Concrete for the three months ended March 31, 2019 and 2018; therefore, the share counts used in the basic and diluted earnings per share calculations were the same.


16


U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The potentially dilutive shares excluded from the diluted earnings per share calculation for the periods presented related to unvested restricted stock awards and restricted stock units, as their effect would have been anti-dilutive or they had not met their performance target and totaled 249,000 for the three months ended March 31, 2019 and 403,000 for the three months ended March 31, 2018.

11.
COMMITMENTS AND CONTINGENCIES
 
Legal Proceedings
 
From time to time, and currently, we are subject to various claims and litigation brought by employees, customers and other third parties for, among other matters, personal injuries, property damages, product defects and delay damages that have, or allegedly have, resulted from the conduct of our operations.  As a result of these types of claims and litigation, we must periodically evaluate the probability of damages being assessed against us and the range of possible outcomes.  In each reporting period, if we determine that the likelihood of damages being assessed against us is probable, and if we believe we can estimate a range of possible outcomes, then we will record a liability. The amount of the liability will be based upon a specific estimate, if we believe a specific estimate to be likely, or it will reflect the low end of our range. Currently, there are no material legal proceedings pending against us.
 
In the future, we may receive funding deficiency demands related to multi-employer pension plans to which we contribute.  We are unable to estimate the amount of any potential future funding deficiency demands because the actions of each of the other contributing employers in the plans has an effect on each of the other contributing employers, and the development of a rehabilitation plan by the trustees and subsequent submittal to and approval by the Internal Revenue Service is not predictable. Further, the allocation of fund assets and return assumptions by trustees are variable, as are actual investment returns relative to the plan assumptions.

As of May 9, 2019, there were no material product defect claims pending against us.  Accordingly, our existing accruals for claims against us do not reflect any material amounts relating to product defect claims.  While our management is not aware of any facts that would reasonably be expected to lead to material product defect claims against us that would have a material adverse effect on our business, financial condition or results of operations, it is possible that claims could be asserted against us in the future.  We do not maintain insurance that would cover all damages resulting from product defect claims.  In particular, we generally do not maintain insurance coverage for the cost of removing and rebuilding structures.  In addition, our indemnification arrangements with contractors or others, when obtained, generally provide only limited protection against product defect claims.  Due to inherent uncertainties associated with estimating unasserted claims in our business, we cannot estimate the amount of any future loss that may be attributable to such unasserted product defect claims related to ready-mixed concrete we have delivered prior to March 31, 2019.

We believe that the resolution of any litigation currently pending or threatened against us or any of our subsidiaries will not materially exceed our existing accruals for those matters.  However, because of the inherent uncertainty of litigation, there is a risk that we may have to increase our accruals for one or more claims or proceedings to which we or any of our subsidiaries is a party as more information becomes available or proceedings progress, and any such increase in accruals could have a material adverse effect on our consolidated financial condition or results of operations.  We expect in the future that we and our operating subsidiaries will, from time to time, be a party to litigation or administrative proceedings that arise in the normal course of our business.
 
We are subject to federal, state and local environmental laws and regulations concerning, among other matters, air emissions and wastewater discharge. Our management believes we are in substantial compliance with applicable environmental laws and regulations. From time to time, we receive claims from federal and state environmental regulatory agencies and entities asserting that we may be in violation of environmental laws and regulations. Based on experience and the information currently available, our management does not believe that these claims will materially exceed our related accruals.  Despite compliance and experience, it is possible that we could be held liable for future charges, which might be material, but are not currently known to us or cannot be estimated by us.  In addition, changes in federal or state laws, regulations or requirements, or discovery of currently unknown conditions, could require additional expenditures.


17


U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As permitted under Delaware law, we have agreements that provide indemnification of officers and directors for certain events or occurrences while the officer or director is or was serving at our request in such capacity. The maximum potential amount of future payments that we could be required to make under these indemnification agreements is not limited; however, we have a director and officer insurance policy that potentially limits our exposure and enables us to recover a portion of future amounts that may be paid.  As a result of the insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal. Accordingly, we have not recorded any liabilities for these agreements as of March 31, 2019.

We and our subsidiaries are parties to agreements that require us to provide indemnification in certain instances when we acquire businesses and real estate and in the ordinary course of business with our customers, suppliers, lessors and service providers. As of May 9, 2019, there were no material pending claims related to such indemnification.

Royalty Assessment

In 2014, Eagle Rock Materials Ltd. (“ERM”), a subsidiary of our Canadian aggregates operation, Polaris Materials ("Polaris"), was notified by the British Columbia Ministry of Forests, Lands and Natural Resource Operations that royalties were due for 2012 and 2013, based on the tenure date, in respect of Polaris’s quarrying lease for the Eagle Rock Quarry project. In 2016, ERM was notified that further royalties were due for 2014, 2015 and 2016 (up to October) based on the tenure date, and in 2017, ERM was notified of interest charges. The total royalties and interest claimed to date are approximately CAD $3.8 million ($2.9 million). Although the Company has recorded a provision for a portion of the assessment, it continues to dispute and negotiate certain aspects of the claim, including interest charges and the timing of payment.

Eminent Domain Matter

In 2018, we incurred $0.7 million of expenses to dismantle and move a ready-mixed concrete plant and office to another location, because the District of Columbia exercised its power of eminent domain over the former site. We incurred certain additional expenditures that were capitalized for the new facilities. We have filed reimbursement claims for all of our costs, but have not recognized a receivable for such reimbursement pending approval by a third-party right-of-way agent and the District of Columbia Department of Transportation.

Insurance Programs

We maintain third-party insurance coverage against certain workers’ compensation, automobile and general liability risks.  Under certain components of our insurance program, we share the risk of loss with our insurance underwriters by maintaining high deductibles subject to aggregate annual loss limitations.  Generally, our deductible retentions per occurrence for auto, workers’ compensation and general liability insurance programs are $1.0 million, although certain of our operations are self-insured for workers’ compensation.  We fund these deductibles and record an expense for expected losses under the programs.  The expected losses are determined using a combination of our historical loss experience and subjective assessments of our future loss exposure. The estimated losses are subject to uncertainty, including changes in claims reporting patterns, claims settlement patterns, judicial decisions, legislation and economic conditions.  Although we believe that the estimated losses we have recorded are reasonable, significant differences related to the items noted above could materially affect our insurance obligations and future expense. The amount accrued for self-insurance claims, which was recorded in accrued liabilities and other long-term obligations, was $21.4 million as of March 31, 2019 and $20.4 million as of December 31, 2018.

Performance Bonds
 
In the normal course of business, we and our subsidiaries were contingently liable under $36.4 million in performance bonds that various contractors, states and municipalities have required as of March 31, 2019. The bonds principally relate to construction contracts, reclamation obligations, licensing and permitting. We and our subsidiaries have indemnified the underwriting insurance company against any exposure under the performance bonds. No material claims have been made against these bonds.




18


U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

12.
SEGMENT INFORMATION

Our two reportable segments consist of ready-mixed concrete and aggregate products as described below.

Our ready-mixed concrete segment produces and sells ready-mixed concrete. This segment serves the following markets: Texas, Northern California, New York, New Jersey, Pennsylvania, Washington, D.C., Oklahoma and the U.S. Virgin Islands. Our aggregate products segment produces crushed stone, sand and gravel and serves the markets in which our ready-mixed concrete segment operates as well as the West Coast and Hawaii. Other operations and products not associated with a reportable segment include our aggregates distribution operations, building materials stores, hauling operations, ARIDUS® Rapid Drying Concrete technology, brokered product sales and recycled aggregates. Other operations and products also previously included lime slurry operations until they were sold on September 5, 2018.

Our customers are generally involved in the construction industry, which is a cyclical business and is subject to general and more localized economic conditions.  In addition, our business is impacted by seasonal variations in weather conditions, which vary by regional market.  Accordingly, demand for our products and services during the winter months is typically lower than in other months of the year because of inclement weather.  Also, sustained periods of inclement weather and other adverse weather conditions could cause the delay of construction projects during other times of the year.

Our chief operating decision maker evaluates segment performance and allocates resources based on Adjusted EBITDA. We define Adjusted EBITDA as our net income (loss), excluding the impact of income tax expense (benefit), depreciation, depletion and amortization, net interest expense and certain other non-cash, non-recurring and/or unusual, non-operating items including, but not limited to: non-cash stock compensation expense, non-cash change in value of contingent consideration, impairment of assets, acquisition-related costs, officer transition expenses, quarry dredge costs for specific event, and hurricane-related losses, net of recoveries. Acquisition-related costs consist of fees and expenses for accountants, lawyers and other professionals incurred during the negotiation and closing of strategic acquisitions and certain acquired entities' management severance costs. Acquisition-related costs do not include fees or expenses associated with post-closing integration of strategic acquisitions. Many of the impacts excluded to derive Adjusted EBITDA are similar to those excluded in calculating our compliance with our debt covenants.

We consider Adjusted EBITDA to be an indicator of the operational strength and performance of our business. We have included Adjusted EBITDA because it is a key financial measure used by our management to (1) internally measure our operating performance and (2) assess our ability to service our debt, incur additional debt, and meet our capital expenditure requirements.

Adjusted EBITDA should not be construed as an alternative to, or a better indicator of, operating income or loss, is not based on U.S. GAAP, and is not a measure of our cash flows or ability to fund our cash needs. Our measurements of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies, and may not be comparable to similarly titled measures used in the agreements governing our debt.

We generally account for inter-segment sales at market prices. Corporate includes executive, administrative, financial, legal, human resources, business development and risk management activities that are not allocated to reportable segments and are excluded from segment Adjusted EBITDA. Eliminations include transactions to account for intercompany activity.

During the quarter ended June 30, 2018, we re-characterized certain results of our Polaris distribution operations, which include shipping and terminal operations, to the aggregate products segment from other products and eliminations.  This change was made to better reflect how the Polaris business is viewed and operated by management and more closely aligns our reporting with how we manage and report our other aggregate products operations.  As a result of this change, certain first quarter 2018 amounts have been reclassified from those previously reported.

19


U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following tables set forth certain financial information relating to our operations by reportable segment:



Three Months Ended
March 31,
($ in millions)

2019

2018
Revenue by Segment:

 

 
Ready-mixed concrete




Sales to external customers

$
290.4


$
289.2

Aggregate products




Sales to external customers

31.8


24.7

Intersegment sales

11.1


9.5

Total aggregate products
 
42.9

 
34.2

Total reportable segment revenue

333.3

 
323.4

Other products and eliminations

(0.2
)

4.4

Total revenue

$
333.1


$
327.8






Reportable Segment Adjusted EBITDA:

 

 
Ready-mixed concrete

$
34.5


$
41.0

Aggregate products

10.4


4.7

Total reportable segment Adjusted EBITDA

$
44.9

 
$
45.7






Reconciliation of Total Reportable Segment Adjusted EBITDA to Net Income (Loss):




Total reportable segment Adjusted EBITDA
 
$
44.9

 
$
45.7

Other products and eliminations from operations
 
(0.1
)
 
1.1

Corporate overhead
 
(14.5
)
 
(15.5
)
Depreciation, depletion and amortization for reportable segments
 
(20.8
)
 
(19.2
)
Acquisition-related costs
 

 
(1.0
)
Hurricane-related losses, net of recoveries
 

 
(0.3
)
Quarry dredge costs for specific event
 

 
(0.2
)
Purchase accounting adjustments for inventory
 

 
(0.7
)
Interest expense, net
 
(11.6
)
 
(11.4
)
Change in value of contingent consideration for reportable segments
 
(1.0
)
 
(0.3
)
Loss on mixer truck fire
 
(0.6
)
 

Corporate, other products and eliminations other income, net
 
0.4

 
(0.4
)
Income from operations before income taxes
 
(3.3
)
 
(2.2
)
Income tax benefit (expense)
 
0.7

 
(1.7
)
Net income (loss)
 
$
(2.6
)
 
$
(3.9
)



20


U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 
Three Months Ended
March 31,
($ in millions)
 
2019
 
2018
Capital Expenditures:
 
 
 
 
Ready-mixed concrete
 
$
5.8

 
$
6.5

Aggregate products
 
1.2

 
0.9

Other products and corporate
 
0.2

 
1.0

Total capital expenditures
 
$
7.2

 
$
8.4


 
 
Three Months Ended
March 31,
($ in millions)
 
2019
 
2018
Revenue by Product:
 
 
 
 
Ready-mixed concrete
 
$
290.4

 
$
289.2

Aggregate products
 
31.8

 
24.7

Aggregates distribution
 
5.3

 
4.1

Building materials
 
4.6

 
5.9

Lime
 

 
2.3

Hauling
 
0.9

 
1.1

Other
 
0.1

 
0.5

Total revenue
 
$
333.1

 
$
327.8

 
($ in millions)
 
March 31, 2019
 
December 31, 2018

Identifiable Property, Plant and Equipment Assets:
 
 
 
 
Ready-mixed concrete
 
$
288.6

 
$
295.5

Aggregate products
 
355.0

 
355.0

Other products and corporate
 
29.0

 
29.7

Total identifiable assets
 
$
672.6

 
$
680.2





21


U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

13.
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

Our 2024 Notes are fully and unconditionally and jointly and severally guaranteed on a senior unsecured basis by each direct and indirect domestic subsidiary of the Company, each a guarantor subsidiary. Each guarantor subsidiary is directly or indirectly 100% owned by the Company. Neither the net book value nor the purchase price of any of our recently acquired guarantor subsidiaries were 20% or more of the aggregate principal amount of our 2024 Notes. The 2024 Notes are not guaranteed by any direct or indirect foreign subsidiaries of the Company, each a non-guarantor subsidiary. Consequently, we are required to provide condensed consolidating financial information in accordance with Rule 3-10 of Regulation S-X.

The following condensed consolidating financial statements present, in separate columns, financial information for (1) the Parent on a parent only basis, (2) the guarantor subsidiaries on a combined basis, (3) the non-guarantor subsidiaries on a combined basis, (4) the eliminations and reclassifications necessary to arrive at the information for the Company on a consolidated basis, and (5) the Company on a consolidated basis.

The following condensed consolidating financial statements of U.S. Concrete, Inc. and its subsidiaries present investments in consolidated subsidiaries using the equity method of accounting. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions.



22


U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2019
(in millions)
 
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations and Reclassifications
 
U.S. Concrete Consolidated
ASSETS
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$

 
$
13.6

 
$
10.3

 
$

 
$
23.9

Trade accounts receivable, net
 

 
214.8

 
10.8

 

 
225.6

Inventories
 

 
41.3

 
9.2

 

 
50.5

Other receivables
 
3.0

 
16.5

 
0.2

 

 
19.7

Prepaid expenses and other
 

 
9.5

 
0.5

 

 
10.0

Intercompany receivables
 
9.7

 

 
0.3

 
(10.0
)
 

Total current assets
 
12.7

 
295.7

 
31.3

 
(10.0
)
 
329.7

Property, plant and equipment, net
 

 
463.9

 
208.7

 

 
672.6

Operating lease assets
 

 
60.3

 
13.7

 

 
74.0

Goodwill
 

 
155.7

 
83.8

 

 
239.5

Intangible assets, net
 

 
105.9

 
4.6

 

 
110.5

Investment in subsidiaries
 
607.3

 

 

 
(607.3
)
 

Long-term intercompany receivables
 
321.7

 

 
3.6

 
(325.3
)
 

Other assets
 

 
9.7

 
1.4

 

 
11.1

Total assets
 
$
941.7

 
$
1,091.2

 
$
347.1

 
$
(942.6
)
 
$
1,437.4

LIABILITIES AND EQUITY
Current liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$

 
$
107.9

 
$
2.4

 
$

 
$
110.3

Accrued liabilities
 
13.9

 
87.6

 
8.3

 

 
109.8

Current operating lease liabilities
 

 
11.9

 
1.6

 

 
13.5

Current maturities of long-term debt
 
0.3

 
29.5

 
0.4

 

 
30.2

Intercompany payables
 

 

 
10.0

 
(10.0
)
 

Total current liabilities
 
14.2

 
236.9

 
22.7

 
(10.0
)
 
263.8

Long-term debt, net of current maturities
 
617.0

 
61.6

 
0.2

 

 
678.8

Long-term operating lease liabilities
 

 
50.5

 
12.3

 

 
62.8

Other long-term obligations and deferred credits
 

 
48.4

 
3.1

 

 
51.5

Deferred income taxes
 

 
21.5

 
23.6

 

 
45.1

Long-term intercompany payables
 

 
201.9

 
123.4

 
(325.3
)
 

Total liabilities
 
631.2

 
620.8

 
185.3

 
(335.3
)
 
1,102.0

Total shareholders' equity
 
310.5

 
470.4

 
136.9

 
(607.3
)
 
310.5

Non-controlling interest
 

 

 
24.9

 

 
24.9

Total equity
 
310.5

 
470.4

 
161.8

 
(607.3
)
 
335.4

Total liabilities and equity
 
$
941.7

 
$
1,091.2

 
$
347.1

 
$
(942.6
)
 
$
1,437.4


23


U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2018
(in millions)
 
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations and Reclassifications
 
U.S. Concrete Consolidated
ASSETS
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$

 
$
10.8

 
$
9.2

 
$

 
$
20.0

Trade accounts receivable, net
 

 
219.7

 
6.9

 

 
226.6

Inventories
 

 
42.4

 
8.8

 

 
51.2

Other receivables
 
11.1

 
7.0

 
0.3

 

 
18.4

Prepaid expenses and other
 

 
7.1

 
0.8

 

 
7.9

Intercompany receivables
 
9.7

 

 
0.3

 
(10.0
)
 

Total current assets
 
20.8

 
287.0

 
26.3

 
(10.0
)
 
324.1

Property, plant and equipment, net
 

 
468.3

 
211.9

 

 
680.2

Goodwill
 

 
155.5

 
83.8

 

 
239.3

Intangible assets, net
 

 
111.8

 
4.8

 

 
116.6

Investment in subsidiaries
 
604.1

 

 

 
(604.1
)
 

Long-term intercompany receivables
 
308.9

 

 
1.1

 
(310.0
)
 

Other assets
 

 
10.8

 
0.3

 

 
11.1

Total assets
 
$
933.8

 
$
1,033.4

 
$
328.2

 
$
(924.1
)
 
$
1,371.3

LIABILITIES AND EQUITY
Current liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$

 
$
122.4

 
$
3.4

 
$

 
$
125.8

Accrued liabilities
 
4.7

 
83.2

 
8.4

 

 
96.3

Current maturities of long-term debt
 
0.3

 
29.9

 
0.6

 

 
30.8

Intercompany payables
 

 

 
10.0

 
(10.0
)
 

Total current liabilities
 
5.0

 
235.5

 
22.4

 
(10.0
)
 
252.9

Long-term debt, net of current maturities
 
615.5

 
67.6

 
0.2

 

 
683.3

Other long-term obligations and deferred credits
 
0.9

 
51.0

 
2.9

 

 
54.8

Deferred income taxes
 

 
22.4

 
20.7

 

 
43.1

Long-term intercompany payables
 

 
188.7

 
121.3

 
(310.0
)
 

Total liabilities
 
621.4

 
565.2

 
167.5

 
(320.0
)
 
1,034.1

Total shareholders' equity
 
312.4

 
468.2

 
135.9

 
(604.1
)
 
312.4

Non-controlling interest
 

 

 
24.8

 

 
24.8

Total equity
 
312.4

 
468.2

 
160.7

 
(604.1
)
 
337.2

Total liabilities and equity
 
$
933.8

 
$
1,033.4

 
$
328.2

 
$
(924.1
)
 
$
1,371.3


24


U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2019
(in millions)
 
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations and Reclassifications
 
U.S. Concrete Consolidated
Revenue
 
$

 
$
303.1

 
$
30.0

 
$

 
$
333.1

Cost of goods sold before depreciation, depletion and amortization
 

 
247.2

 
21.2

 

 
268.4

Selling, general and administrative expenses
 

 
30.5

 
1.6

 

 
32.1

Depreciation, depletion and amortization
 

 
18.8

 
4.0

 

 
22.8

Change in value of contingent consideration
 

 
1.0

 

 

 
1.0

Loss (gain) on sale/disposal of assets, net
 

 
0.9

 

 

 
0.9

Operating income (loss)
 

 
4.7

 
3.2

 

 
7.9

Interest expense, net
 
9.9

 
1.0

 
0.7

 

 
11.6

Other expense (income), net
 

 
(0.4
)
 

 

 
(0.4
)
Income (loss) before income taxes, equity in earnings of subsidiaries and non-controlling interest
 
(9.9
)
 
4.1

 
2.5

 

 
(3.3
)
Income tax expense (benefit)
 
(3.0
)
 
2.0

 
0.3

 

 
(0.7
)
Net income (loss) before equity in earnings of subsidiaries and non-controlling interest
 
(6.9
)
 
2.1

 
2.2

 

 
(2.6
)
Equity in earnings of subsidiaries
 
4.2

 

 

 
(4.2
)
 

Net income (loss)
 
(2.7
)
 
2.1

 
2.2

 
(4.2
)
 
(2.6
)
Less: Net income attributable to non-controlling interest
 

 

 
(0.1
)
 

 
(0.1
)
Net income (loss) attributable to U.S. Concrete
 
$
(2.7
)
 
$
2.1

 
$
2.1

 
$
(4.2
)
 
$
(2.7
)


















25


U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2018
(in millions)
 
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations and Reclassifications
 
U.S. Concrete Consolidated
Revenue
 
$

 
$
308.8

 
$
19.0

 
$

 
$
327.8

Cost of goods sold before depreciation, depletion and amortization
 

 
250.6

 
16.6

 

 
267.2

Selling, general and administrative expenses
 

 
29.6

 
2.7

 

 
32.3

Depreciation, depletion and amortization
 

 
17.3

 
3.3

 

 
20.6

Change in value of contingent consideration
 

 
0.3

 

 

 
0.3

Loss (gain) on sale/disposal of assets, net
 

 
(0.2
)
 

 

 
(0.2
)
Operating income (loss)
 

 
11.2

 
(3.6
)
 

 
7.6

Interest expense, net
 
9.8

 
0.9

 
0.7

 

 
11.4

Other expense (income), net
 

 
(1.0
)
 
(0.6
)
 

 
(1.6
)
Income (loss) before income taxes and equity in earnings of subsidiaries
 
(9.8
)
 
11.3

 
(3.7
)
 

 
(2.2
)
Income tax expense (benefit)
 
(2.7
)
 
4.4

 

 

 
1.7

Net income (loss) before equity in earnings of subsidiaries
 
(7.1
)
 
6.9

 
(3.7
)
 

 
(3.9
)
Equity in earnings of subsidiaries
 
3.3

 

 

 
(3.3
)
 

Net income (loss)
 
(3.8
)
 
6.9

 
(3.7
)
 
(3.3
)
 
(3.9
)
Less: Net income attributable to non-controlling interest
 

 

 

 

 

Net income (loss) attributable to U.S. Concrete
 
$
(3.8
)
 
$
6.9

 
$
(3.7
)
 
$
(3.3
)
 
$
(3.9
)




















26


U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2019
(in millions)
 
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
U.S. Concrete Consolidated
Net cash provided by (used in) operating activities
 
$
(0.9
)
 
$
26.2

 
$
2.6

 
$
(6.0
)
 
$
21.9

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Purchases of property, plant and equipment
 

 
(7.2
)
 

 

 
(7.2
)
Proceeds from disposals of businesses and property, plant and equipment
 

 
0.4

 

 

 
0.4

Net cash used in investing activities
 

 
(6.8
)
 

 

 
(6.8
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
Proceeds from revolver borrowings
 
76.3

 

 

 

 
76.3

Repayments of revolver borrowings
 
(74.8
)
 

 

 

 
(74.8
)
Proceeds from exercise of stock options
 
0.2

 

 

 

 
0.2

Payments of other long-term obligations
 
(0.7
)
 
(3.0
)
 

 

 
(3.7
)
Payments for other financing
 

 
(7.8
)
 
(0.3
)
 

 
(8.1
)
Other treasury share purchases
 
(1.1
)
 

 

 

 
(1.1
)
Intercompany funding
 

 
(5.6
)
 
(1.4
)
 
7.0

 

Net cash provided by (used in) financing activities
 
(0.1
)
 
(16.4
)
 
(1.7
)
 
7.0

 
(11.2
)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
 
(1.0
)
 
3.0

 
0.9

 
1.0

 
3.9

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
 

 
10.8

 
9.2

 

 
20.0

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
(1.0
)
 
$
13.8

 
$
10.1

 
$
1.0

 
$
23.9


27


U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2018
(in millions)
 
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
U.S. Concrete Consolidated
Net cash provided by (used in) operating activities
 
$
(0.7
)
 
$
32.2

 
$
0.7

 
$
(6.3
)
 
$
25.9

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 

Purchases of property, plant and equipment
 

 
(7.9
)
 
(0.5
)
 

 
(8.4
)
Payments for acquisitions, net of cash acquired
 

 
(60.3
)
 

 

 
(60.3
)
Proceeds from disposals of businesses and property, plant and equipment
 

 
0.4

 

 

 
0.4

Insurance proceeds from property loss claims
 

 
1.6

 

 

 
1.6

Net cash provided by (used in) investing activities
 

 
(66.2
)
 
(0.5
)
 

 
(66.7
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
Proceeds from revolver borrowings
 
135.7

 

 

 

 
135.7

Repayments of revolver borrowings
 
(69.7
)
 

 

 

 
(69.7
)
Payments of other long-term obligations
 
(1.4
)
 
(2.1
)
 

 

 
(3.5
)
Payments for other financing
 

 
(6.2
)
 
(0.2
)
 

 
(6.4
)
Other treasury share purchases
 
(1.2
)
 

 

 

 
(1.2
)
Intercompany funding
 
(62.7
)
 
54.8

 
1.6

 
6.3

 

Net cash provided by (used in) financing activities
 
0.7

 
46.5

 
1.4

 
6.3

 
54.9

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS
 

 

 
(0.1
)
 

 
(0.1
)
NET INCREASE IN CASH AND CASH EQUIVALENTS
 

 
12.5

 
1.5

 

 
14.0

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
 

 
7.0

 
15.6

 

 
22.6

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$

 
$
19.5

 
$
17.1

 
$

 
$
36.6



28


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion should be read in conjunction with the accompanying quarterly unaudited condensed consolidated financial statements and our Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 10-K”). Our 2018 10-K includes additional information about our significant and critical accounting policies, as well as a detailed discussion of the most significant risks associated with our financial condition and operating results.
 
Overview

Our principal business is producing ready-mixed concrete and supplying aggregates in select geographic markets from our operations in the United States, U.S. Virgin Islands and Canada. The geographic markets for our products are generally local, except for our Canadian aggregate products operation, Polaris Materials ("Polaris"), that primarily serves markets in California. Our customers are generally involved in the construction industry, which is a cyclical business and is subject to general and more localized economic conditions as well as seasonal variations in weather conditions. Our operating results are subject to fluctuations in the level and mix of construction activity that occur in our markets. The level of activity affects the demand for our products, while the product mix of activity among the various segments of the construction industry affects both our relative competitive strengths and our operating margins. Commercial and industrial projects generally provide more opportunities to sell value-added products that are designed to meet the high-performance requirements of these types of projects. We conduct our business primarily through two reportable segments: ready-mixed concrete and aggregate products.

Ready-Mixed Concrete.  Our ready-mixed concrete segment (which represented 87.2% of our revenue for the three months ended March 31, 2019) engages principally in the formulation, preparation and delivery of ready-mixed concrete to our customers’ job sites. We provide our ready-mixed concrete from our operations in Texas, New Jersey, New York, Washington, D.C., Pennsylvania, Northern California, Oklahoma and the U.S. Virgin Islands. Ready-mixed concrete is a highly versatile construction material that results from combining coarse and fine aggregates, such as gravel, crushed stone and sand, with water, various chemical admixtures and cement. We also provide services intended to reduce our customers’ overall construction costs by lowering the installed, or “in-place,” cost of concrete. These services include the formulation of mixtures for specific design uses, on-site and lab-based product quality control and customized delivery programs to meet our customers’ needs.

Aggregate Products. Our aggregate products segment (which represented 9.5% of our revenue for the three months ended March 31, 2019, excluding $11.1 million of intersegment sales) produces crushed stone, sand and gravel from 17 aggregates facilities located in British Columbia, Canada; New Jersey; Texas; Oklahoma; and the U.S. Virgin Islands. We sell these aggregates for use in commercial, industrial, and public works projects, as well as consume them internally in the production of ready-mixed concrete. We produced approximately 2.8 million tons of aggregates during the three months ended March 31, 2019, with Canada representing 50%, Texas / Oklahoma representing 34%, New Jersey representing 13%, and the U.S. Virgin Islands representing 3% of the total production. We believe our aggregate reserves provide us with additional raw materials sourcing flexibility and supply availability.

Acquisitions and Divestitures

We completed five acquisitions during 2018 that expanded our ready-mixed concrete operations in our Atlantic Region (which we define to include New York, New Jersey, Washington, D.C. and Pennsylvania) and expanded our ready-mixed concrete and aggregate products operations in West Texas. During 2018, we divested the following operations that no longer fit into our operating plans: our Dallas/Fort Worth area lime operations and a Michigan aggregates property in the third quarter and a New Jersey aggregates operation in the fourth quarter.

For additional information on our acquisitions, see Note 4, "Business Combinations" to our condensed consolidated financial statements included in Part I of this report.



29


Results of Operations
 
 
Three Months Ended
March 31,
 
%
($ in millions except selling prices)
2019
 
2018
 
Change(1)
Revenue
$
333.1

 
$
327.8

 
1.6%
Cost of goods sold before depreciation, depletion and amortization
268.4

 
267.2

 
0.4
Selling, general and administrative expenses
32.1

 
32.3

 
(0.6)
Depreciation, depletion and amortization
22.8

 
20.6

 
10.7
Change in value of contingent consideration
1.0

 
0.3

 
233.3
Loss (gain) on sale/disposal of assets, net
0.9

 
(0.2
)
 
NM
Operating income
7.9

 
7.6

 
3.9
Interest expense, net
11.6

 
11.4

 
1.8
Other income, net
(0.4
)
 
(1.6
)
 
(75.0)
Income (loss) before income taxes
(3.3
)
 
(2.2
)
 
(50.0)
Income tax expense (benefit)
(0.7
)
 
1.7

 
(141.2)
Net income (loss)
(2.6
)
 
(3.9
)
 
33.3
Less: Net income attributable to non-controlling interest
(0.1
)
 

 
NM
Net income (loss) attributable to U.S. Concrete
$
(2.7
)
 
$
(3.9
)
 
30.8
 
 
 
 

 
 
Ready-mixed Concrete Data:
 
 


 
 
Average selling price per cubic yard
$
139.60

 
$
136.99

 
1.9%
Sales volume in thousand cubic yards
2,077

 
2,095

 
(0.9)%
 
 
 
 
 
 
Aggregate Products Data:
 
 
 
 
 
Average selling price per ton(2)
$
12.12

 
$
10.90

 
11.2%
Sales volume in thousand tons
2,498

 
2,135

 
17.0%

(1) "NM" is defined as "not meaningful".
(2)
Our calculation of the aggregate products segment average selling price ("ASP") excludes certain other ancillary revenue and Polaris’s freight revenue.  We define revenue for our aggregate products ASP calculation as amounts billed to external and internal customers for coarse and fine aggregate products, excluding delivery charges.  Our definition and calculation of ASP may differ from other companies in the construction materials industry.

Revenue. For the three months ended March 31, 2019, revenue grew 1.6%, or $5.3 million, compared to the prior year first quarter, primarily driven by contributions from acquisitions. We estimate that acquisitions completed since January 1, 2018 accounted for $8.4 million of revenue growth during the three months ended March 31, 2019. As our business is seasonal and subject to adverse weather, our results were negatively impacted by inclement weather in various regions. As a result of the strategic expansion of our aggregate products operations and continued vertical integration, our aggregate products sales grew to 12.9% of the total reportable segment revenue in the three months ended March 31, 2019 from 10.6% in the same period last year.


30


In the first quarter of 2019, ready-mixed concrete sales contributed $1.2 million, or 22.6%, of our revenue growth, despite the weather-impacted decrease in volume. The 1.9% increase in the ASP of our ready-mixed concrete segment more than offset the weather-impacted volume decline. The volume decline in our Northern California market, which experienced more inclement weather than the first quarter of 2018, more than offset volume increases in other markets. Aggregate product sales increased $8.7 million, driven by a 17.0% increase in volume and an 11.2% increase in the ASP. Aggregate sales volumes increased primarily for Polaris and in our West Texas market. Other products revenue and eliminations (which currently includes building materials stores, aggregates distribution, hauling operations, brokered product sales, recycled aggregates, and eliminations of our intersegment sales) decreased $4.6 million in the first quarter of 2019 as compared to the first quarter of 2018. This decline was primarily a result of the divestiture of the lime business, which provided $2.3 million of revenue in the first quarter of 2018, and lower sales of building materials from our stores in Northern California in the first quarter of 2019, which were impacted by inclement weather during the quarter.

Cost of goods sold before depreciation, depletion and amortization ("DD&A"). Cost of goods sold before DD&A increased by $1.2 million, or 0.4%, in the first quarter of 2019 compared to the prior year quarter. As a percentage of revenue, cost of goods sold before DD&A decreased by 0.9% in the first quarter of 2019 compared to the first quarter of 2018. While delivery costs decreased in comparison to the same quarter last year, we experienced greater increases in other variable and fixed costs in comparison to the same quarter last year. Our increased variable costs were primarily driven by our aggregate products operations, consistent with their increased sales volume. Our fixed costs, which primarily consist of leased equipment costs, property taxes, dispatch costs, quality control, and plant management, increased over the comparable prior year period primarily due to higher personnel and equipment costs needed to operate our facilities, as well as higher overall fixed costs to operate more locations and trucks than in the previous year.

Selling, general and administrative expenses. Selling, general and administrative ("SG&A") expenses decreased $0.2 million, or 0.6%, for the quarter ended March 31, 2019 in comparison to the corresponding 2018 quarter. As a percentage of revenue, SG&A expenses decreased to 9.6% in the 2019 first quarter from 9.8% in the 2018 first quarter.

Depreciation, depletion and amortization. DD&A expense increased $2.2 million, or 10.7%, for the quarter ended March 31, 2019, as compared to the corresponding quarter of 2018. The increase was primarily related to depreciation on additional plants, equipment and mixer trucks purchased to service increased demand or acquired through recent acquisitions and depletion on acquired mineral deposits.

Change in value of contingent consideration.  For the three months ended March 31, 2019 and 2018, we recorded a non-cash loss on revaluation of contingent consideration of $1.0 million and $0.3 million, respectively. This non-cash expense is related to fair value changes in contingent consideration associated with certain of our acquisitions and in both periods was primarily due to the passage of time. The key inputs in determining the fair value of our contingent consideration of $58.3 million at March 31, 2019 included discount rates ranging from 1.67% to 15.75% and management's estimates of future sales volumes, permitted reserves and EBITDA, as defined in the respective purchase agreements. Changes in these inputs impact the valuation of our contingent consideration and may result in either a gain or loss in each reporting period.

Interest expense, net.  Net interest expense increased by $0.2 million for the quarter ended March 31, 2019 from the comparable 2018 quarter.

Loss (gain) on sale/disposal of assets, net. The loss for the quarter ended March 31, 2019 included a $0.6 million loss for a mixer truck fire that occurred during the quarter and a $0.3 million write-off for property no longer in use.

Other income, net. Other income, net, contains non-operating items and was higher in the first quarter of 2018 compared to this year primarily due to gains from insurance proceeds, whereas we did not receive such proceeds in the current quarter.


31


Income taxes.  For the three months ended March 31, 2019 and 2018, we recorded income tax benefit of $0.7 million and income tax expense of $1.7 million, respectively. For the three months ended March 31, 2019, our effective tax rate was impacted by (i) losses generated by certain of our Canadian subsidiaries for which no income tax benefit was recognized due to a related full valuation allowance, (ii) our estimated interest expense limitation in accordance with the Tax Cuts and Jobs Act (the "Tax Act") and related proposed regulations for which a full valuation allowance is anticipated, (iii) our estimated global intangible low-taxed income ("GILTI") inclusion for U.S. tax purposes, and (iv) unfavorable discrete items occurring in the first quarter including a net tax shortfall recognized for share-based compensation. These unfavorable items were partially offset by additional state income tax benefits recognized. For the three months ended March 31, 2018, our effective tax rate differed from the federal statutory rate primarily due to losses generated by our Canadian operations for which no income tax benefit was recognized due to a related full valuation allowance. Our other entities had net pre-tax income and recognized corresponding net income tax expense, which included cumulative adjustments to deferred income taxes resulting in additional income tax expense of $1.3 million.

Segment Information

Our chief operating decision maker reviews operating results based on our two reportable segments, which are ready-mixed concrete and aggregate products, and evaluates segment performance and allocates resources based on Adjusted EBITDA. We define Adjusted EBITDA as our net income, excluding the impact of income tax expense (benefit), depreciation, depletion and amortization, net interest expense and certain other non-cash, non-recurring and/or unusual, non-operating items including, but not limited to: non-cash stock compensation expense, non-cash change in value of contingent consideration, impairment of assets, acquisition-related costs, officer transition expenses, quarry dredge costs for specific event, hurricane-related losses, net of recoveries and derivative loss (income). Acquisition-related costs consist of fees and expenses for accountants, lawyers and other professionals incurred during the negotiation and closing of strategic acquisitions and certain acquired entities' management severance costs. Acquisition-related costs do not include fees or expenses associated with post-closing integration of strategic acquisitions. Many of the impacts excluded to derive Adjusted EBITDA are similar to those excluded in calculating our compliance with our debt covenants.

We consider Adjusted EBITDA to be an indicator of the operational strength and performance of our business. We have included Adjusted EBITDA because it is a key financial measure used by our management to (1) internally measure our operating performance and (2) assess our ability to service our debt, incur additional debt and meet our capital expenditure requirements.

Adjusted EBITDA should not be construed as an alternative to, or a better indicator of, operating income or loss, is not based on accounting principles generally accepted in the United States of America ("U.S. GAAP"), and is not a measure of our cash flows or ability to fund our cash needs. Our measurements of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies, and may not be comparable to similarly titled measures used in agreements that govern our debt.

During the quarter ended June 30, 2018, we re-characterized certain results of our Polaris distribution operations, which include shipping and terminal operations, to the aggregate products segment from other products and eliminations.  This change was made to better reflect how the Polaris business is viewed and operated by management and more closely aligns our reporting with how we manage and report our other aggregate products operations.  As a result of this change, certain first quarter 2018 amounts have been reclassified from those previously reported.
See Note 12, "Segment Information," to our condensed consolidated financial statements in this report for additional information regarding our segments and the reconciliation of Adjusted EBITDA to income before income taxes.

32



Ready-mixed Concrete

 
 
Three Months Ended
March 31,
 
Increase/ (Decrease)
($ in millions except selling prices)
 
2019
 
2018
 
%
Ready-mixed Concrete Segment:
 
 
 
 
 
 
Revenue
 
$
290.4

 
$
289.2

 
0.4%
Segment revenue as a percentage of total revenue
 
87.2
%
 
88.2
%
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
34.5

 
$
41.0

 
(15.9)%
Adjusted EBITDA as a percentage of segment revenue
 
11.9
%
 
14.2
%
 
 
 
 
 
 
 
 
 
Ready-mixed Concrete Data:
 
 
 
 
 
 
Average selling price per cubic yard(1)
 
$
139.60

 
$
136.99

 
1.9%
Sales volume in thousand cubic yards
 
2,077

 
2,095

 
(0.9)%
(1) Calculation excludes certain ancillary revenue that is reported within the segment.


Revenue.  Our ready-mixed concrete sales provided 87.2% and 88.2% of our total revenue in the first quarter of 2019 and 2018, respectively. Segment revenue for the first quarter of 2019 increased $1.2 million, or 0.4%, from the comparable 2018 period, primarily driven by contributions from our acquisitions. We estimate that acquisitions completed since January 1, 2018 contributed $8.2 million in revenue growth to our 2019 first quarter ready-mixed concrete segment.

In the first quarter of 2019, our revenue growth as compared to the first quarter of 2018 was driven by the 1.9% ASP increase partially offset by a weather-impacted sales volume decline of 0.9%. Our Northern California market's sales volume decreased as a result of inclement weather in the first quarter of 2019 as compared to the same quarter in 2018, which was partially offset by increases in certain other markets.

Adjusted EBITDA.  Adjusted EBITDA for the first quarter of 2019 decreased $6.5 million, or 15.9% from the comparable 2018 period. Our variable costs were higher in the first quarter of 2019 compared to the prior year first quarter. Our fixed costs were higher in the 2019 first quarter compared to the prior year first quarter due to higher personnel and equipment costs needed to operate our facilities, as well as higher overall fixed costs to operate more locations and mixer trucks compared to the previous year. Segment Adjusted EBITDA as a percentage of segment revenue was 11.9% and 14.2% in the first quarter of 2019 and 2018, respectively, primarily reflecting increased raw material costs and the negative impact of weather-related delays in some of our major markets.



33


Aggregate Products

 
 
Three Months Ended
March 31,
 
Increase/ (Decrease)
($ in millions except selling prices)
 
2019
 
2018
 
%
Aggregate Products Segment:
 
 
 
 
 
 
Sales to external customers
 
$
31.8

 
$
24.7

(1) 
 
Intersegment sales(2)
 
$
11.1

 
$
9.5

(1) 
 
Total aggregate products revenue
 
$
42.9

 
$
34.2

(1) 
25.4%
Segment revenue, excluding intersegment sales, as a percentage of total company revenue
 
9.5
%
 
7.5
%
(1) 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
10.4

 
$
4.7

 
121.3%
Adjusted EBITDA as a percentage of total aggregate products revenue
 
24.2
%
 
13.7
%
(1) 
 
 
 
 
 
 
 
 
Aggregate Products Data:
 
 

 
 

 
 
       Average selling price per ton(3)
 
$
12.12

 
$
10.90

(1) 
11.2%
       Sales volume in thousand tons
 
2,498

 
2,135

 
17.0%

(1)
During the quarter ended June 30, 2018, we re-characterized certain results of our Polaris distribution operations, which include shipping and terminal operations, to the aggregate products segment from other products and eliminations.  This change was made to better reflect how the Polaris business is viewed and operated by management and more closely aligns our reporting with how we manage and report our other aggregate products operations.  As a result of this change, certain amounts were reclassified from those reported in our 2018 first quarter 10-Q.
(2)
We sell aggregate products to our ready-mixed concrete segment businesses at market price.
(3) Our calculation of the aggregate products segment ASP excludes certain other ancillary revenue and Polaris’s freight revenue.  We define revenue for our aggregate products ASP calculation as amounts billed to external and internal customers for coarse and fine aggregate products, excluding delivery charges.  Our definition and calculation of ASP may differ from other companies in the construction materials industry.

Revenue.  Sales for our aggregate products segment provided 9.5% and 7.5% of our total revenue for the first quarter of 2019 and 2018, respectively. Segment revenue increased $8.7 million, or 25.4%, compared to prior year levels, primarily driven by increases in Polaris and our West Texas quarries. Both the higher volume and higher ASP contributed to the revenue increase. We estimate that acquisitions completed since January 1, 2018 contributed $0.9 million to this revenue growth in the first quarter of 2019.
 
Adjusted EBITDA.  Adjusted EBITDA for our aggregate products segment increased $5.7 million in the first quarter of 2019 as compared to the first quarter of 2018 primarily reflecting the higher revenue, partially offset by the related higher cost of goods sold associated with the increased volume. Our variable costs associated with cost of goods sold, which include quarry labor and benefits, utilities, repairs and maintenance, and pit costs to mine the aggregates, all rose due to the higher sales volume. Overall, our segment Adjusted EBITDA as a percentage of segment revenue increased to 24.2% in the first quarter of 2019 from 13.7% in the first quarter of 2018, including the impact of increased zero-margin, customer-paid pass-through freight costs.



34


Liquidity and Capital Resources

Overview
Our primary sources of liquidity are cash generated from operations, available cash and cash equivalents, and access to our asset-based revolving credit facility (the "Revolving Facility"), which provides for aggregate borrowings of up to $350.0 million, subject to a borrowing base.

As of March 31, 2019, we had $23.9 million of cash and cash equivalents and $201.0 million of available borrowing capacity under the Revolving Facility, providing total available liquidity of $224.9 million. Our unused availability under the Revolving Facility at March 31, 2019 decreased from December 31, 2018, primarily due to decreases in eligible accounts receivable, trucks and machinery balances.

The following key financial measurements reflect our financial condition as of March 31, 2019 and December 31, 2018:

($ in millions)
March 31, 2019
 
December 31, 2018
Cash and cash equivalents
$
23.9


$
20.0

Working capital
65.9

 
71.2

Total debt (1)
709.0


714.1


(1)
Total debt includes long-term debt, net of unamortized debt issuance costs, including current maturities, finance leases, notes payable and borrowings under the Revolving Facility.

Our primary liquidity needs over the next 12 months consist of (1) financing working capital requirements; (2) servicing our indebtedness; (3) purchasing property, plant and equipment; and (4) payments related to strategic acquisitions, including $39.0 million to $40.0 million of contingent and deferred consideration for past acquisitions. Our primary portfolio strategy includes acquisitions in various regions and markets. We may seek financing for acquisitions, including additional debt or equity capital.

Our working capital needs are typically at their lowest level in the first quarter, increase in the second and third quarters to fund increases in accounts receivable and inventories during those periods, and then decrease in the fourth quarter. Availability under the Revolving Facility is governed by a borrowing base primarily determined by our eligible accounts receivable, inventory, mixer trucks and machinery. Our borrowing base also typically declines during the first quarter due to lower accounts receivable balances as a result of normal seasonality of our business caused by weather.

The projection of our cash needs is based upon many factors, including without limitation, our expected volume, pricing, cost of materials and capital expenditures. Based on our projected cash needs, we believe that cash on hand, availability under the Revolving Facility and cash generated from operations will provide us with sufficient liquidity in the ordinary course of business, not including potential acquisitions. If, however, availability under the Revolving Facility, cash on hand and our operating cash flows are not adequate to fund our operations, we would need to obtain other equity or debt financing or sell assets to provide additional liquidity.

The principal factors that could adversely affect the amount of our internally generated funds include:

deterioration of revenue, due to lower volume and/or pricing, because of weakness in the markets in which we operate;
declines in gross margins due to shifts in our product mix or increases in the cost of our raw materials and fuel;
any deterioration in our ability to collect our accounts receivable from customers as a result of weakening in construction demand or payment difficulties experienced by our customers; and
inclement weather beyond normal patterns that could reduce our sales volumes.


35


The discussion that follows provides a description of our arrangements relating to our outstanding indebtedness.

Asset Based Revolving Credit Facility

We have a senior secured asset-based credit facility with certain financial institutions named therein as lenders (the "Lenders") and Bank of America, N.A., as agent for the Lenders that provides for up to $350.0 million of revolving borrowings. The Revolving Facility also permits the incurrence of other secured indebtedness not to exceed certain amounts as specified therein. The Revolving Facility provides for swingline loans up to a $15.0 million sublimit and letters of credit up to a $50.0 million sublimit. Loans under the Revolving Facility are in the form of either base rate loans or “LIBOR loans” denominated in U.S. dollars.

Our actual maximum credit availability under the Revolving Facility varies from time to time and is determined by calculating the value of our eligible accounts receivable, inventory, mixer trucks and machinery, minus reserves imposed by the Lenders and other adjustments, as specified in the Third Loan Agreement, which matures August 31, 2022. 

The Third Loan Agreement contains usual and customary covenants including, but not limited to, restrictions on our ability to consolidate or merge; substantially change the nature of our business; sell, lease or otherwise transfer any of our assets; create or incur indebtedness; create liens; pay dividends or make other distributions; make loans; prepay certain indebtedness; and make investments or acquisitions. The covenants are subject to certain exceptions as specified in the Third Loan Agreement. The Third Loan Agreement also requires that we, upon the occurrence of certain events, maintain a fixed charge coverage ratio of at least 1.0 to 1.0 for each period of 12 calendar months. As of March 31, 2019, we were in compliance with all covenants under the Third Loan Agreement.

Senior Unsecured Notes due 2024

We have issued $600.0 million aggregate principal amount of 6.375% senior unsecured notes due 2024 (the "2024 Notes"). The 2024 Notes are governed by an indenture (the “Indenture”) dated as of June 7, 2016, by and among U.S. Concrete, Inc., as issuer, the subsidiary guarantors party thereto, and U.S. Bank National Association, as trustee. The 2024 Notes accrue interest at a rate of 6.375% per annum, which is payable on June 1 and December 1 of each year. The 2024 Notes mature on June 1, 2024, and are redeemable at our option prior to maturity at prices specified in the Indenture. The Indenture contains negative covenants that restrict our ability and our restricted subsidiaries' ability to engage in certain transactions, as described below, and also contains customary events of default.

The 2024 Notes were issued by U.S. Concrete, Inc., the parent company, and are guaranteed on a full and unconditional basis by each of our restricted subsidiaries that guarantees any obligations under the Revolving Facility or that guarantees certain of our other indebtedness or certain indebtedness of our restricted subsidiaries (other than foreign restricted subsidiaries that guarantee only indebtedness incurred by another foreign subsidiary). The guarantees are joint and several. U.S. Concrete, Inc. does not have any independent assets or operations, and none of its foreign subsidiaries guarantee the 2024 Notes.

The 2024 Notes and the guarantees thereof are effectively subordinated to all of our and our guarantors' existing and future secured obligations, including obligations under the Revolving Facility, to the extent of the value of the collateral securing such obligations; senior in right of payment to any of our and our guarantors' future subordinated indebtedness; pari passu in right of payment with any of our and our guarantors' existing and future senior indebtedness, including our and our guarantors' obligations under the Revolving Facility; and structurally subordinated to all existing and future indebtedness and other liabilities, including preferred stock, of any non-guarantor subsidiaries.

For additional information regarding our guarantor and non-guarantor subsidiaries, see the information set forth in Note 13, “Supplemental Condensed Consolidating Financial Information,” to our condensed financial statements included in Part I of this report.

Other Debt

We have financing agreements with various lenders for the purchase of mixer trucks and other machinery and equipment with $92.9 million of remaining principal as of March 31, 2019.

For additional information regarding our arrangements relating to outstanding indebtedness, see the information set forth in Note 7, "Debt," to our consolidated financial statements included in this report.

36


Cash Flows
 
Our net cash provided by operating activities generally reflects the cash effects of transactions and other events used in the determination of net income or loss.  Net cash provided by operating activities was $21.9 million for the three months ended March 31, 2019, compared to $25.9 million for the three months ended March 31, 2018.

We used $6.8 million to fund investing activities during the three months ended March 31, 2019 and $66.7 million for the three months ended March 31, 2018. During the three months ended March 31, 2018, we paid $60.3 million to fund acquisitions. In addition, we used $7.2 million and $8.4 million in the three months ended March 31, 2019 and 2018, respectively, to fund purchases of machinery and equipment as well as mixer trucks and other vehicles to service our business. Investing activities also included proceeds from the sale of property, plant and equipment of $0.4 million during the first three months of 2019 and proceeds from the sale of businesses and property, plant and equipment of $0.4 million during the first three months of 2018.
 
Our net cash used in financing activities was $11.2 million for the three months ended March 31, 2019, as compared to net cash provided by financing activities of $54.9 million for the comparable period of 2018. Financing activities during the first three months of 2019 included $1.5 million of net borrowings under our Revolving Facility to operate our business. In addition, we repaid $8.1 million of finance leases and notes used to fund capital expenditures and paid $3.7 million for contingent and deferred consideration obligations. Financing activities during the first three months of 2018 included $66.0 million of net borrowings under our Revolving Facility to operate our business and fund acquisitions. In addition, we made payments of $6.4 million related to our finance leases and other financings and paid $3.5 million for contingent and deferred consideration obligations.

Inflation

We experienced minimal increases in operating costs during the first three months of 2019 related to inflation. However, in non-recessionary conditions, cement prices and certain other raw material prices, including aggregates, have generally risen faster than regional inflationary rates.  When these price increases have occurred, we have generally been able to mitigate our cost increases with price increases we obtain for our products.

Critical Accounting Policies
 
We prepared the preceding discussion based on the accompanying interim unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. Such preparation of financial statements requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates are based on historical experience, currently available information and various other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results could differ from those estimates. We outlined our critical accounting policies in Item 7 of Part II of our 2018 10-K.  Our critical accounting policies involve the use of estimates in the recording of business combinations, goodwill and intangible assets and any related impairment, accruals for self-insurance, accruals for income taxes, assessing impairment of long-lived assets, and accounting for contingent consideration. See Note 1, "Organization and Summary of Significant Accounting Policies," to our consolidated financial statements included in Item 8 of Part II of the 2018 10-K for a discussion of our critical and significant accounting policies and Note 2, "Recent Accounting Pronouncements" to our interim unaudited condensed consolidated financial statements for a discussion of the impact of the new lease accounting standard that we adopted as of January 1, 2019.


37


CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

Certain statements and information in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements concerning plans, objectives, goals, projections, strategies, future events or performance, and underlying assumptions and other statements, which are not statements of historical facts. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “intends,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” "outlook," “predict,” “potential,” or “continue,” the negative of such terms or other comparable terminology. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections.

Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:

general economic and business conditions, which will, among other things, affect demand for new residential and commercial construction;
our ability to successfully identify, manage, and integrate acquisitions;
the cyclical nature of, and changes in, the real estate and construction markets, including pricing changes by our competitors;
governmental requirements and initiatives, including those related to mortgage lending, financing or deductions, funding for public or infrastructure construction, land usage, and environmental, health, and safety matters;
disruptions, uncertainties or volatility in the credit markets that may limit our, our suppliers' and our customers' access to capital;
our ability to successfully implement our operating strategy;
weather conditions;
our substantial indebtedness and the restrictions imposed on us by the terms of our indebtedness;
the effects of currency fluctuations on our results of operations and financial condition;
our ability to maintain favorable relationships with third parties who supply us with equipment and essential supplies;
our ability to retain key personnel and maintain satisfactory labor relations; and
product liability, property damage, results of litigation, and other claims and insurance coverage issues.

For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see “Risk Factors” in Item 1A of Part I of our 2018 10-K and "Risk Factors" in Item 1A of Part II of this report.
  
Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise, except as required by federal securities laws.


38


Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes from the information previously reported under Part II, Item 7A of our 2018 10-K.

Item 4.
Controls and Procedures
Acquisitions

We completed the acquisition of Leon River Aggregate Materials, LLC on August 29, 2018 and are in the process of integrating it. Management’s assessment and conclusion on the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2019, excludes an assessment of the internal control over financial reporting related to this acquisition, which represented 0.4% of our consolidated total assets and less than 0.1% of our consolidated revenue included in our unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2019.

Disclosure Controls and Procedures

Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934 (the "Exchange Act")) as of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer concluded our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
 
Changes in Internal Control over Financial Reporting

We have completed a number of acquisitions in the past 12 months. As part of our ongoing integration activities, we continue to implement our controls and procedures at the businesses we acquire and to augment our company-wide controls to reflect the risks inherent in our acquisitions. Throughout the integration process, we monitor these efforts and take corrective action as needed to reinforce the application of our controls and procedures. In addition, we launched a new lease administration and accounting system to support our implementation of the new lease accounting rules. Other than the foregoing and except as described above, during the quarter ended March 31, 2019, there were no other changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


39


PART II – OTHER INFORMATION
 
Item 1. Legal Proceedings
 
The information set forth under the heading “Legal Proceedings” in Note 11, “Commitments and Contingencies,” to our condensed consolidated financial statements included in Part I of this report is incorporated by reference into this Item 1.
 
Item 1A. Risk Factors

There have been no material changes in our risk factors as previously disclosed in "Risk Factors” in Item 1A of Part I of our 2018 10-K. Readers should carefully consider the factors discussed in “Risk Factors” in Item 1A of Part 1 of the 2018 10-K, which could materially affect our business, financial condition or future results. The risks described in our 2018 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information with respect to purchases by the Company of shares of our common stock during the three month period ended March 31, 2019:

Calendar Month
Total Number
of Shares
Acquired (1)
 
Average Price
Paid Per Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs (2)
 
Approximate Dollar Value of Shares That May Yet Be
Purchased Under Plans or Programs (in millions) (2)
January 1 - January 31, 2019

 
$

 

 
$
43.3

February 1 - February 28, 2019

 

 

 
43.3

March 1 - March 31, 2019
27,729

 
40.63

 

 
43.3

Total
27,729

 
$
40.63

 

 
$
43.3


(1)
The total number of shares purchased includes shares of our common stock acquired from employees who elected for us to make their required tax payments upon vesting of certain restricted shares by withholding a number of those vested shares having a value on the date of vesting equal to their tax obligations.
(2)
On March 1, 2017, our Board approved a share repurchase program that allows us to repurchase up to $50.0 million of our common stock until the earlier of March 31, 2020, or a determination by the Board to discontinue the program. The program does not obligate us to acquire any specific number of shares.

Item 4. Mine Safety Disclosures

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 to this Quarterly Report on Form 10-Q.


40


Item 6. Exhibits

3.1*
3.2*
3.3*
10.1† 
31.1
31.2
32.1
32.2
95.1
101.INS
—XBRL Instance Document
101.SCH
—XBRL Taxonomy Extension Schema Document
101.CAL
—XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
—XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
—XBRL Taxonomy Extension Label Linkbase Document
101.PRE
—XBRL Taxonomy Extension Presentation Linkbase Document
 
* Incorporated by reference to the filing indicated.
†   Management contract or compensatory plan or arrangement.


41


SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
U.S. CONCRETE, INC.
 
 
 
 
Date:
May 9, 2019
By:
/s/ Gibson T. Dawson
 
 
 
Gibson T. Dawson
 
 
 
Vice President, Corporate Controller and Chief Accounting Officer
 
 
 
(Principal Accounting Officer)


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