| | | | | | | | |
7.($ in millions) | ACCRUED LIABILITIES |
Our accrued liabilities were as follows (in thousands):
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Accrued materials | $ | 17,827 |
| | $ | 20,349 |
|
Accrued compensation and benefits | 16,724 |
| | 16,553 |
|
Accrued insurance reserves | 16,409 |
| | 15,206 |
|
Accrued interest | 12,871 |
| | 2,217 |
|
Accrued property, sales and other taxes | 8,811 |
| | 11,829 |
|
Deferred consideration | 6,448 |
| | 9,227 |
|
Contingent consideration, current portion | 2,322 |
| | 2,418 |
|
Deferred rent | 2,270 |
| | 2,232 |
|
Other | 6,881 |
| | 5,212 |
|
Total accrued liabilities | $ | 90,563 |
| | $ | 85,243 |
|
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| |
8.Balance, December 31, 2020 | DEBT |
Our debt and capital leases were as follows (in thousands):
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Senior unsecured notes due 2024 and unamortized premium(1) | $ | 610,337 |
| | $ | 400,000 |
|
Senior secured credit facility | — |
| | — |
|
Capital leases | 62,490 |
| | 37,860 |
|
Other financing | 26,817 |
| | 20,248 |
|
Debt issuance costs | (11,226 | ) | | (8,810 | ) |
Total debt | 688,418 |
| | 449,298 |
|
Less: current maturities | (24,938 | ) | | (16,654 | ) |
Long-term debt, net of current maturities | $ | 663,480 |
| | $ | 432,644 |
|
$ | 7.2 | |
(1)Provision for doubtful accounts and customer disputes | The effective interest rates for these notes as | 1.0 | |
Uncollectible receivables written off, net of Septemberrecoveries | | (0.8) | |
Balance, June 30, 2017, and December 31, 2016, were 6.56% and 6.62%, respectively.2021(1) | | $ | 7.4 | |
Senior Unsecured Notes due 2024
In 2016, we issued $400.0(1) Excludes $1.3 million aggregate principal amount of 6.375% senior unsecured notes due 2024 (the "2024 Notes"). On January 9, 2017, we completed an offering of $200.0 million aggregate principal amount of additional 2024 Notes (the "Additional Notes," and together with the 2024 Notes, the "Senior Unsecured Notes") at an issue price of 105.75%. The terms of the Additional Notes are identical to the terms of the 2024 Notes,allowances for other than the issue date, the issue price, the first interest payment date, and the provisions relating to transfer restrictions and registration rights. We used the net proceeds from the offering of the Additional Notes,receivables, which were approximately $208.4included in other receivables, net, on our condensed consolidated balance sheets.
4. INVENTORIES
| | | | | | | | | | | |
($ in millions) | June 30, 2021 | | December 31, 2020 |
Raw materials(1) | $ | 67.6 | | | $ | 64.4 | |
Building materials for resale | 6.4 | | | 4.1 | |
Other | 2.5 | | | 1.8 | |
Total | $ | 76.5 | | | $ | 70.3 | |
(1) Additional inventory totaling $9.4 million to increase our liquidity.
The Senior Unsecured Notes are governed by an indenture (the “Indenture”) dated as of June 7, 2016, by30, 2021 and among U.S. Concrete, Inc.,$2.5 million as issuer,of December 31, 2020 was classified as other assets, since we did not expect to sell it within one year following the subsidiary guarantors party thereto,respective balance sheet dates.
5. DEBT
| | | | | | | | | | | |
($ in millions) | June 30, 2021 | | December 31, 2020 |
5.125% senior unsecured notes due 2029(1) | $ | 400.0 | | | $ | 400.0 | |
6.375% senior unsecured notes due 2024 and unamortized premium(2) | 0 | | | 201.8 | |
Term loans(3) | 300.0 | | | 0 | |
Asset based revolving credit facility(4) | 3.5 | | | 6.5 | |
Delayed draw term loan facility(5) | 0 | | | 0 | |
Finance leases | 85.4 | | | 87.9 | |
Promissory notes | 10.4 | | | 13.8 | |
Debt issuance costs | (10.2) | | | (7.6) | |
Total debt | 789.1 | | | 702.4 | |
Less: current maturities | (40.8) | | | (33.7) | |
Long-term debt, net of current maturities | $ | 748.3 | | | $ | 668.7 | |
(1) The effective interest rate for these notes was 5.25% as of both June 30, 2021 and U.S. Bank National Association,December 31, 2020.
(2) The effective interest rate for these notes was 6.56% as trustee.of December 31, 2020.
(3) The Senior Unsecured Notes accrueeffective interest at a rate for these loans was 3.25% as of 6.375% per annum. We payJune 30, 2021.
(4) The interest onrate for the Senior Unsecured Notesrevolving facility was 3.50% as of both June 30, 2021 and December 31, 2020.
(5) Terminated on June 125, 2021.
Asset Based Revolving Credit Facility
On June 25, 2021, we and December 1certain of each year. The Senior Unsecured 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 Indenture contains covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to:
incur additional debt or issue disqualified stock or preferred stock;
pay dividends or make other distributions, repurchase or redeem our stock or subordinated indebtedness or make certain investments;
sell assets and issue capital stock of our restricted subsidiaries;
incur liens;
allow to exist certain restrictions on the ability of our restricted subsidiaries to pay dividends or make other payments to us;
enter into certain transactions with affiliates;
consolidate, merge or sell all or substantially all of our assets; and
designate our subsidiaries, as unrestricted subsidiaries.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Senior Unsecured Notes are issued by U.S. Concrete, Inc. (the "Parent"). Our obligations under the Senior Unsecured Notes are jointlyco-borrowers and severally and fully and unconditionally guaranteed on a senior unsecured 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).
U.S. Concrete, Inc. does not have any independent assets or operations, and none of its foreign subsidiaries guarantee the Senior Unsecured Notes. There are no significant restrictions on the ability of the Company or any guarantor to obtain funds from its subsidiaries by dividend or loan. For additional information regarding our guarantor and non-guarantor subsidiaries, see the information set forth in Note 16.
The Senior Unsecured 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.
Senior Secured Credit Facility
On August 31, 2017, weas guarantors, entered into the ThirdFourth Amended and Restated Loan and Security Agreement (the “Third“Fourth Loan Agreement”) with certain financial institutions named therein as lenders (the “Lenders”) and Bank of America, N.A., as agent for the Lenders,lenders, which amended and restated the SecondThird Amended and Restated Loan and Security Agreement, dated as of November 18, 2015August 31, 2017 (the “Second“Third Loan Agreement”). Among other things, the ThirdFourth Loan Agreement increased theprovides for revolving commitments from $250.0of $300.0 million to $350.0 million (the “Revolving Facility”)and extended the maturity date to August 31, 2022.June 25, 2026. The ThirdFourth Loan Agreement also amended certain terms of the SecondThird Loan Agreement, including, without limitation, a provision to permitpermitting the incurrence of the loans under the Term Loan Agreement (as defined below). In connection with entering into the Fourth Loan Agreement, we incurred $1.5 million of debt issuance costs.
The obligations under the Fourth Loan Agreement are secured by first priority security interests in accounts receivable, inventory and certain other secured indebtedness up to amounts specifiedpersonal property of the Company and its subsidiaries (the “ABL Collateral”) and second priority liens on and security interests in certain real property of the ThirdCompany's subsidiaries and certain personal property of the Company and its subsidiary guarantors that is not ABL Collateral (the “Term Loan Agreement. Collateral”).
As of SeptemberJune 30, 2017,2021, we had no outstanding borrowings on the Third Loan Agreement, and we had $14.3$1.1 million of undrawn standby letters of credit under our Revolving Facility. Loans under the Revolving Facility.Facility are in the form of either base rate loans or London Interbank Offered Rate (“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 Lenderslenders and certain other adjustments, all as specified in the Third Loan Agreement.adjustments. Our maximum availability under the Revolving Facility at SeptemberJune 30, 2017,2021 was $245.8 million as compared to $221.3 million at December 31, 2016. The Third Loan Agreement also contains a provision for over-advances and protective advances by Lenders, in each case, of up to $25.0 million in excess of borrowing base levels and provides for swingline loans, up to a $15.0 million sublimit.
Up to $50.0 million of the Revolving Facility is available for the issuance of letters of credit, and any such issuance of letters of credit will reduce the amount available for loans under the Revolving Facility. Loans under the Revolving Facility may not exceed a borrowing base as defined in the Third Loan Agreement.
The Third Loan Agreement also requires that we,$214.7 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 determined in accordance with the Thirdmonths. The Fourth Loan Agreement.Agreement contains customary representations, warranties, covenants and events of default. As of SeptemberJune 30, 2017,2021, we were in compliance with all covenants under the ThirdFourth Loan Agreement.
Term Loans
On June 25, 2021, we entered into a secured term loan agreement (the “Term Loan Agreement”) with certain subsidiaries, as guarantors, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and the lenders and other parties named therein. The Term Loan Agreement provides for $300.0 million in aggregate principal amount of term loans (the “Term Loans”), which will mature on June 25, 2028. In connection with entering into the Term Loan Agreement, we incurred $4.6 million of debt issuance costs. Proceeds of the Term Loans will be used for general corporate purposes, including repayment of certain borrowings under the Revolving Facility and to redeem the Company's 6.375% senior unsecured notes due 2024 (the “2024 Notes”), as further discussed below.
The Third Loan AgreementTerm Loans bear interest at our option of either: (1) LIBOR (subject to a floor of 0.50%) plus a margin of 2.75% or (2) a base rate (which is equal to the greatest of the prime rate, the Federal Reserve Bank of New York effective rate plus 0.50% and LIBOR plus 1.00%, and is subject to a floor of 1.50%) plus a margin of 1.75%. Additionally, the Term Loans were issued at a price of 99.75%. The Term Loans are secured by a first priority lien on substantiallyand security interest in the Term Loan Collateral and a second priority security interest in the ABL Collateral. The Term Loan Agreement contains customary representations, warranties, covenants and events of default, but does not contain any financial maintenance covenants. As of June 30, 2021, we were in compliance with all covenants under the Term Loan Agreement.
Termination of Delayed Draw Term Loan Facility
On June 25, 2021, in connection with entering into the Term Loan Agreement, the Company terminated the Credit and Guaranty Agreement, dated as of April 17, 2020, among the Company, certain subsidiaries as guarantors, Bank of America, N.A., as administrative agent and collateral agent, the lenders and other parties named therein (the “Delayed Draw Term Loan Agreement”). The Delayed Draw Term Loan Agreement provided for a $178.7 million delayed draw term loan facility and was scheduled to mature on May 1, 2025. There were no outstanding borrowings under the Delayed Draw Term Loan Agreement. The Delayed Draw Term Loan was secured by a first priority lien on and secured interest in the Term Loan Collateral. During the three months ended June 30, 2021, we wrote off $2.3 million of unamortized debt issuance costs for this facility as a loss on extinguishment of debt.
Redemption of 6.375% Senior Unsecured Notes Due 2024
On June 26, 2021, we redeemed $200.0 million of outstanding 2024 Notes, which represented all outstanding 2024 Notes, at a price of 101.594% of the personal propertyprincipal amount thereof plus accrued, unpaid interest. During the three months ended June 30, 2021, we incurred a $3.1 million pre-tax loss on the redemption of the Company2024 Notes, which included the redemption premium of $3.2 million and a $1.4 million write-off of unamortized debt issuance costs, net of $1.5 million of unamortized issuance premium.
Fair Value of Debt
The fair value of our 5.125% senior unsecured notes due 2029 (the “2029 Notes”), which was estimated based on broker/dealer quoted market prices, was $436.6 million as of June 30, 2021. The carrying values of the outstanding amounts under our Term Loans, Revolving Facility and our guarantors,operating and finance lease assets and liabilities approximate fair value due to the nature of the underlying collateral associated with the debt along with floating interest rates.
6. STOCK-BASED COMPENSATION
We grant stock-based compensation awards to management, employees and non-employee directors under the U.S. Concrete, Inc. Long Term Incentive Plan (the “LTI Plan”), which was amended effective February 22, 2021 (the “Amendment”) to reserve an additional 880,000 shares of common stock for future issuance as equity-based awards to management and employees. Stock-based compensation may include stock options, stock appreciation rights, restricted stock awards, restricted stock units, cash-settled equity awards and performance awards. As of June 30, 2021, there were approximately 485,000 shares remaining for future issuance under the LTI Plan.
2021 Restricted Stock Unit Grant
On March 1, 2021, the Compensation Committee of the Board of Directors approved grants of 367,720 restricted stock units (the “2021 Grant”), conditioned upon obtaining stockholder approval of the Amendment. The Amendment was approved by the Company's stockholders at the Company's annual meeting on May 13, 2021, and the stockholder approval condition related to the 2021 Grant was satisfied. The 2021 Grant consisted of a 60% time-vested component that vests annually over a three-year period and a 40% stock performance hurdle component. The stock performance hurdle component triggers vesting upon our stock price reaching certain thresholds and may vest up to 200% of the target number of performance stock units granted.
The fair value of the 2021 Grant subject only to time-based vesting restrictions was determined based upon the $55.72 closing price of our common stock on the effective date of the grant. Based on stock performance following the contingent grant in March, the stock price thresholds for the target number of performance stock units had been met, and the fair value for that 40% portion of the 2021 Grant was also determined to be the $55.72 closing price of our common stock on the effective date of the grant, and the entire $8.1 million fair value for this portion of the target performance stock units was recognized during the three months ended June 30, 2021.
The fair value of the above-target portion of the 2021 Grant subject to permitted liens and certain exceptions.
Capital Leases and Other Financing
We haveadditional market performance hurdles was determined utilizing a seriesMonte Carlo financial valuation model. Compensation expense determined utilizing the Monte Carlo simulation is recognized regardless of promissory notes with various lenders forwhether the purchase of mixer trucks and other machinery and equipment incommon stock reaches the defined thresholds, provided that each grantee remains an aggregate original principal amount of $44.4 million, with fixed annual interest rates ranging from 2.50% to 4.64%, payable monthly with terms ranging from one to five years.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We have leasing agreements with various other lenders for the purchase of mixer trucks and other machinery and equipment for a total original principal amount of $82.3 million, with fixed annual interest rates ranging from less than 0.01% to 5.24%, payable monthly for terms ranging from two to seven years. The lease agreements include bargain purchase optionsemployee at the end of the lease terms; accordingly, these financings have been classified as capital leases.expected term. The currentassumptions used to value the above-target portion of capital leases included in current maturities of long-term debt was $16.2 millionthe 2021 Grant were as of September 30, 2017, and $9.8 million as of December 31, 2016.follows:
The weighted average interest rate of our capital leases and other financings was 3.30% as of September 30, 2017, and 3.11% as of December 31, 2016.
In 2010, we issued warrants to acquire common stock in two tranches: Class A Warrants to purchase an aggregate of approximately 1.5 million shares of common stock and Class B Warrants to purchase an aggregate of approximately 1.5 million shares of common stock (collectively, the "Warrants"). The Warrants were issued to holders of our predecessor common stock pro rata based on a holder’s stock ownership as of the issuance date and expired on August 31, 2017. The Warrants were included in derivative liabilities in the accompanying condensed consolidated balance sheet as of December 31, 2016, (see Note 10) and were recorded at their fair value (see Note 11). The Warrants were treated as potentially dilutive securities in the calculation of diluted earnings (loss) per share as shares of our common stock would have been issued if the Warrants had been exercised. A total of 112,638 Class A Warrants and 114,775 Class B Warrants expired unexercised on August 31, 2017.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Prior to their expiration on August 31, 2017, we were required to account for our warrants as derivative instruments, which were not used to manage business risk and were not executed for speculative purposes.
The following table presents the fair value of our derivative instruments as of September 30, 2017, and December 31, 2016 (in thousands):
|
| | | | | | | | | | |
| | | | Fair Value |
Derivative Instruments Not Designated As Hedging Instruments Under ASC 815 | | Balance Sheet Classification | | September 30, 2017 | | December 31, 2016 |
Warrants | | Derivative liabilities | | $ | — |
| | $ | 57,415 |
|
The following table presents the effect of derivative instruments on our condensed consolidated statements of operations for the three and nine months ended September 30, 2017 and 2016, respectively, excluding income tax effects (in thousands):
|
| | | | | | | | | | |
|
|
| | Three Months Ended |
Derivative Instruments Not Designated As Hedging Instruments Under ASC 815 |
| Classification in Statement of Operations | | September 30, 2017 |
| September 30, 2016 |
Warrants |
| Derivative loss (income) | | $ | (13,119 | ) | | $ | (21,772 | ) |
|
| | | | | | | | | | |
| | | | Nine Months Ended |
Derivative Instruments Not Designated As Hedging Instruments Under ASC 815 | | Classification in Statement of Operations | | September 30, 2017 | | September 30, 2016 |
Warrants | | Derivative loss (income) | | $ | 791 |
| | $ | (6,430 | ) |
Warrant volume positions represent the number of shares of common stock underlying the instruments. The table below presents our volume positions as of September 30, 2017, and December 31, 2016 (in thousands):
|
| | | | | | |
| | Number of SharesValue |
Derivative Instruments Not Designated As
Hedging Instruments Under ASC 815Expected term (years)(1)
| | September 30, 2017 | | December 31, 20160.3 - 0.4 |
WarrantsExpected volatility | | —72.9% |
Risk-free interest rate |
| 0.3% |
Vesting price(1)(2) | 1,395 | $69.23 - $74.95 |
Average grant date fair value per share | | $49.65 - $47.97 |
(1)The $69.23 stock price hurdle for the 2021 Grant was met during June 2021, the related performance stock units vested, and the related expense that would have been recognized over 0.3 years was accelerated and recognized during the three months ended June 30, 2021.
(2)The vesting price is the average of the daily volume-weighted average share price of USCR Stock over any period of 20 consecutive trading days within the three-year period beginning on the date of grant, based on hurdles established on March 1, 2021.
Stock-Based Compensation Cost
We do notrecognized stock-based compensation expense of $14.7 million and $17.6 million during the three and six months ended June 30, 2021, respectively, and $2.5 million and $6.2 million during the three and six months ended June 30, 2020, respectively. Stock-based compensation expense is reflected in selling, general and administrative expenses in our condensed consolidated statements of operations. Stock-based compensation expense was higher during the three and six months ended June 30, 2021 than it otherwise would have any derivative instruments with credit features requiringbeen due to the postinggeneral increase in stock price from the date of collateralthe conditional grant through June 30, 2021, which resulted in the event of a credit downgrade or similar credit event.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| |
11. | FAIR VALUE DISCLOSURES |
Fairhigher 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 participantsper share when valued as of the measurement date. Accounting guidance also establishes a hierarchy for inputs used in measuring fair value that maximizesstockholder approval date, as well as the useacceleration of observable inputsexpense when certain stock price thresholds were met 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:performance stock units vested.
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.
The following tables present our fair value hierarchy for liabilities measured at fair value on a recurring basis as of September 30, 2017, and December 31, 2016 (in thousands):
|
| | | | | | | | | | | | | | | |
| September 30, 2017 |
| Total | | Level 1 | | Level 2 | | Level 3 |
Contingent consideration, including current portion (1) (2) (3) (4) (5) | $ | 52,554 |
| | $ | — |
| | $ | — |
| | $ | 52,554 |
|
| $ | 52,554 |
| | $ | — |
| | $ | — |
| | $ | 52,554 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2016 |
| Total | | Level 1 | | Level 2 | | Level 3 |
Derivative – Warrants | $ | 57,415 |
| | $ | — |
| | $ | 57,415 |
| | $ | — |
|
Contingent consideration, including current portion (1) (2) (4) (5) (6) | 32,212 |
| | — |
| | — |
| | 32,212 |
|
| $ | 89,627 |
| | $ | — |
| | $ | 57,415 |
| | $ | 32,212 |
|
| |
(1) | The current portion of contingent consideration is included in accrued liabilities in our condensed consolidated balance sheets. The long-term portion of contingent consideration is included in other long-term obligations and deferred credits in our condensed consolidated balance sheets. |
| |
(2) | Includes the fair value of the contingent consideration associated with the 2015 acquisition of Ferrara Bros. Building Materials Corp. ("Ferrara Bros. Contingent Consideration"). The fair value was determined based on the expected vesting of incentive awards granted to the former owners at acquisition based on probability-weighted assumptions related to the achievement of certain annual EBITDA thresholds, using a discount rate of 8.75% as of both September 30, 2017, and December 31, 2016. The fair value of the Ferrara Bros. Contingent Consideration was $27.4 million and $26.3 million as of September 30, 2017, and December 31, 2016, respectively. The Ferrara Bros. Contingent Consideration payments were capped at $35.0 million over a four-year period beginning in 2017. |
| |
(3) | Includes the fair value of the contingent consideration associated with the 2017 acquisition of certain assets of Corbett Aggregates Company, LLC ("Corbett Contingent Consideration"). The fair value was determined based on the expected consideration that will be due to the former owner related to the achievement of obtaining permits for mining all available reserves and was based on the probability-weighted assumptions, using a discount rate of 5.0% as of September 30, 2017. The fair value of the Corbett Contingent Consideration was $20.8 million as of September 30, 2017. The Corbett Contingent Consideration payment is capped at $23.0 million and not payable before a two-year minimum period from the acquisition date. |
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| |
(4) | Includes the fair value of the earn-out payments associated with the 2015 acquisition of Right Away Redy Mix, Inc. (the "Right Away Earn-out"). The fair value was determined based on expected payouts that will be due to the former owners based on probability-weighted assumptions related to the achievement of annual sales volume milestones, using a discount rate of 8.25% and 8.50% as of September 30, 2017, and December 31, 2016, respectively. The fair value of the Right Away Earn-out was $3.9 million as of both September 30, 2017, and December 31, 2016. The remaining Right Away Earn-out payments were capped at $4.3 million over a four-year period and $5.0 million over a five-year period as of September 30, 2017, and December 31, 2016, respectively. |
| |
(5) | Includes the fair value of the earn-out payments associated with the 2015 acquisition of DuBrook Concrete, Inc. ("DuBrook Earn-out"). The fair value was determined based on the expected payouts that will be due to the former owners based on probability-weighted assumptions related to the achievement of sales volume milestones, using a discount rate of 15.75% as of both September 30, 2017, and December 31, 2016. The fair value of the DuBrook Earn-out was $0.5 million and $0.6 million as of September 30, 2017, and December 31, 2016, respectively. The DuBrook Earn-out paymentsare not capped; however, we do not expect total payments to be in excess of $0.5 million over a two-year period and $0.7 million over a three-year period as of September 30, 2017, and December 31, 2016, respectively.
|
| |
(6) | Includes the fair value of the earn-out payments associated with the 2012 acquisition of Bode Gravel Co. and Bode Concrete LLC ("Bode Earn-out"). The fair value was determined based on expected payouts that will be due to the former owners based on the achievement of certain incremental sales volume milestones, using a contractual discount rate of 7.0%. These payments were capped at a fair value of $1.4 million as of December 31, 2016. The final Bode Earn-out payment was made in January 2017. |
7. INCOME TAXES
The liability for the Warrants was valued utilizing a Black-Scholes-Merton model. Inputs into the model were based upon observable market data. The key inputs in determining our derivative liabilities include our stock price, stock price volatility, and risk free interest rates. As of December 31, 2016, observable market data existed for all of the key inputs in determining the fair value of our Warrants.
The liabilities for the Right Away Earn-out and the Ferrara Bros. Contingent Consideration were valued using Monte Carlo simulations, which incorporated probability-weighted assumptions related to the achievement of specific milestones mentioned above. The liabilities for the Corbett Contingent Consideration were valued using the income approach which incorporated probability-weighted assumptions related to the achievement of specific milestones mentioned above. The liabilities for the Bode Earn-out and the DuBrook Earn-out were valued using a discounted cash flow technique. Inputs into the models were based upon observable market data where possible. Where observable market data did not exist, we modeled inputs based upon similar observable inputs. The key inputs in determining the fair value of the contingent consideration as of September 30, 2017, and December 31, 2016, included discount rates ranging from 5.00% to 15.75% and management's estimates of future sales volumes, EBITDA and permitted reserves. Changes in these inputs will impact the valuation of our contingent consideration obligations and will result in gain or loss each quarterly period.
A reconciliation of the changes in Level 3 fair value measurements from December 31, 2016, to September 30, 2017, is provided below (in thousands):
|
| | | |
| Contingent Consideration |
Balance at December 31, 2016 | $ | 32,212 |
|
Acquisitions (1) | 20,621 |
|
Total losses included in earnings (2) | 2,047 |
|
Payment on contingent consideration | (2,326 | ) |
Balance at September 30, 2017 | $ | 52,554 |
|
| |
(1) | Represents the fair value of the contingent consideration associated with the Corbett acquisition as of the acquisition date. |
| |
(2) | Represents the net loss on the change in valuation of contingent consideration, which is included in the line item of the same name in our condensed consolidated statements of operations. |
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 Senior Unsecured Notes, estimated based on quoted market prices (i.e., Level 2 inputs), was $645.7 million as of September 30, 2017. The carrying value of any outstanding amounts under our Third Loan Agreement approximates fair value due to the floating interest rate. There were no such amounts outstanding as of September 30, 2017, or December 31, 2016.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We recorded an income tax expense allocated to continuing operationsbenefit of $7.2$0.7 million and $20.9$5.4 million for the three and ninesix months ended SeptemberJune 30, 2017, respectively. We recorded2021, respectively, using the discrete method. The discrete method treats the year-to-date period as if it was the annual period and determines the income tax expense allocatedor benefit on that basis. We have historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full year to continuing operations“ordinary” income or loss for the reporting period. However, for the three and six-month periods ended June 30, 2021, we determined that since minor changes in estimated “ordinary” income would result in significant changes in the estimated annual effective tax rate, our historical method would not provide a reliable estimate of $12.6income tax benefit. Our effective tax rate utilizing the discrete method differed substantially from the statutory tax rate primarily due to (1) significant Section 162(m) limitations on executive compensation and (2) our estimated interest expense limitation in accordance with the Tax Cuts and Jobs Act for which a full valuation allowance is anticipated. These differences reduced the income tax benefit recorded for the three and six months ended June 30, 2021, which was partially offset by excess tax benefits recognized for stock-based compensation.
We recorded an income tax expense of $4.3 million and $14.3an income tax benefit of $0.6 million for the three and ninesix months ended SeptemberJune 30, 2016, respectively. We recorded a tax benefit of $0.1 million and $0.3 million allocated to discontinued operations for the three and nine months ended September 30, 2017 and 2016,2020, respectively. For the ninesix months ended SeptemberJune 30, 2017,2020, our effective tax rate differed substantially from the federal statutory rate primarily due to additional tax benefits recognized related to the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) enacted on March 27, 2020. The CARES Act, among other cumulative adjustmentsthings, modified the business interest deduction limitation for tax years beginning in 2019 and 2020 from 30% of adjusted taxable income (“ATI”) to deferred income taxes, which resulted50% of ATI. As a result, we recorded an additional tax benefit of $3.2 million in additionalthe six months ended June 30, 2020 to reflect the CARES Act change to our estimated interest limitation for the year ended December 31, 2019. This tax benefit was partially offset by a net tax shortfall for stock-based compensation.
Other receivables, net, on our condensed consolidated balance sheets included federal and state income tax expense. In addition, the adoptionreceivables of ASU 2016-09 on January 1, 2017, (see Note 2) required the current period income tax benefit related to stock compensation to be reflected in the income statement instead of additional paid-in-capital, as previously required. For the nine months ended September 30, 2016, our effective tax rate differed from the federal statutory tax rate primarily due to the application of a valuation allowance that reduced the recognized benefit of certain of our deferred tax assets. In addition, certain state income taxes are calculated on a basis other than pre-tax income (loss). In addition, for both the three months ended September 30, 2017 and 2016, our effective tax rate differed from the federal statutory rate due to the tax impact of derivative income and losses related to our Warrants. Derivative income and losses were excluded from the calculation of our income tax provision and were treated as an unrecognized tax position. For the nine months ended September 30, 2017, our tax provision excluded $0.3 million of tax benefit related to our $0.8 million derivative loss. For the nine months ended September 30, 2016, our tax provision excluded $2.5 million of tax expense related to our $6.4 million derivative income.
For the three and nine months ended September 30, 2017, we reduced to zero our unrecognized tax benefits and deferred tax asset balances associated with derivative income or losses related to our Warrants. The amount of the reduction for both was $43.6 million; therefore, the aggregate reductions did not have an impact to either total income tax expense or our effective tax rate. These reductions followed a decision to no longer pursue a future tax return deduction associated with our cumulative derivative losses related to our Warrants, given our inability, after multiple attempts, to obtain the necessary documentation to support the deduction and complete the related informational reporting requirements.
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 established valuation allowances as of September 30, 2017, and December 31, 2016, for other deferred tax assets because of uncertainty regarding their ultimate realization. Our total net deferred tax liability was approximately $15.0$18.7 million as of SeptemberJune 30, 2017,2021 and approximately $7.7$5.8 million as of December 31, 2016.2020.
8. EARNINGS (LOSS) PER SHARE
We record changes in our unrecognized tax benefits based on anticipated federalexcluded 0.5 million shares from the calculation of diluted earnings per share for both the three and state tax filing positions on a quarterly basis. For the ninesix months ended SeptemberJune 30, 20172021, and 2016, we recorded unrecognized tax benefits of $0.10.8 million and $4.10.6 million respectively.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| |
13. | NET EARNINGS (LOSS) PER SHARE |
Basic earnings (loss) per share is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) 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 for the three and ninesix months ended SeptemberJune 30, 2017 and 2016 (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Numerator: | | | | | | | |
Income from continuing operations | $ | 24,276 |
| | $ | 38,122 |
| | $ | 29,109 |
| | $ | 24,970 |
|
Loss from discontinued operations, net of taxes | (222 | ) | | (166 | ) | | (524 | ) | | (518 | ) |
Numerator for diluted earnings per share | $ | 24,054 |
| | $ | 37,956 |
| | $ | 28,585 |
| | $ | 24,452 |
|
| | | | | | | |
Denominator: | | | | | | | |
Basic weighted average common shares outstanding | 16,028 |
| | 15,222 |
| | 15,745 |
| | 14,978 |
|
Restricted stock awards and restricted stock units | 84 |
| | 67 |
| | 112 |
| | 84 |
|
Warrants | 524 |
| | 939 |
| | 760 |
| | 1,111 |
|
Stock options | 15 |
| | 12 |
| | 16 |
| | 13 |
|
Denominator for diluted earnings per share | 16,651 |
| | 16,240 |
| | 16,633 |
| | 16,186 |
|
For the three and nine months ended September 30, 2017 and 2016, our2020, respectively, because they were anti-dilutive. In all periods, these potentially dilutive shares includerelated to our employee equity awards that vest either over time or upon the shares underlying our restrictedachievement of certain stock awards, restricted stock units, stock options and Warrants. The following table shows the type and number (in thousands) of potentially dilutive shares excluded from the diluted earnings (loss) per share calculations for the periods presented as their effect would have been anti-dilutive or they have not met their performance target:price targets.
9. COMMITMENTS AND CONTINGENCIES
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Potentially dilutive shares: | | | | | | | |
Unvested restricted stock awards and restricted stock units | 60 |
| | 35 |
| | 62 |
| | 35 |
|
Total potentially dilutive shares | 60 |
| | 35 |
| | 62 |
| | 35 |
|
| |
14. | 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-partiesthird 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.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the future,From time to time, we may receive funding deficiency demands fromor withdrawal liability assessments related to multi-employer pension plans to which we contribute. We are unable to estimate the amount of any potential future funding deficiency demands or assessments 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 June 30, 2021, the Company had accrued $1.4 million for a withdrawal liability assessment related to a multi-employer pension plan in which the Company participated. The Company continues to dispute and negotiate the assessment.
As of September 30, 2017,August 5, 2021, there arewere 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 SeptemberJune 30, 2017.2021.
On March 28, 2017, Hans Ruedelstein, individually and on behalf of all others similarly situated, filed a purported class action lawsuit in the United States District Court of Northern Texas, Fort Worth Division, against the Company, William J. Sandbrook, William M. Brown and Joseph C. Tusa, Jr. alleging violations of certain federal securities laws. The case was filed purportedly on behalf of purchasers of the Company's stock between March 6, 2015 and March 23, 2017. On June 22, 2017, Robert Abric and Donald Bellafiore were appointed as co-lead plaintiffs. On August 24, 2017, co-lead plaintiffs voluntarily dismissed the complaint and on September 8, 2017, the case was terminated by the Court.
We believe that the resolution of allany 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 isare 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.
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 valuepotential liability of these indemnification agreements is minimal. Accordingly, we have not recorded any liabilities for these agreements as of SeptemberJune 30, 2017.2021.
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 August 5, 2021, there were no material pending claims related to such indemnification.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Litigation Related to the Vulcan Merger
As of August 2, 2021, several separate actions (collectively, the “USCR Shareholder Actions”) have been filed in federal courts in New York, Delaware, New Jersey, and Pennsylvania by purported owners of U.S. Concrete common stock in connection with the transactions contemplated by the Merger Agreement: Stein v. U.S. Concrete, Inc., et al. (S.D.N.Y. July 2, 2021); Waterman v. U.S. Concrete, Inc., et al. (S.D.N.Y. July 8, 2021); Clark v. U.S. Concrete, Inc., et al. (D. Del July 9, 2021) (the “Clark Action”); Harris v. U.S. Concrete, Inc., et al. (S.D.N.Y. July 13, 2021); Siddall v. U.S. Concrete, Inc., et al. (D.N.J. July 13, 2021); Whitfield v. U.S. Concrete, Inc., et al (E.D. Pa. July 13, 2021); Murphy v. U.S. Concrete, Inc., et al. (S.D.N.Y. July 14, 2021); Kent v. U.S. Concrete, Inc., et al. (D.N.J. July 27, 2021) (the “Kent Action”); Wilhelm v. U.S. Concrete, Inc., et al. (D. Del July 28, 2021)(the “Wilhelm Action”); Brave v. U.S. Concrete, Inc., et al. (D.N.J. July 30, 2021) (the “Brave Action”) and Beauregard v. U.S. Concrete, Inc., et al. (S.D.N.Y. July 30, 2021)(the “Beauregard Action”). Each of the USCR Shareholder Actions names the Company and its directors as defendants and the Clark Action additionally names former Company director William J. Sandbrook as a defendant. Each of the USCR Shareholder Actions alleges, among other things, that the defendants violated federal securities laws by failing to disclose certain information in the Preliminary Proxy Statement, or, in the case of the Kent Action, Wilhelm Action, Brave Action and Beauregard Action, the Definitive Proxy Statement, on Schedule 14A filed by the Company (the “Proxy”) relating to the Company's financial forecasts and financial analyses conducted by the Company's financial advisors, Evercore Group, L.L.C. (“Evercore”) and BNP Paribas Securities Corp. (“BNP”). Certain of the USCR Shareholder Actions further allege that the defendants violated federal securities laws by failing to disclose certain information in the Proxy relating to the sales process and alleged conflicts of interests for management, financial projections for the Company provided to Evercore and BNP, and the data and inputs underlying the financial valuation analyses that support the fairness opinions of Evercore and BNP. The Clark Action further alleges that the Company's directors breached their fiduciary duties by entering into the Merger Agreement through an unfair process and for inadequate consideration. The plaintiffs in the USCR Shareholder Actions, among other things, seek to enjoin the transactions contemplated by the Merger Agreement, an award of attorneys’ fees and expenses and, in certain instances, damages in an unspecified amount.
The Company believes that the USCR Shareholder Actions are without merit, and the Company and the individual defendants intend to defend against the USCR Shareholder Actions; however, the Company cannot predict the amount of time and expense that will be required to resolve the USCR Shareholder Actions nor their outcomes.
The outcome of any pending or future litigation is uncertain. Such litigation if not resolved, could prevent or delay consummation of the Merger and result in substantial costs of the Company, including any costs associated with the indemnification of directors and officers. One of the conditions to the consummation of the Merger is that no governmental entity of competent jurisdiction (i) enacted, issued or promulgated any law or order that is in effect or (ii) issued or granted any order or injunction (whether temporary, preliminary or permanent) that is in effect, in each case which has the effect of restraining, enjoining or otherwise prohibiting the consummation of the Merger. Therefore, if a plaintiff were successful in obtaining an injunction prohibiting the consummation of the Merger, then such injunction may prevent the Merger from being consummated, or from being consummated within the expected time frame.
Insurance Programs
We maintain third-party insurance coverage against certain risks in amounts we believe are reasonable.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 insurance program deductible retentions per occurrence are $1.0 million to $2.0 million for auto, workers’ compensation and general liability insurance programs are $1.0and $2.0 million, to $10.0 million for automobile, although certain of our operations are self-insured for workers’ compensation. We fund these deductibles and record an expenseexpenses for expected losses under the programs. We determine theThe 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, from various sources, 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 we have noted above could materially affect our insurance obligations and future expense. The amount accrued for self-insurance claims, which is recorded in accrued liabilities in our condensed consolidated balance sheet for estimated lossesand other long-term obligations and deferred credits, was $15.5$34.9 million as of SeptemberJune 30, 2017, compared to $13.52021 and $33.0 million as of December 31, 2016.2020.
Guarantees
In the normal course of business, we areand our subsidiaries were contingently liable for performance under $36.2$12.9 million in performance bonds that various contractors, states and municipalities have required as of SeptemberJune 30, 2017.2021. 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 asbonds.
The Company has entered into standby letter of Septembercredit arrangements with various banks generally for the purpose of protection against insurance claims. As of June 30, 2017.2021, the Company had a maximum financial exposure from these standby letters of credit totaling $25.9 million, of which $1.1 million reduces the Company's borrowing availability under its Revolving Facility. See Note 5 for additional information.
Employment Agreements
10. SEGMENT INFORMATION
We have employment agreements with executive officers and certain key members of management under which severance payments would become payable in the event of specified terminations without cause or after a change of control.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Our two2 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 City, New Jersey, Washington, D.C., Philadelphia, Oklahoma and the U.S. Virgin Islands. Our aggregate products segment includesproduces crushed stone, sand and gravel products and serves the North Texas, West Texas, New York, New Jersey, Oklahoma, and U.S. Virgin Islands markets in which our ready-mixed concrete segment operates.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, lime slurry, ARIDUS® Rapid Drying Concrete technology, brokered product sales aand recycled aggregates operation, an aggregate distribution operation, and an industrial waterfront marine terminal and sales yard. The financial results of the acquisitions have been included in their respective reportable segment or in other products as of their respective acquisition dates.aggregates.
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) from continuing operations excluding the impact of income tax expense (benefit), net interest expense,taxes, depreciation, depletion and amortization, derivative income (loss), thenet 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, hurricane-related losses, quarry dredgeacquisition-related costs, officer transition expenses, purchase accounting adjustments for a specific event,inventory, and loss on extinguishmentrealignment initiative costs. Acquisition-related costs consist of debt.fees and expenses for accountants, lawyers and other professionals incurred during the negotiation and closing of strategic acquisitions. 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 various agreements, including the Third Loan Agreement and the Indenture.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.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following tables set forth certain financial information relating to our continuing operations by reportable segment (in thousands)($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Revenue by Segment: | | | | | | | | |
Ready-mixed concrete | | | | | | | | |
Sales to external customers | | $ | 274.3 | | | $ | 272.4 | | | $ | 515.8 | | | $ | 564.6 | |
Aggregate products | | | | | | | | |
Sales to external customers | | 25.2 | | | 26.1 | | | 47.8 | |
| 47.2 | |
Freight revenue on sales to external customers | | 11.2 | | | 12.1 | | | 20.6 | | | 22.1 | |
Intersegment sales | | 16.8 | | | 16.3 | | | 29.3 | |
| 28.8 | |
Total aggregate products | | 53.2 | | | 54.5 | | | 97.7 | | | 98.1 | |
Total reportable segment revenue | | 327.5 | | | 326.9 | | | 613.5 | | | 662.7 | |
Other products and eliminations | | (0.1) | | | (4.2) | | | (0.4) | |
| (5.6) | |
Total revenue | | $ | 327.4 | | | $ | 322.7 | | | $ | 613.1 | | | $ | 657.1 | |
| | | | | | | | |
Reportable Segment Adjusted EBITDA: | | | | | | | | |
Ready-mixed concrete | | $ | 30.9 | | | $ | 38.1 | | | $ | 55.8 | | | $ | 69.8 | |
Aggregate products | | 20.1 | | | 21.6 | | | 32.6 | |
| 32.9 | |
Total reportable segment Adjusted EBITDA | | $ | 51.0 | | | $ | 59.7 | | | $ | 88.4 | | | $ | 102.7 | |
| | | | | | | | |
Reconciliation of Total Reportable Segment Adjusted EBITDA to Net Income (Loss): | | | | | | | | |
Total reportable segment Adjusted EBITDA | | $ | 51.0 | | | $ | 59.7 | | | $ | 88.4 | | | $ | 102.7 | |
Other products and eliminations from operations | | 0.7 | | | 0.3 | | | 0.4 | | | 0.4 | |
Corporate overhead | | (32.6) | | | (16.3) | | | (46.3) | | | (31.9) | |
Depreciation, depletion and amortization for reportable segments | | (24.2) | | | (23.7) | | | (47.1) | | | (45.5) | |
Interest expense, net | | (10.3) | | | (11.4) | | | (20.7) | | | (22.8) | |
Loss on extinguishment of debt | | (5.5) | | | 0 | | | (5.5) | | | 0 | |
Gain on sale of business | | 0 | | | 0 | | | 0.7 | | | 0 | |
Realignment initiative costs | | 0 | | | (0.8) | | | (0.4) | | | (0.8) | |
Change in value of contingent consideration for reportable segments | | 0 | | | 5.8 | | | 0.1 | | | 5.5 | |
| | | | | | | | |
Purchase accounting adjustments for inventory | | (0.5) | | | (2.6) | | | (0.6) | | | (4.2) | |
| | | | | | | | |
Corporate, other products and eliminations other income (loss), net | | 0.2 | | | (0.2) | | | 0.3 | | | (0.3) | |
Income (loss) before income taxes | | (21.2) | | | 10.8 | | | (30.7) | | | 3.1 | |
Income tax benefit (expense) | | 0.7 | | | (4.3) | | | 5.4 | | | 0.6 | |
Net income (loss) | | $ | (20.5) | | | $ | 6.5 | | | $ | (25.3) | | | $ | 3.7 | |
|
| | | | | | | | | | | | | | | | |
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
Revenue: |
| |
| |
|
|
|
|
Ready-mixed concrete |
|
|
|
|
|
|
|
|
Sales to external customers |
| $ | 323,567 |
|
| $ | 297,858 |
|
| $ | 909,145 |
|
| $ | 770,479 |
|
Aggregate products |
|
|
|
|
|
|
|
|
Sales to external customers |
| 10,972 |
|
| 12,289 |
|
| 32,305 |
|
| 30,756 |
|
Intersegment sales |
| 9,987 |
|
| 9,839 |
|
| 29,244 |
|
| 25,641 |
|
Total aggregate products | | 20,959 |
| | 22,128 |
| | 61,549 |
| | 56,397 |
|
Total reportable segment revenue |
| 344,526 |
|
| 319,986 |
|
| 970,694 |
|
| 826,876 |
|
Other products and eliminations |
| 10,102 |
|
| 8,602 |
|
| 23,993 |
|
| 22,507 |
|
Total revenue |
| $ | 354,628 |
|
| $ | 328,588 |
| | $ | 994,687 |
| | $ | 849,383 |
|
|
|
|
|
|
|
|
|
|
Reportable Segment Adjusted EBITDA: |
| |
| |
| |
| |
Ready-mixed concrete |
| $ | 53,627 |
|
| $ | 51,394 |
|
| $ | 144,777 |
|
| $ | 111,809 |
|
Aggregate products |
| 6,218 |
|
| 7,005 |
|
| 18,889 |
|
| 15,080 |
|
Total reportable segment Adjusted EBITDA |
| $ | 59,845 |
| | $ | 58,399 |
| | $ | 163,666 |
| | $ | 126,889 |
|
|
|
|
|
|
|
|
|
|
Reconciliation of Total Reportable Segment Adjusted EBITDA to Income (Loss) From Continuing Operations: |
|
|
|
|
|
|
|
|
|
|
|
Total reportable segment Adjusted EBITDA | | $ | 59,845 |
| | $ | 58,399 |
| | $ | 163,666 |
| | $ | 126,889 |
|
Other products and eliminations from operations | | 3,315 |
| | 2,472 |
| | 9,338 |
| | 6,704 |
|
Corporate overhead | | (14,051 | ) | | (10,628 | ) | | (39,757 | ) | | (31,150 | ) |
Depreciation, depletion and amortization for reportable segments | | (15,441 | ) | | (13,036 | ) | | (45,586 | ) | | (35,630 | ) |
Hurricane-related losses for reportable segments | | (1,854 | ) | | — |
| | (1,854 | ) | | — |
|
Quarry dredge costs for specific event for reportable segment | | (2,175 | ) | | — |
| | (2,175 | ) | | — |
|
Interest expense, net | | (10,552 | ) | | (7,635 | ) | | (31,062 | ) | | (19,933 | ) |
Corporate loss on early extinguishment of debt | | (60 | ) | | — |
| | (60 | ) | | (12,003 | ) |
Corporate derivative income (loss) | | 13,119 |
| | 21,772 |
| | (791 | ) | | 6,430 |
|
Change in value of contingent consideration for reportable segments | | (719 | ) | | (714 | ) | | (2,047 | ) | | (2,325 | ) |
Corporate, other products and eliminations other income, net | | 90 |
| | 69 |
| | 291 |
| | 305 |
|
Income from continuing operations before income taxes | | 31,517 |
| | 50,699 |
| | 49,963 |
| | 39,287 |
|
Income tax expense | | (7,241 | ) | | (12,577 | ) | | (20,854 | ) | | (14,317 | ) |
Income from continuing operations | | $ | 24,276 |
| | $ | 38,122 |
| | $ | 29,109 |
| | $ | 24,970 |
|
|
|
|
|
| | | | |
Capital Expenditures: | | | | | | | | |
Ready-mixed concrete | | $ | 5,006 |
| | $ | 5,807 |
| | $ | 17,329 |
| | $ | 17,978 |
|
Aggregate products | | 10,092 |
| | 1,676 |
| | 15,769 |
| | 9,689 |
|
Other products and corporate | | 194 |
| | 625 |
| | 886 |
| | 3,374 |
|
Total capital expenditures | | $ | 15,292 |
| | $ | 8,108 |
| | $ | 33,984 |
| | $ | 31,041 |
|
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Capital Expenditures: | | | | | | | | |
Ready-mixed concrete(1) | | $ | 10.4 | | | $ | 4.3 | | | $ | 11.5 | | | $ | 8.7 | |
Aggregate products(2) | | 2.9 | | | 2.5 | | | 34.0 | | | 5.3 | |
Other products and corporate | | 0.3 | | | 0.1 | | | 0.5 | | | 0.2 | |
Total capital expenditures | | $ | 13.6 | | | $ | 6.9 | | | $ | 46.0 | | | $ | 14.2 | |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Revenue by Product: | | | | | | | | |
Ready-mixed concrete | | $ | 323,567 |
| | $ | 297,858 |
| | $ | 909,145 |
| | $ | 770,479 |
|
Aggregate products | | 10,972 |
| | 12,289 |
| | 32,305 |
| | 30,756 |
|
Aggregates distribution | | 8,423 |
| | 7,381 |
| | 21,376 |
| | 18,662 |
|
Building materials | | 7,263 |
| | 5,577 |
| | 18,007 |
| | 14,823 |
|
Lime | | 2,240 |
| | 3,479 |
| | 7,380 |
| | 7,828 |
|
Hauling | | 1,465 |
| | 1,320 |
| | 4,066 |
| | 4,301 |
|
Other | | 698 |
| | 684 |
| | 2,408 |
| | 2,534 |
|
Total revenue | | $ | 354,628 |
| | $ | 328,588 |
| | $ | 994,687 |
| | $ | 849,383 |
|
|
| | | | | | | | |
| | As of September 30, 2017 | | As of December 31, 2016 |
Identifiable Property, Plant And Equipment Assets: | | | | |
Ready-mixed concrete | | $ | 268,174 |
| | $ | 229,077 |
|
Aggregate products | | 146,259 |
| | 87,064 |
|
Other products and corporate | | 24,356 |
| | 21,271 |
|
Total identifiable assets | | $ | 438,789 |
| | $ | 337,412 |
|
| |
16. | SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION |
The Senior Unsecured Notes are fully and unconditionally and jointly and severally guaranteed on a senior unsecured basis by each direct and indirect domestic subsidiary(1) Includes $8.2 million for the acquisition of the Company, each a guarantor subsidiary. Each guarantor subsidiary is directly or indirectly 100% owned by the Company. The Senior Unsecured 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 informationrail terminal and bulk storage facility for cementitious materials 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.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2017
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | |
| | Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | U.S. Concrete Consolidated |
ASSETS |
Current assets: | | | | | | | | | | |
Cash and cash equivalents | | $ | — |
| | 247,873 |
| | $ | 390 |
| | $ | — |
| | $ | 248,263 |
|
Trade accounts receivable, net | | — |
| | 234,671 |
| | 305 |
| | — |
| | 234,976 |
|
Inventories | | — |
| | 42,084 |
| | 3,345 |
| | — |
| | 45,429 |
|
Other receivables | | 8,063 |
| | 5,946 |
| | 71 |
| | — |
| | 14,080 |
|
Prepaid expenses | | — |
| | 6,301 |
| | 27 |
| | — |
| | 6,328 |
|
Other current assets | | 11,397 |
| | 1,282 |
| | 16 |
| | (11,397 | ) | | 1,298 |
|
Total current assets | | 19,460 |
| | 538,157 |
| | 4,154 |
| | (11,397 | ) | | 550,374 |
|
Property, plant and equipment, net | | — |
| | 414,760 |
| | 24,029 |
| | — |
| | 438,789 |
|
Goodwill | | — |
| | 141,407 |
| | 5,753 |
| | — |
| | 147,160 |
|
Intangible assets, net | | — |
| | 118,676 |
| | 2,709 |
| | — |
| | 121,385 |
|
Deferred income taxes | | — |
| | — |
| | 558 |
| | (558 | ) | | — |
|
Investment in subsidiaries | | 417,747 |
| | — |
| | — |
| | (417,747 | ) | | — |
|
Intercompany receivables | | 463,096 |
| | — |
| | — |
| | (463,096 | ) | | — |
|
Other assets | | — |
| | 1,946 |
| | 47 |
| | — |
| | 1,993 |
|
Total assets | | $ | 900,303 |
| | $ | 1,214,946 |
| | $ | 37,250 |
| | $ | (892,798 | ) | | $ | 1,259,701 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
Current liabilities: | | | | | | | | | | |
Accounts payable | | $ | 116 |
| | $ | 122,260 |
| | $ | 750 |
| | $ | — |
| | $ | 123,126 |
|
Accrued liabilities | | 17,447 |
| | 82,624 |
| | 1,889 |
| | (11,397 | ) | | 90,563 |
|
Current maturities of long-term debt | | — |
| | 24,841 |
| | 97 |
| | — |
| | 24,938 |
|
Total current liabilities | | 17,563 |
| | 229,725 |
| | 2,736 |
| | (11,397 | ) | | 238,627 |
|
Long-term debt, net of current maturities | | 599,112 |
| | 64,064 |
| | 304 |
| | — |
| | 663,480 |
|
Other long-term obligations and deferred credits | | 1,835 |
| | 58,172 |
| | 826 |
| | — |
| | 60,833 |
|
Deferred income taxes | | — |
| | 15,528 |
| | — |
| | (558 | ) | | 14,970 |
|
Intercompany payables | | — |
| | 454,154 |
| | 8,942 |
| | (463,096 | ) | | — |
|
Total liabilities | | 618,510 |
| | 821,643 |
| | 12,808 |
| | (475,051 | ) | | 977,910 |
|
Total stockholders' equity | | 281,793 |
| | 393,303 |
| | 24,442 |
| | (417,747 | ) | | 281,791 |
|
Total liabilities and stockholders' equity | | $ | 900,303 |
| | $ | 1,214,946 |
| | $ | 37,250 |
| | $ | (892,798 | ) | | $ | 1,259,701 |
|
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2016
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | |
| | Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | U.S. Concrete Consolidated |
ASSETS |
Current assets: | | | | | | | | | | |
Cash and cash equivalents | | $ | — |
| | $ | 75,576 |
| | $ | 198 |
| | $ | — |
| | $ | 75,774 |
|
Trade accounts receivable, net | | — |
| | 206,426 |
| | 866 |
| | — |
| | 207,292 |
|
Inventories | | — |
| | 38,856 |
| | 3,123 |
| | — |
| | 41,979 |
|
Prepaid expenses | | — |
| | 5,516 |
| | 18 |
| | — |
| | 5,534 |
|
Other receivables | | 1,200 |
| | 7,491 |
| | — |
| | — |
| | 8,691 |
|
Other current assets | | 39,239 |
| | 2,004 |
| | 15 |
| | (39,239 | ) | | 2,019 |
|
Total current assets | | 40,439 |
| | 335,869 |
| | 4,220 |
| | (39,239 | ) | | 341,289 |
|
Property, plant and equipment, net | | — |
| | 314,332 |
| | 23,080 |
| | — |
| | 337,412 |
|
Goodwill | | — |
| | 127,518 |
| | 5,753 |
| | — |
| | 133,271 |
|
Intangible assets, net | | — |
| | 127,798 |
| | 3,175 |
| | — |
| | 130,973 |
|
Deferred income taxes | | — |
| | — |
| | 561 |
| | (561 | ) | | — |
|
Investment in subsidiaries | | 368,726 |
| | — |
| | — |
| | (368,726 | ) | | — |
|
Intercompany receivables | | 239,776 |
| | — |
| | — |
| | (239,776 | ) | | — |
|
Other assets | | — |
| | 2,410 |
| | 47 |
| | — |
| | 2,457 |
|
Total assets | | $ | 648,941 |
| | $ | 907,927 |
| | $ | 36,836 |
| | $ | (648,302 | ) | | $ | 945,402 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
Current liabilities: | | | | | | | | | | |
Accounts payable | | $ | 458 |
| | $ | 108,803 |
| | $ | 1,433 |
| | $ | — |
| | $ | 110,694 |
|
Accrued liabilities | | 5,365 |
| | 117,104 |
| | 2,013 |
| | (39,239 | ) | | 85,243 |
|
Current maturities of long-term debt | | — |
| | 16,654 |
| | — |
| | — |
| | 16,654 |
|
Derivative liabilities | | 57,415 |
| | — |
| | — |
| | — |
| | 57,415 |
|
Total current liabilities | | 63,238 |
| | 242,561 |
| | 3,446 |
| | (39,239 | ) | | 270,006 |
|
Long-term debt, net of current maturities | | 391,190 |
| | 41,454 |
| | — |
| | — |
| | 432,644 |
|
Other long-term obligations and deferred credits | | 5,684 |
| | 39,613 |
| | 970 |
| | — |
| | 46,267 |
|
Deferred income taxes | | — |
| | 8,217 |
| | — |
| | (561 | ) | | 7,656 |
|
Intercompany payables | | — |
| | 233,319 |
| | 6,457 |
| | (239,776 | ) | | — |
|
Total liabilities | | 460,112 |
| | 565,164 |
| | 10,873 |
| | (279,576 | ) | | 756,573 |
|
Total stockholders' equity | | 188,829 |
| | 342,763 |
| | 25,963 |
| | (368,726 | ) | | 188,829 |
|
Total liabilities and stockholders' equity | | $ | 648,941 |
| | $ | 907,927 |
| | $ | 36,836 |
| | $ | (648,302 | ) | | $ | 945,402 |
|
| | | | | | | | | | |
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2017
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | |
| | Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | U.S. Concrete Consolidated |
Revenue | | $ | — |
| | $ | 351,005 |
| | $ | 3,623 |
| | $ | — |
| | $ | 354,628 |
|
Cost of goods sold before depreciation, depletion and amortization | | — |
| | 275,581 |
| | 3,414 |
| | — |
| | 278,995 |
|
Selling, general and administrative expenses | | — |
| | 28,630 |
| | 1,426 |
| | — |
| | 30,056 |
|
Depreciation, depletion and amortization | | — |
| | 16,028 |
| | 565 |
| | — |
| | 16,593 |
|
Change in value of contingent consideration | | 389 |
| | 330 |
| | — |
| | — |
| | 719 |
|
Impairment of assets | | — |
| | — |
| | 648 |
| | — |
| | 648 |
|
Loss (gain) on disposal of assets | | — |
| | (106 | ) | | — |
| | — |
| | (106 | ) |
Operating income (loss) | | (389 | ) | | 30,542 |
| | (2,430 | ) | | — |
| | 27,723 |
|
Interest expense, net | | 9,977 |
| | 574 |
| | 1 |
| | — |
| | 10,552 |
|
Derivative loss (income) | | (13,119 | ) | | — |
| | — |
| | — |
| | (13,119 | ) |
Loss on extinguishment of debt | | 60 |
| | — |
| | — |
| | — |
| | 60 |
|
Other (income) expense, net | | — |
| | (654 | ) | | (633 | ) | | — |
| | (1,287 | ) |
Income (loss) from continuing operations before income taxes and equity in earnings of subsidiaries | | 2,693 |
| | 30,622 |
| | (1,798 | ) | | — |
| | 31,517 |
|
Income tax expense (benefit) | | (3,930 | ) | | 11,240 |
| | (69 | ) | | — |
| | 7,241 |
|
Income (loss) from continuing operations, net of taxes and before equity in earnings of subsidiaries | | 6,623 |
| | 19,382 |
| | (1,729 | ) | | — |
| | 24,276 |
|
Loss from discontinued operations, net of taxes and before equity in earnings of subsidiaries | | — |
| | (222 | ) | | — |
| | — |
| | (222 | ) |
Income (loss), net of taxes and before equity in earnings of subsidiaries | | 6,623 |
| | 19,160 |
| | (1,729 | ) | | — |
| | 24,054 |
|
Equity in earnings of subsidiaries | | 17,431 |
| | — |
| | — |
| | (17,431 | ) | | — |
|
Net income (loss) | | $ | 24,054 |
| | $ | 19,160 |
| | $ | (1,729 | ) | | $ | (17,431 | ) | | $ | 24,054 |
|
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2016
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | |
| | Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | U.S. Concrete Consolidated |
Revenue | | $ | — |
| | $ | 323,406 |
| | $ | 5,182 |
| | $ | — |
| | $ | 328,588 |
|
Cost of goods sold before depreciation, depletion and amortization | | — |
| | 249,185 |
| | 4,292 |
| | — |
| | 253,477 |
|
Selling, general and administrative expenses | | — |
| | 24,438 |
| | 666 |
| | — |
| | 25,104 |
|
Depreciation, depletion and amortization | | — |
| | 13,529 |
| | 610 |
| | — |
| | 14,139 |
|
Change in value of contingent consideration | | 131 |
| | 583 |
| | — |
| | — |
| | 714 |
|
Loss (gain) on disposal of assets | | — |
| | (1,003 | ) | | — |
| | — |
| | (1,003 | ) |
Operating income (loss) | | (131 | ) | | 36,674 |
| | (386 | ) | | — |
| | 36,157 |
|
Interest expense, net | | 7,105 |
| | 526 |
| | 4 |
| | — |
| | 7,635 |
|
Derivative loss (income) | | (21,772 | ) | | — |
| | — |
| | — |
| | (21,772 | ) |
Other (income) expense, net | | — |
| | (333 | ) | | (72 | ) | | — |
| | (405 | ) |
Income (loss) from continuing operations, net of taxes and before income taxes and equity in earnings of subsidiaries | | 14,536 |
| | 36,481 |
| | (318 | ) | | — |
| | 50,699 |
|
Income tax expense (benefit) | | (3,219 | ) | | 16,869 |
| | (1,073 | ) | | — |
| | 12,577 |
|
Income (loss) from continuing operations, net of taxes and before equity in earnings of subsidiaries | | 17,755 |
| | 19,612 |
| | 755 |
| | — |
| | 38,122 |
|
Loss from discontinued operations, net of taxes and before equity in earnings of subsidiaries | | — |
| | (166 | ) | | — |
| | — |
| | (166 | ) |
Income (loss), net of taxes and before equity in earnings of subsidiaries | | 17,755 |
| | 19,446 |
| | 755 |
| | — |
| | 37,956 |
|
Equity in earnings of subsidiaries | | 20,201 |
| | — |
| | — |
| | (20,201 | ) | | — |
|
Net income (loss) | | $ | 37,956 |
| | $ | 19,446 |
| | $ | 755 |
| | $ | (20,201 | ) | | $ | 37,956 |
|
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2017 (in thousands) |
| | | | | | | | | | | | | | | | | | | | |
| | Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | U.S. Concrete Consolidated |
Revenue | | $ | — |
| | $ | 980,496 |
| | $ | 14,191 |
| | $ | — |
| | $ | 994,687 |
|
Cost of goods sold before depreciation, depletion and amortization | | — |
| | 766,605 |
| | 11,723 |
| | — |
| | 778,328 |
|
Selling, general and administrative expenses | | — |
| | 83,285 |
| | 2,788 |
| | — |
| | 86,073 |
|
Depreciation, depletion and amortization | | — |
| | 46,957 |
| | 1,845 |
| | — |
| | 48,802 |
|
Change in value of contingent consideration | | 669 |
| | 1,378 |
| | — |
| | — |
| | 2,047 |
|
Impairment of assets | | — |
| | — |
| | 648 |
| | — |
| | 648 |
|
Loss (gain) on disposal or sale of assets | | — |
| | (498 | ) | | 2 |
| | — |
| | (496 | ) |
Operating income (loss) | | (669 | ) | | 82,769 |
| | (2,815 | ) | | — |
| | 79,285 |
|
Interest expense, net | | 29,665 |
| | 1,396 |
| | 1 |
| | — |
| | 31,062 |
|
Derivative loss (income) | | 791 |
| | — |
| | — |
| | — |
| | 791 |
|
Loss on extinguishment of debt | | 60 |
| | — |
| | — |
| |
| | 60 |
|
Other (income) expense, net | | — |
| | (2,027 | ) | | (564 | ) | | — |
| | (2,591 | ) |
Income (loss) from continuing operations, net of taxes and before income taxes and equity in earnings of subsidiaries | | (31,185 | ) | | 83,400 |
| | (2,252 | ) | | — |
| | 49,963 |
|
Income tax (benefit) expense | | (11,397 | ) | | 32,337 |
| | (86 | ) | | — |
| | 20,854 |
|
Income (loss) from continuing operations, net of taxes and before equity in earnings of subsidiaries | | (19,788 | ) | | 51,063 |
| | (2,166 | ) | | — |
| | 29,109 |
|
Loss from discontinued operations, net of taxes and before equity in earnings of subsidiaries | | — |
| | (524 | ) | | — |
| | — |
| | (524 | ) |
Income (loss), net of taxes and before equity in earnings of subsidiaries | | (19,788 | ) | | 50,539 |
| | (2,166 | ) | | — |
| | 28,585 |
|
Equity in earnings of subsidiaries | | 48,373 |
| | — |
| | — |
| | (48,373 | ) | | — |
|
Net income (loss) | | $ | 28,585 |
| | $ | 50,539 |
| | $ | (2,166 | ) | | $ | (48,373 | ) | | $ | 28,585 |
|
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2016 (in thousands) |
| | | | | | | | | | | | | | | | | | | | |
| | Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | U.S. Concrete Consolidated |
Revenue | | $ | — |
| | $ | 833,589 |
| | $ | 15,794 |
| | $ | — |
| | $ | 849,383 |
|
Cost of goods sold before depreciation, depletion and amortization | | — |
| | 660,889 |
| | 13,562 |
| | — |
| | 674,451 |
|
Selling, general and administrative expenses | | — |
| | 69,760 |
| | 1,687 |
| | — |
| | 71,447 |
|
Depreciation, depletion and amortization | | — |
| | 36,709 |
| | 2,086 |
| | — |
| | 38,795 |
|
Change in value of contingent consideration | | 315 |
| | 2,010 |
| | — |
| | — |
| | 2,325 |
|
Loss (gain) on disposal or sale of assets | | — |
| | (1,016 | ) | | — |
| | — |
| | (1,016 | ) |
Operating income (loss) | | (315 | ) | | 65,237 |
| | (1,541 | ) | | — |
| | 63,381 |
|
Interest expense, net | | 18,729 |
| | 1,192 |
| | 12 |
| | — |
| | 19,933 |
|
Derivative loss (income) | | (6,430 | ) | | — |
| | — |
| | — |
| | (6,430 | ) |
Loss on extinguishment of debt | | 12,003 |
| | — |
| | — |
| |
| | 12,003 |
|
Other (income) expense, net | | — |
| | (1,357 | ) | | (55 | ) | | — |
| | (1,412 | ) |
Income (loss) from continuing operations, net of taxes and before income taxes and equity in earnings of subsidiaries | | (24,617 | ) | | 65,402 |
| | (1,498 | ) | | — |
| | 39,287 |
|
Income tax expense (benefit) | | (12,447 | ) | | 28,449 |
| | (1,685 | ) | | — |
| | 14,317 |
|
Income (loss) from continuing operations, net of taxes and before equity in earnings of subsidiaries | | (12,170 | ) | | 36,953 |
| | 187 |
| | — |
| | 24,970 |
|
Loss from discontinued operations, net of taxes and before equity in earnings of subsidiaries | | — |
| | (518 | ) | | — |
| | — |
| | (518 | ) |
Income (loss), net of taxes and before equity in earnings of subsidiaries | | (12,170 | ) | | 36,435 |
| | 187 |
| | — |
| | 24,452 |
|
Equity in earnings of subsidiaries | | 36,622 |
| | — |
| | — |
| | (36,622 | ) | | — |
|
Net income (loss) | | $ | 24,452 |
| | $ | 36,435 |
| | $ | 187 |
| | $ | (36,622 | ) | | $ | 24,452 |
|
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2017
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | |
| | Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | U.S. Concrete Consolidated |
Net cash provided by operating activities | | $ | (905 | ) | | $ | 95,217 |
| | $ | 363 |
| | $ | (10,429 | ) | | $ | 84,246 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | |
Purchases of property, plant and equipment | | — |
| | (31,416 | ) | | (2,568 | ) | | — |
| | (33,984 | ) |
Payments for acquisitions, net of cash acquired | | 469 |
| | (57,265 | ) | | — |
| | — |
| | (56,796 | ) |
Proceeds from disposals of property, plant and equipment | | — |
| | 1,001 |
| | 2 |
| | — |
| | 1,003 |
|
Proceeds from disposals of businesses | | — |
| | 1,305 |
| | — |
| | — |
| | 1,305 |
|
Investment in subsidiaries | | (646 | ) | | — |
| | — |
| | 646 |
| | — |
|
Advance for note receivable | | (8,063 | ) | | — |
| | — |
| | — |
| | (8,063 | ) |
Net cash (used in) provided by investing activities | | (8,240 | ) | | (86,375 | ) | | (2,566 | ) | | 646 |
| | (96,535 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | |
Proceeds from issuance of debt | | 211,500 |
| | — |
| | — |
| | — |
| | 211,500 |
|
Proceeds from exercise of stock options and warrants | | 2,695 |
| | — |
| | — |
| | — |
| | 2,695 |
|
Payments of other long-term obligations | | (2,925 | ) | | (4,789 | ) | | (8 | ) | | — |
| | (7,722 | ) |
Payments for other financing | | — |
| | (14,317 | ) | | — |
| | — |
| | (14,317 | ) |
Debt issuance costs | | (4,332 | ) | | — |
| | — |
| | — |
| | (4,332 | ) |
Other treasury share purchases | | (3,046 | ) | | — |
| | — |
| | — |
| | (3,046 | ) |
Intercompany funding | | (194,747 | ) | | 182,561 |
| | 2,403 |
| | 9,783 |
| | — |
|
Net cash (used in) provided by financing activities | | 9,145 |
| | 163,455 |
| | 2,395 |
| | 9,783 |
| | 184,778 |
|
NET INCREASE IN CASH AND CASH EQUIVALENTS | | — |
| | 172,297 |
| | 192 |
| | — |
| | 172,489 |
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | | — |
| | 75,576 |
| | 198 |
| | — |
| | 75,774 |
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD | | $ | — |
| | $ | 247,873 |
| | $ | 390 |
| | $ | — |
| | $ | 248,263 |
|
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2016
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | |
| | Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | U.S. Concrete Consolidated |
Net cash (used in) provided by operating activities | | $ | (4,117 | ) | | $ | 94,789 |
| | $ | 1,618 |
| | $ | — |
| | $ | 92,290 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | |
Purchases of property, plant and equipment | | — |
| | (28,780 | ) | | (2,261 | ) | | — |
| | (31,041 | ) |
Payments for acquisitions, net of cash acquired | | — |
| | (124,481 | ) | | — |
| | — |
| | (124,481 | ) |
Proceeds from disposals of property, plant and equipment | | — |
| | 1,920 |
| | — |
| | — |
| | 1,920 |
|
Proceeds from disposals of businesses | | — |
| | 375 |
| | — |
| | — |
| | 375 |
|
Investment in subsidiaries | | (300 | ) | | — |
| | — |
| | 300 |
| | — |
|
Net cash used in investing activities | | (300 | ) | | (150,966 | ) | | (2,261 | ) | | 300 |
| | (153,227 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | |
Proceeds from revolver borrowings | | 128,904 |
| | — |
| | — |
| | — |
| | 128,904 |
|
Repayments of revolver borrowings | | (173,904 | ) | | — |
| | — |
| | — |
| | (173,904 | ) |
Proceeds from issuance of debt | | 400,000 |
| | — |
| | — |
| | — |
| | 400,000 |
|
Repayments of debt | | (200,000 | ) | | — |
| | — |
| | — |
| | (200,000 | ) |
Premium paid on early retirement of debt | | (8,500 | ) | | — |
| | — |
| | — |
| | (8,500 | ) |
Proceeds from exercise of stock options and warrants | | 166 |
| | — |
| | — |
| | — |
| | 166 |
|
Payments of other long-term obligations | | (657 | ) | | (3,486 | ) | | — |
| | — |
| | (4,143 | ) |
Payments for other financing | | — |
| | (8,880 | ) | | — |
| | — |
| | (8,880 | ) |
Debt issuance costs | | (7,786 | ) | | — |
| | — |
| | — |
| | (7,786 | ) |
Other treasury share purchases | | (2,825 | ) | | — |
| | — |
| | — |
| | (2,825 | ) |
Intercompany funding | | (130,981 | ) | | 130,113 |
| | 1,168 |
| | (300 | ) | | — |
|
Net cash provided by financing activities | | 4,417 |
| | 117,747 |
| | 1,168 |
| | (300 | ) | | 123,032 |
|
NET INCREASE IN CASH AND CASH EQUIVALENTS | | — |
| | 61,570 |
| | 525 |
| | — |
| | 62,095 |
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | | — |
| | 3,854 |
| | 71 |
| | — |
| | 3,925 |
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD | | $ | — |
| | $ | 65,424 |
| | $ | 596 |
| | $ | — |
| | $ | 66,020 |
|
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On September 29, 2017, we entered into an arrangement agreement (the "Arrangement Agreement") with Polaris Materials Corporation ("Polaris"), a Canadian corporation, to purchase all of the issued and outstanding common shares of Polaris at a purchase price of C$3.40 per share (references to "C$" are for Canadian dollars) by way of a statutory plan of arrangement (the "Arrangement"). The price per share implies an aggregate fully diluted equity value for Polaris of approximately C$309 million. Upon completion of the Arrangement, Polaris will be an indirect wholly owned subsidiary of the Company. The transaction is expected to close in the fourth quarter of 2017, subject to approval by Polaris' securityholders at a special meeting of the securityholders, approval by the Supreme Court of British Columbia, and other customary closing conditions. We expect to finance the transaction with a combination of cash on hand and borrowings under our Revolving Facility (see Note 8).
In connection with the Arrangement, Polaris terminated the previously announced arrangement agreement among Polaris, Vulcan Materials Company and its wholly owned subsidiary dated August 25, 2017, (the "Vulcan Agreement"). In connection with terminating the Vulcan Agreement, we received a C$10 million promissory note ($8.1 million as of September 30, 2017) from Polaris ("Polaris Note") in exchange for cash Polaris used to pay the Vulcan Agreement termination fee. The Polaris Note bears interest at a rate of 6.75% per annum, is payable on demand in Canadian dollars, and is recorded in other receivables in our condensed consolidated balance sheets.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| |
18. | HURRICANES IRMA AND MARIA |
On September 6, 2017, Hurricane Irma made landfall on the U.S. Virgin Island of Saint Thomas. On September 19, 2017, Hurricane Maria made landfall on Saint Croix. These storms resulted in extensive damage, flooding, and power outages throughout theislands, and power had not been fully restored as of the date of this filing. We are currently in the process of assessing the full extent of the damages to our operations; due to the ongoing conditions on the islands, we are unable at this time to quantify the impact to our consolidated financial statements. There is uncertainty as to the magnitude of the losses associated with these storms, including the potential, if any, for insurance recoveries. To date, we have identified approximately $0.6 million of impaired tangible assets, which has been recorded in the condensed consolidated statement of operationsStockton, California for the three and ninesix months ended SeptemberJune 30, 2017. The damages may result in2021.
(2) Includes $28.7 million for the additional impairment of certain tangible and/or intangible assets. As of September 30, 2017, the assets in our U.S. Virgin Islands operations totaled $37.3 million, which included $3.3 million of inventory, $0.8 million of cash and other current assets, $8.5 million of goodwill and other intangible assets, and $24.0 million of property, plant, and equipment (of which $11.8 million is mineral reserves).
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 meaningacquisition 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,” “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 indebtednessproperty and the restrictions imposedunderlying royalty agreement associated with the Orca Quarry on us by the terms of our indebtedness;
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 Annual Report on Form 10-KVancouver Island, British Columbia, Canada for the yearsix months ended December 31, 2016.June 30, 2021.
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. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Revenue by Product: | | | | | | | | |
Ready-mixed concrete | | $ | 274.3 | | | $ | 272.4 | | | $ | 515.8 | | | $ | 564.6 | |
Aggregate products | | 36.4 | | | 38.2 | | | 68.4 | | | 69.3 | |
Other(1) | | 16.7 | | | 12.1 | | | 28.9 | | | 23.2 | |
Total revenue | | $ | 327.4 | | | $ | 322.7 | | | $ | 613.1 | | | $ | 657.1 | |
(1) Includes building materials, aggregates distribution, hauling and other.
| | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
Identifiable Property, Plant and Equipment Assets: | | | | |
Ready-mixed concrete | | $ | 289.5 | | | $ | 286.9 | |
Aggregate products | | 495.6 | | | 478.1 | |
Other products and corporate | | 21.7 | | | 23.2 | |
Total identifiable assets | | $ | 806.8 | | | $ | 788.2 | |
|
| |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
For a discussion of our commitments not discussed below and our critical accounting policies, see “Management’sItem 2. Management's Discussion and Analysis of Financial Condition and Results of Operations”Operations
The following discussion should be read in Item 7 of Part II ofconjunction with the accompanying quarterly unaudited condensed consolidated financial statements as well as our Annual Report on Form 10-K for the year ended December 31, 2016 (the “2016 Form2020 (“2020 10-K”).
Our Business
U.S. Concrete, Inc. is2020 10-K includes additional information about our significant and critical accounting policies, as well as a Delaware corporation, which was foundeddetailed discussion of the most significant risks associated with our financial condition and incorporated in 1997. We began operations in 1999, which isoperating results. Unless noted otherwise, the year we completed our initial public offering. In this report, wediscussions that follow refer to U.S. Concrete,the three months ended June 30, 2021 as “the quarter” and the six months ended June 30, 2021 as “the first six months” and compare the results to the three months and six months ended June 30, 2020, respectively.
Pending Acquisition by Vulcan Materials Company
On June 6, 2021, Vulcan Materials Company (“Vulcan”), Grizzly Merger Sub I, Inc., a wholly owned subsidiary of Vulcan (“Grizzly Merger Sub”) and its subsidiariesthe Company entered into an Agreement and Plan of Merger (the “Merger Agreement”). The Merger Agreement provides that, subject to the terms and conditions set forth therein, Grizzly Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger and becoming a wholly owned subsidiary of Vulcan. Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of USCR Stock (other than such shares (i) owned by the Company, Vulcan or Grizzly Merger Sub or owned by any wholly owned subsidiary of Vulcan (other than Grizzly Merger Sub) or of the Company or (ii) exercising dissenters rights in accordance with Section 262 of the General Corporation Law of the State of Delaware) will be converted into the right to receive $74.00 in cash, without interest. The transaction has been unanimously approved by the boards of directors of both companies and is expected to close in the second half of 2021, subject to the receipt of required regulatory approvals, approval by our stockholders, and other customary closing conditions. If the Merger is consummated, USCR Stock will be delisted from Nasdaq and deregistered under the Securities Exchange Act of 1934, as “we,” “us,” “our,” “U.S. Concrete”amended.
The Merger Agreement provides each of the Company and Vulcan with certain termination rights and, under certain circumstances, may require the Company or the “Company”, unless we specifically state otherwise, or the content indicates otherwise. Vulcan to pay a $50.0 million termination fee.
General
We are a leading producerheavy building materials supplier of aggregates and ready-mixed concrete in select geographic markets in the United States, and the U.S. Virgin Islands. We operateIslands and Canada. The geographic markets for our products are generally local, except for our Canadian aggregate products operation, Polaris Materials Corp. (“Polaris”), which 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. In addition, our business is impacted by seasonal variations in weather conditions, which vary by regional market. 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 primaryreportable segments: (1) ready-mixed concrete and (2) aggregate products. Discontinued operations primarily represent the remaining lease activity for our precast operations, which were sold in prior years.
Ready-Mixed Concrete.Ready-mixed concrete. Our ready-mixed concrete segment (which represented 91.4%84.1% of our revenue for the ninesix months ended SeptemberJune 30, 2017)2021) engages principally in the formulation, preparation and productiondelivery of ready-mixed concrete en route to our customers’ job sites. We provide our ready-mixed concrete from our operations in Texas, Northern California, New York City, New Jersey, Washington, D.C., Northern California,Philadelphia, 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.products. Our aggregate products segment (which represented 3.2%11.2% of our revenue for the ninesix months ended SeptemberJune 30, 2017,2021, excluding $29.2$29.3 million of intersegment sales) produces crushed stone, sand and gravel from 17our aggregates facilities located in British Columbia, Canada; Texas; Oklahoma; New Jersey, Texas, Oklahoma,Jersey; New York; and the U.S. Virgin Islands. We sell these aggregates for use in commercial, industrial, and public works projects, in the markets they serve, as well as consume them internally in the production of ready-mixed concrete. We produced approximately 4.46.3 million tons of aggregates during the ninesix months ended SeptemberJune 30, 2017,2021, with Texas and Canada representing 35%, Texas/Oklahoma representing 50%37%, New JerseyJersey/New York representing 45%26%, and the U.S. Virgin Islands representing 5%2% of the total production. We consumed 55% ofbelieve our aggregate production internally and sold 45% to third-party customers during the nine months ended September 30, 2017. Our aggregate reserves provide us with additional raw materials sourcing flexibility and supply availability.
OverviewCoronavirus Impact
We typically serve customersThe coronavirus (“COVID-19”) pandemic began to impact our operations in March 2020 when residents throughout the general proximityU.S. began varying periods under “stay-at-home” or “shelter-in-place” orders and has continued to impact numerous aspects of our plants,business since then. We continue to follow the enhanced safety and health protocols established in 2020, while following evolving state and local guidelines, and we have maintained our focus on cost containment efforts to help minimize the resulting impact to our operating results. In addition, we continue to monitor the impact of the pandemic on our customers and our operating resultspipeline. The long-term impact to our business remains unknown because we are subjectunable to accurately predict the impact of COVID-19 due to various uncertainties, including the severity of the virus, the duration of the outbreak, the impact of variants of the virus, the availability and efficacy of vaccines, the speed at which such vaccines are administered, the likelihood of a resurgence of positive cases, actions that may be taken by governmental authorities intended to minimize the spread of the pandemic or to stimulate the economy and other unintended consequences. Accordingly, business disruption related to the COVID-19 outbreak may continue to cause significant fluctuations in the level and mix of construction activity that occur in our local markets. The level of construction 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.
Our customers are generally involved in the construction industry, which is a cyclical business, and is subject to general and more localized economic conditions. Our business is impacted by seasonal changes in weather conditions, precipitation and other weather-related conditions, such as freezing temperatures, snowstorms, droughts, flooding or hurricanes, which vary by regional market. Accordingly, because of inclement weather,impact demand for our products and services during the winter months is typically lower than in other monthsour workforce availability and magnify risks associated with our business and operations.
Acquisitions and Business Combinations
On February 24, 2020, we acquired all of the year. Also, sustained periodsequity of inclement weatherCoram Materials Corp. and other adverse weather conditions could cause the delaycertain of construction projects during other times of the year.
Consolidatedits affiliates, a sand and gravel products provider located on Long Island in New York. On November 7, 2020, we acquired a ready-mixed concrete average selling prices increased 3.0%business in our West Region.
On March 12, 2021, we acquired property and the underlying royalty agreement associated with the Orca Quarry on Vancouver Island, British Columbia, Canada for $28.7 million (the “Orca Acquisition”). We made this investment to eliminate future royalty payments, which had previously been recognized in cost of goods sold excluding depreciation, depletion and amortization in our condensed consolidated statements of operations.
On April 20, 2021, we purchased a rail terminal and bulk storage facility for cementitious materials in Stockton, California for $8.2 million that is currently leased to and operated by a third party (the “Stockton Acquisition”). We made this investment to increase the three months ended September 30, 2017, as comparedcontrol and stability over our raw material supply chain to the three months ended September 30, 2016, resulting in the 26th consecutive fiscal quarter of increased average selling prices year-over-year. For the nine months ended September 30, 2017,support our West Region ready-mixed concrete sales volume increased 13.3% to 6.7 million cubic yards as compared to the nine months ended September 30, 2016. Ready-mixed concrete sales prices and volume in the nine months ended 2017 as compared to the same period in 2016 were up overall primarily due to increased construction activity and ready-mixed concrete segment acquisitions completed last year.business.
On September 6, 2017, Hurricane Irma made landfall on the U.S. Virgin Island of Saint Thomas. On September 19 2017, Hurricane Maria made landfall on Saint Croix. These storms resulted in extensive damage, flooding, and power outages throughout the islands, and power had not been fully restored as of the date of this filing. We are currently in the process of assessing the full extent of the damages to our operations; due to the ongoing conditions on the islands we are unable at this time to quantify the impact to our consolidated financial statements. There is uncertainty as to the magnitude of the losses associated with these storms, including the potential, if any, for insurance recoveries. To date, we have identified approximately $0.6 million of impaired tangible assets, which is included in our results for the three and nine months ended September 30, 2017. The damages may result in the additional impairment of certain tangible and/or intangible assets. As of September 30, 2017, the assets in our U.S. Virgin Islands operations totaled $37.3 million, which included $3.3 million of inventory, $0.8 million of cash and other current assets, $8.5 million of goodwill and other intangible assets, and $24.0 million of property, plant, and equipment (of which $11.8 million is mineral reserves). In 2016, our U.S. Virgin Islands operations accounted for about 2% of the Company's total revenue.
Results of Operations
The following table sets forth selected historical statementdiscussions that follow reflect results for the three and six months ended June 30, 2021 (“quarter” and “first six months of operations information for each of2021”, respectively) compared to the periods indicated.three and six months ended June 30, 2020, respectively, unless otherwise noted.
|
| | | | | | | | | | | | | | | | | | | | | |
| (amounts in thousands, except selling prices and percentages) |
| Three Months Ended September 30, | | Increase/ (Decrease) | | Nine Months Ended September 30, | | Increase/ (Decrease) |
| 2017 | | 2016 | | %(1) | | 2017 | | 2016 | | %(1) |
| (unaudited) | | | | (unaudited) | | |
Revenue | $ | 354,628 |
| | $ | 328,588 |
| | 7.9% | | $ | 994,687 |
| | $ | 849,383 |
| | 17.1% |
Cost of goods sold before depreciation, depletion and amortization | 278,995 |
| | 253,477 |
| | 10.1 | | 778,328 |
| | 674,451 |
| | 15.4 |
Selling, general and administrative expenses | 30,056 |
| | 25,104 |
| | 19.7 | | 86,073 |
| | 71,447 |
| | 20.5 |
Depreciation, depletion and amortization | 16,593 |
| | 14,139 |
| | 17.4 | | 48,802 |
| | 38,795 |
| | 25.8 |
Change in value of contingent consideration | 719 |
| | 714 |
| | 0.7 | | 2,047 |
| | 2,325 |
| | (12.0) |
Impairment of assets | 648 |
| | — |
| | NM | | 648 |
| | — |
| | NM |
Loss (gain) on disposal of assets, net | (106 | ) | | (1,003 | ) | | (89.4) | | (496 | ) | | (1,016 | ) | | (51.2) |
Operating income | 27,723 |
| | 36,157 |
| | (23.3) | | 79,285 |
| | 63,381 |
| | 25.1 |
Interest expense, net | 10,552 |
| | 7,635 |
| | 38.2 | | 31,062 |
| | 19,933 |
| | 55.8 |
Derivative loss (income) | (13,119 | ) | | (21,772 | ) | | (39.7) | | 791 |
| | (6,430 | ) | | NM |
Loss on extinguishment of debt | 60 |
| | — |
| | NM | | 60 |
| | 12,003 |
| | 99.5 |
Other income, net | (1,287 | ) | | (405 | ) | | 217.8 | | (2,591 | ) | | (1,412 | ) | | 83.5 |
Income from continuing operations before income taxes | 31,517 |
| | 50,699 |
| | (37.8) | | 49,963 |
| | 39,287 |
| | 27.2 |
Income tax expense | 7,241 |
| | 12,577 |
| | (42.4) | | 20,854 |
| | 14,317 |
| | 45.7 |
Income from continuing operations | 24,276 |
| | 38,122 |
| | (36.3) | | 29,109 |
| | 24,970 |
| | 16.6 |
Loss from discontinued operations, net of taxes | (222 | ) | | (166 | ) | | 33.7 | | (524 | ) | | (518 | ) | | 1.2 |
Net income | $ | 24,054 |
| | $ | 37,956 |
| | (36.6%) | | $ | 28,585 |
| | $ | 24,452 |
| | 16.9% |
| | | |
| | | | | | | | |
Ready-mixed Concrete Data: | | |
|
| | | | | | | | |
Average selling price per cubic yard | $ | 136.62 |
| | $ | 132.70 |
| | 3.0 | % | | $ | 135.16 |
| | $ | 129.64 |
| | 4.3 | % |
Sales volume in cubic yards | 2,366 |
| | 2,240 |
| | 5.6 | % | | 6,719 |
| | 5,929 |
| | 13.3 | % |
| | | | | | | | | | | |
Aggregates Data: | | | | | | | | | | | |
Average selling price per ton | $ | 12.25 |
| | $ | 11.93 |
| | 2.7 | % | | $ | 12.56 |
| | $ | 11.78 |
| | 6.6 | % |
Sales volume in tons | 1,502 |
| | 1,595 |
| | (5.8 | )% | | 4,277 |
| | 4,205 |
| | 1.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | % | | Six Months Ended June 30, | | % |
($ in millions except selling prices) | 2021 | | 2020 | | Change(1) | | 2021 | | 2020 | | Change(1) |
Revenue | $ | 327.4 | | | $ | 322.7 | | | 1.5% | | $ | 613.1 | | | $ | 657.1 | | | (6.7)% |
Cost of goods sold excluding depreciation, depletion and amortization | 259.4 | | | 250.1 | | | 3.7 | | 492.5 | | | 524.0 | | | (6.0) |
Selling, general and administrative expenses | 48.3 | | | 31.7 | | | 52.4 | | 77.6 | | | 65.4 | | | 18.7 |
Depreciation, depletion and amortization | 25.7 | | | 25.2 | | | 2.0 | | 50.1 | | | 48.6 | | | 3.1 |
Change in value of contingent consideration | — | | | (5.8) | | | 100.0 | | (0.1) | | | (5.5) | | | 98.2 |
Gain on sale/disposal of assets and business, net | (0.1) | | | (0.1) | | | — | | (1.6) | | | (0.1) | | | (1,500.0) |
Operating income (loss) | (5.9) | | | 21.6 | | | (127.3) | | (5.4) | | | 24.7 | | | (121.9) |
Interest expense, net | 10.3 | | | 11.4 | | | (9.6) | | 20.7 | | | 22.8 | | | (9.2) |
Loss on extinguishment of debt | 5.5 | | | — | | | NM | | 5.5 | | | — | | | NM |
Other income, net | (0.5) | | | (0.6) | | | (16.7) | | (0.9) | | | (1.2) | | | 25.0 |
Income (loss) before income taxes | (21.2) | | | 10.8 | | | (296.3) | | (30.7) | | | 3.1 | | | (1,090.3) |
Income tax expense (benefit) | (0.7) | | | 4.3 | | | (116.3) | | (5.4) | | | (0.6) | | | (800.0) |
Net income (loss) | (20.5) | | | 6.5 | | | (415.4) | | (25.3) | | | 3.7 | | | (783.8) |
Amounts attributable to non-controlling interest | (0.2) | | | (0.1) | | | (100.0) | | (0.2) | | | 0.2 | | | (200.0) |
Net income (loss) attributable to U.S. Concrete | $ | (20.3) | | | $ | 6.6 | | | (407.6)% | | $ | (25.1) | | | $ | 3.5 | | | (817.1)% |
| | | | | | | | | | | |
Ready-Mixed Concrete Data: | | | | | | | | | | | |
Average selling price (“ASP”) per cubic yard | $ | 138.18 | | | $ | 137.18 | | | 0.7% | | $ | 139.72 | | | $ | 140.77 | | | (0.7)% |
Sales volume in thousand cubic yards | 1,968 | | | 1,982 | | | (0.7)% | | 3,672 | | | 4,003 | | | (8.3)% |
| | | | | | | | | | | |
Aggregate Products Data: | | | | | | | | | | | |
ASP per ton(2) | $ | 13.50 | | | $ | 12.83 | | | 5.2% | | $ | 13.42 | | | $ | 12.56 | | | 6.8% |
Sales volume in thousand tons | 3,034 | | | 3,188 | | | (4.8)% | | 5,620 | | | 5,820 | | | (3.4)% |
(1) "NM"“NM” is defined as "Not Meaningful".“not meaningful.”
(2) Our calculation of ASP excludes freight and certain other ancillary revenue and may differ from other companies in the construction materials industry.
Revenue. Revenue for the three months ended September 30, 2017, grew 7.9%quarter increased 1.5%, or $26.0$4.7 million, resulting from an increase in sales of ready-mixed concrete and other products that was partially offset by lower revenue from aggregate products. Our results were impacted by regional differences in weather and levels of construction activity, lingering effects of COVID-19 pandemic-related delays in construction jobs, and demand for our products. Our East Region realized an increase in sales volume for the quarter, in both ready-mixed concrete and aggregate products. Our Central Region was impacted by inclement weather and cement supply allocations, with a decline in ready-mixed concrete volumes, but a slight increase in sales of aggregate products. Our West Region experienced declines in sales volumes of both ready-mixed concrete and aggregate products, with expectations for construction activity to $354.6 million from $328.6 millionincrease in the comparable 2016second half of 2021. Our overall ready-mixed concrete ASP increased 0.7% during the quarter primarily due to recent acquisitionsproduct and organic growth. We estimate that acquisitions completed since January 1, 2016, accountedgeographic mix. While sales volume of aggregate products for $39.9 million ofthe quarter declined 4.8%, higher ASP helped mitigate the impact on revenue for the three months ended September 30, 2017. Except foraggregate products segment. Higher sales volumes of aggregate products in our East Region in the North Texas market,quarter were more than offset by sales declines in other markets, particularly our West Region, which was impacted by unusually wet weather during the three months ended September 30, 2017, the major metropolitan markets in which we operate reported higher total revenue as a result of timing and mix of projects. We estimate that inclement weather in Texas during the quarter resulted in a deferral of sales volume of approximately 200,000 cubic yards of ready-mixed concrete and 90,000 tons of aggregates. Hurricanes Irma and Maria, which hit our U.S. Virgin Islands ("USVI") operations in September 2017, also had a negative impact on our total revenue as our USVI operations have been essentially shut down following the storms. Ready-mixed concrete sales, including revenuelower demand from recent acquisitions, contributed 98.7%, or $25.7 million, of our revenue growth, driven by a 5.6% increase in volume and a 3.0% increase in our average selling price. Aggregate products sales in the third quarter of 2017 declined $1.1 million, or 5.3%, to $21.0 million from $22.1 million in the 2016 third quarter, resulting from a 5.8% decrease in volume and were partially offset by a 2.7% increase in average selling price. Other products revenue and eliminations, which includes building materials stores, hauling operations, lime slurry, brokered product sales, a recycled aggregates operation, an aggregate distribution operation, an industrial waterfront marine terminal and sales yard, and eliminations of our intersegment sales, increased $1.5 million, or 17.4%, in the 2017 third quarter to $10.1 million from $8.6 million in the 2016 third quarter.construction activity.
Revenue for the ninefirst six months ended September 30, 2017, grew 17.1%, or $145.3 million,of 2021 decreased 6.7%. Impacted by both the regional effects of inclement weather and the lingering effect of COVID-19 pandemic-related delays on construction jobs, ready-mixed concrete volumes were down in all regions. In addition, our average ready-mixed concrete ASP was lower due to $994.7 million from $849.4 millionproduct and geographic mix. Power disruptions associated with Winter Storm Uri forced us to suspend operations in Texas temporarily in February 2021. Higher rain levels in Texas also negatively impacted construction activity in the comparable ninefirst six months ended September 30, 2016, primarilyof 2021. Increases in our aggregate products segment ASP helped to mitigate the decline in sales volume of aggregates; however, pass through freight was lower in the first six months of 2021 due to recent acquisitions and organic growth. We estimate that acquisitions completed since January 1, 2016, accounted for $122.0 million of revenue for the nine months ended September 30, 2017. All of our major markets experienced higher total revenue for the nine months ended September 30, 2017, compared to the prior year period. Ready-mixed concretelower sales including revenue from recent acquisitions, contributed 95.4%, or $138.7 million of our revenue growth, driven by a 13.3% increase in volume and a 4.3% increase in our average selling price. Aggregate products sales grew $5.2 million, or 9.1%, to $61.5 million from $56.4 million, resulting primarily from a 6.6% increase in average selling price and a 1.7% increase in volume. Other products revenue and eliminations, as described above, increased $1.5 million, or 6.6%, to $24.0 million for the nine months of 2017 as compared to $22.5 million in the same period in 2016.
Cost of goods sold beforeexcluding depreciation, depletion and amortization ("(“DD&A"&A”). Cost of goods sold beforeexcluding DD&A increased by $25.5 million, or 10.1%, to $279.0 million infor the third quarter, of 2017 from $253.5 million inwith the comparable 2016 quarter. Our costs increased primarily due to volume growthmajority resulting from acquisitions in our ready-mixed concrete segment, resulting in higher materialvariable costs (particularly plant costs and delivery costs, and plant variable costs, which includes primarily labor and benefits, utilities, and repairs and maintenance. Costs also increased due to quarry dredge costs for a specific event. During the third quarter of 2017, 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 toinclude higher personnel and equipment costs needed to operate our facilities,fuel costs) as well as higher overall fixed costs to operate more locations and trucks than in the previous year. As a percentage of revenue, cost of goods sold before DD&A increased by 1.6% in the third quarter of 2017 compared to the third quarter of 2016. costs.
Cost of goods sold beforeexcluding DD&A includes the impact of costs in our USVI operationsdecreased for the month of September 2017 with minimal corresponding revenues due to Hurricanes Irma and Maria.
For the first ninesix months of 2017, cost2021, but as a percentage of goods sold before DD&A increased by $103.8 million, or 15.4%, to $778.3 million from $674.5 millionsales were not fully leveraged with the decline in the first nine months of 2016. Similar to the third quarter, our costs increased primarily due to volume growth resulting from acquisitions in our ready-mixed concrete segment. During the first nine months of 2017, our fixed costs increased over the comparable prior year period primarilyrevenue due to higher plant costs, to operate our facilities, as well as additional locationsparticularly repair and trucks than in the previous year. Cost of goods sold before DD&A also includes the impact ofmaintenance costs, in our USVI operations for the month of September 2017 with minimal corresponding revenues due to Hurricanes Irma and Maria, and increased due to quarry dredge costs for a specific event. As a percentage of revenue, cost of goods sold before DD&A decreased by 1.2% in the first nine months of 2017 compared to the first nine months of 2016.fuel costs.
Selling, general and administrative expenses. Selling, general and administrative ("SG&A") expenses increased $5.0$16.6 million, or 19.7%52.4%, to $30.1 million for the quarter, ended September 30, 2017, from $25.1primarily due to a $12.2 million increase in stock-compensation expense and an increase in professional fees associated with the corresponding 2016 quarter.Merger, partially offset by lower personnel expenses. The increase in stock-based compensation expense was primarily attributabledue to certain incremental reserves on specific receivables, higher self-insurance costs, and personnel and other general administrative costs incurredthe increase in our stock price from the time the 2021 annual equity award was approved by our corporateBoard of Directors as of March 1, 2021 to when our stockholders approved the equity plan amendment to add shares to the equity plan (and the award was deemed granted for accounting purposes) at our annual stockholders' meeting on May 13, 2021, including certain performance thresholds being met, and regional offices to support our growth initiatives and acquisition infrastructure. As a percentage of revenue, SG&A expenses increased to 8.5% in the 2017 third quarter from 7.6% in the 2016 third quarter.award level.
For the first nine months of 2017, SG&A expenses increased $14.7 million, or 20.5%, to $86.1 million from $71.4 million in the first nine months of 2016. The increase was primarily attributable to certain incremental reserves on specific receivables, higher self-insurance costs, and personnel expenses and otherSelling, general and administrative expenses by our corporate and regional
offices to support our growth initiatives and acquisition infrastructure. As a percentage of revenue, SG&A expenses increased to 8.7%were higher in the first ninesix months of 20172021 due primarily to an $11.4 million increase in stock-based compensation expense and $4.4 million of incremental professional expenses, partially offset by lower expenses resulting from 8.4% in the first nine months of 2016.our cost saving initiatives.
Depreciation, depletion and amortization. DD&A expense increased $2.5 million, or 17.4%, to $16.6 million for the quarter ended September 30, 2017, from $14.1 million in the corresponding quarter of 2016, primarily related to depreciation on additional plants, equipment and mixer trucks purchased to service increased demand or acquired through recent acquisitions as well as incremental intangible amortization expense of $0.9 million related to our acquisitions.
For the first nine months of 2017, DD&A expense increased $10.0 million, or 25.8%, to $48.8 million from $38.8 million in the first nine months of 2016, primarily related to depreciation on additional plants, equipment and mixer trucks purchased to service increased demand or acquired through recent acquisitions as well as incremental intangible amortization expense of $4.3 million related to our acquisitions.
Change in value of contingent consideration.For both of the three month periods ended September 30, 2017 and 2016, we recorded a The non-cash lossgain on the change in valuerevaluation of contingent consideration recorded during the second quarter and first six months of 2020 resulted from changes in management's expectations in 2020 EBITDA.
Gain on sale/disposal of assets and business, net. The first six months of 2021 included gains from sales of a non-core piece of real estate in Texas and certain ready-mixed concrete plants in Oklahoma.
Income taxes. We recorded an income tax benefit of $0.7 million. For the nine months ended September 30, 2017, we recorded a non-cash loss on the change in value of contingent consideration of $2.0 million compared to a non-cash loss of $2.3and $5.4 million for the samethree and six months ended June 30, 2021, respectively, using the discrete method. The discrete method treats the year-to-date period in 2016. These non-cash losses are relatedas if it was the annual period and determines the income tax expense or benefit on that basis. We have historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full year to fair value“ordinary” income or loss for the reporting period. However, for the three and six-month periods ended June 30, 2021, we determined that since minor changes in contingent consideration associated with certain of our acquisitions. The key inputs in determining the fair value of our contingent consideration of $52.6 million at September 30, 2017, included discount rates ranging from 5.00% to 15.75% and management's estimates of future sales volumes and EBITDA. Changes in these inputs impact the valuation of our contingent consideration andestimated “ordinary” income would result in gain or loss each quarterly period. The non-cash loss from fair valuesignificant changes in contingent consideration for the first nine monthsestimated annual effective tax rate, our historical method would not provide a reliable estimate of 2017 wasincome tax benefit. Our effective tax rate utilizing the discrete method differed substantially from the statutory tax rate primarily due to (1) significant Section 162(m) limitations on executive compensation and (2) our estimated interest expense limitation in accordance with the passage of time. The non-cash lossTax Cuts and Jobs Act for which a full valuation allowance is anticipated. These differences reduced the income tax benefit recorded for the first ninethree and six months of 2016ended June 30, 2021, which was due to the passage of time as well as changes in the probability-weighted assumptions related to the achievement of sales volumes.
Operating income. Operating income decreased to $27.7 million in the third quarter of 2017 from $36.2 million in the corresponding quarter of 2016, a decrease of $8.5 million. As a percentage of revenue, operating margins decreased to 7.8% for the quarter ended September 30, 2017, from 11.0% during the same quarter of 2016, reflecting the impact of hurricane losses, quarry dredge costs for a specific event, the negative impact of weather-related delays in some of our major markets that generally produce higher gross margin projects, and a shift in the geographic and project mix of our sales.
For the first nine months of 2017, operating income increased to $79.3 million from $63.4 million in the first nine months of 2016, an increase of $15.9 million. As a percentage of revenue, operating margins increased to 8.0% for the first nine months of 2017, from 7.5% during the first nine months of 2016, primarily reflecting a shift in the geographic and project mix of our sales partially offset by the impactexcess tax benefits recognized for stock-based compensation.
We recorded an income tax expense of hurricane losses, the negative impact$4.3 million and an income tax benefit of weather-related delays in some of our major markets that generally produce higher gross margin projects, and quarry dredge costs for a specific event.
Interest expense, net. Net interest expense increased by $3.0 million to $10.6$0.6 million for the quarter ended September 30, 2017, from $7.6 million for the comparable 2016 quarter primarily due to the January 2017 issuance of $200 million of long-term debt. For the first nine months of 2017, net interest expense increased by $11.2 million to $31.1 million from $19.9 million for the first nine months of 2016 due primarily to higher debt levels, partially offset by a lower interest rate compared to the notes that were outstanding through June 7, 2016.
Derivative loss (income). For the quarter ended September 30, 2017, we recorded non-cash derivative income of $13.1 million compared to $21.8 million derivative income for the corresponding 2016 quarter related to fair value changes in our warrants that were issued on August 31, 2010 (the "Warrants")three and expired on August 31, 2017. Each quarter the Warrants were outstanding, we determined the fair value of our derivative liabilities, and the changes resulted in either income or loss. During the quarter ended September 30, 2017, all remaining unexercised warrants expired, which contributed to the derivative income for the quarter. The key inputs in determining the fair value of our derivative liabilities included our stock price, stock price volatility, and risk free interest rates. Non-cash income and losses from fair value changes in the Warrants were primarily due to the decreases and increases, respectively, in the price of our common stock.
For the first ninesix months ended SeptemberJune 30, 2017 and 2016, we recorded a non-cash derivative loss of $0.8 million and a non-cash derivative income of $6.4 million, respectively, related to fair value changes in our Warrants, which for 2017 included their expiration on August 31, 2017. These impacts were primarily due to fluctuations in the price of our common stock as described above.
Income taxes. For the three months ended September 30, 2017 and 2016, we recorded income tax expense allocated to continuing operations of $7.2 million and $12.6 million,2020, respectively. For the first ninesix months ended SeptemberJune 30, 2017 and 2016, we recorded income tax expense allocated to continuing operations of $20.9 million and $14.3 million, respectively.
For the first nine months ended September 30, 2017,2020, our effective tax rate differed substantially from the federal statutory rate primarily due to cumulative adjustments to deferred income taxes, which resulted in additional income tax expense. In addition, the January 1, 2017 adoption of new accounting rulesbenefits recognized related to employee stock-based compensation required the current periodCoronavirus Aid, Relief and Economic Security Act (“CARES Act”) enacted on March 27, 2020. The CARES Act, among other things, modified the business interest deduction limitation for tax years beginning in 2019 and 2020 from 30% of adjusted taxable income (“ATI”) to 50% of ATI. As a result, we recorded an additional tax benefit related to stock compensation to be reflectedof $3.2 million in the income statement instead of additional paid-in-capitalsix months ended June 30, 2020 to reflect the CARES Act change to our estimated interest limitation for the year ended December 31, 2019. This tax benefit was partially offset by a net tax shortfall for stock-based compensation.
Other receivables, net, on the balance sheet, as previously required. For additional information regarding our adoption of these accounting rules, see the information set forth in Note 2, “Recent Accounting Pronouncements,” to our condensed consolidated financial statementsbalance sheets included in Part I of this report.
For the first nine months ended September 30, 2016, our effective tax rate differed from the federal statutory tax rate primarily due to the application of a valuation allowance that reduced the recognized benefit of our deferred tax assets. In addition, certainand state income taxes are calculated on a basis different from pre-tax income (loss).
In addition, for both the nine months ended September 30, 2017 and 2016, our effective tax rate differed from the federal statutory rate due to the tax impactreceivables of our Warrants, for which we recorded a non-cash derivative loss of $0.8 million for the nine months ended September 30, 2017, and a non-cash derivative income of $6.4 million for the nine months ended September 30, 2016. These changes were excluded from the calculation of our income tax provision, and the amount was treated as an unrecognized tax position.
We recorded a tax benefit of $0.1 million for discontinued operations in both the three months ended September 30, 2017 and 2016. We recorded a tax benefit of $0.3 million for discontinued operations in both the nine months ended September 30, 2017 and 2016. All taxes were allocated between continuing operations and discontinued operations for the nine months ended September 30, 2017 and 2016.
For the three and nine months ended September 30, 2017, we reduced to zero our unrecognized tax benefits and deferred tax asset balances associated with derivative income or losses related to our Warrants. The amount of the reduction for both was $43.6 million; as such, the aggregate reductions did not have an impact to either total income tax expense or our effective tax rate. These reductions followed a decision to no longer pursue a future tax return deduction associated with our cumulative derivative losses related to our Warrants, given our inability, after multiple attempts, to obtain the necessary documentation to support the deduction and complete the related informational reporting requirements.
In accordance with U.S. GAAP, the recognized value of deferred tax assets must be reduced 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 the generation of 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 established a valuation allowance as of September 30, 2017, and December 31, 2016, for other deferred tax assets because of uncertainty regarding their ultimate realization. Our total net deferred tax liability was approximately $15.0 million and $7.7$18.7 million as of SeptemberJune 30, 2017,2021 and $5.8 million as of December 31, 2016, respectively.2020.
Segment informationOperating Results
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, (loss) from continuing operations excluding the impact of income tax expense (benefit), net interest expense,taxes, depreciation, depletion and amortization, derivative loss (income), thenet 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, hurricane-related losses, quarry dredgeacquisition-related costs, officer transition expenses, purchase accounting adjustments for inventory and realignment initiative costs. Acquisition-related costs consist of fees and expenses for accountants, lawyers and other professionals incurred during the negotiation and closing of strategic acquisitions. 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 specific event,key financial measure used by our management to (1) internally measure our operating performance and loss on extinguishment of debt.(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,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 various agreements, includingdebt.
See the Third Loan Agreement and the Indenture.
See prior discussion of revenue within this Item 2 as well as Note 15, "Segment Information,"10, “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 (loss) from continuing operations before income taxes.net income.
Ready-mixedReady-Mixed Concrete
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended June 30, | | Increase/ (Decrease) | | Six Months Ended June 30, | | Increase/ (Decrease) |
($ in millions except selling prices) | | | | | | | 2021 | | 2020 | | % | | 2021 | | 2020 | | % |
Ready-Mixed Concrete Segment: | | | | | | | | | | | | | | | | | |
Revenue | | | | | | | $ | 274.3 | | | $ | 272.4 | | | 0.7% | | $ | 515.8 | | | $ | 564.6 | | | (8.6)% |
Segment revenue as a percentage of total revenue | | | | | | | 83.8 | % | | 84.4 | % | | | | 84.1 | % | | 85.9 | % | | |
Adjusted EBITDA | | | | | | | $ | 30.9 | | | $ | 38.1 | | | (18.9)% | | $ | 55.8 | | | $ | 69.8 | | | (20.1)% |
Adjusted EBITDA as a percentage of segment revenue | | | | | | | 11.3 | % | | 14.0 | % | | | | 10.8 | % | | 12.4 | % | | |
| | | | | | | | | | | | | | | | | |
Ready-Mixed Concrete Data: | | | | | | | | | | | | | | | | | |
ASP per cubic yard(1) | | | | | | | $ | 138.18 | | | $ | 137.18 | | | 0.7% | | $ | 139.72 | | | $ | 140.77 | | | (0.7)% |
Sales volume in thousand cubic yards | | | | | | | 1,968 | | | 1,982 | | | (0.7)% | | 3,672 | | | 4,003 | | | (8.3)% |
The following table sets forth key financial information for our ready-mixed concrete segment for(1) Calculation excludes certain ancillary revenue that is reported within the periods indicated:segment.
|
| | | | | | | | | | | | | | | | | | | | |
| | (amounts in thousands, except selling prices and percentages) |
| | Three Months Ended September 30, | | Increase/ (Decrease) | | Nine Months Ended September 30, | | Increase/ (Decrease) |
| | 2017 | | 2016 | | % | | 2017 | | 2016 | | % |
| | | | | | | | | | | | |
Ready-mixed Concrete Segment: | | | | | | | | | | | | |
Revenue | | $ | 323,567 |
| | $ | 297,858 |
| | 8.6% | | $ | 909,145 |
| | $ | 770,479 |
| | 18.0% |
Segment revenue as a percentage of total revenue | | 91.2 | % | | 90.6 | % | | | | 91.4 | % | | 90.7 | % | | |
| | | | | | | | | | | | |
Adjusted EBITDA | | $ | 53,627 |
| | $ | 51,394 |
| | 4.3% | | $ | 144,777 |
| | $ | 111,809 |
| | 29.5% |
Adjusted EBITDA as a percentage of segment revenue | | 16.6 | % | | 17.3 | % | | | | 15.9 | % | | 14.5 | % | | |
| | | | | | | | | | | | |
Ready-mixed Concrete Data: | | | | | | | | | | | | |
Average selling price per cubic yard | | $ | 136.62 |
| | $ | 132.70 |
| | 3.0% | | $ | 135.16 |
| | $ | 129.64 |
| | 4.3% |
Sales volume in thousands of cubic yards | | 2,366 |
| | 2,240 |
| | 5.6% | | 6,719 |
| | 5,929 |
| | 13.3% |
Revenue. Our ready-mixed concrete sales provided 91.2% and 90.6% of our totalAdjusted EBITDA. Despite slightly higher revenue in the third quarter, of 2017increases in plant costs and 2016, respectively. Segment revenue for the third quarter of 2017 increased $25.7 million, or 8.6%, from the comparable 2016 period. We estimate that acquisitions completed since January 1, 2016, contributed $39.9 million of revenue to our third quarter of 2017 ready-mixed concrete segment revenue as compared to an estimate of $31.8 million of revenue related to our third quarter of 2016 results.
The third quarter of 2017 revenue increase was driven by a 5.6% increase in sales volume, or 0.1 million cubic yards, providing $16.7 million, or approximately 65.0%, of our ready-mixed concrete revenue growth and a 3.0% increase in average selling price providing $9.0 million, or approximately 35.0%, of our ready-mixed concrete revenue growth. Average selling price increased in the major metropolitan markets in which we operate except Northern California, which was essentially flat in the third quarter of 2017 as compared to the third quarter of 2016. However, our sales volume increase is primarily due to the Northern California market, which increased 0.1 million cubic yards. or 25.3% as compared to the third quarter of 2016. Except North Texas, which was negatively impacted by unusually wet weather in the third quarter of 2017, total revenue was higher in all the major metropolitan markets in which we operate in the third quarter of 2017 as compared to the third quarter 2016. We estimate that inclement weather in Texasdelivery costs, including fuel costs, resulted in a deferralyear-over-year contraction of sales volume of approximately 200,000 cubic yards of ready-mixed concrete in the third quarter of 2017. Hurricanes Irma and Maria that hit our USVI operations in September 2017 also had a negative impact on our ready-mixed concrete revenue as our USVI operations have been essentially shut down following the storms.
For the nine months ended September 30, 2017 and 2016, our ready-mixed concrete sales provided 91.4% and 90.7% of our total revenue, respectively. Segment revenuesegment Adjusted EBITDA. While overall costs for the first ninesix months of 2017 increased $138.7 million, or 18.0%, from the first nine months of 2016. We estimate that acquisitions completed since January 1, 2016, contributed $122.0 million of revenue to our first nine months of 2017 ready-mixed concrete segment revenue as compared to an estimate of $34.9 million of revenue related to our 2016 results.
Our ready-mixed concrete revenue increase for the first nine months of 2017, was driven by a 13.3% increase in sales volume, or 0.8 million cubic yards, providing $102.4 million, or approximately 73.9%, of our ready-mixed concrete revenue growth and a 4.3% increase in average selling price providing $36.3 million, or approximately 26.1%, of our ready-mixed concrete revenue growth. Average selling price increased in all the major metropolitan markets in which we operate except Northern California, which was essentially flat for the first nine months of 2017 as compared to2021 were lower than the same time period in 2016. Our sales volume and ready-mixed concrete revenue were higher in all of the major metropolitan markets in which we operate compared to the priorlast year, despite significant weather-related challenges during the summer in certain of our major metropolitan markets.
Adjusted EBITDA. Adjusted EBITDA for our ready-mixed concrete segment grew to $53.6 million in the third quarter of 2017 from $51.4 million in the third quarter of 2016, an increase of $2.2 million, or 4.3%. Driving this growth was a 5.6% increase in sales volume and a 3.0% increase in our average selling price, which resulted in $25.7 million in higher revenue, despite significant weather-related delays during the 2017 quarter. Partially offsetting the growth in revenue was increased cost of goods sold associated with the higher volume of sales. Our variable costs, which include primarily material costs, labor and benefits costs, utilities,plant and delivery costs were all higher due primarily toas a percent of sales did not decrease at the increased volume and recent acquisitions. During the third quarter of 2017, we also experienced raw materials price increases from our vendors, which increased our cost of goods sold. However, we were generally able to pass these price increases along to our customers. Our fixed costs, which consist primarily of equipment rental, plant management, property taxes, quality control, and dispatch costs, increasedsame rate as revenue, resulting in the 2017 third quarter compared to the prior year third 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 trucks than in the previous year. Segmentlower Adjusted EBITDA as a percentagepercent of segment revenue was 16.6% in the third quarter of 2017 versus 17.3% in 2016, reflecting the geographic and project mix of our revenue and cost.year over year.
For the nine months ended September 30, 2017, Adjusted EBITDA for our ready-mixed concrete segment grew to $144.8 million from $111.8 million in the first nine months of 2016, an increase of $33.0 million, or 29.5%. Driving this growth was 13.3% increase in sales volume and a 4.3% increase in our average selling price, which resulted in $138.7 million in higher revenue, despite significant weather-related delays during 2017. Partially offsetting the higher revenue was increased cost of goods sold associated with the higher volume of sales. Our variable costs were all higher due primarily to the increased volume and recent acquisitions. During the first nine months of 2017, higher prices to purchase raw materials from our vendors increased our cost of goods sold. However, we were generally able to pass these price increases along to our customers. Our fixed costs increased in 2017 compared to the prior year, due to higher personnel and equipment costs needed to operate our facilities, as well as higher overall fixed costs to operate more locations and trucks than in the previous year. Segment Adjusted EBITDA as a percentage of segment revenue was 15.9% in the first nine months of 2017 versus 14.5% the first nine months of 2016, reflecting the geographic and project mix of our revenue and cost.
Aggregate Products
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended June 30, | | Increase/ (Decrease) | | Six Months Ended June 30, | | Increase/ (Decrease) |
($ in millions except selling prices) | | | | | | | 2021 | | 2020 | | % | | 2021 | | 2020 | | % |
Aggregate Products Segment: | | | | | | | | | | | | | | | | | |
Sales to external customers | | | | | | | $ | 25.2 | | | $ | 26.1 | | | | | $ | 47.8 | | | $ | 47.2 | | | |
Freight revenue on sales to external customers | | | | | | | 11.2 | | | 12.1 | | | | | $ | 20.6 | | | $ | 22.1 | | | |
Intersegment sales(1) | | | | | | | 16.8 | | | 16.3 | | | | | $ | 29.3 | | | $ | 28.8 | | | |
Total aggregate products revenue | | | | | | | $ | 53.2 | | | $ | 54.5 | | | (2.4)% | | $ | 97.7 | | | $ | 98.1 | | | (0.4)% |
Segment revenue, excluding intersegment sales, as a percentage of total revenue | | | | | | | 11.1 | % | | 11.8 | % | | | | 11.2 | % | | 10.5 | % | | |
Adjusted EBITDA | | | | | | | $ | 20.1 | | | $ | 21.6 | | | (6.9)% | | $ | 32.6 | | | $ | 32.9 | | | (0.9)% |
Adjusted EBITDA as a percentage of total aggregate products revenue | | | | | | | 37.8 | % | | 39.6 | % | | | | 33.4 | % | | 33.5 | % | | |
| | | | | | | | | | | | | | | | | |
Aggregate Products Data: | | | | | | | | | | | | | | | | | |
ASP per ton(2) | | | | | | | $ | 13.50 | | | $ | 12.83 | | | 5.2% | | $ | 13.42 | | | $ | 12.56 | | | 6.8% |
Sales volume in thousand tons | | | | | | | 3,034 | | | 3,188 | | | (4.8)% | | 5,620 | | | 5,820 | | | (3.4)% |
The following table sets forth key financial information for our(1) We sell aggregate products segment for the periods indicated:
|
| | | | | | | | | | | | | | | | | | | | |
| | (amounts in thousands, except selling prices and percentages) |
| | Three Months Ended September 30, | | Increase/ (Decrease) | | Nine Months Ended September 30, | | Increase/ (Decrease) |
| | 2017 | | 2016 | | % | | 2017 | | 2016 | | % |
| | | | | | | | | | | | |
Aggregate Products Segment: | | | | | | | | | | | | |
Revenue | | $ | 20,959 |
| | $ | 22,128 |
| | (5.3)% | | $ | 61,549 |
| | $ | 56,397 |
| | 9.1% |
Segment revenue, excluding intersegment sales, as a percentage of total revenue | | 3.1 | % | | 3.7 | % | | | | 3.2 | % | | 3.6 | % | | |
| | | | | | | | | | | | |
Adjusted EBITDA | | $ | 6,218 |
| | $ | 7,005 |
| | (11.2)% | | $ | 18,889 |
| | $ | 15,080 |
| | 25.3% |
Adjusted EBITDA as a percentage of segment revenue | | 29.7 | % | | 31.7 | % | | | | 30.7 | % | | 26.7 | % | | |
| | | | | | | | | | | | |
Aggregates Data: | | |
| | |
| | | | |
| | |
| | |
Average selling price per ton | | $ | 12.25 |
| | $ | 11.93 |
| | 2.7% | | $ | 12.56 |
| | $ | 11.78 |
| | 6.6% |
Sales volume in tons | | 1,502 |
| | 1,595 |
| | (5.8)% | | 4,277 |
| | 4,205 |
| | 1.7% |
Revenue.Sales for our aggregate products segment provided 3.1% and 3.7% of our total revenue for the third quarter of 2017 and 2016, respectively, excluding intersegment sales of $10.0 million and $9.8 million, respectively. Segment revenue declined $1.2 million, or 5.3%, compared to prior year levels primarily due to the hurricanes that hit our USVI operations in September 2017 and resulted in a nearly complete shutdown of those operations following the storms, as well as the impact of abnormally wet weather in our North Texas operations. We estimate that inclement weather in Texas during the quarter resulted in a deferral of sales volume of approximately 90,000 tons of aggregates.
We sell our aggregates to external customers and also sell them internally to our ready-mixed concrete segment at market price. Approximately 47.7%
(2) Our calculation excludes freight and certain other ancillary revenue. Our definition and calculation of our third quarter 2017 aggregate products sales were to our ready-mixed concrete segment, versus 44.5%ASP may differ from other companies in the third quarter of 2016. Our average selling price increased 2.7% in the third quarter of 2017 as compared to the third quarter of 2016.construction materials industry.
Adjusted EBITDA.For the first nine months of 2017, sales for our aggregate products segment provided 3.2% and 3.6% of our total revenue for 2017 and 2016, respectively, excluding intersegment sales of $29.2 million and $25.6 million, respectively. Segment revenue grew $5.2 million, or 9.1%, compared to prior year levels, primarily due to the increase in average selling price and higher sales volume. Of our first nine months of 2017 aggregate product segment sales, 47.5% were to our ready-mixed concrete segment, versus 45.5% in the first nine months of 2016.
Adjusted EBITDA.AdjustedEBITDA for our aggregate products segment decreased by $0.8 million to $6.2 million in the third quarter, of 2017 from $7.0 million in the third quarter of 2016, primarily as a result of lower production volumes, including the impact of weather-related days during the third quarter of 2017. Overall, our segment Adjusted EBITDA as a percentagepercent of segment revenue decreaseddeclined 180 basis points, while revenue declined 2.4%. The impact of lower revenue on Adjusted EBITDA was mitigated by the build-up of inventory to 29.7% in the third quarter of 2017 from 31.7% in the third quarter of 2016, primarily due to the decrease in revenue that did not leverage our fixed costs. Our quarry fixed costs primarily include equipment rental, property taxes, and plant management costs.
provide product for future construction activity. For the first ninesix months of 2017, our aggregate products segment Adjusted EBITDA increased by $3.8 million to $18.9 million from $15.1 million in the first nine months of 2016, primarily as a result of higher revenue, partially offset by the related higher cost of goods sold. Our variable costs increased primarily due to higher production. Our variable costs include quarry labor and benefits, utilities, repairs and maintenance, delivery, fuel, and pit costs to prepare the stone and gravel for use. Our quarry fixed costs, primarily include equipment rental, property taxes, and plant management costs. Overall, our segment2021, Adjusted EBITDA as a percentagepercent of segment revenue increased to 30.7%declined 10 basis points while revenue declined 40 basis points. An increase in average ASP for the first ninesix months of 20172021 mitigated the impact on revenue from 26.7%lower sales volumes, and delivery costs were lower, as fewer ships were needed in our West Region to meet the first nine months of 2016, primarily due to higher revenue.lower customer demand.
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"). During the first quarterwhich provides for borrowings of 2017,up to $300.0 million, subject to a borrowing base. As of June 30, 2021, we increased our liquidity by issuing $200.0 million aggregate principal amount of 6.375% senior unsecured notes due in 2024. During the third quarter of 2017, we entered into the Third Amended and Restated Loan and Security Agreement (the "Third Loan Agreement"), which among other things, increased the revolving commitments from $250.0 million to $350.0 million and extended the maturity date to August 31, 2022.
We ended the quarter with $248.3had $20.9 million of cash and cash equivalents an increaseand $214.7 million of $172.5 million from December 31, 2016. At September 30, 2017, based on ouravailable borrowing base, we had a maximum of $245.8 million availablecapacity under the Revolving Facility (as defined below), providing a total available liquidity of $494.1$235.6 million. The increase in our unused availability under the Revolving Facility to $245.8 million at September 30, 2017, from $221.3 million at December 31, 2016, was primarily due to increases in eligible accounts receivable and eligible trucks and machinery balances. We had no outstanding borrowings under the Revolving Facility as of September 30, 2017.
The following key financial metricsmeasurements reflect certain aspects of our financial position and capital resources as of September 30, 2017, and December 31, 2016 (dollars in thousands):condition:
| | | | | | | | | | | |
($ in millions) | June 30, 2021 | | December 31, 2020 |
Cash and cash equivalents | $ | 20.9 | | | $ | 11.1 | |
Working capital | $ | 100.4 | | | $ | 56.3 | |
Total debt | $ | 789.1 | |
| $ | 702.4 | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Cash and cash equivalents | $ | 248,263 |
| | $ | 75,774 |
|
Working capital | $ | 311,747 |
| | $ | 71,283 |
|
| | | |
Total debt (1) | $ | 688,418 |
| | $ | 449,298 |
|
Total stockholders' equity | 281,791 |
| | 188,829 |
|
Total capital | $ | 970,209 |
| | $ | 638,127 |
|
| | | |
Maximum availability under our Revolving Facility | $ | 245,800 |
| | $ | 221,300 |
|
(1) Total debt includes long-term debt and unamortized premiums on long-term debt net of unamortized debt issuance costs, current maturities of long-term debt, capital leases, notes payable, and any outstanding borrowings under the Revolving Facility.
Our primary liquidity needs over the next 12 months consist of (1) financing seasonal working capital requirements; (2) servicing our indebtedness;debt service obligations; (3) purchasing property and equipment;capital expenditures; and (4) payments related to strategic acquisitions.activity. Our primary portfolio strategy includes strategic acquisitions in targetedvarious 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 Third Loan AgreementRevolving 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 winter 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. We anticipate that our federal and state income tax payments will increase in 2017 as compared to prior years as we substantially exhausted our remaining operating loss carryforwards during 2016. 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. To help mitigate the impact of the COVID-19 pandemic on our cash needs, we initiated business contingency planning and will continue to adjust those plans as needed. 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;operate or due to COVID-19 operating restrictions;
•declines in gross margins due to shifts in our product mix, or increases in fixed or variable costs or the costimpact of our raw materials and fuel;COVID-19;
•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;customers, including from COVID-19;
•any further COVID-19 impacts to our business; and
•inclement weather beyond normal patterns that could reduce our sales volumes.
Cash Flows
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
($ in millions) | | 2021 | | 2020 |
Net cash provided by (used in): | | | | |
Operating activities | | $ | 4.4 | | | $ | 84.1 | |
Investing activities | | (43.2) | | | (154.1) | |
Financing activities | | 48.7 | | | 46.9 | |
Effect of exchange rates on cash and cash equivalents | | (0.1) | | | — | |
Net increase (decrease) in cash and cash equivalents | | $ | 9.8 | | | $ | (23.1) | |
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, including non-controlling interest. Overall, the decline in cash generated from operations was driven primarily by the timing impacts of certain vendor payments, inclement weather and COVID-19 on our operations, and higher payments of incentive compensation.
In addition to purchases of machinery, equipment, mixer trucks and vehicles to service our business in both periods, investing activities in the six months ended June 30, 2021 included the $28.7 million Orca Acquisition and the $8.2 million Stockton Acquisition. Investing activities in the six months ended June 30, 2020 included $140.2 million for the acquisition of a sand and gravel products producer on Long Island in New York.
For the year ending December 31, 2021, we continue to expect to invest (excluding acquisitions such as the Stockton Acquisition and the Orca Acquisition) between $40 million and $50 million in capital expenditures, including expenditures financed through finance leases. Certain capital expenditures may be subject to approvals as provided for in the Merger Agreement. We continue to monitor the COVID-19 pandemic and related economic repercussions for consideration of our capital expenditure levels. Through August 5, 2021, we have invested $36.9 million in current year acquisitions.
Financing activities during the six months ended June 30, 2021 included $296.2 million of net proceeds from our Term Loans issuance, redemption of $200.0 million of our 2024 Notes including a $3.2 million redemption premium (see discussion below), $3.0 million of net repayments under our Revolving Facility (as defined below) to operate our business and fund acquisitions and investments in property, plant and equipment. During the six months ended June 30, 2021, we made payments of $17.6 million primarily related to our finance leases and promissory notes and paid $8.2 million for contingent and deferred consideration obligations. Financing activities during the first six months of 2020 included $56.5 million of net borrowings under our Revolving Facility and $14.5 million of financing proceeds primarily for our Texas greenfield aggregates operation. In addition, during the first six months of 2020, we made payments of $10.8 million primarily related to our finance leases and promissory notes and paid $9.9 million for contingent and deferred consideration obligations. Cash provided by financing activities in the first six months of 2020 benefited from the deferral of $8.4 million of promissory note and finance lease payments that were deferred to mitigate the cash flow impact from the COVID-19 pandemic.
The discussion that follows provides a description of our arrangements relating to our outstanding indebtedness.
Senior SecuredAsset Based Revolving Credit Facility (“Revolving Facility”)
On August 31, 2017, we entered into the Third Loan AgreementWe have a Revolving Facility with certain financial institutions named therein as lenders (the “Lenders”) and Bank of America, N.A., as agent for the Lenders, which amended and restated a Second Loan Agreement. The Third Loan Agreement matures August 31, 2022 andlenders that provides for up to $350.0$300.0 million of financing.revolving borrowings. The Third Loan AgreementRevolving Facility also permits the incurrence of other secured indebtedness not to exceed certain amountsamounts. 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 the London Interbank Offered Rate (“LIBOR”) loans denominated in U.S. dollars.
On June 25, 2021, we and certain of our subsidiaries, as defined.co-borrowers and as guarantors, entered into the Fourth Amended and Restated Loan Security Agreement (the “Fourth Loan Agreement”), which amended and restated the Third Amended and Restated Loan and Security Agreement, dated as of August 31, 2017 (the “Third Loan Agreement”). Among other things, the Fourth Loan Agreement extended the maturity date to June 25, 2026 and amended certain terms of the Third Loan Agreement, including, without limitation, permitting the incurrence of the loans under the Term Loan Agreement (as defined below). In connection with entering into the Fourth Loan Agreement, we incurred $1.5 million of debt issuance costs.
The obligations under the Fourth Loan Agreement are secured by first priority security interests in accounts receivable, inventory and certain other personal property of the Company and its subsidiaries (the “ABL Collateral”) and second priority liens on and security interests in certain real property of the Company's subsidiaries and certain personal property of the Company and its subsidiary guarantors that is not ABL Collateral (the “Term Loan Collateral”).
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, all as specified in the ThirdFourth Loan Agreement. The Third Loan Agreement provides for swingline loans up to a $15.0 million sublimit, and letters of credit up to a $50.0 million sublimit. LoansOur availability under the Revolving Facility are in the form of either base rate loans or “LIBOR loans” denominated in U.S. dollars.at June 30, 2021 was $214.7 million.
The ThirdFourth Loan Agreement contains usual and customary negative covenants including, but not limited to, restrictions on our, our co-borrower subsidiaries', and our guarantor subsidiaries' 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 negative covenants are subject to certain exceptions as specified in the ThirdFourth Loan Agreement. The ThirdFourth 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 determined in accordance with the Third Loan Agreement.months. As of SeptemberJune 30, 2017,2021, we were in compliance with all covenants under the ThirdFourth Loan Agreement.
Term Loans
On June 25, 2021, we entered into a secured term loan agreement (the “Term Loan Agreement”) with certain subsidiaries, as guarantors, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and the lenders and other named parties. The Term Loan Agreement provides for $300.0 million in aggregate principal amount of term loans (the “Term Loans”), which will mature on June 25, 2028. In connection with entering into the Term Loan Agreement, we incurred $4.6 million of debt issuance costs. Proceeds of the Term Loans will be used for general corporate purposes, including repayment of certain borrowings under the Fourth Loan Agreement and redemption of the Company's 6.375% senior unsecured notes due 2024 (the “2024 Notes”), as further discussed below.
The Term Loans bear interest at the Company's option of either: (1) the LIBOR (subject to a floor of 0.50%) plus a margin of 2.75% or (2) a base rate (which is equal to the greatest of prime rate, the Federal Reserve Bank of New York effective rate plus 0.50% and LIBOR plus 1.00%, and is subject to a floor of 1.50%) plus a margin of 1.75%. Additionally, the Term Loans were issued at a price of 99.75%. The Term Loans are secured by a first priority lien on and security interest in the Term Loan Collateral and a second priority security interest in the ABL Collateral. The Term Loan Agreement contains customary representations, warranties, covenants and events of default, but does not contain any financial maintenance covenants.
Termination of Delayed Draw Term Loan Facility
On June 25, 2021, in connection with entering into the Term Loan Agreement, we terminated the Credit and Guaranty Agreement, dated as of April 1, 2020, among the Company, certain subsidiaries as guarantors, Bank of America, N.A., as administrative agent and collateral agent, the lenders and other parties named therein (the “Delayed Draw Term Loan Agreement”). There were no outstanding borrowings under the Delayed Draw Term Loan at the time of termination. The Delayed Draw Term Loan was secured by a first priority lien on and security interest in the Term Loan Collateral. During the three months ended June 30, 2021, we incurred a $2.3 million pre-tax loss on the Delayed Draw Term Loan termination due to write-off of unamortized debt issuance costs.
Redemption of 2024 Notes
On June 26, 2021, we redeemed all of the $200.0 million outstanding 2024 Notes, at a price of 101.594% of the principal amount plus accrued, unpaid interest. During the three months ended June 30, 2021, we incurred a $3.1 million pre-tax loss on this redemption, which included the redemption premium of $3.2 million and a $1.4 million write-off of unamortized debt issuance costs, net of $1.5 million of unamortized issuance premium.
Senior Unsecured Notes due 2024
OnAt June 7, 2016,30, 2021, we completed an offering ofhad outstanding $400.0 million aggregate principal amount of 6.375%5.125% senior unsecured senior notes due 2024 ("2024 Notes"2029 (“2029 Notes”). We used a portion
The 2029 Notes are governed by the Indenture dated as of September 23, 2020, among U.S. Concrete, Inc. (the “Issuer”), the proceeds from the 2024 Notes to repay all of our outstanding borrowings on the Revolving Facilitysubsidiary guarantors party thereto and to redeem all $200.0 million of our 8.5% senior secured notes due 2018. On January 9, 2017, we completed an offering of $200.0 million aggregate principal amount of additional 2024 NotesU.S. Bank National Association, as trustee (the "Additional Notes," and together with the 2024 Notes, the "Senior Unsecured Notes"“2029 Indenture”) at an issue price of 105.75%. The terms of the Additional Notes are identical2029 Indenture contains customary covenants, including negative covenants that restrict our ability and our restricted subsidiaries ability to the terms of the existing 2024 Notes, other than the issue date, the issue price, the first interest payment date, and the provisions relating to transfer restrictions and registration rights. We used the net proceeds from the offering of the Additional Notes to increase our liquidity.
engage in certain transactions. The Senior Unsecured2029 Notes accrue interest at a rate of 6.375%5.125% per annum, and interestwhich is duepayable on JuneMarch 1 and DecemberSeptember 1 of each year. The Senior Unsecured2029 Notes mature on JuneMarch 1, 20242029 and are redeemable at our option prior to maturity at prices specified in 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. 2029 Indenture.
The Indenture contains negative covenants that restrict our ability and our restricted subsidiaries' ability to engage in certain transactions and also contains customary events of default. The Senior Unsecured2029 Notes are issued by U.S. Concrete, Inc., the parent company, and are guaranteed on a full and unconditional senior unsecured basis by each of ourthe Issuer's restricted subsidiaries (each, a “Guarantor Subsidiary,” and collectively, the “Guarantor Subsidiaries”) that guaranteesguarantee any obligations under the Revolving Facility or that guaranteesand certain of ourthe Issuer's other indebtedness or certain indebtedness of ourthe Issuer's restricted subsidiaries (other than a foreign restricted subsidiariessubsidiary or domestic subsidiary thereof that guaranteeguarantees only indebtedness incurred by anothera foreign subsidiary)subsidiary or a domestic subsidiary thereof). Each Guarantor Subsidiary is directly or indirectly 100% owned by the Issuer. The guarantees are joint and several. U.S. Concrete, Inc.The Issuer does not have any independent assets or operations, and noneoperations. There are no significant restrictions in the 2029 Indenture on the ability of itsthe Guarantor Subsidiaries to make distributions to the Issuer. The 2029 Notes are not guaranteed by any of the Issuer's direct or indirect foreign subsidiaries guarantee(or any domestic subsidiaries of any such foreign subsidiaries), U.S. Virgin Islands subsidiaries or domestic subsidiaries that are not wholly owned (collectively, the Senior Unsecured Notes.“Non-Guarantor Subsidiaries”).
The Senior Unsecured2029 Notes and the guarantees thereof are effectively subordinated to all of ourthe Issuer's and our guarantors'the Guarantor Subsidiaries' existing and future secured obligations, including obligations under the Revolving Facility, the Term Loans, our finance leases and our promissory notes, to the extent of the value of the collateral securing such obligations; senior in right of payment to any of our and our guarantors'the Guarantor Subsidiaries' future subordinated indebtedness; pari passu in right of payment with any of our and our guarantors'the Guarantor Subsidiaries' existing and future senior indebtedness, including ourthe Issuer's and our guarantors'the Guarantor Subsidiaries' obligations under the Revolving Facility;Facility, the Term Loans and our finance leases; and structurally subordinated to all existing and future indebtedness and other claims and liabilities, including trade payables and preferred stock, of any non-guarantor subsidiaries.Non-Guarantor Subsidiaries.
For additional information regarding our guarantor and non-guarantor subsidiaries, see the information set forth in Note 16, “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 primarily for the purchase of mixer trucks and other machinery and equipment with $89.1$95.8 million of remaining principleprincipal as of SeptemberJune 30, 2017.2021.
For additional information regarding our arrangements relating to outstanding indebtedness, see the information set forth in Note 8, “Debt,”5, “Debt” to our condensed consolidated financial statements included in Part I of this report.
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 $84.2 million for the nine months ended September 30, 2017, compared to $92.3 million for the nine months ended September 30, 2016. Overall the generation of cash from operations in the first nine months of 2017 and 2016 was driven by the revenue and operating performance of the Company.
We used $96.5 million to fund investing activities during the nine months ended September 30, 2017, compared to $153.2 million for the nine months ended September 30, 2016. We paid $56.8 million and $124.5 million to fund acquisitions during the first nine months of 2017 and the first nine months of 2016, respectively. In addition, we incurred capital expenditures of $34.0 million and $31.0 million for the nine months ended September 30, 2017, and September 30, 2016, respectively, to fund purchases of mixer trucks, plant, and other equipment to service our business. We also loaned $8.1 million to Polaris Materials Corporation ("Polaris") in exchange for a promissory note during the nine months ended September 30, 2017, related to a planned acquisition of Polaris, which is expected to close in the fourth quarter of 2017.
Our net cash provided by financing activities was $184.8 million for the nine months ended September 30, 2017, as compared to $123.0 million for the comparable period of 2016. Financing activities during the first nine months of 2017 included the proceeds from our $200.0 million Additional Notes offering, including the premium on the issue price and net of related debt issuance costs. In addition, we made payments of $14.3 million related to our capital leases and other financings and paid $7.7 million for contingent and deferred consideration obligations. Also during the first nine months of 2017, we received proceeds of $2.7 million from exercises of warrants and stock options. Financing activities during the first nine months of 2016 included the proceeds from our $400.0 million 2024 Notes offering, net of related debt issuance costs; redemption of our $200.0 million 2018 Notes including an $8.5 million redemption premium; and repayment of our existing borrowings under our Revolving Facility. In addition, we made payments of $8.9 million related to our capital leases and other financings and paid $4.1 million for contingent consideration obligations. Also during the first nine months of 2016, we received proceeds of $0.2 million from exercises of warrants and stock options.
Cement and Other Raw Materials
We obtain most of the materials necessary to manufacture ready-mixed concrete on a daily basis. These materials include cement, other cementitious materials (fly ash and blast furnace slag), and aggregates (stone, gravel and sand), in addition to certain chemical admixtures. With the exception of chemical admixtures, each plant typically maintains an inventory level of these materials sufficient to satisfy its operating needs for a few days. Our inventory levels do not decline significantly or comparatively with declines in revenue during seasonally low periods. We generally maintain inventory at specified levels to maximize purchasing efficiencies and to be able to respond quickly to customer demand.
Typically, cement, other cementitious materials, and aggregates represent the highest-cost materials used in manufacturing a cubic yard of ready-mixed concrete. We purchase cement from a few suppliers in each of our major geographic markets. Chemical admixtures are generally purchased from suppliers under national purchasing agreements.
Overall, prices for cement and aggregates increased in the first nine months of 2017, compared to the same period in 2016, in most of our major geographic markets. Generally, we negotiate with suppliers on a company-wide basis and at the local market level to obtain the most competitive pricing available for cement and aggregates. We believe the demand for cement is increasing and will warrant scrutiny as construction activity increases. Today, in most of our markets, we believe there is an adequate supply of cement and aggregates.
Acquisitions
Our portfolio strategy includes strategic acquisitions in various regions and markets, and we may seek arrangements to finance any such acquisitions, which financing arrangements may include additional debt or equity capital.
For a description of our recent acquisitions, see the information set forth in Note 3, “Acquisitions” to our condensed consolidated financial statements included in Part I of this report.
Off-Balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements that have had or are reasonably likely to have a material current or future effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures, or capital resources. From time to time, we enter into non-cancelable operating leases that are not reflected on our balance sheet. At September 30, 2017, we had $14.3 million of undrawn letters of credit outstanding. We are also contingently liable for performance under $36.2 million in performance bonds relating to our operations.
Inflation
We experienced minimal increases in operating costs during the first nine monthssecond quarter of 20172021 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 ourthe cost increases with price increases we obtainedobtain for selling our products. Cement supply in Texas has been disrupted by temporary closures of certain cement producers' plants. As a result, our cement supply has been constrained, and cement prices began to rise in March 2021. We implemented price increases in April 2021 and will continue to do so as needed to help mitigate the impact of these increases.
Critical Accounting Policies
We prepared the preceding discussion based on the accompanying interim unaudited condensed consolidated financial statements, which have outlinedbeen 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 described our critical accounting policies in Item 7 of Part II of the 2016 Formour 2020 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, and assessing impairment of long-lived assets, accounting for derivative instruments, and accounting for contingent consideration.assets. See Note 1, "Organization“Organization and Summary of Significant Accounting Policies,"Policies” to our condensed consolidated financial statements included in Item 8 of Part II of the 2016 Form2020 10-K and Note 2, "Recent Accounting Pronouncements,” to our condensed consolidated financial statements included in Part I of this report for a discussion of our critical and significant accounting policies.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements and information in this report 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,” “intend,” “should,” “expect,” “plan,” “target,” “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 discussions 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:
•the occurrence of any event, change, or other circumstances that could give rise to the termination of the Merger Agreement;
•the inability to obtain the requisite shareholder approval for the proposed Merger or the failure to satisfy other conditions to completion of the proposed Merger, including the receipt of regulatory approvals;
•risks that the proposed Merger disrupts our current plans and operations;
•the amount of the costs, fees, and expenses and charges related to the Merger;
•the results of litigation related to the Merger;
•the expected timing and anticipated closing of the Merger,
•general economic and business conditions, which will, among other things, affect demand for commercial and residential construction;
•our ability to successfully implement our operating strategy;
•our ability to successfully identify, manage, and integrate acquisitions;
•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;
•seasonal and inclement weather conditions, which impede the placement of ready-mixed concrete;
•the cyclical nature of, and changes in, the real estate and construction markets, including pricing changes by our competitors;
•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;
•disruptions, uncertainties or volatility in the credit markets that may limit our, our suppliers' and our customers' access to capital;
•product liability, property damage, results of litigation and other claims and insurance coverage issues;
•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;
•the length and severity of the COVID-19 pandemic;
•the pace of recovery following the COVID-19 pandemic;
•our ability to implement cost containment strategies; and
•the adverse effects of the COVID-19 pandemic on our business, the economy and the markets we serve.
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 2020 10-K and “Risk Factors” in Item 1A of Part II of our subsequent quarterly reports on Form 10-Q.
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.
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Item 3. | Item 3. Quantitative and Qualitative Disclosures About Market Risk |
We do not use derivative instruments to hedge risks relating to our ongoing business operations or for speculative purposes. However, weThere have been required to account for our Warrants as derivative instruments.
Duringno material changes from the nine months ended September 30, 2017, we recorded a non-cash loss from fair value changes in our Warrants of approximately $0.8 million, due primarily to an increase in the priceinformation previously reported under Part II, Item 7A of our common stock. The Warrants were issued to holders of our predecessor common stock pro rata based on a holder’s stock ownership and any remaining unexercised Warrants expired on August 31, 2017.2020 10-K.
Borrowings under our Revolving Facility expose us to certain market risks. Interest on amounts drawn varies based on the floating rates under the Third Loan Agreement. We had no outstanding borrowings under this facility as of September 30, 2017.
Our operations are subject to factors affecting the overall strength of the U.S. economy and economic conditions impacting financial institutions, including the level of interest rates, availability of funds for construction and level of general construction activity. A significant decrease in the level of general construction activity in any of our market areas may have a material adverse effect on our consolidated revenue and earnings.
Item 4. Controls and Procedures
AcquisitionsAcquisition
On September 29, 2017, we acquired the assets of Action Supply Co., Inc., A-1 Materials, Inc., L.C. Frey Company, Inc. and Central Supply Company d.b.a. Harbor Ready-Mix, (collectively, the "2017 3rd Quarter Acquisitions"). We are in the process of integrating each of the 2017 3rd Quarter Acquisitions.Sugar City Building Materials Co. (“Sugar City”), which we acquired in November 2020. Management’s assessment and conclusion on the effectiveness of the Company’s disclosure controls and procedures as of SeptemberJune 30, 2017,2021 excludes an assessment of the internal control over financial reporting related to eachSugar City. Sugar City represented 0.3% of the 2017 3rd Quarter Acquisitions. The 2017 3rd Quarter Acquisitions represented less than 1% of bothour consolidated total assets and 0.3% of our consolidated revenue included in our condensed consolidated financial statements as of and for the ninesix months ended SeptemberJune 30, 2017.2021.
Disclosure Controls and Procedures
As of September 30, 2017, our management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectivenessBased on their evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) ofRules 13a-15 and 15d-15 under the Securities Exchange Act of 1934 as amended (the “Exchange Act”)), which as of the end of the period covered by this report, our principal executive officer and principal financial officer concluded our disclosure controls and procedures are designedeffective to provide reasonable assuranceensure that the 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 Securities and Exchange Commission'sSEC’s rules and forms. Disclosure controlsforms and procedures include controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As disclosed in our 2016 Form 10-K, management determined that the material weakness identified in our Amendment No. 1 on Form 10-K/A for 2015 in our internal control over financial reporting relating There are inherent limitations to the accuracyeffectiveness of any system of disclosure controls and presentation of accounting for income taxes, including the income tax provision and related tax assets and liabilities as of December 31, 2015 was not fully remediated. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.
As a result of this material weakness, our principal executive officer and principal financial officer have concluded that the Company’sprocedures. Accordingly, even effective disclosure controls and procedures were not effective at thecan only provide reasonable assurance level as of September 30, 2017.achieving their control objectives.
Remediation Efforts
The following steps to strengthen our internal controls related to accounting for income taxes were either implemented or in process during the nine months ended September 30, 2017:
the hiring of a tax manager experienced in accounting for income taxes under U.S. GAAP and taxation of multinational corporations;
the engagement of a third-party tax advisory firm to assist in the preparation and review of the quarterly income tax accounting;
the finalization of the initial implementation of the selected document management software, which will allow for its utilization, beginning in the fourth quarter of 2017, to assist in improving the documentation related to management review controls and the overall organization of control related documentation;
the finalization of phase one of the implementation process related to the selected income tax accounting software, which will allow for its utilization in the fourth quarter of 2017 to prepare year-end accounting for income taxes;
the establishment of documentation standards for management review controls; and
the reassessment of the balance between preventative and detective type internal controls, which resulted in an increase in preventative controls.
As we continue to evaluate and take actions to improve our internal control over financial reporting in the area of accounting for income taxes, we may enhance certain of the remediation measures described in our 2016 Form 10-K. We intend to complete the implementation of our remediation plan during 2017. The successful remediation of this material weakness will require review and evidence of the effectiveness of the related internal controls as part of our next annual assessment of our internal control over financial reporting as of December 31, 2017.
In light of the material weakness as of December 31, 2016, prior to the filing of this Quarterly Report on Form 10-Q for the three months ended September 30, 2017, management determined that key quarterly controls were performed timely and that additional procedures were performed, including validating the completeness and accuracy of the underlying data used to support the amounts reported in the quarterly financial statements. These control activities and additional procedures have allowed us to conclude that, notwithstanding the material weakness disclosed in the 2016 Form 10-K, the consolidated financial statements in this Form 10-Q fairly present, in all material respects, our financial position, results of operations, and cash flows for the periods presented in conformity with U.S. GAAP.
Changes in Internal Control over Financial Reporting
We completed a number of acquisitions in the nine months ended September 30, 2017. As part of our ongoing integration activities related to the Sugar City acquisition, 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.the acquisition. Throughout the integration process, we monitor these efforts and take corrective action as needed to reinforce the application of our controls and procedures. Other than the foregoing, and except as described above, during the quarter ended SeptemberJune 30, 2017,2021, 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.
PART II – OTHER INFORMATION
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Item 1. | Item 1. Legal Proceedings |
The information set forth under the headingheadings “Legal Proceedings” and “Litigation Related to the Vulcan Merger” in Note 14,9, “Commitments and Contingencies,”Contingencies” to our condensed consolidated financial statements included in Part I of this report is incorporated by reference into this Item 1.
With respect to administrative or judicial proceedings arising under any federal, state, or local provisions that have been enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment, we have determined that we will disclose any such proceeding if we reasonably believe such proceeding will result in monetary sanctions, exclusive of interest and costs, of at least $1.0 million. We believe that this threshold is reasonably designed to result in disclosure of environmental proceedings that are material to our business or financial condition. Applying this threshold, there were no environmental matters to disclose for this period.
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Item 1A. | 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 the Form 10-K.2020 10-K other than shown below related to the potential Merger. Readers should carefully consider the factors discussed in “Risk Factors” in Item 1A of Part I1 of the Form2020 10-K, which could materially affect our business, financial condition or future results. ThoseThe risks described in the 2020 10-K are not the only risks we face.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.
The announcement and pendency of the Merger Agreement could have an adverse effect on our business.
On June 6, 2021, we entered into the Merger Agreement with Vulcan, and Grizzly Merger Sub, pursuant to which, upon the terms and subject to the conditions set forth in the Merger Agreement, Grizzly Merger Sub will merge with and into the Company, with the Company surviving the Merger and becoming a wholly owned subsidiary of Vulcan.
We have scheduled a special meeting of our stockholders for August 16, 2021, so they can vote on whether to adopt the Merger Agreement. Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger, except as otherwise provided in the Merger Agreement, each share of our common stock issued and outstanding immediately prior to the effective time of the Merger will be canceled and automatically converted into the right to receive $74.00 in cash, without interest.
Uncertainty about the effect of the proposed Merger on our employees, customers, and suppliers may have an adverse effect on our business and operations that may be material to our company. There may be adverse effects on our ability to attract, recruit, retain and motivate current and prospective employees who maybe uncertain about their future roles following completion of the merger, and the possibility that our employees could lose productivity as a result of the uncertainty regarding their employment following the Merger. Any loss or distraction of such employees could have an adverse effect on our business and operations. In addition, we have diverted, and will continue to divert, significant management attention and resources towards the completion of the Merger, which could adversely affect our business and operations.
Our customers may experience uncertainty associated with the Merger, including with respect to concerns about possible changes to our products, services or policies. Similarly, our suppliers may experience uncertainty associated with the Merger, including with respect to current or future results.business relationships with us. Uncertainty may cause customers to refrain from purchasing our products and services, and suppliers may seek to change existing business relationships, which could result in an adverse effect on our business, operations, and financial condition in a way that may be material to our company.
Pursuant to the terms of the Merger Agreement, we are subject to certain restrictions on the conduct of our business, including the ability in certain cases to enter into contracts, acquire or dispose of assets, incur indebtedness, or incur capital expenditures, until the Merger becomes effective or the Merger Agreement is terminated. These restrictions may prevent us from taking actions with respect to our business that we may consider advantageous and result in our inability to respond effectively to competitive pressures and industry developments, and may otherwise harm our business and operations.
The Merger is subject to receipt of approval from our stockholders as well as the satisfaction of other closing conditions in the Merger Agreement.
The Merger Agreement contains a number of customary conditions to complete the Merger, including, (1) the approval of the Merger by the holders of a majority of the outstanding shares of common stock, (2) the absence of any law or injunction prohibiting the Merger, (3) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, (4) subject to certain exceptions, the accuracy of the other party’s representations and warranties, (5) the absence of a material adverse effect with respect to the Company, and (6) performance in all material respects by each party of its obligations under the Merger.
We can provide no assurance that all required approvals will be obtained or that all closing conditions will be satisfied, and, if all required approvals are obtained and the closing conditions are satisfied, we can provide no assurance as to the terms, conditions and timing of such approvals or the timing of the completion of the Merger. Any delay in completing the Merger could cause us not to realize some or all of the benefits that we expect to achieve if the Merger is successfully completed within its expected timeframe.
The failure to complete the Merger could adversely affect our business, financial condition, operating results, and stock price.
Completion of the Merger is subject to certain conditions beyond our control that may prevent, delay, or otherwise adversely affect its completion in a material way, including the expiration or termination of applicable waiting periods under antitrust and competition laws, and similar competition approvals or consents that must be obtained from regulatory entities in the United States. The process to obtain regulatory approvals could substantially delay, or prevent, the consummation of the Merger. There can be no assurance that these conditions to the completion of the merger will be satisfied in a timely manner or at all. If the Merger is not completed, our stock price could fall to the extent its current market price reflects an assumption that the Merger will be completed, and it is uncertain when, if ever, our stock price would return to the price at which our shares currently trade.
In addition, the Merger Agreement provides that we will be required to pay Vulcan Material Company a termination fee of $50 million in certain circumstances. Further, a failure to complete the Merger may result in negative publicity and a negative impression of us in the investment community and may necessitate us having to obtain additional financing, which may be unavailable on terms favorable to us, or at all. Any disruption to our business resulting from the announcement and pendency of the Merger and from intensifying competition from our competitors, including any adverse changes in our relationships with our customers, suppliers, and employees could continue or accelerate in the event of a failure to complete the Merger. We have been and may be subject to additional legal proceedings related to the transactions contemplated by the Merger Agreement. There can be no assurance that our business, these relationships, or our financial condition will not be adversely affected, as compared to the condition prior to the announcement of the Merger, if the Merger is not consummated.
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Item 2. | Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |