UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2014
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________.
Commission file number 001-34530
U.S. CONCRETE, INC.
(Exact name of registrant as specified in its charter)
Delaware
76-0586680
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
331 N. Main Street, Euless, Texas 76039
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code: (817) 835-4105
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $.001
Name of each exchange on which registered
The Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes
No
No
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes
Aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant computed by reference to
No
the last reported sale price of $24.75 of the registrant’s common stock as of June 30, 2014, the last business day of the registrant’s most
recently completed second fiscal quarter: $258,571,888. For purposes of this computation, all officers, directors and 10% beneficial owners
of the registrant are deemed to be affiliates. Such determination should not be deemed an admission that such officers, directors or 10%
beneficial owners are, in fact, affiliates of the registrant.
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes
No
There were 13,981,635 shares of common stock, par value $.001 per share, of the registrant outstanding as of March 4, 2015.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement related to the registrant’s 2015 Annual Meeting of Stockholders, to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, are incorporated by reference into Part III
of this report.
U.S. CONCRETE, INC.
FORM 10-K
For the Year Ended December 31, 2014
TABLE OF CONTENTS
Cautionary Statement Concerning Forward-Looking Statements
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Item 5.
Item 6.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
SIGNATURES
INDEX TO EXHIBITS
2
Page
3
4
16
27
27
28
28
29
30
32
52
54
55
56
57
58
59
61
99
99
100
101
101
101
102
102
102
103
104
Cautionary Statement Concerning Forward-Looking Statements
Certain statements and information in this Annual Report on Form 10-K 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,” “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 revenues and 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 or mortgage financing, funding
for public or infrastructure construction, land usage, and environmental, health, and safety matters;
disruptions, uncertainties or volatility in the credit markets that may limit our, our suppliers' and our customers' access
to capital;
our ability to successfully implement our operating strategy;
•
• weather conditions;
•
•
•
•
our substantial indebtedness and the restrictions imposed on us by the terms of our indebtedness;
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, and other claims and insurance coverage issues.
Known material factors that could cause our actual results to differ from those in the forward-looking statements include
those described in “Risk Factors” in Part I, Item 1A.
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.
3
Item 1. Business
PART I
In this report, we refer to U.S. Concrete, Inc. and its subsidiaries as "we," "us," the "Company," or "U.S. Concrete," unless
we specifically state otherwise or the context indicates otherwise. U.S. Concrete, Inc. is a Delaware corporation which was
incorporated in 1997. We began operations in 1999, which is the year we completed our initial public offering.
General
We are a leading producer of ready-mixed concrete in select geographic markets in the United States. We operate our business
through two primary segments: ready-mixed concrete and aggregate products. Ready-mixed concrete is an important building
material that is used in the vast majority of commercial, residential and public works construction projects. Aggregates are a raw
material used in the production of ready-mixed concrete.
We serve substantially all segments of the construction industry in our select geographic markets. Our customers include
contractors for commercial and industrial, residential, street and highway and other public works construction. Concrete product
revenue by type of construction activity for the year ended December 31, 2014 was approximately 60% commercial and industrial,
25% residential and 15% street, highway and other public works.
We operate principally in Texas, California and New Jersey / New York, with those markets representing approximately 45%,
32%, and 19%, respectively, of our consolidated revenue for the year ended December 31, 2014. We believe we are well positioned
for strong growth in these attractive regions and segments. According to estimates from the Portland Cement Association ("PCA"),
the states in which we operate represent a total of approximately 32% of the 2014 consumption of ready-mixed concrete in the
United States, which favorably positions us to capture additional market share in this fragmented industry. Total revenue from
continuing operations for the year ended December 31, 2014 was $703.7 million, of which we derived approximately 89.9% from
our ready-mixed concrete segment, 4.5% from our aggregate products segment (excluding $21.0 million sold internally) and 5.6%
from our other operations. For the year ended December 31, 2014, our net income was $20.6 million, our net income from
continuing operations was $21.6 million, and our Adjusted EBITDA (as defined herein) was $75.2 million. Please see "Basis of
Presentation" in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and
Note 20, "Business Segments," to our consolidated financial statements in this report for additional information regarding and a
reconciliation of Adjusted EBITDA.
As of December 31, 2014, we had 122 standard ready-mixed concrete plants, 16 volumetric ready-mixed concrete facilities,
ten producing aggregates facilities, three aggregates distribution terminals, two lime facilities, and one recycled aggregates facility.
During the year ended December 31, 2014, these plants and facilities produced approximately 5.7 million cubic yards of ready-
mixed concrete and 4.4 million tons of aggregates. We lease two other aggregates facilities to third parties and retain a royalty on
production from those facilities. As of December 31, 2014, we operated over 1,070 drum mixer trucks and 109 volumetric mixer
trucks. For additional information related to our properties, see Item 2. Properties of this report.
Acquisitions
In the fourth quarter of 2014, we acquired New York Sand and Stone, LLC ("NYSS") from Amboy Aggregates, a joint venture
between Great Lakes Dredge and Dock Company, LLC, a wholly owned subsidiary of Great Lakes Dredge and Dock Corporation
and Ralph Clayton and Sons Material, LP. The transaction included the assignment of leases to operate two existing aggregate
distribution terminals on the East River in Brooklyn, New York. This acquisition will allow us to more efficiently deliver raw
materials to our ready-mixed concrete production facilities as well as to our customers. We consider our aggregates distribution
operations to be part of our non-reportable segments. Also during 2014, we completed two acquisitions in New York that increased
our presence in the Staten Island ready-mixed concrete market.
In our west Texas market, we acquired four ready-mixed operations in Abilene, Wichita Falls, and Brady, Texas. The addition
of these operations expanded our footprint in the west Texas market. To further broaden our ready-mixed concrete delivery offerings
in our Texas market, during the fourth quarter of 2014, we acquired the assets of Custom-Crete ("Custom-Crete"), with operations
in Dallas / Fort Worth, Houston, San Antonio, and Austin, Texas from Oldcastle Architectural, Inc., a wholly owned subsidiary of
CRH plc, and the assets of Mobile-Crete of South Texas, LLC and Scofield Construction Services, LLC, with operations in San
Antonio, Austin, and south Texas. Through these acquisitions, we added 16 volumetric ready-mixed concrete facilities and
approximately 109 volumetric mixer trucks. These operations expand our presence into all of the major metropolitan markets in
4
Texas and provide us with the capability to deliver ready-mixed concrete to our customers via on-site batching and mixing to
customer specifications.
In March 2014, we commenced operations at our Red River sand facility on the Texas / Oklahoma border, which we green
fielded during the fourth quarter of 2013. This facility provides sand to our Texas and Oklahoma ready-mixed concrete operations
and customers.
On October 30, 2012, we completed the acquisition of all the outstanding equity interests of Bode Gravel Co., a California
subchapter S corporation ("Bode Gravel"), and Bode Concrete LLC, a California limited liability company ("Bode Concrete"),
which we collectively refer to as the Bode Companies, pursuant to an equity purchase agreement, dated October 17, 2012. Bode
Gravel and Bode Concrete operated two ready-mixed concrete plants, one portable plant, and 41 drum mixer trucks in the San
Francisco area and produced approximately 243,000 cubic yards of ready-mixed concrete in 2011.
During 2012 and 2013, we completed two acquisitions in our Texas market that resulted in the addition of seven ready-mixed
concrete plants and related assets and inventory. These acquisitions allowed us to expand our operations in our north and west
Texas markets.
Divestitures
In August 2012, we sold substantially all of our California precast operations to Oldcastle Precast, Inc. ("Oldcastle"). The
assets purchased by Oldcastle included certain facilities, fixed assets, and working capital items. In March 2014, we completed
the sale of our remaining owned land and building assets related to our California precast operations.
In December 2012, we completed the sale of substantially all of our assets associated with our Smith Precast operations
("Smith"), located in Phoenix, Arizona, to Jensen Enterprises, Inc., dba Jensen Precast ("Jensen"), which included the assumption
of certain obligations.
Recent Developments
On February 24, 2015, we announced that we completed the acquisition of all of the issued and outstanding equity interests
of Right Away Redy Mix, Inc. ("Right Away"), in Oakland, California for cash. Right Away is the largest independent producer
of ready-mixed concrete in San Francisco’s East Bay market (the "East Bay"). Right Away operates four ready-mixed concrete
facilities and a fleet of 49 drum mixer trucks. In addition, Right Away owns and operates a fleet of transfer trucks used to transport
cement and aggregates throughout the East Bay.
Competitive strengths
Large, high quality asset base in attractive markets that are well positioned to benefit from a rebound in construction. Our
assets are primarily focused in the Texas / Oklahoma, California and New Jersey / New York / Washington, D.C. markets. Our
high quality asset base is comprised of more than 81 ready-mixed concrete plants, 16 volumetric ready-mixed concrete plants, and
six aggregates facilities in Texas / Oklahoma, 18 ready-mixed concrete plants in California, 23 ready-mixed concrete plants, four
aggregates facilities, three aggregates distribution terminals, and one recycled aggregates facility in New Jersey / New York /
Washington, D.C., as well as over 1,070 operated drum mixer trucks and 108 operated volumetric mixer trucks. We believe the
scale and quality of our asset base, in addition to our product differentiation, on-time deliveries, competitive all-in delivered cost,
servicing and reliability differentiate us and allow us to meet the needs of both large and small jobs for a wide range of clients in
multiple end-use markets.
Growth in our Texas / Oklahoma markets is largely driven by construction demand in the transportation, financial services,
and energy sectors; growth in our California market is driven largely by the technology sector; and growth in our New Jersey /
New York / Washington, D.C. markets is driven by the financial services and government sectors, respectively. In addition, all of
our markets currently exhibit healthy residential trends supported by a number of factors, including population growth, decreases
in unemployment, low mortgage and other interest rates, rising home prices and increasing construction activity. We believe that
our better-than-average growth is driven by key industry sectors within our markets, which generally benefit from year-round
construction.
Favorable exposure to commercial projects with higher margins and barriers to entry. We bid for and routinely win supply
contracts for some of the largest, most prestigious commercial projects. Some of the larger commercial projects we have worked
on include:
5
• The San Francisco Bay Bridge in Oakland, California
• Lyndon B. Johnson Expressway in Dallas / Fort Worth, Texas
• World Trade Center Complex in Manhattan, New York
• Tappan Zee Bridge, New York
• San Francisco 49er Stadium in Santa Clara, California
• AT&T Park, home of the San Francisco Giants, California
These types of projects have higher margins and barriers to entry due to rigorous specifications, increased complexity, high
customization requirements and significant volume capacity needs.
We provide alternative solutions for designers and contractors by offering value-added concrete products such as color-
conditioned, fiber-reinforced, steel-reinforced and high-performance concrete. We believe this enhances our ability to become
exposed to, and win supply contracts for, some of the largest commercial projects that have high barriers to entry.
Long-term customer relationships. Our management and sales personnel develop and maintain successful long-term
relationships with our key customers. Customer concentration in our key markets allows us to better serve our new and existing
customers with expedited delivery and lower transportation costs and scale efficiencies. Key elements of our customer-focused
approach include:
• corporate-level marketing and sales expertise;
• technical service expertise to develop innovative new branded products; and
• training programs that emphasize successful marketing and sales techniques that focus on the sale of high-margin concrete
mix designs.
We estimate that the average length of our top 15 customer relationships is approximately 20 years. We further estimate that
most of our top 35 customers have relationships that extend past five years, with many customer relationships surpassing 20 years
of loyalty. Our customer engagement model results in contractors returning year-after-year to us as a supplier they can trust. Despite
our concentrated and loyal customer base, in 2014, no single customer or project accounted for more than 10% of our total revenue.
Our broad, yet targeted, customer base enables us to develop an efficient, stable business model and tap into the market in a variety
of ways. Our 2014 revenue was split between (i) commercial and industrial, (ii) residential and (iii) street and highway construction
contractors and other public works. We believe that by providing high quality, reliable services and customized products and
solutions, we are able to continuously maintain important long-term relationships.
Focus on environmental sustainability. We are a leader in the sustainable concrete market, and we expect domestic and global
sustainable demand to continue to grow at attractive rates. In 2008, we initiated our environmentally friendly concrete ("EF
Technology") initiative which promotes green building and construction. Our EF Technology ready-mixed concrete products
replace a portion of the traditional cement components with reclaimed fly ash, slag and other materials that results in lower carbon
dioxide emissions. We believe this leads to an environmentally superior and sustainable alternative to traditional ready-mixed
concrete for our customers’ consumption. We believe EF Technology reduces greenhouse gases and landfill space consumption
and produces a highly durable product. Customers can also receive LEED credits for the use of this technology.
We believe our use of technology creates a competitive advantage over smaller concrete producers and larger vertically
integrated aggregates and cement companies that do not focus on this as a first solution. We are positioned to take advantage of
the growing demand for these products which could result in an increase in our revenue and profits and expansion of our operating
margins, as these higher-priced value-added products are a lower cost alternative to cement. Today, we are a charter member of
the Carbon Leadership Forum and the first ready-mixed concrete company in North America to adopt and receive verified
Environmental Product Declarations for our concrete mixes, and we employ extensive sustainable operational practices across our
enterprise. We are also a supporter of the National Ready Mixed Concrete Association ("NRMCA") Green-Star program, a plant-
specific certification program that utilizes an environmental management system based on a model of continual improvement.
Conservative balance sheet and ample liquidity. Since 2010, we have refocused our financial objectives and have successfully
improved our financial performance. Our management team has extensive experience in the industry as does our board of directors.
Our management team has focused on reducing our cost structure while expanding our existing and acquired businesses in our
core operating regions to drive strong performance. As a result, since 2010, we have grown revenue, improved profit margins and
increased liquidity. In addition to cash on hand, we benefit from significant liquidity through our revolving credit facility and cash
flow from operations. We believe our conservative balance sheet and liquidity will allow us to take advantage of strategic
opportunities as well as provide ample cushion against general downturns in economic activity.
6
Experienced management team. Our senior management team consists of nine executives with an average of 24 years of
industry experience and is comprised of individuals with a proven track record in the construction materials industry. Our Chief
Executive Officer, William J. Sandbrook, has approximately 23 years of experience in the construction materials industry. Our
management team’s deep market knowledge enables us to effectively assess potential new opportunities in order to solidify our
leading market presence. We will continue to focus on recruiting and retaining motivated and knowledgeable professional managers
to continue to develop our business and maintain our leading market position.
Company strategy
Focus on core operations. We believe our recent, improved financial performance, and the best opportunities for future
growth, lie within our core ready-mixed concrete and aggregates businesses. We routinely evaluate our existing assets and business
units to ensure we continue to maintain a best-in-class operation. During 2012, we divested the majority of our precast businesses
to focus on ready-mixed concrete and aggregates and subsequently realigned our existing business units to better serve our end-
user markets and customers. We will continue to invest in our business, both in physical plants and new technologies, and we will
continue to evaluate both organic and strategic acquisition opportunities. We believe our focus on optimizing the performance of
our ready-mixed concrete segment will continue to differentiate us from our larger, integrated competitors that focus principally
on their aggregates or cement segments and treat ready-mixed concrete operations as a downstream outlet for their aggregates or
cement products.
Pursue growth. In addition to our general organic growth initiative, we continuously evaluate both acquisition and partnership
opportunities. We are focused on both strengthening our positions in existing markets as well as identifying attractive new markets.
All of our acquisitions must meet our strict criteria, including fit with our strategic plan, investment return hurdles, capital
requirements and attractive market attributes. During 2014, we completed nine acquisitions that expanded our operations in our
existing markets. Most notably, we acquired two volumetric ready-mixed concrete operations in Texas, which allows us to better
serve existing customers and gain additional customers through new ready-mixed concrete delivery capabilities. In addition, we
acquired NYSS in our New York market, which allows us to better integrate our aggregates operations with our ready-mixed
concrete operations. We also acquired two ready-mixed operations on Staten Island, New York and four ready-mixed operations
in west Texas, expanding our footprint in these respective markets. These acquisitions have allowed us to enhance market share
and leverage existing operations and infrastructure. We believe our significant experience, positive reputation and strong
management team will allow us to continue our successful track record of identifying opportunities, integrating acquisitions,
realizing synergies and enhancing asset value and cash flow.
Manage costs. We are consistently seeking opportunities to reduce costs and to improve margins through our focus on existing
operations and new technologies. Additionally, our regional acquisitions allow for synergies such as selling, general, and
administrative reductions, economies of scale, variable labor savings, and purchasing power. We believe by aggressively managing
our cost structure we can best serve our clients with better pricing and continued best-in-class execution.
Business segments and products
Ready-mixed concrete
General
Our ready-mixed concrete segment engages principally in the formulation, preparation and delivery of ready-mixed concrete
to our customers’ job sites. We provide our ready-mixed concrete from our operations in north and west Texas, northern California,
New Jersey, New York, Washington, D.C. and Oklahoma. With the recent acquisition of volumetric ready-mixed concrete operations
during the fourth quarter of 2014, we now have an expanded presence in Texas, with positions in all of the major metropolitan
areas, plus the south Texas region. 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. We generally do not provide paving or other finishing services,
which construction contractors or subcontractors typically perform.
7
Products and services
Our standard ready-mixed concrete products consist of proportioned mixes we produce and deliver in an unhardened plastic
state for placement and shaping into designed forms at the job site. Selecting the optimum mix for a job entails determining not
only the ingredients that will produce the desired permeability, strength, appearance and other properties of the concrete after it
has hardened and cured, but also the ingredients necessary to achieve a workable consistency considering the weather and other
conditions at the job site. We believe we can achieve product differentiation for the mixes we offer because of the variety of mixes
we can produce, our volume production capacity and our scheduling, delivery and placement reliability. Additionally, we believe
EF Technology initiative, which utilizes alternative materials and mix designs that result in lower carbon dioxide, or CO2 emissions,
helps differentiate us from our competitors. We also believe we distinguish ourselves with our value-added service approach that
emphasizes reducing our customers’ overall construction costs by reducing the in-place cost of concrete and the time required for
construction.
We recently acquired two volumetric concrete operations that expand our ready-mixed concrete delivery and service offerings
in Texas. Volumetric ready-mixed concrete trucks mix concrete to the customer's specification on the job site, better serving smaller
jobs and specialized applications, and allowing flexibility for servicing remote job locations. Because of their versatility, these
trucks offer the contractor multiple options for a single job without the inconvenience or added costs typically associated with
standard ready-mixed trucks delivering special or short-loads to a job site. Because of their unique on-demand production
capabilities, these trucks minimize the amount of wasted concrete, which improves margins and reduces environmental impact.
From a contractor’s perspective, the in-place cost of concrete includes both the amount paid to the ready-mixed concrete
manufacturer and the internal costs associated with the labor and equipment the contractor provides. A contractor’s unit cost of
concrete is often only a small component of the total in-place cost that takes into account all the labor and equipment costs required
to build the forms for the ready-mixed concrete and place and finish the ready-mixed concrete, including the cost of additional
labor and time lost as a result of substandard products or delivery delays not covered by warranty or insurance. By carefully
designing proper mixes and using advances in mixing technology, we can assist our customers in reducing the amount of reinforcing
steel, time and labor they will require in various applications.
We provide a variety of services in connection with our sale of ready-mixed concrete that can help reduce our customers’ in-
place cost of concrete. These services include:
• production of formulations and alternative product recommendations that reduce labor and materials costs;
• quality control, through automated production and laboratory testing, that ensures consistent results and minimizes the need
to correct completed work; and
• automated scheduling and tracking systems that ensure timely delivery and reduce the downtime incurred by the customer’s
placing and finishing crews.
We produce ready-mixed concrete by combining the desired type of cement, other cementitious materials (described below),
sand, gravel and crushed stone with water and, typically, one or more admixtures. These admixtures, such as chemicals, minerals
and fibers, determine the usefulness of the product for particular applications.
We use a variety of chemical admixtures to achieve one or more of the following five basic purposes:
• relieve internal pressure and increase resistance to cracking;
• retard the hardening process to make concrete more workable in hot weather;
• strengthen concrete by reducing its water content;
• accelerate the hardening process and reduce the time required for curing; and
• facilitate the placement of concrete having low water content.
We frequently use various mineral admixtures as supplements to cement, which we refer to as supplemental cementitious
materials, to alter the permeability, strength and other properties of concrete. These materials include fly ash, ground granulated
blast-furnace slag, silica fume and other natural pozzolans. These materials also reduce the amount of cement content used, which
results in a reduction in CO2 emissions.
We also use fibers, such as steel, glass, synthetic and carbon filaments as additives in various formulations of concrete. Fibers
help control shrinkage cracking, thus reducing permeability and improving abrasion resistance. In many applications, fibers can
replace welded steel wire and reinforcing bars. Relative to the other components of ready-mixed concrete, these additives generate
comparatively higher margins.
8
Marketing and sales
Our marketing efforts primarily target concrete sub-contractors, general contractors, governmental agencies, property owners
and developers, architects, engineers, and home builders whose focus extends beyond the price of ready-mixed concrete to product
quality, on-time delivery and reduction of in-place costs.
General contractors typically select their suppliers of ready-mixed concrete. In large, complex projects, an engineering firm
or division within a state transportation or public works department may influence the purchasing decision, particularly if the
concrete has complicated design specifications. In connection with large, complex projects and in government-funded projects
generally, the general contractor or project engineer usually awards supply orders on the basis of either direct negotiation or a
competitive bidding process. We believe the purchasing decision for many jobs ultimately is relationship and reputation-based.
Our marketing and sales strategy emphasizes the sale of value-added products and solutions to customers more focused on
reducing their in-place building material costs than on the price per cubic yard of ready-mixed concrete. Key elements of our
customer-focused approach include:
• corporate-level marketing and sales expertise;
• technical service expertise to develop innovative, new branded products; and
• training programs that emphasize successful marketing and sales techniques that focus on the sale of high-margin concrete
mix designs.
Operations
Our standard ready-mixed concrete plants consist of fixed and portable facilities that produce ready-mixed concrete in wet
or dry batches. Our fixed-plant facilities produce ready-mixed concrete that we transport to job sites by drum mixer trucks. Our
portable plant operations deploy our portable plant facilities to produce ready-mixed concrete at the job site that we direct into
place using a series of conveyor belts or drum mixer trucks. We use our portable plants to service high-volume projects or projects
in remote locations. Our volumetric ready-mixed concrete plants consist of fixed and portable facilities that are used to load raw
materials into our volumetric mixer trucks throughout the day. Batching occurs at the job site based on customer specifications.
Several factors govern the choice of plant type, including:
• production consistency requirements;
• daily production capacity requirements;
• job site proximity to fixed plants; and
• capital and financing.
We construct both wet batch plants and dry batch plants. A wet batch plant generally has a higher initial cost and daily operating
expenses, but (i) yields greater consistency with less time required for quality control in the concrete produced, and (ii) generally
has greater daily production capacity than a dry batch plant. We believe that construction of a wet batch plant having an hourly
capacity of 250 cubic yards currently would cost approximately $1.6 million, while a dry batch plant having an hourly capacity
of 150 cubic yards currently would cost approximately $0.7 million. As of December 31, 2014, our batch plants included 17 wet
batch plants and 105 dry batch plants.
We maintain two types of load facilities for our volumetric ready-mixed concrete — main load sites and reload facilities. Both
types of facilities typically include blending silos, a load-out pit, and a storm water system. A main load facility typically also
includes a maintenance shop. We estimate that constructing a main load site would cost approximately $0.7 million, while
constructing a reload facility would cost approximately $0.1 million.
Our batch operator at a dry batch plant simultaneously loads the dry components of stone, sand and cement with water and
admixtures in a drum mixer truck that begins the mixing process during loading and continues that process en route to our customers'
job sites. In a wet batch plant, the batch operator blends the dry components and water in a plant mixer from which an operator
loads the mixed concrete into a drum mixer truck, which leaves for the job site promptly after loading. At a volumetric facility,
our loader operator or mixer operator coordinates loading of the dry components of sand, course aggregates, and cement into the
bins on the truck. Water and liquid admixtures are separately loaded into the tanks on the trucks before leaving the facility for the
job site.
9
Any future decisions we make regarding the construction of additional plants will be impacted by market factors, including:
• the expected production demand for the plant;
• capital and financing;
• the expected types of projects the plant will service; and
• the desired location of the plant.
Drum mixer trucks continuously rotate their loads en route to job sites in order to produce concrete at the desired consistency.
Our drum mixer trucks typically have load capacities of 10 cubic yards, or approximately 20 tons, and a typical operating life of
between 15 and 20 years, depending on total truck hours and miles. A new truck of this size currently costs between $160,000 and
$225,000, depending on the geographic location and design specifications. Depending on the type of batch plant from which the
drum mixer trucks generally are loaded, some components of the drum mixer trucks usually require refurbishment after three to
five years. As of December 31, 2014, we operated a fleet of over 1,070 owned and leased drum mixer trucks, which had an average
age of approximately eleven years.
Volumetric mixer trucks include individual bins and tanks, which are used to mix the raw materials at the customer's job site
based on the customer's specifications. The volumetric mixing method provides only the concrete needed for the job, eliminating
wasted materials and short load charges. Our volumetric mixer trucks typically have load capacities of eight cubic yards, or
approximately 16 tons, and a typical operating life of between seven to nine years, depending on total truck hours and miles. A
new truck of this size currently costs between $220,000 and $250,000, depending on the design specifications. Typically the truck's
mixer unit will be rebuilt after the initial truck life, extending the operating life of the truck an additional five years. As of
December 31, 2014, we operated a fleet of 109 owned volumetric mixer trucks, which had an average age of approximately nine
years.
In our ready-mixed concrete operations, we emphasize quality control, pre-job planning, customer service and coordination
of supplies and delivery. We obtain orders for ready-mixed concrete in advance of actual delivery. A typical order contains
specifications the contractor requires the concrete to meet. After receiving the specifications for a particular job, we use computer
modeling, industry information and information from previous similar jobs to formulate a variety of mixtures of cement, aggregates,
water and admixtures which meet or exceed the contractor’s specifications. We perform testing to determine which mix design is
most appropriate to meet the required specifications. The test results enable us to select the mixture that has the lowest cost and
meets or exceeds the job specifications. The testing center creates and maintains a project file that details the mixture we will use
when we produce the concrete for the job. For quality control purposes, the testing center also is responsible for maintaining batch
samples of concrete we have delivered to a job site.
We use computer modeling to prepare bids for particular jobs based on the size of the job, location, desired margin, cost of
raw materials and the design mixture identified in our testing process. If the job is large enough and has a projected duration beyond
the supply arrangement in place at that time, we obtain quotes from our suppliers as to the cost of raw materials we use in preparing
the bid. Once we obtain a quotation from our suppliers, the price of the raw materials for the specified job is informally established.
Several months may elapse from the time a contractor has accepted our bid until actual delivery of the ready-mixed concrete
begins.
During this time, we maintain regular communication with the contractor concerning the status of the job and any changes in
the job’s specifications in order to coordinate the multisourced purchases of cement and other materials we will need to fill the
job order and meet the contractor’s delivery requirements. We confirm that our customers are ready to take delivery of manufactured
products throughout the placement process. On any given day, one of our plants may have production orders for dozens of customers
at various locations throughout its area of operation. To fill an order:
• the customer service office coordinates the timing and delivery of the concrete to the job site;
• a load operator supervises and coordinates the receipt of the necessary raw materials and operates the hopper that dispenses
those materials into the appropriate storage bins;
• a batch operator, using a computerized batch panel, prepares the specified mixture from the order and oversees the loading
of the drum mixer truck with either dry ingredients and water in a dry batch plant or the premixed concrete in a wet batch
plant; and
• the driver of the drum mixer truck delivers the load to the job site, discharges the load and, after washing the truck, departs
at the direction of the dispatch office.
10
Our central dispatch system, where available, tracks the status of each drum mixer truck as to whether a particular truck is:
• loading concrete;
• en route to a particular job site;
• on the job site;
• discharging concrete;
• being rinsed down; or
• en route to a particular plant.
The system is updated continuously on the trucks’ status via signals received from sensors. In this manner, the dispatcher can
determine the optimal routing and timing of subsequent deliveries by each drum mixer truck and monitor the performance of each
driver.
Our plant managers oversee the operations of each of our plants. Our operational employees also include:
• maintenance personnel who perform routine maintenance work throughout our plants;
• mechanics who perform the maintenance and repair work on our rolling stock;
• testing center staff who prepare mixtures for particular job specifications and maintain quality control;
• various clerical personnel who perform administrative tasks; and
• sales personnel who are responsible for identifying potential customers, pricing mixes for projects, and maintaining existing
customer relationships.
We generally operate each of our plants on an extended single shift, with some overtime operation during the year. On occasion,
however, we may have projects that require deliveries around the clock.
Aggregate products
Our aggregate products segment produces crushed stone, sand and gravel from ten aggregates facilities located in New Jersey
and Texas. 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 in those markets. We produced approximately 4.4 million
tons of aggregates during the year ended December 31, 2014, with Texas representing 56% and New Jersey representing 44% of
the total production. We believe our aggregates reserves provide us with additional raw material sourcing flexibility and supply
availability. In addition, we own sand pit operations in Michigan and one quarry in west Texas which we lease to third parties and
receive a royalty based on the volumes produced and sold during the terms of the leases.
Other
Other products not associated with a reportable segment include our building materials stores, hauling operations, aggregates
distribution terminals, lime slurry, Aridus rapid-drying concrete technology, brokered product sales, a recycled aggregates operation,
and one precast concrete plant.
Industry overview
Concrete has many attributes that make it a highly versatile construction material. In recent years, industry participants have
developed various uses for concrete products, including:
• high-strength engineered concrete to compete with steel-frame construction;
• concrete housing;
• flowable fill for backfill applications;
• continuous-slab rail-support systems for rapid transit and heavy-traffic rail lines; and
• concrete bridges, tunnels and other structures for rapid transit systems.
Other examples of successful innovations that have opened new markets for concrete include:
• sustainable construction;
• concrete paving over asphalt, or “white topping”;
• paved concrete shoulders to replace less permanent and increasingly costly asphalt shoulders;
• pervious concrete parking lots for water drainage management, as well as providing a long-lasting and aesthetically pleasing
11
urban environment;
• colored pavements to mark entrance and exit ramps and lanes of expressways; and
• colored, stamped concrete for decorative applications.
The U.S. ready-mixed concrete market is a large, highly competitive and fragmented market, with no one producer holding
a dominant market position. The NRMCA currently estimates that the ready-mixed concrete industry generates total annual revenue
of approximately $30 billion.
Based on information from the NRMCA, we estimate that, in addition to vertically integrated manufacturers of cement and
aggregates, ready-mixed concrete producers currently operate approximately 5,500 plants in the United States. Larger markets
generally have several producers competing for business on the basis of product quality, service, on-time delivery and price.
According to information available from the NRMCA, total volumes (measured in cubic yards) from the production and
delivery of ready-mixed concrete in the United States over the past three years were as follows (in millions of cubic yards):
Total ready-mixed concrete volumes
2014
2013
2012
326
301
290
According to recently published Dodge Construction data, the four major segments of the construction industry accounted
for the following approximate percentages of the total volume of ready-mixed concrete produced in the United States in the past
three years:
Commercial and industrial construction
Residential construction
Street and highway construction and paving
Other public works and infrastructure construction
2014
2013
2012
16%
19%
23%
42%
16%
19%
23%
42%
15%
16%
25%
44%
According to FMI Corp. ("FMI"), spending on total residential, non-residential, and non-building construction is projected
to grow at a steady rate through 2018. FMI projects the following growth rates in 2015: residential construction of 13-14%,
commercial and office construction of 6%, and street and highway construction of 2%. According to the PCA, annual ready-mixed
concrete usage is expected to strengthen in our key markets in Texas, California, New Jersey / New York and Washington D.C.,
with 2015 to 2018 estimated compound annual growth rates of 5.5%, 9.8%, 6.4% and 6.6%, respectively. Moreover, the median
estimate of the National Association of Home Builders, Fannie Mae and other industry analysts predicting U.S. residential
construction to continue to recover with over 792,000 and 363,000 single-family and multi-family housing starts in 2015,
respectively.
Barriers to the start-up of new ready-mixed concrete manufacturing operations have been increasing. During the past decade,
public concerns about dust, process water runoff, noise and heavy mixer and other truck traffic associated with the operation of
these types of plants and their general appearance have made obtaining the permits and licenses required for new plants more
difficult. Delays in the regulatory process, coupled with the capital investment that start-up operations entail, have raised the
barriers to entry for those operations.
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 (such as 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.
12
Overall, prices for cement and aggregates increased in 2014, compared to 2013, 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. We experienced
slightly decreased fuel costs during 2014.
We recognize the value in advocating green building and construction as part of our strategy. We initiated EF Technology, our
commitment to environmentally friendly concrete technologies that significantly reduce potential CO2 emissions. Our EF
Technology ready-mixed concrete products replace a portion of cement with reclaimed fly ash, blast furnace slag and other materials.
We believe this results in an environmentally superior and sustainable alternative to traditional ready-mixed concrete. EF
Technology reduces greenhouse gases and landfill space consumption and produces a highly durable product. Customers can also
obtain LEED credits through the use of this technology. We believe our use of this technology creates a competitive advantage
over smaller concrete producers and larger vertically integrated aggregate and cement companies that may not focus on this as a
first solution. We are positioned to take advantage of the growing demand for these products which could expand our operating
margins as they are a lower cost alternative to cement. We are also a supporter of the NRMCA Green-Star program, a plant-specific
certification that utilizes an environmental management system based on a model of continual improvement.
Customers
Of our concrete product revenue for the year ended December 31, 2014, commercial and industrial construction represented
approximately 60%, residential construction represented approximately 25% and street, highway construction and other public
works represented approximately 15%. For the year ended December 31, 2014, no single customer or project accounted for more
than 10% of our total revenue.
We rely heavily on repeat customers. Our management and sales personnel are responsible for developing and maintaining
successful long-term relationships with our key customers.
Competition
The ready-mixed concrete industry is highly competitive. Our leadership position in a market depends largely on the location
and operating costs of our plants and prevailing prices in that market. Price is the primary competitive factor among suppliers for
small or less complex jobs, such as residential construction. However, the ability to meet demanding specifications for strength
or sustainability, timeliness of delivery and consistency of quality and service, in addition to price, are the principal competitive
factors among suppliers for large or complex jobs. Our competitors range from small, owner-operated private companies to
subsidiaries of operating units of large, vertically integrated manufacturers of cement and aggregates. Our vertically integrated
competitors generally have greater financial and marketing resources than we have, providing them with a competitive advantage.
Competitors having lower operating costs than we do or having the financial resources to enable them to accept lower margins
than we do will have a competitive advantage over us for jobs that are particularly price-sensitive. Competitors having greater
financial resources or less financial leverage than we do may be able to invest more in new mixer trucks, ready-mixed concrete
plants and other production equipment or pay for acquisitions which could provide them a competitive advantage over us. See
“Risk factors - We may lose business to competitors who underbid us, and we may be otherwise unable to compete favorably in
our highly competitive industry.”
We continue to focus on developing new competitive advantages that will differentiate us from our competitors, such as our
high-performing, low-CO2 concrete, Aridus rapid-drying concrete technology and EF Technology ready-mixed concrete products.
For example, Central Concrete Supply Co., Inc. (“Central Concrete”), one of our subsidiaries, differentiated itself from its
competitors to supply its high-performing, low-CO2 concrete for the SF Public Utilities Commission (“SFPUC”) headquarters.
During the redesign phase, SFPUC invited Central Concrete to suggest solutions for SFPUC’s goal to use a set of concrete mixes
that delivered up to 70% cement replacement materials, with no compromises on cost, finish or cure time for the mat foundation,
slabs, columns and cores. SFPUC selected Central Concrete for the job in an open bidding process because its six different mixes
met SFPUC’s demanding specifications by significantly cutting the cement content while delivering a net savings for SFPUC of
7.4 million pounds in CO2 emissions from embodied carbon, nearly 50% better than traditional concrete mixes.
Employees
As of December 31, 2014, we had 490 salaried employees, including executive officers and management, sales, technical,
administrative and clerical personnel, and 1,654 hourly personnel. The number of employees fluctuates depending on the number
13
and size of projects ongoing at any particular time, which may be impacted by variations in weather conditions throughout the
year.
As of December 31, 2014, 617 of our employees were represented by labor unions having collective bargaining agreements
with us. Generally, these agreements have multi-year terms and expire on a staggered basis between 2015 and 2019. Under these
agreements, we pay specified wages to covered employees and in most cases make payments to multi-employer pension plans
and employee benefit trusts rather than administering the funds on behalf of these employees.
We have not experienced any strikes or significant work stoppages in the past five years. We believe our relationships with
our employees and union representatives are very good.
Training and safety
Our future success will depend, in part, on the extent to which we can attract, retain and motivate qualified employees. We
believe that our ability to do so will depend, in part, on providing a work environment that allows employees the opportunity to
develop and maximize their capabilities. We require all field employees to attend periodic safety training meetings and all drivers
to participate in training seminars. We employ a national safety director whose responsibilities include managing and executing
a unified, company-wide safety program. Employee development and safety are criteria used in evaluating performance in our
annual incentive plan for salaried employees.
Governmental regulation and environmental matters
A wide range of federal, state and local laws, ordinances and regulations apply to our operations, including the following
matters:
• water usage;
• land usage;
• street and highway usage;
• noise levels; and
• health, safety and environmental matters.
In many instances, we are required to have various certificates, permits or licenses to conduct our business. Our failure to
maintain these required authorizations or to comply with applicable laws or other governmental requirements could result in
substantial fines or possible revocation of our authority to conduct some of our operations. Delays in obtaining approvals for the
transfer or grant of authorizations, or failures to obtain new authorizations, could impede acquisition efforts.
Environmental laws that impact our operations include those relating to air quality, solid waste management and water quality.
These laws are complex and subject to frequent change. They impose strict liability in some cases without regard to negligence
or fault. Sanctions for noncompliance may include revocation of permits, corrective action orders, administrative or civil penalties
and criminal prosecution. Some environmental laws provide for joint and several strict liability for remediation of spills and
releases of hazardous substances. In addition, businesses may be subject to claims alleging personal injury or property damage
as a result of alleged exposure to hazardous substances, as well as damage to natural resources. These laws also may expose us
to liability for the conduct of, or conditions caused by, others or for acts that complied with all applicable laws when performed.
We have conducted Phase I environmental site assessments, which are non-intrusive investigations conducted to evaluate the
potential for significant on-site environmental impacts, on substantially all the real properties we own or lease and have engaged
independent environmental consulting firms to complete those assessments. We have not identified any environmental concerns
associated with those properties that we believe are likely to have a material adverse effect on our business, financial position,
results of operations or cash flows, but we can provide no assurance material liabilities will not occur. In addition, we can provide
no assurance that our compliance with amended, new or more stringent laws, stricter interpretations of existing laws or the future
discovery of environmental conditions will not require additional, material expenditures.
We believe we have all material permits and licenses we need to conduct our operations and are in substantial compliance
with applicable regulatory requirements relating to our operations. Our capital expenditures relating to environmental matters
were not material in 2014.
14
Product warranties
Our operations involve providing ready-mixed concrete that must meet building codes or other regulatory requirements and
contractual specifications for durability, stress-level capacity, weight-bearing capacity and other characteristics. If we fail or are
unable to provide products meeting these requirements and specifications, material claims may arise against us and our reputation
could be damaged. In the past, we have had significant claims of this kind asserted against us that we have resolved. There currently
are, and we expect that in the future there may be, additional claims of this kind asserted against us. If a significant product-related
claim is resolved against us in the future, that resolution may have a material adverse effect on our business, financial condition,
results of operations and cash flows.
Insurance
Our employees perform a significant portion of their work moving and storing large quantities of heavy raw materials, driving
large mixer and other trucks in heavy traffic conditions and delivering concrete at construction sites or in other areas that may be
hazardous. These operating hazards can cause personal injury and loss of life, damage to or destruction of properties and equipment
and environmental damage. We maintain insurance coverage in amounts and against the risks we believe are in accordance with
industry practice, but this insurance may not be adequate to cover all losses or liabilities we may incur in our operations, and we
may be unable to maintain insurance of the types or at levels we deem necessary or adequate or at rates we consider reasonable.
Legal proceedings
From time to time, and currently, we are subject to various claims and litigation brought by employees, customers and other
third parties for, among other matters, personal injuries, property damage, product defects and delay damages that have, or allegedly
have, resulted from the conduct of our operations. As a result of these types of claims and litigation, we must periodically evaluate
the probability of damages being assessed against us and the range of possible outcomes. In each reporting period, if we determine
that the likelihood of damages being assessed against us is probable, and, if we believe we can estimate a range of possible outcomes,
then we will record a liability. The amount of the liability will be based upon a specific estimate, if we believe a specific estimate
to be likely, or it will reflect the low end of our range. Currently, there are no material legal proceedings pending against us.
In the future, we may receive funding deficiency demands related to multi-employer plans to which we contribute. We are
unable to estimate the amount of any potential future funding deficiency demands because the actions of each of the other
contributing employers in the plans has an effect on each of the other contributing employers, and the development of a rehabilitation
plan by the trustees and subsequent submittal to and approval by the Internal Revenue Service is not predictable. Further, the
allocation of fund assets and return assumptions by trustees are variable, as are actual investment returns relative to the plan
assumptions.
As of March 5, 2015, there are 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, or so-called “rip and tear” coverage. 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 unasserted product defect claims related to ready-mixed concrete
we have delivered prior to December 31, 2014.
We believe that the resolution of all litigation currently pending or threatened against us or any of our subsidiaries will not
materially exceed our existing accruals for those matters. However, because of the inherent uncertainty of litigation, there is a risk
that we may have to increase our accruals for one or more claims or proceedings to which we or any of our subsidiaries is a party
as more information becomes available or proceedings progress, and any such increase in accruals could have a material adverse
effect on our consolidated financial condition or results of operations. We expect in the future that we and our operating subsidiaries
will, from time to time, be a party to litigation or administrative proceedings that arise in the normal course of our business.
We are subject to federal, state and local environmental laws and regulations concerning, among other matters, air emissions
and wastewater discharge. Our management believes we are in substantial compliance with applicable environmental laws and
regulations. From time to time, we receive claims from federal and state environmental regulatory agencies and entities asserting
15
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 value of these indemnification agreements
is minimal. Accordingly, we have not recorded any liabilities for these agreements as of December 31, 2014.
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.
Available Information
Our web site address is www.us-concrete.com. We make available on this web site under the “Investor Relations”
section, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form
8-K, and amendments to those reports, as soon as reasonably practicable after we electronically file those materials with,
or furnish them to, the SEC. Alternatively, the public may read and copy any materials we file with the SEC at the SEC’s Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may
be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically with the SEC. The SEC’s web site address is
www.sec.gov.
Item 1A. Risk Factors
The following risk factors represent our current view of the known material risks facing our businesses and are important to
understanding our business. The important factors, among others, sometimes have affected, or in the future could affect, our actual
results and could cause our actual consolidated results during 2015, and beyond, to differ materially from those expressed in any
forward-looking statements made by us or on our behalf. In addition, these risks and uncertainties could adversely impact our
business, financial condition, results of operations, cash flows and common stock price. Further, the risk factors described below
are not the only risks we face. Our business, financial condition and results of operations may also be affected by additional risks
and uncertainties that are not currently known to us, that we currently consider immaterial or that are not specific to us. This
discussion includes a number of forward-looking statements. Please see “Cautionary Statement Concerning Forward-Looking
Statements” preceding Item 1 of this report.
Business Risks
Tightening of mortgage lending or mortgage financing requirements could adversely affect the residential construction
market and reduce the demand for new home construction.
Commencing in 2006, the mortgage lending and mortgage finance industries experienced significant instability due to, among
other things, defaults on subprime loans and adjustable rate mortgages. In light of these events, lenders, investors, regulators and
other third parties have questioned the adequacy of lending standards and other credit requirements for a variety of loan programs.
This has led to reduced investor demand for mortgage loans and mortgage-backed securities, reduced market values for those
securities, tightened credit requirements, reduced liquidity, increased credit risk premiums and increased regulatory actions.
Deterioration in credit quality among subprime and other loans has caused many lenders to eliminate subprime mortgages and
other loan products that do not conform to the Federal National Mortgage Association, the Federal Home Loan Mortgage
Corporation, Federal Housing Administration or Veterans Administration standards. While mortgage lending conditions have
improved since 2010, fewer loan products and tighter loan qualifications continue to make it difficult for some categories of
borrowers to finance the purchase of new homes. In general, these developments have been a significant factor in the downturn
of, and have delayed the recovery of, the housing market.
16
Approximately 25% of our revenue for the year ended December 31, 2014 was from residential construction contractors.
While mortgage lending conditions have slightly improved and lending volumes have increased since 2010, tightening of mortgage
lending or mortgage financing requirements could adversely affect the ability to obtain credit for some borrowers, or reduce the
demand for new home construction, which could have a material adverse effect on our business and results of operations. Another
downturn in new home construction could also adversely affect our customers focused in residential construction, possibly resulting
in slower payments, higher default rates in our accounts receivable, and an overall increase in working capital.
Our net revenue attributable to street, highway and other public works projects could be negatively impacted by a decrease
or delay in governmental spending.
During the year ended December 31, 2014, approximately 15% of our ready-mixed concrete revenue was from street, highway
and other public works projects. Construction activity on streets, highways and other public works projects is directly related to
the amount of government funding available for such projects, which is affected by budget constraints currently being experienced
by federal, state and local governments. In addition, if the U.S. government budget process results in a prolonged shutdown or
reductions in government spending, we may experience delayed orders, delayed payments, and declines in revenues, profitability,
and cash flows. Reduced levels of governmental funding for public works projects or delays in that funding could adversely affect
our business, financial condition, results of operations and cash flows.
There are risks related to our internal growth and operating strategy.
Our ability to generate internal growth will be affected by, among other factors, our ability to:
•
•
•
•
attract new customers;
differentiate ourselves in a competitive market by emphasizing new product development and value added services;
hire and retain employees; and
reduce operating and overhead expenses.
Our inability to achieve internal growth could materially and adversely affect our business, financial condition, results of
operations, liquidity, and cash flows.
One key component of our operating strategy is to operate our businesses on a decentralized basis, with local or regional
management retaining responsibility for day-to-day operations, profitability and the internal growth of the individual business. If
we do not implement and maintain proper overall business controls, this decentralized operating strategy could result in inconsistent
operating and financial practices and our overall profitability could be adversely affected.
Our failure to successfully identify, manage and integrate acquisitions could reduce our earnings and slow our growth.
During 2014, we completed nine acquisitions. On an ongoing basis, as part of our strategy to pursue growth opportunities,
we continue to evaluate strategic acquisition opportunities that have the potential to support and strengthen our business. There
is intense competition for acquisition opportunities in our industry. Competition for acquisitions may increase the cost of, or cause
us to refrain from, completing acquisitions. Our ability to complete acquisitions is dependent upon, among other things, the
willingness of acquisition candidates we identify to sell; our ability to obtain financing or capital, if needed, on satisfactory terms;
and, in some cases, regulatory approvals. The investigation of acquisition candidates and the negotiation, drafting and execution
of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and
substantial costs for accountants, attorneys and others. If we fail to complete any acquisition for any reason, including events
beyond our control, the costs incurred up to that point for the proposed acquisition likely would not be recoverable.
Potential acquisition targets may be in geographic regions in which we do not currently operate, which could result in unforeseen
operating difficulties and difficulties in coordinating geographically dispersed operations, personnel and facilities. In addition, if
we enter into new geographic markets, we may be subject to additional and unfamiliar legal and regulatory requirements.
Compliance with regulatory requirements may impose substantial additional obligations on us and our management, cause us to
expend additional time and resources in compliance activities and increase our exposure to penalties or fines for non-compliance
with such additional legal requirements. Our recently completed acquisitions and any future acquisitions could cause us to become
involved in labor, commercial or regulatory disputes or litigation related to any new enterprises and could require us to invest
17
further in operational, financial and management information systems and to attract, retain, motivate and effectively manage local
or regional management and additional employees. Upon completion of an acquisition, key members of the management of the
acquired company may resign, which would require us to attract and retain new management and could make it difficult to maintain
customer relationships. Our inability to effectively manage the integration of our completed and future acquisitions could prevent
us from realizing expected rates of return on an acquired business and could have a material and adverse effect on our business,
financial condition, results of operations, liquidity, and cash flows.
Our business is seasonal and subject to adverse weather.
Since our business is primarily conducted outdoors, erratic weather patterns, seasonal changes and other weather-related
conditions affect our business. Adverse weather conditions, including hurricanes and tropical storms, cold weather, snow, and
heavy or sustained rainfall, reduce construction activity, restrict the demand for our products, and impede our ability to efficiently
deliver concrete. Adverse weather conditions could also increase our costs and reduce our production output as a result of power
loss, needed plant and equipment repairs, delays in obtaining permits, time required to remove water from flooded operations, and
similar events. In addition, severe drought conditions can restrict available water supplies and restrict production. Consequently,
these events could adversely affect our business, financial condition, results of operations, liquidity, and cash flows.
Our operating results may vary significantly from one reporting period to another and may be adversely affected by the
cyclical nature of the markets we serve.
The relative demand for our products is a function of the highly cyclical construction industry. As a result, our revenue may
be adversely affected by declines in the construction industry generally and in our regional markets. Our results also may be
materially affected by:
• the level of commercial and residential construction in our regional markets, including reductions in the demand for new
residential housing construction below current or historical levels;
• the availability of funds for public or infrastructure construction from local, state and federal sources;
• unexpected events that delay or adversely affect our ability to deliver concrete according to our customers’ requirements;
• changes in interest rates and lending standards;
• changes in the mix of our customers and business, which result in periodic variations in the margins of jobs performed
during any particular quarter;
• the timing and cost of acquisitions and difficulties or costs encountered when integrating acquisitions;
• the budgetary spending patterns of customers;
• increases in construction and design costs;
• power outages and other unexpected delays;
• our ability to control costs and maintain quality;
• employment levels; and
• regional or general economic conditions.
As a result, our operating results in any particular quarter may not be indicative of the results that you can expect for any other
quarter or for the entire year. Furthermore, negative trends in the ready-mixed concrete industry or in our geographic markets could
have material adverse effects on our business, financial condition, results of operations, liquidity, and cash flows.
We may lose business to competitors who underbid us, and we may be otherwise unable to compete favorably in our highly
competitive industry.
Our competitive position in a given market depends largely on the location and operating costs of our plants and prevailing
prices in that market. Price is the primary competitive factor among suppliers for small or less complex jobs, principally in residential
construction. However, timeliness of delivery and consistency of quality and service, as well as price, are the principal competitive
factors among suppliers for large or complex jobs. Concrete manufacturers like us generally obtain customer contracts through
local sales and marketing efforts directed at general contractors, developers, governmental agencies and homebuilders. As a result,
we depend on local relationships. We generally do not have long-term sales contracts with our customers.
18
Our competitors range from small, owner-operated private companies to subsidiaries or operating units of large, vertically
integrated manufacturers of cement and aggregates. Our vertically integrated competitors generally have greater manufacturing,
financial and marketing resources than we have, providing them with competitive advantages. Competitors having lower operating
costs than we do or having the financial resources to enable them to accept lower margins than we do will have competitive
advantages over us for jobs that are particularly price-sensitive. Competitors having greater financial resources or less financial
leverage than we do to invest in new mixer trucks, build plants in new areas or pay for acquisitions also will have competitive
advantages over us.
We depend on third parties for concrete equipment and supplies essential to operate our business.
We rely on third parties to sell or lease property, plant and equipment to us and to provide us with supplies, including cement
and other raw materials, necessary for our operations. We cannot assure you that our favorable working relationships with our
suppliers will continue in the future. Also, there have historically been periods of supply shortages in the concrete industry,
particularly in a strong economy.
If we are unable to purchase or lease necessary properties or equipment, our operations could be severely impacted. If we lose
our supply contracts and receive insufficient supplies from third parties to meet our customers’ needs or if our suppliers experience
price increases or disruptions to their business, such as labor disputes, supply shortages or distribution problems, our business,
financial condition, results of operations, liquidity, and cash flows could be materially and adversely affected.
Residential construction and related demand for ready-mixed concrete has increased between 2012 and 2014. While cement
prices increased as a result of this increased demand, cement supplies were at levels that indicated a very low risk of cement
shortages in most of our markets. Should demand increase substantially beyond our current expectations, we could experience
shortages of cement in future periods, which could adversely affect our operating results by decreasing sales of ready-mixed
concrete and increasing our costs of raw materials.
Our net revenue attributable to infrastructure projects could be negatively impacted by a decrease or delay in governmental
spending.
Our business depends, in part, on the level of governmental spending on infrastructure projects in our markets. Reduced levels
of governmental funding for public works projects or delays in that funding could adversely affect our business, financial condition,
results of operations, liquidity, and cash flows.
We are dependent on information technology to support many facets of our business.
If our information systems are breached or destroyed or fail due to cyber-attack, unauthorized access, natural disaster, or
equipment breakdown, our business could be interrupted, proprietary information could be lost or stolen, and our reputation could
be damaged. We take measures to protect our information systems from such occurrences, but we cannot assure you that our efforts
will always prevent them. Our business could be negatively affected by any such occurrences.
The departure of key personnel could disrupt our business.
We depend on the efforts of our officers and, in many cases, on senior management of our businesses. Our success will depend
on retaining our officers and senior-level managers. We need to ensure that key personnel are compensated fairly and competitively
to reduce the risk of departure of key personnel to our competitors or other industries. To the extent we are unable to attract or
retain qualified management personnel, our business, financial condition, results of operations, liquidity, and cash flows could be
materially and adversely affected. We do not carry key personnel life insurance on any of our employees.
Shortages of qualified employees may harm our business.
Our ability to provide high-quality products and services on a timely basis depends on our success in employing an adequate
number of skilled plant managers, technicians and drivers. Like many of our competitors, we experience shortages of qualified
19
personnel from time to time. We may not be able to maintain an adequate skilled labor force necessary to operate efficiently and
to support our growth strategy, and our labor expenses may increase as a result of a shortage in the supply of skilled personnel.
Collective bargaining agreements, work stoppages and other labor relations matters may result in increases in our operating
costs, disruptions in our business and decreases in our earnings.
As of December 31, 2014, approximately 29% of our employees were covered by collective bargaining agreements, which
expire between 2015 and 2019. Our inability to negotiate acceptable new contracts or extensions of existing contracts with these
unions could cause work stoppages by the affected employees. In addition, any new contracts or extensions could result in increased
operating costs attributable to both union and nonunion employees. If any such work stoppages were to occur, or if other of our
employees were to become represented by a union, we could experience a significant disruption of our operations and higher
ongoing labor costs, which could materially and adversely affect our business, financial condition, results of operations, liquidity,
and cash flows. Also, labor relations matters affecting our suppliers of cement and aggregates could adversely impact our business
from time to time.
Participation in multi-employer defined benefit plans may impact our financial condition, results of operations and cash
flows.
We contribute to 15 multi-employer defined benefit plans, which are subject to the requirements of the Pension Protection
Act of 2006 (the “PPA”). For multi-employer defined benefit plans, the PPA established new funding requirements or rehabilitation
requirements, additional funding rules for plans that are in endangered or critical status, and enhanced disclosure requirements to
participants regarding a plan’s funding status. The Worker, Retiree, and Employer Recovery Act of 2008 (the “WRERA”) provided
some funding relief to defined benefit plan sponsors affected by recent market conditions. The WRERA allowed multi-employer
plan sponsors to elect to freeze their current funded status at the same funding status as the preceding plan year (for example, a
calendar year plan that was not in critical or endangered status for 2008 was able to elect to retain that status for 2009), and sponsors
of multi-employer plans in endangered or critical status in plan years beginning in 2008 or 2009 were allowed a three-year extension
of funding improvement or rehabilitation plans (extending the timeline for these plans to achieve their goals from 10 years to 13
years, or from 15 years to 18 years for seriously endangered plans). A number of the multi-employer pension plans to which we
contribute are underfunded and are currently subject to funding improvement or rehabilitation requirements. Additionally, if we
were to withdraw partially or completely from any plan that is underfunded, we would be liable for a proportionate share of that
plan’s unfunded vested benefits. Based on the information available from plan administrators, we believe that our portion of the
contingent liability in the case of a full or partial withdrawal from or termination of several of these plans or the inability of plan
sponsors to meet the funding or rehabilitation requirements would be material to our financial condition, results of operations and
cash flows.
Our overall profitability is sensitive to price changes and minor variations in sales volumes.
Generally, our customers are price-sensitive. Prices for our products are subject to changes in response to relatively minor
fluctuations in supply and demand, general economic conditions and market conditions, all of which are beyond our control.
Because of the fixed-cost nature of our business, our overall profitability is sensitive to price changes and minor variations in sales
volumes.
Instability in the financial and credit sectors may impact our business and financial condition in ways that we currently
cannot predict.
Adverse or worsening economic trends could have a negative impact on our suppliers and our customers and their financial
condition and liquidity, which could cause them to fail to meet their obligations to us and could have a material adverse effect on
our revenue, income from operations and cash flows. The uncertainty and volatility of the financial and credit sectors could have
further impacts on our business and financial condition that we currently cannot predict or anticipate.
Turmoil in the global financial system could have an impact on our business and our financial condition. Accordingly, our
ability to access the capital markets could be restricted or be available only on unfavorable terms. Limited access to the capital
markets could adversely impact our ability to take advantage of business opportunities or react to changing economic and business
conditions and could adversely impact our ability to execute our long-term growth strategy. Ultimately, we could be required to
20
reduce our future capital expenditures substantially. Such a reduction could have a material adverse effect on our revenue, income
from operations and cash flows.
If one or more of the lenders under our revolving credit facility, which provides for aggregate borrowings of up to $175.0
million, subject to a borrowing base, (the "Revolving Facility"), were to become unable or unwilling to perform their obligations
under that facility, our borrowing capacity could be reduced. Our inability to borrow additional amounts under our Revolving
Facility could limit our ability to fund our future operations and growth.
Governmental regulations, including environmental regulations, may result in increases in our operating costs and capital
expenditures and decreases in our earnings.
A wide range of federal, state and local laws, ordinances and regulations apply to our operations, including the following
matters:
•
•
•
•
land usage;
street and highway usage;
noise levels; and
health, safety and environmental matters.
In many instances, we must have various certificates, permits or licenses in order to conduct our business. Our failure to
maintain required certificates, permits or licenses or to comply with applicable governmental requirements could result in substantial
fines or possible revocation of our authority to conduct some of our operations. Delays in obtaining approvals for the transfer or
grant of certificates, permits or licenses, or failure to obtain new certificates, permits or licenses, could impede the implementation
of any acquisitions.
Governmental requirements that impact our operations include those relating to air quality, solid and hazardous waste
management and cleanup and water quality. These requirements are complex and subject to change. Certain laws, such as the
U.S. law known as Superfund, can impose strict liability in some cases without regard to negligence or fault, including for the
conduct of or conditions caused by others, or for our acts that complied with all applicable requirements when we performed them.
Our compliance with amended, new or more stringent requirements, stricter interpretations of existing requirements, or the future
discovery of environmental conditions may require us to make unanticipated material expenditures. In addition, we may fail to
identify, or obtain indemnification for, environmental liabilities of acquired businesses. We generally do not maintain insurance
to cover environmental liabilities.
Our operations are subject to various hazards that may cause personal injury or property damage and increase our operating
costs.
Operating mixer trucks, particularly when loaded, exposes our drivers and others to traffic hazards. Our drivers are subject
to the usual hazards associated with providing services on construction sites, while our plant personnel are subject to the hazards
associated with moving and storing large quantities of heavy raw materials. Operating hazards can cause personal injury and loss
of life, damage to or destruction of property, plant and equipment and environmental damage. Although we conduct training
programs designed to reduce these risks, we cannot eliminate these risks. We maintain insurance coverage in amounts we believe
are consistent with industry practice; however, this insurance may not be adequate to cover all losses or liabilities we may incur
in our operations, and we may not be able to maintain insurance of the types or at levels we deem necessary or adequate, or at
rates we consider reasonable. A partially or completely uninsured claim, if successful and of sufficient magnitude, could have a
material adverse effect on us.
The insurance policies we maintain are subject to varying levels of deductibles. Losses up to the deductible amounts are
accrued based on our estimates of the ultimate liability for claims incurred and an estimate of claims incurred but not reported. If
we were to experience insurance claims or costs above our estimates, our business, financial condition, results of operations,
liquidity, and cash flows might be materially and adversely affected.
We may incur material costs and losses as a result of claims that our products do not meet regulatory requirements or
contractual specifications.
21
Our operations involve providing products that must meet building code or other regulatory requirements and contractual
specifications for durability, stress-level capacity, weight-bearing capacity and other characteristics. If we fail or are unable to
provide products meeting these requirements and specifications, material claims may arise against us and our reputation could be
damaged. In the past, we have had significant claims of this kind asserted against us that we have resolved. There currently are
claims, and we expect that in the future there will be additional claims, of this kind asserted against us. If a significant product-
related claim or claims are resolved against us in the future, that resolution may have a material adverse effect on our business,
financial condition, results of operations, liquidity, and cash flows.
Some of our plants are susceptible to damage from earthquakes, for which we have a limited amount of insurance.
We maintain only a limited amount of earthquake insurance and, therefore, we are not fully insured against earthquake risk.
Any significant earthquake damage to our plants could materially and adversely affect our business, financial condition, results
of operations, liquidity, and cash flows.
Increasing insurance claims and expenses could lower our profitability and increase our business risk.
The nature of our business subjects us to product liability, property damage, personal injury claims and workers’ compensation
claims from time to time. Increased premiums charged by insurance carriers may further increase our insurance expense as coverage
expires or otherwise cause us to raise our self-insured retention. If the number or severity of claims within our self- insured retention
increases, we could suffer losses in excess of our reserves. An unusually large liability claim or a string of claims based on a failure
repeated throughout our mass production process may exceed our insurance coverage or result in direct damages if we were unable
or elected not to insure against certain hazards because of high premiums or other reasons. In addition, the availability of, and our
ability to collect on, insurance coverage is often subject to factors beyond our control. Further, allegations relating to workers’
compensation violations may result in investigations by insurance regulatory or other governmental authorities, which
investigations, if any, could have a direct or indirect material adverse effect on our ability to pursue certain types of business which,
in turn, could have a material adverse effect on our business, financial position, results of operations, liquidity, and cash flows.
Our substantial indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations.
As of December 31, 2014, we had $200.0 million of outstanding senior indebtedness represented by our 8.5% senior secured
notes due 2018 (the “2018 Notes”). The 2018 Notes are governed by an indenture (the “Indenture”). We and certain of our
subsidiaries are parties to a Loan and Security Agreement (as subsequently amended, the “2013 Loan Agreement”), with certain
financial institutions named therein, as lenders (the “Lenders”), and Bank of America, N.A. as agent and sole lead arranger, that
is secured by certain assets of the Company and the guarantors. The 2013 Loan Agreement provides for aggregate borrowings of
up to $175.0 million subject to a borrowing base, under the Revolving Facility. As of December 31, 2014, we had no outstanding
borrowings under the Revolving Facility.
The negative covenants in the 2018 Notes and the 2013 Loan Agreement allow us to incur additional indebtedness from other
sources in certain circumstances.
As a result of our existing indebtedness and our capacity to incur additional indebtedness, we are, and anticipate continuing
to be, a highly leveraged company. A significant portion of our cash flow will be required to pay interest and principal on our
outstanding indebtedness, and we may be unable to generate sufficient cash flow from operations, or have future borrowings
available under our Revolving Facility, to enable us to repay our indebtedness, including the 2018 Notes, or to fund other liquidity
needs. This level of indebtedness could have important consequences, including the following:
• it requires us to use a significant percentage of our cash flow from operations for debt service and the repayment of our
indebtedness, including indebtedness we may incur in the future, and such cash flow may not be available for other purposes;
• it limits our ability to borrow money or sell stock to fund our working capital, capital expenditures, acquisitions and debt
service requirements;
• our interest expense could increase if interest rates in general increase because a portion of our indebtedness bears interest
at floating rates;
• it may limit our flexibility in planning for, or reacting to, changes in our business and future business opportunities;
22
• we are more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;
• it may make us more vulnerable to a downturn in our business or the economy;
• it may increase our cost of borrowing;
• it may restrict us from exploiting business opportunities;
• the debt service requirements of our indebtedness could make it more difficult for us to make payments on the 2018 Notes
and our other indebtedness; and
• there would be a material adverse effect on our business and financial condition if we were unable to service our indebtedness
or obtain additional financing, as needed.
We may not be able to generate sufficient cash flows to meet our debt service obligations and may be forced to take other
actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures will depend on
our ability to generate cash from our operations in the future. This, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our control.
Our business may not generate sufficient cash flow from operations and future sources of capital under the Revolving Facility
otherwise may not be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity
needs. If we complete an acquisition, our debt service requirements could increase. We may need to refinance or restructure all or
a portion of our indebtedness on or before maturity. We may not be able to refinance any of our indebtedness, including the
Revolving Facility and the 2018 Notes, on commercially reasonable terms, or at all. If we cannot service our indebtedness, we
may have to take actions such as selling assets, seeking additional equity, reducing or delaying capital expenditures, strategic
acquisitions, investments and alliances or restructuring or refinancing our indebtedness. We may not be able to effect such actions,
if necessary, on commercially reasonable terms, or at all.
Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants.
These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the
absence of such cash flows and resources, we could face substantial liquidity problems and might be required to sell material assets
or operations to attempt to meet our debt service and other obligations. The 2013 Loan Agreement and the Indenture restrict our
ability to conduct asset sales and / or use the proceeds from asset sales. We may not be able to consummate these asset sales to
raise capital or sell assets at prices and on terms that we believe are fair and any proceeds that we do receive may not be adequate
to meet any debt service obligations then due. If we cannot meet our debt service obligations, the holders of our debt may accelerate
our debt and, to the extent such debt is secured, foreclose on our assets. In such an event, we may not have sufficient assets to
repay all of our debt.
We may still be able to incur significantly more debt or make certain restricted payments in the future. This could intensify
already-existing risks related to our indebtedness.
The terms of the Indenture and the 2013 Loan Agreement contain restrictions on our and the guarantors’ ability to incur
additional indebtedness. However, these restrictions are subject to a number of important qualifications and exceptions and the
indebtedness incurred in compliance with these restrictions could be substantial. Accordingly, we or the guarantors could incur
significant additional indebtedness in the future, much of which could constitute secured, senior or pari passu indebtedness. As of
December 31, 2014, our Revolving Facility provided for unused borrowing capacity of up to $109.8 million (after taking into
account $11.3 million of undrawn letters of credit and $2.2 million of other availability reserves).
The Indenture permits us to incur certain additional secured debt, allows our non-guarantor subsidiaries to incur additional
debt, and does not prevent us from incurring other liabilities that do not constitute indebtedness as defined in the Indenture.
The Indenture also, under certain circumstances, allows us to designate some of our restricted subsidiaries as unrestricted
subsidiaries. Those unrestricted subsidiaries will not be subject to many of the restrictive covenants in the Indenture and therefore
will be able to incur indebtedness beyond the limitations specified in the Indenture and engage in other activities in which restricted
subsidiaries may not engage. If new debt is added to our currently anticipated debt levels, the related risks that we and the guarantors
now face could intensify.
23
We may also consider investments in joint ventures or acquisitions, which may increase our indebtedness. Moreover, although
the 2013 Loan Agreement and the Indenture contain restrictions on our ability to make restricted payments, including the declaration
and payment of dividends, we will be able to make substantial restricted payments under certain circumstances.
The amount of borrowings permitted under our Revolving Facility may fluctuate significantly, which may adversely affect
our liquidity, results of operations and financial position.
The amount of borrowings permitted at any time under our Revolving Facility is limited to a periodic borrowing base valuation
of, among other things, our accounts receivable, inventory, and mixer trucks. As a result, our access to credit under our Revolving
Facility is potentially subject to significant fluctuations depending on the value of the borrowing base eligible assets as of any
measurement date, as well as certain discretionary rights of the administrative agent of our Revolving Facility in respect to the
calculation of such borrowing base value. Our inability to borrow under, or the early termination of, our Revolving Facility may
adversely affect our liquidity, results of operations and financial position.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase
significantly.
Borrowings under our Revolving Facility are at variable rates of interest and expose us to interest rate risk. If interest rates
increase, our debt service obligations on the variable rate indebtedness could increase even though the amount borrowed remains
the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly
decrease.
Repayment of our debt is dependent on cash flow generated by our subsidiaries.
We are a holding company and substantially all of our tangible assets are owned by our subsidiaries. As such, repayment of
our indebtedness, to a certain degree, is dependent on the generation of cash flow by our subsidiaries (including any subsidiaries
that are not guarantors) and their ability to make such cash available to us, by dividend, loan, debt repayment or otherwise. Our
subsidiaries may not be able to, or be permitted to, make distributions or other payments to enable us to make payments in respect
of our indebtedness. Each of our subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual
restrictions may limit our ability to obtain cash from our subsidiaries. While the terms of the Indenture and the 2013 Loan Agreement
limit the ability of certain of our subsidiaries to incur consensual restrictions on their ability to pay dividends or make other
intercompany payments, these limitations are subject to important qualifications and exceptions. In the event that we do not receive
distributions or other payments from our subsidiaries, we may be unable to make required payments on our indebtedness.
We may be unable to refinance our indebtedness.
We may need to refinance all or a portion of our indebtedness, including the Revolving Facility and the 2018 Notes, before
maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at
all or that we will be able to obtain sufficient funds to enable us to repay or refinance our debt obligations on commercially
reasonable terms, or at all.
A lowering or withdrawal of the ratings assigned to our debt securities by rating agencies may increase our future borrowing
costs and reduce our access to capital.
Our debt currently has a non-investment grade rating, and any rating assigned could be lowered or withdrawn entirely by a
rating agency if, in that rating agency’s judgment, future circumstances relating to the basis of the rating, such as adverse changes,
so warrant. Consequently, real or anticipated changes in our credit ratings will generally affect the market value of the 2018 Notes.
Credit ratings are not recommendations to purchase, hold or sell the 2018 Notes. Additionally, credit ratings may not reflect the
potential effect of risks relating to the structure of the 2018 Notes.
Our debt agreements may restrict our ability to operate our business and to pursue our business strategies.
The 2013 Loan Agreement and the Indenture impose, and future financing agreements are likely to impose, operating and
24
financial restrictions on our activities. These restrictions require us to comply with or maintain certain financial tests and limit or
prohibit our ability to, among other things:
• incur additional indebtedness 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;
• prepay, redeem or repurchase certain debt;
• sell assets and issue capital stock of our restricted subsidiaries;
• incur liens;
• enter into agreements restricting our restricted subsidiaries’ ability to pay dividends, make loans to other U.S. Concrete
entities or restrict the ability to provide liens;
• enter into transactions with affiliates;
• consolidate, merge or sell all or substantially all of our assets;
• engage in certain sale / leaseback transactions; and
• with respect to the Indenture, designate our subsidiaries as unrestricted subsidiaries.
The restrictive covenants in the 2013 Loan Agreement also require us to maintain specified financial ratios and satisfy other
financial condition tests in certain circumstances.
These restrictions on our ability to operate our business could seriously harm our business by, among other things, limiting
our ability to take advantage of financing, merger and acquisition and other corporate opportunities.
Various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants and maintain
these financial tests. Failure to comply with any of the covenants in our existing or future financing agreements could result in a
default under those agreements and under other agreements containing cross-default provisions. A default would permit lenders
to accelerate the maturity of the debt under these agreements and to foreclose upon any collateral securing the debt. Under these
circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations. In addition, the limitations
imposed by financing agreements on our ability to incur additional debt and to take other actions might significantly impair our
ability to obtain other financing. We cannot assure you that we will be granted waivers or amendments to these agreements if for
any reason we are unable to comply with these agreements or that we will be able to refinance our debt on terms acceptable to us,
or at all. In addition, an event of default under the 2013 Loan Agreement would permit the lenders under our Revolving Facility
to terminate all commitments to extend further credit under that facility. Furthermore, if we were unable to repay the amounts
due and payable under our Revolving Facility, those lenders could proceed against the collateral granted to them to secure that
indebtedness.
As a result of these restrictions, we may be:
•
•
•
limited in how we conduct our business;
unable to raise additional debt or equity financing to operate during general economic or business downturns; or
unable to compete effectively or to take advantage of new business opportunities.
These restrictions, along with restrictions that may be contained in agreements evidencing or governing future indebtedness,
may affect our ability to grow in accordance with our growth strategy.
Our failure to comply with the covenants contained in the 2013 Loan Agreement, the Indenture or any other indebtedness,
including as a result of events beyond our control, could result in an event of default which could materially and adversely
affect our operating results and our financial condition.
The Revolving Facility contains certain covenants, including compliance with a fixed charge coverage ratio if our Availability
(as defined in the 2013 Loan Agreement) falls below a certain threshold. In addition, the Revolving Facility requires us to comply
with various operational and other covenants. See Item 7 - “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” under the heading “Liquidity and Capital Resources” for a discussion of the financial covenants contained
in the 2013 Loan Agreement. Agreements governing our other indebtedness may also contain various covenants. If there were an
25
event of default under any of our debt instruments that was not cured or waived, the holders of the defaulted debt could cause all
amounts outstanding with respect to the debt to be due and payable immediately. Our assets and cash flow may not be sufficient
to fully repay all obligations under our outstanding debt instruments, either upon maturity or if accelerated upon an event of default.
If we were required to repurchase any of our debt securities upon a change of control, we may not be able to refinance or restructure
the payments on those debt securities. If, as or when required, we are unable to repay, refinance or restructure our indebtedness
under, or amend the covenants contained in, the 2013 Loan Agreement, the lenders thereunder could elect to terminate their
commitments thereunder, cease making further loans and institute foreclosure proceedings against the collateral that secures the
obligations under the Revolving Facility on a first-priority basis and secures the 2018 Notes on a second-priority basis. If, as or
when required, we are unable to repay, refinance or restructure our indebtedness under, or amend the covenants contained in, the
Indenture, the holders of the 2018 Notes could institute foreclosure proceedings against the collateral that secures the 2018 Notes
on a first-priority basis and secures the obligations under the Revolving Facility on a second-priority basis. Any such actions could
force us into bankruptcy or liquidation.
Moreover, the 2013 Loan Agreement provides the lenders considerable discretion to impose reserves or availability blocks,
which could materially impair the amount of borrowings that would otherwise be available to us. There can be no assurance that
the lenders under the Revolving Facility will not take such actions during the term of that facility and, further, were they to do so,
the resulting impact of such actions could materially and adversely impair our ability to make interest payments on the 2018 Notes,
among other matters.
Common Stock Investment Risks
We do not intend to pay dividends on our common stock.
We have not declared or paid any dividends on our common stock to date, and we do not anticipate paying any dividends on
our common stock in the foreseeable future. We intend to reinvest all future earnings in the development and growth of our business.
In addition, our 2013 Loan Agreement and the Indenture prohibit us from paying dividends and future loan agreements may also
prohibit the payment of dividends. Any future determination relating to our dividend policy will be at the discretion of our board
of directors and will depend on our results of operations, financial condition, capital requirements, business opportunities,
contractual restrictions and other factors deemed relevant. To the extent we do not pay dividends on our common stock, investors
must look solely to stock appreciation for a return on their investment in our common stock.
Our stock price may be volatile.
In recent years the stock market has experienced significant price and volume fluctuations that are often unrelated to the
operating performance of specific companies. The market price of our common stock may fluctuate based on a number of factors,
including:
•
•
•
•
•
•
•
our operating performance and the performance of other similar companies;
news announcements relating to us or our competitors, the job market in general and unemployment data;
changes in earnings estimates or recommendations by research analysts;
changes in general economic conditions;
the arrival or departure of key personnel;
acquisitions or other transactions involving us or our competitors; and
other developments affecting us, our industry or our competitors.
Our amended and restated certificate of incorporation, third amended and restated bylaws and Delaware law contain
provisions that could discourage acquisition bids or merger proposals, which may adversely affect the market price of our
common stock.
Provisions in our amended and restated certificate of incorporation, our third amended and restated bylaws and applicable
provisions of the General Corporation Law of the State of Delaware may make it more difficult or expensive for a third party to
acquire control of us even if a change of control would be beneficial to the interests of our stockholders. These provisions could
discourage potential takeover attempts and could adversely affect the market price of our common stock. In addition, Delaware
26
law prohibits us from engaging in any business combination with any “interested stockholder,” meaning generally that a stockholder
who beneficially owns more than 15% of our common stock cannot acquire us for a period of three years from the date this person
became an interested stockholder, unless various conditions are met, such as approval of the transaction by our board of directors.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Facilities
Ready-mixed Concrete Segment
The table below lists our concrete plant facilities as of December 31, 2014. We believe these plants are sufficient for our
current needs. The volumes shown are the volumes each location produced in 2014.
Owned
Leased
Locations
California
New Jersey / New York /
Washington, D.C.
Texas / Oklahoma
Total Ready-Mixed
Concrete Segment
Fixed
Standard Volumetric Portable
Fixed
Standard
Portable
Total
14
20
74
108
—
—
16
16
2
—
7
9
2
3
—
5
—
—
—
—
18
23
97
138
Aggregate Products Segment
Volume
(in
thousands
of cubic
yards)
1,559
1,028
3,109
5,696
The table below lists our aggregate facilities as of December 31, 2014. The volumes shown are the volumes each location
produced in 2014.
Locations
New Jersey
Texas / Oklahoma
Total Aggregate Products Segment
Owned
Leased
Total
3
2
5
1
4
5
4
6
10
Volume
(in thousands
of tons)
1,924
2,463
4,387
We produce crushed stone aggregates, sand and gravel, from ten aggregates facilities located in Texas and New Jersey. We
also own two aggregate quarries that are leased to third parties for which we receive a royalty based on the volume of product
produced and sold from the quarries during the term of the lease. We sell aggregates produced from the ten facilities in Texas and
New Jersey 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 in those markets. We produced approximately 4.4 million tons of aggregates in 2014,
with Texas producing 56% and New Jersey 44% of that total production. We believe our aggregates reserves provide us with
additional raw materials sourcing flexibility and supply availability.
27
Other Non-Reportable Segments
In our other non-reportable segments, we own two lime slurry operations in Dallas / Ft. Worth, Texas; lease three aggregates
distribution terminals in Brooklyn, New York; lease one recycled aggregates facility; and own one precast operation in Middleburg,
Pennsylvania, which is currently classified as held for sale in the accompanying consolidated balance sheet.
Equipment
As of December 31, 2014, we had a fleet of over 1,070 owned and leased drum mixer trucks, 109 owned volumetric mixer
trucks, and over 1,150 other rolling stock and vehicles. Our own mechanics service most of the fleet. We believe these vehicles
generally are well maintained and are adequate for our operations. The average age of our owned drum mixer trucks is approximately
eleven years. The average age of our volumetric mixer trucks is approximately nine years.
For additional information related to our properties, see Item 1. Business of this report.
Item 3. Legal Proceedings
The information set forth under the heading “Legal Proceedings” in Note 23, “Commitments and Contingencies,” to our
consolidated financial statements included in this report is incorporated by reference into this Item 3.
Item 4. Mine Safety Disclosures
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank
Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in exhibit 95.1 to this annual report.
28
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the NASDAQ Capital Market under the ticker symbol “USCR.”
As of February 26, 2015, we had approximately 81 holders of record of our common stock and approximately 29,000
beneficial holders of our common stock.
The following table sets forth, for the periods indicated, the range of high and low sales prices for our common stock:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2014
2013
High
Low
High
Low
$
$
$
$
28.64
25.96
26.93
29.38
$
$
$
$
20.60
22.38
24.02
21.48
$
$
$
$
14.91
16.75
22.21
23.60
$
$
$
$
9.07
12.58
15.03
18.78
We have not declared or paid any dividends since our formation and currently do not intend to pay dividends for the foreseeable
future. Additional information concerning restrictions on our payment of cash dividends may be found in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in Item 7 of this
report and Note 9, "Debt," to our consolidated financial statements included in this report, under the sub-headings "Senior Secured
Credit Facility Expiring 2018" and "Senior Secured Notes due 2018."
Issuer Purchases of Equity Securities
Upon vesting of restricted stock awarded by the Company to employees, the Company may withhold shares to cover employee
tax withholding obligations, other than for employees who have elected to satisfy their tax withholding requirements in the form
of a cash payment. No shares of common stock were withheld to satisfy tax withholding obligations during the fourth quarter
ended December 31, 2014. Our share repurchase program was approved by our board of directors on May 15, 2014 and allows
us to repurchase up to $50.0 million of our common stock until the earlier of March 31, 2017 or a determination by our board of
directors to discontinue the repurchase program. The repurchase program does not obligate us to acquire any specific number of
shares.
Total number of
shares
purchased as
part of publicly
announced
plans or
programs
Approximate
dollar value of
shares that may
yet be
purchased
under the plans
or programs
(in thousands)
45,176,000
— $
—
—
45,176,000
45,176,000
— $
45,176,000
October 1, 2014 to October 31, 2014
November 1, 2014 to November 30, 2014
December 1, 2014 to December 31, 2014
Total
Total number of
shares
purchased
Average price
paid per share
— $
—
—
— $
—
—
—
—
29
Performance Graph
The following performance graph compares the cumulative total return to holders of our common stock, since October
15, 2010 with the cumulative total returns of the Russell 2000 index and a peer group selected by the Company. The graph assumes
that the value of the investment in the Company's common stock, Russell 2000 index and a peer group was $100 on October 15,
2010 and is calculated assuming the quarterly reinvestment of dividends as applicable. Our peer group is defined as Cemex, S.A.B.
de C.V., Eagle Materials Inc., Martin Marietta Materials Inc. and Vulcan Materials Company. Due to our emergence from bankruptcy
on September 1, 2010, information for our common stock is only available from October 15, 2010.
The above performance graph and related information shall not be deemed "soliciting material" or to be "filed" with the
Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically
incorporates it by reference into such filing.
30
Item 6. Selected Financial Data
The following table provides selected condensed consolidated financial data for the periods shown (in thousands). The data
for the last five years has been derived from our audited consolidated financial statements. Our results are not necessarily indicative
of future performance or results of operations. All of the data in the table should be read in conjunction with Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related
notes included in this report.
Successor (1)(2)
2014
2013
2012
2011
(in thousands, except per share data)
Predecessor
(1)(2)
Period from
Jan. 1 -
Aug. 31,
2010
Period
from
Sept. 1 -
Dec. 31,
2010
FOR THE YEAR, EXCEPT AS
INDICATED
Revenue
$ 703,714
$ 598,155
$ 517,221
$ 428,036
$ 136,387
Net income (loss) from continuing
operations (3)
$ 21,575
$ (18,273) $ (24,351) $ (7,925) $ (4,213)
Loss from discontinued operations, net of
taxes
$
Net income (loss)
PER SHARE INFORMATION
Basic income (loss) per share:
(993) $ (1,856) $ (1,388) $ (3,778) $ (1,541)
$ (20,129) $ (25,739) $ (11,703) $ (5,754)
$ 20,582
$
$
$
$
263,291
47,411
(34,566)
12,845
Income (loss) from continuing operations
$
1.59
$
(1.42) $
(2.00) $
(0.66) $
(0.35)
$
1.29
Loss from discontinued operations, net of
taxes
Net income (loss) per share - basic
Diluted income (loss) per share:
Income (loss) from continuing operations
Loss from discontinued operations, net of
taxes
Net income (loss) per share - diluted
POSITION AS OF END OF PERIOD
(0.07)
1.52
1.55
(0.07)
1.48
$
$
$
$
$
$
(0.14)
(1.56) $
(0.11)
(2.11) $
(0.31)
(0.97) $
(0.13)
(0.48)
(1.42) $
(2.00) $
(0.66) $
(0.35)
(0.14)
(1.56) $
(0.11)
(2.11) $
(0.31)
(0.97) $
(0.13)
(0.48)
$
$
$
Total assets
Total debt
$ 460,528
$ 413,990
$ 279,724
$ 269,654
$ 275,528
$ 220,437
$ 214,144
$ 63,459
$ 61,086
$ 53,181
(0.94)
0.35
1.29
(0.94)
0.35
NA
NA
(1) Our results for 2010 have been recast to reflect our California and Arizona precast operations as discontinued operations,
as a result of the sale of these businesses during 2012. In addition, our results for all periods presented have been recast to
reflect our Pennsylvania precast operation as discontinued operations, as a result of its reclassification to held for sale effective
with the first quarter of 2014.
(2) Our financial statements for periods prior to August 31, 2010 are not comparable with our financial statements for the
periods on or after August 31, 2010, due to the adoption of fresh-start accounting under the provisions of Accounting Standards
Codification ("ASC") 852 - Reorganizations. References to "Successor" refer to the Company on or after August 31, 2010,
after giving effect to the provisions of our plan of reorganization. References to "Predecessor" refer to the Company prior
to August 31, 2010.
(3) Our results for the period January 1, 2010 - August 31, 2010 include a benefit of $80.4 million, net of income taxes, for
reorganization items.
31
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Statements we make in the following discussion that express a belief, expectation or intention, as well as those that are not
historical fact are forward-looking statements that are subject to various risks, uncertainties and assumptions. Our actual results,
performance or achievements, or market conditions or industry results, could differ materially from those we express in the following
discussion as a result of a variety of factors, including the risks and uncertainties to which we refer under the headings “Cautionary
Statement Concerning Forward-Looking Statements” preceding Item 1 of this report and “Risk Factors” in Item 1A of this report.
Our Business
We are a leading producer of ready-mixed concrete in select geographic markets in the United States. We operate our business
through two primary segments: (i) ready-mixed concrete and (ii) aggregate products. The results of operations for our California,
Arizona and Pennsylvania precast concrete operations are included in discontinued operations for the periods presented.
Ready-mixed concrete. Our ready-mixed concrete segment (which represented 89.9% of our revenue for the year ended
December 31, 2014) engages principally in the formulation, production and delivery of ready-mixed concrete to our customers’
job sites. We provide our ready-mixed concrete from our operations in Texas, northern California, New Jersey, New York,
Washington, D.C. and Oklahoma. Ready-mixed concrete is a highly versatile construction material that results from combining
coarse and fine aggregates, such as gravel, crushed stone and sand, with water, various chemical admixtures and cement. We
also provide services intended to reduce our customers’ overall construction costs by lowering the installed, or “in-place,” cost
of concrete. These services include the formulation of mixtures for specific design uses, on-site and lab-based product quality
control, and customized delivery programs to meet our customers’ needs.
Aggregate products. Our aggregate products segment (which represented 4.5% of our revenue for the year ended
December 31, 2014, excluding $21.0 million of intersegment sales) produces crushed stone, sand and gravel from ten aggregates
facilities located in New Jersey and Texas. We sell these aggregates for use in commercial, industrial and public works projects,
as well as consume them internally in the production of ready-mixed concrete. We produced approximately 4.4 million tons of
aggregates during the year ended December 31, 2014, with Texas representing 56% and New Jersey representing 44% of the
total production. We consumed 47% of our aggregate production internally and sold 53% to third-party customers in 2014. We
believe our aggregates reserves provide us with additional raw materials sourcing flexibility and supply availability. In addition,
we own sand pit operations in Michigan and one quarry in west Texas, which we lease to third parties and receive a royalty based
on the volumes produced and sold during the terms of the leases.
Overview
The geographic markets for our products are generally local, and 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 those 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. In addition, our business is impacted by seasonal variations in weather conditions, which
vary by regional market. Accordingly, because of inclement weather, demand for our products and services during the winter
months are typically lower than in other months of the year. Also, sustained periods of inclement weather and other adverse
weather conditions could cause the delay of construction projects during other times of the year.
From 2007 through 2011, construction slowed significantly, which resulted in a decline in the demand for ready-mixed
concrete. However, construction and related demand for ready-mixed concrete has improved since 2011. For the year ended
December 31, 2014, our ready-mixed concrete sales volume increased 9.0% to 5.7 million cubic yards from 5.2 million cubic
yards for the year ended December 31, 2013. Sales volume for the year ended December 31, 2014 was up in all of our major
markets as compared to the year ended December 31, 2013 due to increased construction activity. We experienced a 6.6% increase
in consolidated average ready-mixed concrete sales prices for 2014 compared to 2013, resulting in the 4th consecutive fiscal year
of increased average selling prices. As a result of the increased ready-mixed concrete sales volume and higher sales prices, our
revenue increased year-over-year. Additionally, the higher volumes have allowed us to spread our fixed costs over more cubic
yards. However, we also experienced higher cement and aggregate costs during fiscal year 2014, which have partially offset these
improvements. We continue to closely monitor our operating costs and capital expenditures.
32
Basis of Presentation
We operate our business in two reportable segments: (1) ready-mixed concrete and (2) aggregate products. Our ready-mixed
concrete segment produces and sells ready-mixed concrete. This segment serves the following principal markets: north and west
Texas, California, New Jersey, New York, Washington, D.C. and Oklahoma. With the acquisition of the volumetric ready-mixed
concrete businesses during the fourth quarter of 2014 (see discussion at "Acquisitions" below), we have further expanded our
Texas presence into all of the state's major metropolitan markets. Our aggregate products segment includes crushed stone, sand
and gravel products and serves the north and west Texas, New Jersey and New York markets in which our ready-mixed concrete
segment operates.
Our chief operating decision maker evaluates segment performance and allocates resources based on Adjusted EBITDA. We
define Adjusted EBITDA as net income (loss) from continuing operations excluding interest, income taxes, depreciation, depletion
and amortization, derivative gain (loss), and gain (loss) on extinguishment of debt. Additionally, Adjusted EBITDA is adjusted
for items similar to certain of those used in calculating the Company’s compliance with debt covenants. The additional items that
are adjusted to determine our Adjusted EBITDA are:
•
•
•
non-cash stock compensation expense;
corporate officer severance expense; and
expenses associated with the relocation of our corporate headquarters.
We consider Adjusted EBITDA 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 (i) internally measure our operating performance
and (ii) 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, net income or loss, is not based on
accounting principles generally accepted in the United States of America ("U.S. GAAP"), and is not necessarily 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. See Note 20, "Business Segments," to our consolidated financial statements included in
this report for additional information regarding our segments and the reconciliation of Adjusted EBITDA to income (loss) from
continuing operations before taxes.
On August 20, 2012, we completed the sale of substantially all of our California precast operations. On December 17, 2012,
we completed the sale of substantially all of our assets associated with our Smith Precast operations in Phoenix, Arizona. In
January 2014, our board of directors approved the sale of our one remaining precast concrete operation in Pennsylvania.
Accordingly, we have classified this operation's assets and liabilities as held for sale in the accompanying consolidated balance
sheet effective with the first quarter of 2014. The results of operations for our California, Arizona and Pennsylvania precast
operations are included in discontinued operations for the periods presented.
Liquidity and Capital Resources
Our primary liquidity needs over the next 12 months consist of (i) financing seasonal working capital requirements; (ii)
servicing our indebtedness; (iii) purchasing property and equipment; and (iv) payments related to strategic acquisitions. Our
portfolio strategy includes strategic acquisitions and divestitures in various regions and markets; and 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 2013 Loan Agreement is governed by a borrowing base primarily determined by our eligible accounts receivable,
inventory and trucks (described below). While our working capital needs are typically at their lowest in the first quarter, our
borrowing base typically declines also during the first quarter due to lower accounts receivable balances as a result of normal
seasonality of our business caused by weather.
Our availability under the 2013 Loan Agreement at December 31, 2014 increased to $109.8 million from availability of $88.3
million at December 31, 2013 due to an increase in eligible accounts receivable, as well as an amendment in September 2014
which increased our borrowing capacity from $125.0 million to $175.0 million. We had no borrowings outstanding under the
Revolving Facility as of December 31, 2014.
Our projection of our cash needs is based upon many factors, including without limitation, our forecasted volume, pricing,
cost of materials and capital expenditures. Based on our projected cash needs, we believe that the Revolving Facility, proceeds
33
from our 2018 Notes offering, and cash generated from operations will provide us with sufficient liquidity in the ordinary course
of business, not including potential acquisitions. The Revolving Facility and the 2018 Notes are scheduled to expire in October
2018 and mature in December 2018, respectively. If, however, the Revolving Facility, the 2018 Notes proceeds, and our operating
cash flows are not adequate to fund our operations, we would need to obtain an amendment to the 2013 Loan Agreement, seek
other equity or debt financing to provide additional liquidity, or sell assets.
The principal factors that could adversely affect the amount of our internally generated funds include:
•
•
•
deterioration of revenue, due to lower volume and / or pricing, because of weakness in the markets in which we
operate;
declines in gross margins due to shifts in our product mix or increases in the cost of our raw materials and fuel;
any deterioration in our ability to collect our accounts receivable from customers as a result of weakening in
construction demand or as a result of payment difficulties experienced by our customers; and
•
inclement weather beyond normal patterns that could affect our sales volumes.
The following key financial measurements reflect our financial position and capital resources as of December 31, 2014 and
2013 (dollars in thousands):
Cash and cash equivalents
Working capital
Total debt
$
2014
30,202
62,929
220,437
$
2013
112,667
135,078
214,144
Our cash and cash equivalents consist of highly liquid investments and deposits we hold at major financial institutions.
The discussion that follows provides a description of our arrangements relating to our outstanding indebtedness.
Senior Secured Notes due 2018
On November 22, 2013, we completed our offering of the 2018 Notes at an offering price of 100%. We used a portion of the
net proceeds from the 2018 Notes to repay all of the outstanding borrowings under the Revolving Facility and to redeem all our
outstanding 9.5% senior secured notes due 2015 (the "2013 Notes").
The 2018 Notes are governed by the Indenture dated as of November 22, 2013, by and among the Company and U.S. Bank
National Association, as trustee and noteholder collateral agent (the “Notes Collateral Agent”). We are obligated to pay interest
on the 2018 Notes on June 1 and December 1 of each year. The 2018 Notes mature on December 1, 2018, and are redeemable at
our option prior to maturity at prices specified in the Indenture. The Indenture contains negative covenants that restrict the ability
of us and our restricted subsidiaries to engage in certain transactions, as described below, and also contains customary events of
default.
The Indenture contains covenants that restrict or limit our ability to, among other things:
•
•
•
•
•
•
•
•
•
•
incur additional indebtedness or issue disqualified stock or preferred stock;
pay dividends or make other distributions or repurchase or redeem our stock or subordinated indebtedness or make
investments;
prepay, redeem or repurchase certain debt;
sell assets or issue capital stock of our restricted subsidiaries;
incur liens;
enter into agreements restricting our restricted subsidiaries’ ability to pay dividends, make loans to other U.S. Concrete
entities or restrict the ability to provide liens;
enter into transactions with affiliates;
consolidate, merge or sell all or substantially all of our assets;
engage in certain sale / leaseback transactions; and
designate our subsidiaries as unrestricted subsidiaries.
34
As defined in the Indenture, we are entitled to incur indebtedness if, on the date of such incurrence and given effect thereto
on a proforma basis, the consolidated coverage ratio exceeds 2.0 to 1.0.
Our obligations under the 2018 Notes are jointly and severally and fully and unconditionally guaranteed on a senior secured
basis by each of our existing and future domestic subsidiaries that guarantee the indebtedness under our Revolving Facility. Each
guarantee is subject to release in the following customary circumstances:
•
•
•
a disposition of all or substantially all of the assets of the guarantor subsidiary, by way of merger, consolidation or
otherwise; provided the proceeds of the disposition are applied in accordance with the Indenture;
a disposition of the capital stock of the guarantor subsidiary to a third person, if the disposition complies with the Indenture
and as a result the guarantor subsidiary ceases to be a restricted subsidiary;
the designation by us of the guarantor subsidiary as an unrestricted subsidiary or the guarantor subsidiary otherwise ceases
to be a restricted subsidiary, in each case in accordance with the Indenture; or
•
legal or covenant defeasance of the 2018 Notes and discharge of our obligations under the Indenture.
The 2018 Notes are issued by U.S. Concrete, Inc., the parent company, and are guaranteed on a full and unconditional basis
by each of its indirect wholly owned subsidiaries. The guarantees are joint and several, and there are no non-guarantor subsidiaries.
U.S. Concrete, Inc. does not have any independent assets or operations. There are no significant restrictions on the ability of the
Company or any guarantor to obtain funds from its subsidiaries by dividend or loan.
The 2018 Notes and the guarantees thereof rank equally in right of payment with all of our existing and future senior
indebtedness. The 2018 Notes and the guarantees thereof are secured by first-priority liens on certain of the property and assets
directly owned by us, including material owned real property, fixtures, intellectual property, capital stock of subsidiaries and certain
equipment, subject to permitted liens and certain exceptions, and by a second-priority lien on our assets securing the Revolving
Facility on a first-priority basis, including inventory (including as-extracted collateral), accounts, certain specified mixer trucks,
chattel paper, general intangibles (other than collateral securing the 2018 Notes on a first-priority basis), instruments, documents,
cash, deposit accounts, securities accounts, commodities accounts, letter of credit rights and all supporting obligations and related
books and records and all proceeds and products of the foregoing, subject to permitted liens and certain exceptions. The 2018
Notes and the guarantees thereof are effectively subordinated to all indebtedness and other obligations, including trade payables,
of each of our future subsidiaries that are not guarantors.
Senior Secured Credit Facility expiring 2018
On October 29, 2013, we entered into the 2013 Loan Agreement with the Lenders and the Administrative Agent, which
amended and restated our existing credit agreement and provides us with the Revolving Facility. Under the terms of the 2013
Loan Agreement and in conjunction with the issuance of our 2018 Notes, the maximum credit availability under our Revolving
Facility increased from $102.5 million to $125.0 million, and included an uncommitted accordion feature that allowed for an
increase in the total commitments under the facility to as much as $175.0 million. On September 12, 2014, we amended the 2013
Loan Agreement to increase the maximum credit availability under our Revolving Facility from $125.0 million to $175.0 million.
The amendment also removed certain conditions to funding, including the removal of (i) the uncommitted accordion feature, (ii)
the maximum leverage ratio condition for the refinancing of certain senior secured notes of the Company, and (iii) a requirement
that any such senior notes refinancing debt must mature six months or more after the expiration of the 2013 Loan Agreement. The
2013 Loan Agreement expires on October 2, 2018. As of both December 31, 2014 and December 31, 2013, under the Revolving
Facility, we had no outstanding borrowings and $11.3 million of undrawn standby letters of credit.
On May 15, 2014, we amended the 2013 Loan Agreement to permit us to repurchase shares of our common stock in an amount
up to $50.0 million, provided that no default or event of default under the terms of the 2013 Loan Agreement exists and is continuing
or would result from the stock repurchase. We must pay for any stock repurchases with cash on hand, and we must not have any
Revolver Loans (as defined in the 2013 Loan Agreement) outstanding at the time of any stock repurchase.
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 and mixer trucks, which serve as priority collateral on the facility, minus
reserves imposed by the Lenders and other adjustments, all as specified in the 2013 Loan Agreement and discussed further below.
Our availability under the Revolving Facility at December 31, 2014 increased to $109.8 million from $88.3 million at December 31,
2013. The 2013 Loan Agreement also contains a provision for discretionary over-advances and involuntary protective advances
35
by Lenders of up to $12.5 million in excess of calculated borrowing base levels. The 2013 Loan Agreement provides for swingline
loans, up to a $10.0 million sublimit, and letters of credit, up to a $30.0 million sublimit.
Advances under the Revolving Facility are in the form of either base rate loans or “LIBOR Loans” denominated in U.S.
dollars. The interest rate for base rate loans denominated in U.S. dollars fluctuates and is equal to the greater of (a) Bank of
America’s prime rate; (b) the Federal funds rate, plus 0.50%; or (c) the rate per annum for a 30 days interest period equal to the
British Bankers Association LIBOR Rate, as published by Reuters at approximately 11:00 a.m. (London time) two business days
prior (“LIBOR”), plus 1.0%; in each case plus the Applicable Margin, as defined in the 2013 Loan Agreement. The interest rate
for LIBOR Loans denominated in U.S. dollars is equal to the rate per annum for the applicable interest period equal to LIBOR,
plus the Applicable Margin, as defined in the 2013 Loan Agreement. Issued and outstanding letters of credit are subject to a fee
equal to the Applicable Margin, as defined in the 2013 Loan Agreement, a fronting fee equal to 0.125% per annum on the stated
amount of such letter of credit, and customary charges associated with the issuance and administration of letters of credit. Among
other fees, we pay a commitment fee of either 0.25% or 0.375% per annum (due monthly) on the aggregate unused revolving
commitments under the Revolving Facility. The fee we pay is determined by whether the amount of the unused line is above or
below 50% of the Aggregate Revolver Commitments, as defined in the 2013 Loan Agreement. The Applicable Margin ranges
from 0.25% to 0.75% for base rate loans and from 1.5% to 2.0% for LIBOR Loans, and is determined based on Average Availability
for the most recent fiscal quarter, as defined in the 2013 Loan Agreement.
Up to $30.0 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. Advances under the Revolving Facility are
limited by a borrowing base which is equal to the lesser of the Revolving Facility less the LC Reserve, the Senior Notes Availability
Reserve, and the Tax Reserve, all as defined in the 2013 Loan Agreement, or the sum of (a) 90% of the face amount of eligible
accounts receivable (reduced to 85% under certain circumstances), plus (b) the lesser of (i) 55% of the value of eligible inventory
or (ii) 85% of the product of (x) the net orderly liquidation value of inventory divided by the value of the inventory and (y) multiplied
by the value of eligible inventory, and (c) the lesser of (i) $40.0 million or (ii) the sum of (A) 85% of the net orderly liquidation
value (as determined by the most recent appraisal) of eligible trucks plus (B) 80% of the cost of newly acquired eligible trucks
since the date of the latest appraisal of eligible trucks minus (C) 85% of the net orderly liquidation value of eligible trucks that
have been sold since the latest appraisal date and 85% of the depreciation amount applicable to eligible trucks since the date of
the latest appraisal of eligible trucks, minus (D) such reserves as the Administrative Agent may establish from time to time in its
permitted discretion. The Administrative Agent may, in its permitted discretion, reduce the advance rates set forth above, adjust
reserves or reduce one or more of the other elements used in computing the borrowing base.
The 2013 Loan Agreement contains usual and customary negative covenants for transactions of this type, including, but not
limited to, restrictions on our ability to consolidate or merge; substantially change the nature of our business; sell, lease or otherwise
transfer any of our assets; create or incur indebtedness; create liens; pay dividends; and make investments or acquisitions. The
negative covenants are subject to certain exceptions as specified in the 2013 Loan Agreement. The 2013 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 twelve calendar months, as determined in accordance with the 2013 Loan Agreement. For the trailing twelve month period
ended December 31, 2014, our fixed charge coverage ratio was 1.92 to 1.0. As of December 31, 2014, we were in compliance
with all covenants under the 2013 Loan Agreement.
The 2013 Loan Agreement also includes customary events of default, including, among other things, payment default,
covenant default, breach of representation or warranty, bankruptcy, cross-default, material ERISA events, change of control,
material money judgments and failure to maintain subsidiary guarantees.
The 2013 Loan Agreement is secured by a first-priority lien on certain assets of the Company and our guarantors, including
inventory (including as extracted collateral), accounts, certain specified mixer trucks, general intangibles (other than collateral
securing the 2018 Notes on a first-priority basis, as described above), instruments, documents, chattel paper, cash, deposit accounts,
securities accounts, commodities accounts, letter of credit rights and all supporting obligations and related books and records and
all proceeds and products of the foregoing, subject to permitted liens and certain exceptions. The 2013 Loan Agreement is also
secured by a second-priority lien on the collateral securing the 2018 Notes as defined below on a first-priority basis (see “Senior
Secured Notes due 2018” above).
Other Debt
In 2013, we entered into master leasing agreements with GE Capital Commercial, Inc. and Capital One Equipment Finance
Corporation to provide up to $10.0 million in total lease commitments for drum mixer trucks and other machinery and equipment.
As of December 31, 2014, we have utilized $7.1 million of these lease commitments. Interest on these lease commitments accrues
at fixed annual rates ranging from 4.15% to 4.80%, and payments are due monthly for a term of five years. The lease terms include
36
a one dollar buyout option at the end of the lease term. Accordingly, this financing has been classified as a capital lease. During
2013 and 2014, we signed a series of promissory notes with Daimler Truck Financial for the purchase of drum mixer trucks totaling
$13.6 million aggregate principal with fixed annual interest rates ranging from 2.99% to 3.23%, payable monthly for a term of
five years. Also, in 2014, we entered into four lease agreements with SunTrust Equipment Finance and Leasing Corporation for
a total commitment of $1.5 million, each with a fixed annual interest rate of 3.75%, payable monthly for a term of five years. The
lease terms include a one dollar buyout option at the end of the lease term. Accordingly, this financing has been classified as a
capital lease.
On August 31, 2010, we issued $55.0 million aggregate principal amount of 9.5% Convertible Notes due 2015 (the "Convertible
Notes") pursuant to a subscription offering contemplated by our plan of reorganization (the "Plan"). Under the terms of the indenture
governing the Convertible Notes, interest accrued at a rate of 9.5% per annum and was payable quarterly in cash in arrears. The
notes mature on August 31, 2015. Concurrently with the issuance of the notes, we recorded a discount of approximately $13.6
million related to an embedded derivative that was bifurcated and separately valued (see Note 11, "Derivatives" to our consolidated
financial statements included in this report). This discount was being accreted over the term of the Convertible Notes and included
in interest expense prior to the Conversion Event, as described below.
On March 22, 2013, we completed our offer to exchange (the “Exchange Offer”) up to $69.3 million aggregate principal
amount of newly issued 2013 Notes for all $55.0 million aggregate principal amount of our Convertible Notes. At the time of
settlement, we issued $61.1 million aggregate principal amount of 2013 Notes in exchange for $48.5 million of Convertible Notes,
plus approximately $0.3 million in cash for accrued and unpaid interest on the Convertible Notes exchanged in the Exchange Offer.
After giving effect to the exchange, $6.5 million aggregate principal amount of Convertible Notes remained outstanding as of
March 22, 2013. In November 2013, we used a portion of the proceeds from our 2018 Notes offering to redeem all $61.1 million
of our outstanding 2013 Notes.
In accordance with the indenture governing the Convertible Notes, we provided a Conversion Event Notice, as defined in the
indenture, to the remaining holders of Convertible Notes on June 18, 2013. Holders had until the close of business on August 2,
2013 (as defined in the indenture, the "Conversion Termination Date") to tender their Convertible Notes for shares of common
stock. Prior to August 3, 2013, holders tendered $6.4 million of Convertible Notes and were issued 0.6 million shares of our
common stock. As of August 3, 2013, the remaining Convertible Notes no longer include a conversion feature and ceased to accrue
interest. As of December 31, 2014, we had $0.1 million of Convertible Notes outstanding.
For additional information regarding our arrangements relating to outstanding indebtedness, see the information set forth in
Note 9, "Debt," to our consolidated financial statements included in this report.
Fair Value of Financial Instruments
Our financial instruments consist of cash and cash equivalents, trade receivables, trade payables, long-term debt, other long-
term obligations, and derivative liabilities. We consider the carrying values of cash and cash equivalents, trade receivables and
trade payables to be representative of their respective fair values because of their short-term maturities or expected settlement
dates. The carrying value of outstanding amounts under our Revolving Facility approximates fair value due to the floating interest
rate. The fair value of our 2018 Notes as of December 31, 2014 was estimated to be $209.0 million, based on broker / dealer
quoted market prices. The fair value of our Convertible Notes was approximately $0.1 million at both December 31, 2014 and
December 31, 2013, with no embedded derivative. The fair value of issued warrants was $25.2 million and $21.7 million at
December 31, 2014 and 2013, respectively. The fair value of the Bode Earn-out (as defined herein) associated with our acquisition
of the Bode Companies during 2012 was $6.0 million, including a discount of $0.7 million, at December 31, 2014 and was $8.3
million, including a discount of $1.3 million, at December 31, 2013. See (i) Note 11, "Derivatives," to our consolidated financial
statements included in this report for further information regarding our derivative liabilities, (ii) Note 12, "Other Long-Term
Obligations and Deferred Credits," regarding the Bode Earn-out related to the Bode Companies acquisition, (iii) Note 13, "Fair
Value Disclosures," regarding our fair value disclosure and (iv) Note 15, "Warrants," regarding the warrants.
Cash Flow
The net cash provided by or used in our operating, investing and financing activities is presented below (in thousands):
37
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net (decrease) increase in cash
Year Ended
December 31,
2014
Year Ended
December 31,
2013
Year Ended
December 31,
2012
$
$
$
50,915
(118,478)
(14,902)
(82,465) $
$
24,180
(26,104)
109,840
107,916
$
10,722
(4,806)
(5,394)
522
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 $50.9 million for the year ended December 31, 2014, compared to $24.2 million
for the year ended December 31, 2013. Cash from operating activities in 2014 was favorably impacted by our net income for the
year of $20.6 million as well as the impact of significant non-cash expenses that were included in our 2014 net income; primarily
$23.8 million of depreciation, depletion and amortization, $3.7 million of non-cash stock compensation expense and $3.6 million
of non-cash loss on derivative. Partially offsetting this was $4.9 million used to fund working capital changes.
Our cash provided by operating activities in 2013 of $24.2 million was favorably impacted by significant non-cash expenses
that were included in our 2013 net loss; primarily $30.0 million of non-cash loss on derivative, $19.0 million of depreciation,
depletion and amortization, $5.4 million of non-cash stock compensation expense, and $2.2 million of non-cash amortization of
debt issuance costs, partially offset by $1.0 million of non-cash gain on extinguishment of debt, and $14.1 million used to fund
working capital changes.
Our cash provided by operating activities in 2012 was $10.7 million which was also favorably impacted by significant non-
cash expenses included in our 2012 net loss; primarily $19.7 million of non-cash loss on derivative, $16.3 million in depreciation,
depletion, and amortization, $2.6 million of non-cash loss on extinguishment of debt, $2.5 million in non-cash stock-based
compensation, and $4.1 million in non-cash amortization of debt issuance costs, partially offset by $2.8 million in gains from sales
of assets, and $4.0 million of non-cash income tax benefit, partially resulting from the acquisition of the Bode Companies which
resulted in the reduction of our valuation allowance on our net deferred tax asset. In addition, in 2012, we used $3.7 million to
fund working capital changes.
We used $118.5 million to fund investing activities in 2014, $26.1 million in 2013, and $4.8 million in 2012. During 2014,
we paid $89.6 million to fund nine acquisitions compared to $4.4 million paid to fund one acquisition in 2013 and $28.6 million
paid to fund two acquisitions in 2012. In addition, we paid $32.6 million in 2014 for purchases of plant improvements, plant
equipment, drum mixer trucks, and other rolling stock compared to $20.0 million in 2013 and $8.4 million in 2012. Also in 2013,
we paid a total of $2.3 million to Oldcastle and Jensen related to the re-acquisition of certain assets and settlement of certain
liabilities associated with the disposal of our California and Arizona precast operations in 2012. During 2012, we received $27.0
million in proceeds from the sale of our California and Arizona precast operating units and $5.2 million for the sale of excess land,
buildings and equipment.
Our net cash used in financing activities was $14.9 million in 2014 compared to $109.8 million provided by financing activities
in 2013 and $5.4 million used in financing activities in 2012. Financing activities in 2014 included the repayment of $5.2 million
of capital leases and notes used to fund capital expenditures, $4.8 million for the repurchase of our common stock under our share
repurchase program, and $2.3 million for the first payment on the Bode Earn-out. Financing activities in 2013 included the proceeds
from our $200 million note offering during the fourth quarter of 2013, net of related debt issuance costs, and redemption of $61.1
million aggregate principal of our 2013 Notes. We also paid off all of our existing borrowings under our Revolving Facility.
During 2012, we reduced our borrowings under our credit facilities by $2.0 million and incurred $1.8 million of deferred financing
costs in conjunction with new credit arrangements.
Off-Balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future
effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources
that is material to investors. From time to time, we may enter into noncancelable operating leases that would not be reflected on
our balance sheet. For additional discussion on our operating leases, see Note 23, "Commitments and Contingencies," to our
consolidated financial statements included in this report.
38
Commitments
The following are our contractual commitments associated with our indebtedness and our lease obligations as of December
31, 2014 (in millions):
Contractual obligations
Principal on debt
Interest on debt (1)
Operating leases
Total
Total
1 year or
less
2-3 years
4-5 years
After
5 years
$
$
220.4
69.5
46.5
336.4
$
$
5.1
17.6
9.5
32.2
$
$
9.4
34.7
16.1
60.2
$
$
205.8
17.2
10.5
233.5
$
$
0.1
—
10.4
10.5
(1) Consists of interest payments due under the 2018 Notes, capital leases, and other borrowings.
The following are our commercial commitments as of December 31, 2014 (in millions):
Other commercial commitments
Standby letters of credit
Performance bonds
Total
Total
Less Than
1 year
$
$
11.3
9.2
20.5
$
$
11.3
9.2
20.5
$
$
1-3 years
4-5 years
After
5 years
— $
—
— $
— $
—
— $
—
—
—
The standby letters of credit and performance bonds have not been drawn upon as of December 31, 2014. The following
long-term liabilities included on the consolidated balance sheet are excluded from the table above: accrued employment costs,
income tax contingencies, insurance accruals and other accruals. Due to the nature of these accruals, the estimated timing of such
payments (or contributions in the case of certain accrued employment costs) for these items is not predictable. As of December
31, 2014, the total unrecognized tax benefit related to uncertain tax positions was $3.6 million. We believe it is unlikely a reduction
in our uncertain tax positions will occur within the next 12 months.
Acquisitions
On October 20, 2014, we acquired the assets and liabilities of Custom-Crete, with operations in Dallas / Fort Worth, Houston,
San Antonio, and Austin, Texas from Oldcastle Architectural, Inc., a wholly owned subsidiary of CRH plc for $37.4 million in
cash. On December 5, 2014, we acquired the assets and liabilities of Mobile-Crete of South Texas, LLC and Scofield Construction
Services, LLC (collectively, "Mobile-Crete") with operations in San Antonio, Austin, and south Texas for $21.5 million in cash,
plus potential earn-out payments of up to $3.0 million in cash (the "Mobile-Crete Earn-out"). The earn-out payments of up to $1.5
million in each of the next two years are tied to the applicable year's average daily closing price of West Texas Intermediate Crude
Oil reaching certain predetermined levels.
The Custom-Crete and Mobile-Crete acquisitions included 16 volumetric ready-mixed concrete facilities and 109 volumetric
ready-mixed concrete trucks. The addition of these operations expanded our presence into all of the major metropolitan markets
in Texas and provided us with the capability to deliver ready-mixed concrete to our customers via on-site batching and mixing to
customer specifications.
On October 20, 2014, we acquired the equity of NYSS for $15.2 million in cash. The NYSS acquisition included leases to
operate two aggregate distribution terminals in New York. These terminals allow us to deliver raw materials more efficiently to
our New Jersey / New York market.
Also during the year ended December 31, 2014, we completed six other acquisitions comprised of seven ready-mixed concrete
plants and related assets in our New York and west Texas markets. The aggregate consideration paid consisted of $15.5 million
in cash and $1.1 million in promissory notes. The acquisition of these assets expanded our business in our existing markets.
Purchase of Bodin Concrete Assets
On July 26, 2013, we acquired three ready-mixed concrete plants and related assets in our north Texas market from Bodin
Concrete, L.P. for $4.4 million in cash. This acquisition allowed us to expand into the eastern corridor of the north Texas market
in which we already operated.
39
Purchase of Bode Gravel and Bode Concrete Equity Interests
On October 30, 2012, we completed the acquisition of all of the outstanding equity interests of Bode Gravel and Bode Concrete,
pursuant to an equity purchase agreement dated October 17, 2012. The Bode Companies operated two fixed and one portable
ready-mixed concrete plant and 41 drum mixer trucks in the San Francisco, California area. The purchase price for the acquisition
was $24.5 million in cash, plus working capital and closing adjustments of $1.6 million, plus potential earn-out payments (the
"Bode Earn-out"). The earn-out payments are contingent upon reaching negotiated volume hurdles, with an aggregate present
value of up to $7.0 million in cash payable over a six-year period, resulting in total consideration fair value of $33.1 million. We
funded the acquisition from cash on hand and borrowings under our Revolving Facility. In March 2013, we completed our final
working capital adjustments with the former equity owners, resulting in a reduction in goodwill of $0.2 million. In January 2014,
we made our first payment on the Bode Earn-out in the amount of $2.3 million.
Purchase of Colorado River Concrete Assets
On September 14, 2012, we purchased four ready-mixed concrete plants and related assets and inventory from Colorado River
Concrete L.P., Cindy & Robin Concrete, L.P. and E&R Artecona Family Limited Partnership in our west Texas market for $2.4
million in cash and a $1.9 million promissory note. The purchase of these assets allowed us to expand our business in Texas.
Divestitures
Sale of Smith Precast Operations
On December 17, 2012, we completed the sale of substantially all of our assets associated with Smith located in Phoenix,
Arizona, to Jensen for $4.3 million in cash and the assumption of certain obligations. The assets purchased by Jensen included
certain facilities, fixed assets, and working capital items. In addition, Jensen assumed the obligations of a capital lease previously
held by Smith. The results of operations for this unit have been included in discontinued operations for the periods presented.
During the third quarter of 2013, pursuant to the terms of the asset purchase agreement, we made payments totaling $0.5
million to Jensen related to the reacquisition of certain uncollected receivables as well as the settlement of certain accrued liabilities.
Sale of California Precast Operations
On August 2, 2012, we executed a definitive asset purchase agreement to sell substantially all of our California precast
operations to Oldcastle for $21.3 million in cash, plus net working capital adjustments. The assets purchased by Oldcastle included
certain facilities, fixed assets, and working capital items. The results of operations for these units have been included in discontinued
operations for the periods presented.
During the first quarter of 2013, pursuant to the terms of the asset purchase agreement, we made payments totaling $1.9 million
to Oldcastle related to the reacquisition of certain uncollected receivables as well as the settlement of certain accrued liabilities.
Other
During the third quarter of 2012, we made the decision to sell certain of our land and buildings in northern California and
classified these assets as held for sale. These assets were recorded at the estimated fair value less costs to sell, which approximated
net book value of $2.6 million. This transaction closed during the fourth quarter of 2012, and we received $3.2 million in proceeds.
Accordingly, we recorded a gain on sale of assets of $0.6 million, which was included in our statement of operations for the year
ended December 31, 2012.
For additional discussion on our acquisitions and divestitures, see Note 2, "Acquisitions and Dispositions" to our consolidated
financial statements included in this report.
40
Results of Operations
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
The following table sets forth selected historical statement of operations information and that information as a percentage of
revenue for each of the periods indicated, as well as the increase or decrease from the prior year in dollars and percent.
(amounts in thousands, except selling prices)
Years Ended December 31,
Increase / (Decrease)
2014
2013
$
%
Revenue
$
703,714
100.0% $
598,155
100.0 % $ 105,559
17.6%
Cost of goods sold before depreciation,
depletion and amortization
Selling, general and administrative
expenses
Depreciation, depletion and amortization
Gain on sale of assets
Income from operations
Interest expense, net
Derivative loss
Gain on early extinguishment of debt
Other income, net
Income (loss) from continuing
operations before income taxes
Income tax expense
Net income (loss) from continuing
operations
Loss from discontinued operations,
net of taxes
573,318
81.5
498,660
83.4
74,658
61,850
23,849
8.8
3.4
(625)
(0.1)
45,322
20,431
6.4
2.9
59,424
18,868
(232)
21,435
11,332
9.9
3.2
—
3.6
1.9
2,426
4,981
393
23,887
9,099
15.0
4.1
26.4
169.4
111.4
80.3
(3,556)
(0.5)
(29,964)
(5.0)
(26,408)
(88.1)
11
2,385
23,731
2,156
21,575
—
0.3
3.4
0.3
3.1
985
1,771
(17,105)
1,168
0.2
0.3
(2.9)
0.2
(974)
614
40,836
988
(98.9)
34.7
238.7
84.6
(18,273)
(3.1)
39,848
218.1
(993)
(0.1)
(1,856)
(0.3)
(863)
(46.5)
Net income (loss)
$
20,582
2.9% $
(20,129)
(3.4)% $ 40,711
202.3%
Ready-mixed Concrete Data:
Average selling price per cubic yard
$
110.85
$
104.03
Sales volume in cubic yards
Aggregates Data:
Average selling price per ton
$
Sales volume in tons
5,696
9.40
4,650
5,225
8.84
3,597
$
$
$
6.82
471
0.56
1,053
6.6%
9.0%
6.3%
29.3%
Revenue. Our 2014 total revenue grew by $105.6 million, or 17.6%, from $598.2 million in 2013 to $703.7 million in 2014,
primarily due to increased sales of ready-mixed concrete. We estimate that approximately $16.6 million, or 15.7%, of our 2014
revenue increase was the result of acquisitions completed during 2014. Ready-mixed concrete sales rose $87.5 million, or 16.0%,
from $545.3 million in 2013 to $632.8 million in 2013, driven by a 9.0% increase in volume and a 6.6% increase in our average
selling price. Sales of aggregates rose to $52.6 million in 2014 from $38.2 million in 2013, an increase of $14.4 million, or 37.7%,
due to a 29.3% increase in volume and a 6.3% increase in average selling price. Other product revenues and eliminations, which
includes our building materials, aggregate distribution, lime slurry, hauling business, and eliminations of our intersegment sales,
increased by $3.7 million, or 25.1%, to $18.3 million in 2014 from $14.6 million in 2013, primarily due to the addition of the
aggregates distribution business.
41
Cost of goods sold before depreciation, depletion and amortization. Cost of goods sold before depreciation, depletion
and amortization ("DD&A"), increased $74.7 million, or 15.0%, from $498.7 million in 2013 to $573.3 million in 2014. Our costs
were higher primarily due to volume growth in our two segments - ready-mixed concrete and aggregates - resulting in higher
material costs, delivery costs, and plant variable costs, which includes primarily labor and benefits, utilities, and repairs and
maintenance. Our material costs also increased as a result of higher cement and aggregate prices; however, we were generally
able to pass these increases on to our customers. Our plant fixed costs, which primarily consist of leased equipment costs, property
taxes, dispatch costs, and plant management, increased over 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 2013. As a percentage of
revenue, cost of goods sold before DD&A decreased by 1.9% in 2014 from 2013, as we were able to achieve greater efficiencies
from our increased sales volume.
Selling, general and administrative expenses. Selling, general and administrative, ("SG&A"), expenses increased $2.4
million, or 4.1%, in 2014 from $59.4 million in 2013 to $61.9 million in 2014. Our increased 2014 SG&A costs primarily resulted
from $2.9 million in higher bonus accruals and $1.8 million in higher legal and professional fees related to our acquisitions and
divestitures. These increases were partially offset by a $1.8 million decrease in non-cash stock compensation expense. Non-cash
stock compensation expense in 2013 included compensation expense resulting from achievement of the performance goal associated
with delivery of a Conversion Event Notice (as defined in the indenture governing the Convertible Notes), which occurred on June
18, 2013, triggering the conversion of certain previously vested incentive restricted stock units to common shares. No compensation
expense had previously been recognized for these grants, as achievement of the performance goal was not considered probable.
Additional non-cash stock compensation expense was recorded in 2013 associated with certain restricted stock units that were
contingent upon shareholder approval of the plan under which they were granted. The approval was obtained in May 2013.
Furthermore, in 2013, we incurred $0.5 million of corporate relocation expenses. No such expenses were incurred in 2014. As a
percentage of total revenue, SG&A expenses decreased to 8.8% in 2014 from 9.9% in 2013.
Gain on sale of assets. We recorded a gain on sale of assets of $0.6 million in 2014 versus $0.2 million in 2013. Our gain
on sale of assets in 2014 and 2013 included sales of excess vehicles and equipment.
Depreciation, depletion and amortization. DD&A expense for 2014 increased $5.0 million, or 26.4%, to $23.8 million
from $18.9 million in 2013, primarily reflecting depreciation on additional plants, equipment and mixer trucks purchased to service
demand.
Income from operations. Income from operations rose $23.9 million to $45.3 million in 2014 from $21.4 million in 2013.
Increased ready-mixed concrete revenue driven by higher volume and pricing resulted in efficiencies that led to improvements in
income from operations as a percentage of revenue, which we refer to as operating margins. In addition, we estimate that
approximately $0.8 million, or 3.3%, of our increase in income from operations was attributable to 2014 acquisitions. Operating
margins increased to 6.4% for 2014 compared to 3.6% for 2013.
Interest expense, net. Net interest expense increased by $9.1 million, or 80.3%, to $20.4 million in 2014 from $11.3 million
in 2013, reflecting primarily the impact of the issuance of our 2018 Notes during the fourth quarter of 2013.
Derivative loss. For the 2014 period, we recorded a non-cash loss on derivative of $3.6 million related to fair value changes
in our warrants that were issued on August 31, 2010 (the "Warrants"). All derivatives are required to be recorded on the balance
sheet at their fair values in accordance with U.S. GAAP. Each quarter, we determine the fair value of our derivative liabilities,
and changes result in income or loss for the period. The key inputs in determining the fair value of our derivative liabilities of
$25.2 million at December 31, 2014 include our stock price, stock price volatility, risk free interest rates and interest rates for
conventional debt of similarly situated companies. Changes in these inputs impact the valuation of our derivatives and result in
income or loss each quarterly period.
The non-cash loss from fair value changes in the Warrants for the 2014 period was primarily due to an increase in the price
of our common stock and changes in our stock price volatility. This compares to the 2013 period, during which we recorded a
non-cash loss from fair value changes in our Convertible Notes embedded derivative of approximately $13.1 million and $16.9
million related to fair value changes in our Warrants. These non-cash losses were primarily due to an increase in the price of our
common stock and our stock price volatility. As of August 3, 2013, the conversion feature of our Convertible Notes terminated,
which eliminated the embedded derivative.
42
Gain on extinguishment of debt. In 2013, we recorded a net $1.0 million non-cash gain on extinguishment of debt. This
consisted of $4.3 million of non-cash gain related to the Exchange Offer of our Convertible Notes that were exchanged for 2013
Notes in March 2013, $1.7 million in non-cash loss associated with the Conversion Event, and $1.6 million in non-cash loss
associated with the subsequent extinguishment of our 2013 Notes following receipt of the proceeds of our $200 million 2018 Notes
offering in November 2013.
Other income, net. Other income for the 2014 period was $2.4 million compared to $1.8 million for the 2013 period. The
increase from 2013 was primarily due to $0.3 million of additional income in 2014 from state and local tax incentive programs
and $0.1 million from higher finance charge income received from our customers in 2014.
Income tax expense. We recorded income tax expense allocated to continuing operations of approximately $2.2 million and
$1.2 million for the years ended December 31, 2014 and December 31, 2013, respectively. Our effective tax rate differs substantially
from the federal statutory rate primarily due to the application of a valuation allowance that reduced the recognized benefit of our
deferred tax assets. In addition, certain state income taxes are calculated on bases different than pre-tax income (loss). This resulted
in recording income tax expense in certain states that experience a pre-tax loss.
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 December 31, 2014 and
2013 for other deferred tax assets because of uncertainty regarding their ultimate realization. Our total net deferred tax liability
as of December 31, 2014 and 2013 was $4.5 million and $4.3 million, respectively.
Despite income in 2014 and projected future taxable income, the Company continues to be in a three year cumulative loss
position and will, therefore, continue to record a valuation allowance on all U.S. deferred tax assets. The cumulative loss position
is considered a significant source of negative evidence and limits our ability to consider other subjective evidence such as our
projections for future growth when assessing the need for a deferred tax valuation allowance. Our cumulative loss position will
continue to change as a result of historical and current earnings performance. This change among other factors, may cause us to
reduce our valuation allowance on deferred tax assets in the foreseeable future. Any adjustment to our valuation allowance would
impact our income tax expense in the period our evaluation changes.
In accordance with U.S. GAAP, intra-period tax allocation provisions require allocation of a tax expense to continuing
operations due to current income (loss) from discontinued operations. We recorded tax expense of $2.2 million and $1.2 million
in income from continuing operations for the years ended December 31, 2014 and 2013, respectively. We recorded tax expense
of $0.2 million, allocated to discontinued operations for the year ended December 31, 2014 and a tax benefit of less than $0.1
million allocated to discontinued operations for the year ended December 31, 2013. The income tax amounts for continuing
operations referred to above include the offsetting intra-period allocations. The intra-period tax allocation between the results
from continuing operations and discontinued operations in the years ended December 31, 2014 and 2013 nets to $0.
We reorganized pursuant to Chapter 11 of the bankruptcy code under the terms of our Plan, with an effective date of August
31, 2010. Under our Plan, our previously outstanding 8.375% Senior Subordinated Notes due 2014 were cancelled, giving rise to
cancellation of indebtedness income ("CODI"). The Internal Revenue Code ("IRC"), provides that CODI arising under a plan of
bankruptcy reorganization is excludible from taxable income, but the debtor must reduce certain of its tax attributes by the amount
of CODI realized under the Plan. Our CODI and required tax attribute reduction did not cause a significant change in our recorded
deferred tax liability. Our required reduction in tax attributes, or deferred tax assets, was accompanied by a corresponding release
of valuation allowance that is currently reducing the carrying value of such tax attributes.
We underwent a change in ownership for purposes of Section 382 of the IRC as a result of our Plan and emergence from
Chapter 11 on August 31, 2010. As a result, the amount of our pre-change net operating losses ("NOL's"), and other tax attributes
that are available to offset future taxable income are subject to an annual limitation. The annual limitation is based on the value
of the corporation as of the effective date of the Plan. The ownership change and the resulting annual limitation on use of NOL's
are not expected to result in the expiration of our NOL carryforwards if we are able to generate sufficient future taxable income
within the carryforward periods. However, the limitation on the amount of NOL's available to offset taxable income in a specific
43
year may result in the payment of income taxes before all NOL's have been utilized. Additionally, a subsequent ownership change
may result in further limitation on the ability to utilize existing NOLs and other tax attributes.
Loss from discontinued operations. The results of operations for our sold precast units located in California and Arizona,
as well as our held for sale precast concrete operation in Pennsylvania, have been included in discontinued operations for all periods
presented. In the fourth quarter of 2014, we recorded a loss on impairment of long-lived assets of $0.9 million related to our
Pennsylvania precast concrete operation as the carrying value exceeded the net realizable value of the related long-lived assets.
During 2013, pursuant to the terms of the related asset purchase agreements, we paid Oldcastle and Jensen $1.9 million and $0.5
million, respectively, related to the reacquisition of certain uncollected receivables and settlement of certain accrued liabilities.
Of these amounts, a total of $0.7 million are included as a charge to discontinued operations for 2013.
Segment information
For a discussion of our segments and segment Adjusted EBITDA, see "Basis of Presentation", under this Item 7, earlier in
this report. For a discussion and reconciliation of our segment Adjusted EBITDA, see Note 20, "Business Segments," to our
consolidated financial statements in this report.
Ready-mixed concrete
The following table sets forth key financial information for our ready-mixed concrete segment for the periods indicated:
(amounts in thousands, except selling prices)
Years Ended
December 31,
2014
2013
Increase / (Decrease)
$ or cubic
yards, as
applicable
%
Ready-mixed Concrete Segment
Revenue
Segment revenue as a percentage of total revenue
Adjusted EBITDA
Adjusted EBITDA as a percentage of segment revenue
$
$
632,787
89.9%
84,706
13.4%
$
$
545,302
91.2%
58,583
10.7%
$
$
87,485
16.0%
26,123
44.6%
Ready-mixed Concrete Data:
Average selling price per cubic yard
$
110.85
$
104.03
$
Sales volume in thousands of cubic yards
5,696
5,225
6.82
471
6.6%
9.0%
Revenue. Our ready-mixed concrete sales provided 89.9% of our total revenue in 2014, versus 91.2% in 2013. Segment
revenue for 2014 rose $87.5 million, or 16.0%, over 2013 levels. We estimate that approximately $11.7 million of this increase,
or 13.4%, was due to segment acquisitions during 2014. The 2014 revenue increase was driven primarily by a 9.0% increase in
sales volume, or 0.5 million cubic yards. We estimate that approximately 20.0% of our volume increase was due to 2014 acquisitions.
Increased volume provided $48.9 million, or approximately 55.9%, of our ready-mixed concrete revenue growth. We
also experienced an approximate 6.6% increase in our ready-mixed concrete average selling price per cubic yard during 2014 as
compared to 2013. Increased selling price contributed $38.6 million, or 44.1%, of our revenue growth. Our sales volume was
higher in our Texas and New Jersey / New York markets due to increased construction activity. Volume in our California market
was down slightly during 2014 as compared to 2013 partially due to significant lost weather days in December 2014 due to rain.
However, overall revenue in our California market rose due to increased average selling price. We also saw a volume decline in
our Washington, D.C. market due primarily to the timing of certain projects, partially offset by increased average selling price.
Our average selling price increased in all of our markets.
Adjusted EBITDA. Adjusted EBITDA for our ready-mixed concrete segment rose from $58.6 million in 2013 to $84.7 million
in 2014, an increase of $26.1 million, or 44.6%. We estimate that approximately $1.6 million, or 6.1%, of our 2014 Adjusted
EBITDA increase resulted from our 2014 segment acquisitions. Driving the growth in Adjusted EBITDA was a 9.0% increase in
sales volume plus a 6.6% increase in our average selling price, which resulted in $87.5 million in higher revenue. Partially offsetting
44
the growth in revenue was the 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, and delivery costs, were all higher due to the higher volume.
We also saw higher raw materials prices from our vendors during 2014, which increased our cost of goods sold for 2014. However,
we were generally able to pass these price increases along to our customers. Our fixed plant costs, which consist primarily of
property taxes, equipment rental, and plant management costs, increased during 2014 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 revenues rose to 13.4% in 2014 from 10.7% in the 2013 period, reflecting
primarily the higher revenues and greater efficiencies.
Aggregate products
The following table sets forth key financial information for our aggregate products segment for the periods indicated:
Aggregate Products Segment
Revenue
Segment revenue, excluding intersegment sales, as a
percentage of total revenue
Adjusted EBITDA
Adjusted EBITDA as a percentage of segment revenue
Aggregates Data:
Average selling price per ton
Sales volume in thousands of tons
(amounts in thousands, except selling prices)
Years Ended
December 31,
2014
2013
Increase / (Decrease)
$ or tons, as
applicable
%
$
$
$
52,618
$
38,213
4.5%
10,549
20.0%
3.6%
7,192
18.8%
$
9.40
4,650
8.84
3,597
$
$
$
14,405
37.7%
3,357
46.7%
0.56
1,053
6.3%
29.3%
Revenue. Sales of our aggregate products, excluding intersegment sales of $21.0 million, provided 4.5% of our total revenue
in 2014, compared to 3.6%, excluding intersegment sales of $16.5 million, in 2013. Segment revenue rose $14.4 million, or 37.7%,
over prior year levels. We sell our aggregates to external customers and also sell them internally to our ready-mixed concrete
segment at a market price. Approximately 39.8% of our 2014 aggregates sales, or $21.0 million, were to our ready-mixed concrete
segment, versus 43.2%, or $16.5 million, in 2013. Contributing to our overall aggregates revenue growth was in increase in volume
of 1.1 million tons, which provided $9.3 million, or 64.6%, of our aggregates revenue increase. Our average selling price rose
6.3%, which provided $2.6 million, or 18.1%, of our increase in aggregates revenue. In addition, freight charges to deliver the
aggregates to the external customer, as well as other charges, all of which are included in revenue, increased $2.4 million during
2014 and contributed 16.7% to our aggregates revenue growth.
Adjusted EBITDA. Adjusted EBITDA for our aggregates segment increased to $10.5 million in the 2014 period from $7.2
million in the 2013 period, primarily reflecting the higher sales volume and higher average selling price, partially offset by the
related higher cost of goods sold associated with the increased volume. Our variable costs associated with cost of goods sold,
which includes quarry labor and benefits, utilities, repairs and maintenance, pit costs to prepare the stone and gravel for use, and
delivery costs, all rose due to the higher sales volumes. Our quarry fixed costs, which include primarily property taxes, equipment
rental, and plant management costs, were higher compared to the previous year, primarily due to operating costs associated with
two additional quarries that commenced production during 2014. Overall, our segment Adjusted EBITDA as a percentage of
segment revenue increased to 20.0% in 2014 from 18.8% in 2013, primarily due to the increase in revenue and increased efficiencies.
45
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
The following table sets forth selected historical statement of operations information and that information as a percentage of
revenue for each of the periods indicated, as well as the increase or decrease from the prior year in dollars and percent.
(amounts in thousands, except selling prices)
Years Ended December 31,
Increase / (Decrease)
2013
2012
$
%
Revenue
$
598,155
100.0 % $
517,221
100.0 % $ 80,934
15.6 %
Cost of goods sold before depreciation,
depletion and amortization
Selling, general and administrative
expenses
Depreciation, depletion and amortization
Gain on sale of assets
Income from operations
Interest expense, net
Derivative loss
Gain (loss) on early extinguishment of
debt
Other income, net
Loss from continuing operations
before income taxes
Income tax expense (benefit)
498,660
83.4
441,524
85.4
57,136
12.9
59,424
18,868
(232)
21,435
11,332
9.9
3.2
—
3.6
1.9
58,154
15,538
(649)
2,654
11,344
11.2
3.0
(0.1)
0.5
2.2
(29,964)
(5.0)
(19,725)
(3.8)
985
1,771
(17,105)
1,168
0.2
0.3
(2.9)
0.2
(2,630)
2,944
(28,101)
(3,750)
(0.5)
0.6
(5.4)
(0.7)
1,270
3,330
2.2
21.4
(417)
(64.3)
18,781
(12)
10,239
NM
(0.1)
51.9
3,615
(137.5)
(1,173)
(39.8)
(10,996)
(39.1)
4,918
131.1
Net loss from continuing operations
(18,273)
(3.1)
(24,351)
(4.7)
(6,078)
(25.0)
Loss from discontinued operations,
net of taxes
(1,856)
(0.3)
(1,388)
(0.3)
468
33.7
Net loss
$
(20,129)
(3.4)% $
(25,739)
(5.0)% $
(5,610)
(21.8)%
Ready-mixed Concrete Data:
Average selling price per cubic yard
$
104.03
$
Sales volume in cubic yards
Aggregates Data:
Average selling price per ton
$
Sales volume in tons
5,225
8.84
3,597
$
97.59
4,839
7.89
3,407
$
$
6.44
386
0.95
190
6.6 %
8.0 %
12.0 %
5.6 %
Revenue. Our 2013 total revenue grew by $80.9 million, or 15.6%, from $517.2 million in 2012 to $598.2 million in 2013,
primarily due to increased sales of ready-mixed concrete. Ready-mixed concrete sales increased $71.5 million, or 15.1%, from
$473.8 million in 2012 to $545.3 million in 2013, driven by an 8.0% volume increase and a 6.6% increase in our average selling
price. Sales of aggregates rose to $38.2 million in 2013 from $32.0 million in 2012, an increase of $6.2 million, or 19.4%, due to
a 5.6% increase in volume and a 12.0% increase in average selling price. Other product revenues and eliminations, which includes
our building materials, lime slurry, hauling business, and eliminations of our intersegment sales, increased by $3.2 million, or
28.2%, to $14.6 million in 2013 from $11.4 million in 2012, primarily due to increased building materials sales.
Cost of goods sold before depreciation, depletion and amortization. Cost of goods sold before DD&A, increased $57.1
million, or 12.9%, from $441.5 million in 2012 to $498.7 million in 2013. Our costs were higher primarily due to volume growth
46
in our two segments - ready-mixed concrete and aggregates - resulting in higher material costs, delivery costs, and plant variable
costs, which includes primarily labor and benefits, utilities, and repairs and maintenance. Plant fixed costs, which primarily consists
of leased equipment costs, property taxes, dispatch costs, and plant management, increased slightly over the prior year. As a
percentage of revenue, cost of goods sold before DD&A decreased by 2.0% in 2013 from 2012, as we were able to achieve greater
efficiencies from our increased sales volume.
Selling, general and administrative expenses. SG&A expenses increased $1.3 million, or 2.2%, in 2013 from $58.2 million
in 2012 to $59.4 million in 2013. Our increased 2013 SG&A costs primarily resulted from a $2.9 million increase in non-cash
stock compensation and $1.2 million in higher bonus accruals. These increases were partially offset by lower 2013 costs associated
with the relocation of our corporate headquarters from Houston, Texas to Euless, Texas during 2012, which totaled $0.5 million
in 2013 compared to $2.5 million in 2012, as well as lower legal and professional fees, which includes fees related to our acquisitions
and divestitures. As a percentage of total revenue, SG&A expenses decreased to 9.9% in 2013 from 11.2% in 2012.
Gain on sale of assets. We recorded a gain on sale of assets of $0.2 million in 2013 versus $0.6 million in 2012. Our gain
on sale of assets in 2013 included sales of excess vehicles and equipment. In 2012, we sold certain of our land and buildings in
northern California during the fourth quarter.
Depreciation, depletion and amortization. DD&A expense for 2013 increased $3.3 million, or 21.4%, to $18.9 million in
2013, from $15.5 million in 2012, primarily due to the full year impact of DD&A for the Bode assets acquired in October 2012.
Income from operations. Income from operations rose $18.8 million to $21.4 million in 2013 from $2.7 million in 2012.
Increased revenue from both higher volume and higher pricing resulted in increased efficiencies that led to improvements in income
from operations as a percentage of revenue, which we refer to as operating margins. Operating margins increased to 3.6% for 2013
compared to 0.5% for 2012.
Interest expense, net. Net interest expense for 2013 was flat at $11.3 million for both 2013 and 2012, reflecting interest on
borrowings under our credit facilities, interest on our notes, and non-cash amortization of our deferred financing costs and the
interest component of the Bode Earn-out. The 2012 period also included amortization of the discount on our Convertible Notes,
most of which were exchanged or converted to shares of common stock during 2013.
Derivative loss. For the 2013 period, we recorded a non-cash loss on derivatives of $30.0 million related to fair value changes
in our warrants and our Convertible Notes. This was a $10.2 million increase from the 2012 period, when we recorded a non-cash
loss on derivatives of $19.7 million. All derivatives are required to be recorded on the balance sheet at their fair values in accordance
with U.S. GAAP. Each quarter, we determine the fair value of our derivative liabilities and any changes result in income or loss
for the period. The key inputs in determining fair value of our derivative liabilities include our stock price, stock price volatility,
risk free interest rates and interest rates for conventional debt of similarly situated companies. Changes in these inputs will impact
the valuation of our derivatives and result in income or loss each quarterly period. For the year ended December 31, 2013, we
recorded a non-cash loss from fair value changes in our Convertible Notes embedded derivative of approximately $13.1 million,
primarily due to an increase in the price of our common stock and changes in our stock price volatility. Most of the $13.1 million
non-cash loss for the 2013 period relates to the fair value adjustment to the $55.0 million of Convertible Notes that were outstanding
immediately prior to the completion of the Exchange Offer that occurred during March 2013. Following the Conversion Termination
Date in August 2013, the conversion feature associated with our remaining $0.1 million of Convertible Notes was eliminated; thus
no fair value adjustment was recorded on the Convertible Notes during the second half of 2013. The remaining Convertible Notes
are not subject to future fair value adjustments. For 2013, we also recorded a non-cash loss from fair value changes in the warrants
of approximately $16.9 million due primarily to the increase in the price of our common stock. For the year ended December 31,
2012, we recorded a non-cash loss from fair value changes in our Convertible Notes embedded derivative of approximately $15.5
million, primarily due to an increase in the price of our common stock and changes in our stock price volatility. In addition, we
recorded a non-cash loss from fair value changes in the warrants during 2012 of approximately $4.2 million due primarily to the
increase in the price of our common stock.
Gain (loss) on extinguishment of debt. In 2013, we recorded a net $1.0 million non-cash gain on extinguishment of debt.
This consisted of $4.3 million of non cash gain related to the Exchange Offer of our Convertible Notes that were exchanged for
2013 Notes in March 2013, $1.7 million in non-cash loss associated with the Conversion Event, and $1.6 million in non-cash loss
associated with the subsequent extinguishment of our 2013 Notes following receipt of the proceeds of our $200 million 2018 Notes
offering in November 2013. In the third quarter of 2012, we recorded a $2.6 million non-cash loss from the write-off of the
unamortized balance of our deferred costs from our prior 2010 credit agreement that was terminated concurrently with the signing
47
of the credit agreement that was entered into on August 31, 2012.
Other income, net. Other income for the 2013 period was $1.8 million compared to $2.9 million for the 2012 period. The
decrease from 2012 was primarily due to the receipt in 2012 of $0.5 million in royalty payments related to mineral rights on a
property in west Texas, and the receipt of $0.6 million for an insurance settlement related to litigation filed in previous years for
which no benefit was expected to be received by the Company.
Income tax expense (benefit). We recorded an income tax expense (benefit) allocated to continuing operations of
approximately $1.2 million and $(3.8) million for the years ended December 31, 2013 and December 31, 2012, respectively. Our
effective tax rate differs substantially from the federal statutory rate primarily due to the application of a valuation allowance that
reduced the recognized benefit of our deferred tax assets. In addition, certain state income taxes are calculated on bases different
than pre-tax income (loss). This resulted in recording income tax expense in certain states that experience a pre-tax loss.
In accordance with U.S. GAAP, intra-period tax allocation provisions require allocation of a tax expense to continuing
operations due to current income (loss) from discontinued operations. We recorded tax expense of $1.2 million in loss from
continuing operations for the year ended December 31, 2013 and a tax benefit of $3.8 million in loss from continuing operations
for the year ended December 31, 2012. We recorded a tax benefit of less than $0.1 million allocated to discontinued operations
for both the years ended December 31, 2013 and 2012. The income tax amounts for continuing operations referred to above
include the offsetting intra-period allocations. The intra-period tax allocation between the results from continuing operations and
discontinued operations in the years ended December 31, 2013 and 2012 nets to $0.
We reorganized pursuant to Chapter 11 of the bankruptcy code under the terms of our Plan, with an effective date of August
31, 2010. Under our Plan, our previously outstanding 8.375% Senior Subordinated Notes due 2014 were cancelled, giving rise to
CODI. The IRC provides that CODI arising under a plan of bankruptcy reorganization is excludible from taxable income, but the
debtor must reduce certain of its tax attributes by the amount of CODI realized under the Plan. Our CODI and required tax attribute
reduction did not cause a significant change in our recorded deferred tax liability. Our required reduction in tax attributes, or
deferred tax assets, was accompanied by a corresponding release of valuation allowance that is currently reducing the carrying
value of such tax attributes.
We underwent a change in ownership for purposes of Section 382 of the IRC as a result of our Plan and emergence from
Chapter 11 on August 31, 2010. As a result, the amount of our pre-change NOL's, and other tax attributes that are available to
offset future taxable income are subject to an annual limitation. The annual limitation is based on the value of the corporation as
of the effective date of the Plan. The ownership change and the resulting annual limitation on use of NOL's are not expected to
result in the expiration of our NOL carryforwards if we are able to generate sufficient future taxable income within the carryforward
periods. However, the limitation on the amount of NOL's available to offset taxable income in a specific year may result in the
payment of income taxes before all NOL's have been utilized. Additionally, a subsequent ownership change may result in further
limitation on the ability to utilize existing NOL's and other tax attributes.
Gain (loss) from discontinued operations. The results of operations for our sold precast units located in California and
Arizona, as well as our held for sale precast operation in Pennsylvania, have been included in discontinued operations for 2013
and 2012.
On December 17, 2012, we completed the sale of substantially all of our assets associated with Smith located in Phoenix,
Arizona, to Jensen for $4.3 million in cash and the assumption of certain obligations. The assets purchased by Jensen included
certain facilities, fixed assets, and working capital items. In addition, Jensen assumed the obligations of a capital lease previously
held by Smith. We recognized a $0.6 million gain in the fourth quarter of 2012 from the sale of these operations.
On August 2, 2012, we executed a definitive asset purchase agreement to sell substantially all of the Company's California
precast operations to Oldcastle for $21.3 million in cash, plus net working capital adjustments. The assets purchased by Oldcastle
included certain facilities, fixed assets, and working capital items. The transaction was completed on August 20, 2012. For 2012,
we recognized a $1.5 million gain from the sale of these operations. The gain and income tax expense for these units have been
included in discontinued operations for the periods presented.
During 2013, pursuant to the terms of the related asset purchase agreements, we paid Oldcastle and Jensen $1.9 million and
$0.5 million, respectively, related to the reacquisition of certain uncollected receivables and settlement of certain accrued liabilities.
Of these amounts, a total of $0.7 million are included as a charge to discontinued operations for 2013.
48
Segment information
For a discussion of our segments and segment Adjusted EBITDA, see "Basis of Presentation", under this Item 7, earlier in
this report. For a discussion and reconciliation of our segment Adjusted EBITDA, see Note 20, "Business Segments," to our
consolidated financial statements in this report.
Ready-mixed concrete
The following table sets forth key financial information for our ready-mixed concrete segment for the periods indicated:
(amounts in thousands, except selling prices)
Years Ended
December 31,
2013
2012
Increase / (Decrease)
$ or cubic
yards, as
applicable
%
Ready-mixed Concrete Segment
Revenue
Segment revenue as a percentage of total revenue
Adjusted EBITDA
Adjusted EBITDA as a percentage of segment revenue
$
$
545,302
91.2%
58,583
10.7%
$
$
473,807
91.6%
41,486
8.8%
Ready-mixed Concrete Data:
Average selling price per cubic yard
Sales volume in thousands of cubic yards
$
104.03
$
5,225
97.59
4,839
$
$
$
71,495
15.1%
17,097
41.2%
6.44
386
6.6%
8.0%
Revenue. Our ready-mixed concrete sales provided 91.2% of our total revenue in 2013, versus 91.6% in 2012. Segment
revenue for 2013 rose $71.5 million, or 15.1%, over 2012 levels. This increase was driven primarily by an 8.0% increase in sales
volume, or 0.4 million cubic yards. Increased volume provided $37.7 million, or approximately 52.7%, of our ready-mixed
concrete revenue growth. We also experienced an approximate 6.6% increase in our ready-mixed concrete average selling price
per cubic yard during 2013 as compared to 2012. Increased selling price contributed $33.6 million, or 47.1%, of our revenue
growth. Our volume was higher in all of our major markets, excluding west Texas, which was down slightly versus prior year due
to more lost weather days during the fourth quarter of 2013 than in the fourth quarter of 2012. Our average selling price increased
in all of our major markets, except for the New Jersey / New York area, which was down slightly in 2013 due to a combination of
increased competitive pressure in New York and higher volume in New Jersey, which carries a lower average selling price than
New York.
Adjusted EBITDA. Adjusted EBITDA for our ready-mixed concrete segment rose from $41.5 million in the 2012 period to
$58.6 million in the 2013 period, an increase of $17.1 million, or 41.2%. Driving this growth was an 8.0% increase in sales volume
plus a 6.6% increase in our average selling price, which resulted in $71.5 million in higher revenue. Partially offsetting the growth
in revenue was the 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, and delivery costs, were all up due to the higher volume. We also saw
higher raw materials prices from our vendors during 2013, which increased our cost of goods sold for 2013. However, we were
generally able to pass these price increases along to our customers. Our fixed plant costs, which consist primarily of property
taxes, equipment rental, and plant management costs, rose slightly over the 2012 period. Segment Adjusted EBITDA as a percentage
of segment revenues rose to 10.7% in 2013 from 8.8% in the 2012 period, reflecting primarily the higher revenues and greater
efficiencies.
49
Aggregate products
The following table sets forth key financial information for our aggregate products segment for the periods indicated:
Aggregate Products Segment
Revenue
Segment revenue, excluding intersegment sales, as a
percentage of total revenue
Adjusted EBITDA
Adjusted EBITDA as a percentage of segment revenue
Aggregates Data:
Average selling price per ton
Sales volume in thousands of tons
(amounts in thousands, except selling prices)
Year Ended
December 31,
2013
2012
Increase / (Decrease)
$ or tons, as
applicable
%
$
$
$
38,213
$
31,997
3.5%
7,192
18.8%
3.4%
4,142
12.9%
$
8.84
3,597
7.89
3,407
$
$
$
6,216
19.4%
3,050
73.6%
0.95
190
12.0%
5.6%
Revenue. Sales of our aggregate products, excluding intersegment sales of $16.5 million, provided 3.5% of our total revenue
in 2013, compared to 3.4%, excluding intersegment sales of $13.7 million, in 2012. Segment revenue rose $6.2 million, or 19.4%,
over prior year levels. We sell our aggregates to external customers and also sell them internally to our ready-mixed concrete
segment at a market price. Approximately 43.2% of our 2013 aggregates sales, or $16.5 million, were to our ready-mixed concrete
segment, versus 42.9%, or $13.7 million, in 2012. Contributing to our overall aggregates revenue growth was in increase in volume
of 0.2 million tons, which provided $1.5 million, or 24.1%, of our aggregates revenue increase. Our average selling price rose
12.0%, which provided $3.4 million, or 55.0%, of our increase in aggregates revenue. In addition, freight charges to deliver the
aggregates to the external customer, as well as other charges, all of which are included in revenue, increased $1.3 million during
2013 and contributed 21.0% to our aggregates revenue growth.
Adjusted EBITDA. Adjusted EBITDA for our aggregates segment increased to $7.2 million in the 2013 period from $4.1
million in the 2012 period, primarily reflecting the higher sales volume and higher average selling price, partially offset by the
related higher cost of goods sold associated with the increased volume. Our variable costs associated with cost of goods sold,
which includes quarry labor and benefits, utilities, repairs and maintenance, pit costs to prepare the stone and gravel for use, and
delivery costs, all rose due to the higher sales volumes. Our quarry fixed costs, which include primarily property taxes, equipment
rental, and plant management costs, were flat compared to the prior year. Overall, our segment Adjusted EBITDA as a percentage
of segment revenue increased to 18.8% in 2013 from 12.9% in 2012, primarily due to the increase in revenue and increased
efficiencies.
Critical Accounting Policies and Estimates
Preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses. Note 1, "Organization and Summary of Significant Accounting Policies," to our
consolidated financial statements included in this report describes the significant accounting policies we use in preparing those
statements. We believe the most complex and sensitive judgments, because of their significance to our financial statements, result
primarily from the need to make estimates about the effects of matters that are inherently uncertain. We have listed below those
policies which we believe are critical and involve complex judgment in their application to our financial statements. Actual results
in these areas could differ from our estimates.
Goodwill
We record as goodwill the amount by which the total purchase price we pay in our acquisition transactions exceeds our
estimated fair value of the identifiable net assets we acquire. We test goodwill for impairment on an annual basis, or more often
50
if events or circumstances indicate that there may be impairment. We generally test for goodwill impairment in the fourth quarter
of each year, using a two-step process, which requires us to make certain judgments and assumptions in our calculations. The first
step of the process involves estimating the fair value of our reporting units and comparing the result to the reporting unit's carrying
value. We estimate fair value using an equally weighted combination of discounted cash flows and multiples of revenue and
EBITDA. The discounted cash flow model includes forecasts for revenue and cash flows discounted at our weighted average cost
of capital. Multiples of revenue and EBITDA are calculated using the trailing twelve months results compared to the enterprise
value of the Company, which is determined based on the combination of the market value of our capital stock and total outstanding
debt. If the fair value exceeds the carrying value, the second step is not performed and no impairment is recorded. If however,
the fair value is below the carrying value, a second step is performed to calculate the amount of the impairment by measuring the
goodwill at an implied fair value. We completed our annual assessment of impairment during the fourth quarter of 2014 for those
units with goodwill as of January 1, 2014, and there was no impairment. In the absence of any evidence to the contrary, we consider
goodwill resulting from acquisitions in the current year to be recorded at fair value and not impaired, as the arm's length transactions
that generated the goodwill were completed at a market rate. Our fair value estimates were determined using estimates and
assumptions we believed to be reasonable at the time. Changes in those assumptions or estimates could impact the calculated
fair value of the reporting units. See Note 4, "Goodwill and Intangible Assets, Net," to our consolidated financial statements
included in this report for additional information about our goodwill.
Impairment of Long-Lived Assets
We evaluate the recoverability of our long-lived assets when changes in circumstances indicate that the carrying amount of
the asset may not be recoverable in accordance with authoritative accounting guidance related to the impairment or disposal of
long-lived assets. We compare the carrying values of long-lived assets to our projection of future undiscounted cash flows
attributable to those assets. If the carrying value of a long-lived asset exceeds the future undiscounted cash flows we project will
be derived from that asset, we record an impairment loss equal to the excess of the carrying value over the fair value. Actual useful
lives and future cash flows could be different from those we estimate. These differences could have a material effect on our future
operating results.
Insurance Programs
We maintain third-party insurance coverage in amounts and against the risks we believe are reasonable. We share the risk of
loss with our insurance underwriters by maintaining high deductibles subject to aggregate annual loss limitations. We believe our
workers’ compensation, automobile and general liability per occurrence retentions are consistent with industry practices, although
there are variations among our business units. We fund these deductibles and record an expense for losses we expect under the
programs. We determine the expected losses 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
and settlement patterns, judicial decisions, new legislation and economic conditions. Although we believe the estimated losses
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 was $9.5 million as of December 31, 2014, compared to $8.6
million as of December 31, 2013, which is classified in accrued liabilities. The increase in 2014 was primarily attributable to
increased loss reserves.
Income Taxes
We use the liability method of accounting for income taxes. Under this method, we record deferred income taxes based on
temporary differences between the financial reporting and tax bases of assets and liabilities and use enacted tax rates and laws that
we expect will be in effect when we recover those assets or settle those liabilities, as the case may be, to measure those taxes. In
cases where the expiration date of tax loss carryforwards or the projected operating results indicate that realization is not likely,
we provide for a valuation allowance.
We have deferred tax assets, resulting from deductible temporary differences that may reduce taxable income in future
periods. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be
realized. In assessing the need for a valuation allowance, we estimate future taxable income, considering the feasibility of ongoing
tax-planning strategies and the realizability of tax loss carryforwards. Valuation allowances related to deferred tax assets can be
impacted by changes in tax laws, changes in statutory tax rates and future taxable income levels. If we were to determine that we
would not be able to realize all or a portion of our deferred tax assets in the future, we would reduce such amounts through a charge
to income in the period in which that determination is made. Conversely, if we were to determine that we would be able to realize
51
our deferred tax assets in the future in excess of the net carrying amounts, we would decrease the recorded valuation allowance
through an increase to income in the period in which that determination is made. Based on the assessment, we recorded a valuation
allowance of $34.9 million at December 31, 2014 and $44.5 million at December 31, 2013. In determining the valuation allowance
in 2014 and 2013, we used such factors as (i) cumulative federal taxable losses, (ii) the amount of deferred tax liabilities that we
generally expect to reverse in the same period and jurisdiction that are of the same character as the temporary differences giving
rise to our deferred tax assets and (iii) certain tax contingencies under authoritative accounting guidance related to accounting for
uncertainty in income taxes which, should they materialize, would be offset by our net operating loss generated in 2008 through
2013. We provided a valuation allowance in 2014 and 2013 related to certain federal and state income tax attributes we did not
believe we could utilize within the tax loss carryforward periods.
In the ordinary course of business there is inherent uncertainty in quantifying our income tax positions. We assess our income
tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts,
circumstances and information available at the reporting date. For those tax positions where it is more likely than not that a tax
benefit will be sustained, we have recorded the highest amount of tax benefit with a greater than 50% likelihood of being realized
upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions
where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial
statements. See Note 17, "Income Taxes," to our consolidated financial statements included in this report for further discussion.
Derivative Instruments
We are exposed to certain risks relating to our ongoing business operations. However, derivative instruments are not used to
hedge these risks. We are required to account for derivative instruments as a result of the issuance of the Warrants and Convertible
Notes on August 31, 2010. All of our derivative liability related to our Convertible Notes was extinguished during 2013 as a result
of the Conversion Event and the Exchange Offer. None of our derivatives manage business risk or are executed for speculative
purposes. All derivatives are required to be recorded on the balance sheet at their fair values. Each quarter, we determine the fair
value of our derivative liabilities, and changes result in gain or loss. Fair value is estimated using a Black-Scholes model for the
Warrants. The key inputs in determining fair value of our derivative liabilities of $25.2 million and $21.7 million at December 31,
2014 and 2013, respectively, include our stock price, stock price volatility, risk free interest rates and interest rates for conventional
debt of similarly situated companies. Changes in these inputs will impact the valuation of our derivatives and result in gain or
loss each quarterly period. See Note 11, "Derivatives," to our consolidated financial statements included in this report for additional
information about our derivatives.
Other
We record accruals for legal and other contingencies when estimated future expenditures associated with those contingencies
become probable and the amounts can be reasonably estimated. However, new information may become available, or circumstances
(such as applicable laws and regulations) may change, thereby resulting in an increase or decrease in the amount required to be
accrued for such matters (and, therefore, a decrease or increase in reported net income in the period of such change).
Recent Accounting Pronouncements
For a discussion of recently adopted accounting standards, see Note 1, "Organization and Summary of Significant Accounting
Policies," to our consolidated financial statements included in this report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain risks relating to our ongoing business operations. However, derivative instruments are not used to
hedge these risks. At December 31, 2014, we were required to account for our Warrants as derivative instruments. All derivatives
are required to be recorded on the balance sheet at their fair values. None of our derivatives manage business risk or are entered
into for speculative purposes. Each quarter, we determine the fair value of our derivative liabilities, and changes result in a gain
or loss. The key inputs in determining fair value of our derivative liabilities of $25.2 million at December 31, 2014, include our
stock price, stock price volatility, risk free interest rates and interest rates for conventional debt of similarly situated companies.
Changes in these inputs will impact the valuation of our derivatives and result in gain or loss each quarterly period.
52
A 5% increase in the stock price, volatility and risk free interest rates would increase the value of our warrant derivative
liability by approximately $4.0 million, resulting in a loss in the same amount. A 5% decrease in these same factors would result
in a decrease in the Warrant derivative liability of approximately $3.9 million, and a gain of the same amount. During the year
ended December 31, 2014, we recorded a non-cash loss from fair value changes in our Warrants of approximately $3.6 million.
The loss was due primarily to an increase in the price of our common stock and changes in our stock price volatility.
Borrowings under our Revolving Facility expose us to certain market risks. Interest on amounts drawn varies based on the
floating rates under the agreement. As we had no outstanding borrowings under this facility as of December 31, 2014, a one
percent change in the applicable rate would not change our annual interest expense.
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 has had and may continue
to have a material adverse effect on our consolidated revenues and earnings.
53
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
55
56
57
58
59
61
54
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
U.S. Concrete, Inc.
We have audited the accompanying consolidated balance sheets of U.S. Concrete, Inc. (a Delaware corporation) and subsidiaries
(the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, changes in equity, and
cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of U.S. Concrete, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in
the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of December 31, 2014, based on criteria established in the 2013 Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and
our report dated March 6, 2015 expressed an unqualified opinion.
/s/ GRANT THORNTON LLP
Dallas, Texas
March 6, 2015
55
U.S. CONCRETE, INC. AND SUBSIDARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, including share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Trade accounts receivable, net
Inventories
Deferred income taxes
Prepaid expenses
Other receivables
Assets held for sale
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Other assets
Total assets
Current liabilities:
Accounts payable
Accrued liabilities
LIABILITIES AND EQUITY
Current maturities of long-term debt
Derivative liabilities
Liabilities held for sale
Total current liabilities
Long-term debt, net of current maturities
Other long-term obligations and deferred credits
Deferred income taxes
Total liabilities
Commitments and contingencies (Note 23)
Equity:
Preferred stock, $0.001 par value per share (10,000 shares authorized; none issued)
Common stock, $0.001 par value per share (100,000 shares authorized; 14,675 and 14,450
shares issued, respectively; and 13,978 and 14,036 shares outstanding, respectively)
Additional paid-in capital
Accumulated deficit
Treasury stock, at cost (697 and 414 common shares, respectively)
Total equity
Total liabilities and equity
December 31,
2014
2013
$
30,202
$
112,667
114,902
31,722
1,887
3,965
6,519
3,779
301
193,277
176,524
50,757
31,720
8,250
92,163
27,610
708
3,416
3,205
—
2,457
242,226
138,560
11,646
13,073
8,485
$
460,528
$
413,990
$
48,705
$
50,391
5,104
25,246
902
130,348
215,333
6,940
6,427
38,518
42,950
3,990
21,690
—
107,148
210,154
7,921
5,040
359,048
330,263
—
15
156,745
(42,743)
(12,537)
101,480
—
14
152,695
(63,325)
(5,657)
83,727
$
460,528
$
413,990
The accompanying notes are an integral part of these consolidated financial statements.
56
U.S. CONCRETE, INC. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Years Ended December 31,
2013
2012
2014
Revenue
$
703,714
$
598,155
$
Cost of goods sold before depreciation, depletion and amortization
573,318
498,660
Selling, general and administrative expenses
Depreciation, depletion and amortization
Gain on sale of assets
Income from operations
Interest expense, net
Derivative loss
Gain (loss) on early extinguishment of debt
Other income, net
Income (loss) from continuing operations before income taxes
Income tax expense (benefit)
Net income (loss) from continuing operations
Loss from discontinued operations, net of taxes
Net income (loss)
Basic income (loss) per share:
Income (loss) from continuing operations
Loss from discontinued operations, net of income tax
Net income (loss) per share - basic
Diluted income (loss) per share:
Income (loss) from continuing operations
Loss from discontinued operations, net of taxes
Net income (loss) per share - diluted
Weighted average shares outstanding:
Basic
Diluted
61,850
23,849
(625)
45,322
20,431
(3,556)
11
2,385
23,731
2,156
21,575
(993)
20,582
1.59
(0.07)
1.52
1.55
(0.07)
1.48
$
$
$
$
$
59,424
18,868
(232)
21,435
11,332
(29,964)
985
1,771
(17,105)
1,168
(18,273)
(1,856)
(20,129) $
(1.42) $
(0.14)
(1.56) $
(1.42) $
(0.14)
(1.56) $
$
$
$
$
517,221
441,524
58,154
15,538
(649)
2,654
11,344
(19,725)
(2,630)
2,944
(28,101)
(3,750)
(24,351)
(1,388)
(25,739)
(2.00)
(0.11)
(2.11)
(2.00)
(0.11)
(2.11)
13,541
13,898
12,917
12,917
12,203
12,203
The accompanying notes are an integral part of these consolidated financial statements.
57
U.S. CONCRETE, INC. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands)
Common Stock
# of
Shares
Par
Value
Additional
Paid-In
Capital
Accumulated
Deficit
Treasury
Stock
Total
Equity
(Deficit)
$
133,939
$
2,512
(17,457) $
—
BALANCE, January 1, 2012
12,867
$
Stock-based compensation
Restricted stock vesting
Restricted stock grants
Other treasury share purchases
Net loss
—
117
432
(58)
—
BALANCE, December 31, 2012
13,358
$
Stock-based compensation
Restricted stock vesting
Restricted stock grants
Stock options exercised
Conversion of convertible debt
Other treasury share purchases
Net loss
—
183
166
17
608
(296)
—
BALANCE, December 31, 2013
14,036
$
Stock-based compensation
Restricted stock vesting
Restricted stock grants
Stock options exercised
Warrants exercised
Share repurchase program
Other treasury share purchases
Net income
—
28
169
27
1
(200)
(83)
—
BALANCE, December 31, 2014
13,978
$
13
—
—
—
—
—
13
—
—
—
—
1
—
—
14
—
—
1
—
—
—
—
—
15
—
—
—
—
$
136,451
$
5,429
—
—
224
10,591
—
—
$
152,695
$
3,655
—
—
377
18
—
—
—
$
156,745
$
—
—
—
(25,739)
(43,196) $
—
—
—
—
—
—
(20,129)
(63,325) $
—
—
—
—
—
—
—
(415) $
—
—
—
(329)
—
(744) $
—
—
—
—
—
(4,913)
—
(5,657) $
—
—
—
—
—
(4,824)
(2,056)
—
116,080
2,512
—
—
(329)
(25,739)
92,524
5,429
—
—
224
10,592
(4,913)
(20,129)
83,727
3,655
—
1
377
18
(4,824)
(2,056)
20,582
101,480
20,582
(42,743) $ (12,537) $
The accompanying notes are an integral part of these consolidated financial statements.
58
U.S. CONCRETE, INC. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion and amortization
Debt issuance cost amortization
(Gain) loss on extinguishment of debt
Amortization of facility exit costs
Amortization of discount on long-term incentive plan and other accrued interest
Net loss on derivative
Loss on impairment of long-lived assets
Net gain on sale of assets
Deferred income taxes
Deferred rent
Provision for doubtful accounts and customer disputes
Facility exit costs
Stock-based compensation
Changes in assets and liabilities, excluding effects of acquisitions:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Other assets and liabilities, net
Accounts payable and accrued liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment
Payments for acquisitions
Proceeds from disposals of property, plant and equipment
(Payments for) proceeds from disposals of business units
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolver borrowings
Repayments of revolver borrowings
Proceeds from debt issuance
Repayments of debt
Proceeds from exercise of stock options and warrants
Payments of other long-term obligations
Payments for other financing
Debt issuance costs
Payments for share repurchases
Other treasury share purchases
Net cash (used in) provided by financing activities
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
59
Years Ended December 31,
2013
2012
2014
$
20,582
$
(20,129) $
(25,739)
23,849
1,679
(11)
—
425
3,556
900
(1,265)
864
—
1,533
—
3,655
(13,466)
(2,534)
217
(380)
11,311
50,915
(32,584)
(89,602)
3,708
—
(118,478)
213
(213)
—
—
396
(2,250)
(5,194)
(974)
(4,824)
(2,056)
(14,902)
(82,465)
112,667
30,202
$
19,016
2,164
(985)
(142)
512
29,964
—
(13)
818
510
1,103
—
5,429
(8,982)
(2,574)
2,497
(2,732)
(2,276)
24,180
(19,988)
(4,410)
627
(2,333)
(26,104)
137,302
(150,602)
200,000
(61,113)
224
—
(1,995)
(9,063)
—
(4,913)
109,840
107,916
4,751
112,667
$
16,328
4,089
2,630
(89)
104
19,725
—
(2,803)
(4,014)
—
1,304
358
2,512
(4,858)
(209)
(2,405)
(338)
4,127
10,722
(8,405)
(28,578)
5,155
27,022
(4,806)
172,546
(174,509)
—
—
—
—
(1,277)
(1,825)
—
(329)
(5,394)
522
4,229
4,751
U.S. CONCRETE, INC. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest
Cash paid for income taxes
Supplemental Disclosure of Non-cash Investing and Financing Activities:
Conversion of convertible debt to equity
Capital expenditures funded by capital leases and promissory notes
Years Ended December 31,
2014
2013
2012
$
$
$
$
18,636
1,464
$
$
7,324
305
— $
6,381
11,161
$
11,891
$
$
$
$
7,258
263
—
—
The accompanying notes are an integral part of these consolidated financial statements.
60
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Our Company, a Delaware corporation, provides ready-mixed concrete, aggregates and concrete-related products and services
to the construction industry in several major markets in the United States. U.S. Concrete, Inc. is a holding company and conducts
its businesses through its consolidated subsidiaries. In these notes to consolidated financial statements (these "Notes"), we refer
to U.S. Concrete, Inc. and its subsidiaries as "we," "us," the "Company," or "U.S. Concrete" unless we specifically state otherwise
or the context indicates otherwise.
Basis of Presentation
The consolidated financial statements consist of the accounts of U.S. Concrete, Inc. and its wholly owned subsidiaries. All
significant intercompany account balances and transactions have been eliminated.
During 2014, we completed nine acquisitions consisting of seven standard ready-mixed concrete plants and related assets, 16
volumetric ready-mixed concrete facilities, 109 volumetric ready-mixed concrete trucks and related assets, and leases to operate
two aggregate distribution terminals in New York and related assets and liabilities (see Note 2). All of the assets acquired and
liabilities assumed were recorded at their respective fair values as of the date of the acquisition, and the results of operations are
included in the consolidated financial statements from the respective dates of acquisition.
In January 2014, our Board of Directors (the "Board") approved the sale of our one remaining precast concrete operation in
Pennsylvania. Accordingly, we have classified this operation's assets and liabilities as held for sale in the accompanying condensed
consolidated balance sheet effective with the first quarter of 2014. The results of operations for this unit has been included in
discontinued operations for the periods presented.
On July 26, 2013, we acquired three ready-mixed concrete plants and related assets in our north Texas market from Bodin
Concrete, L.P. ("Bodin") (see Note 2). All of the assets acquired were recorded at their respective fair values as of the date of the
acquisition, and the results of operations are included in the consolidated financial statements from the date of acquisition.
On December 17, 2012, we completed the sale of substantially all of our assets associated with our Smith Precast operations
("Smith") located in Phoenix, Arizona, to Jensen Enterprises, Inc. ("Jensen") (see Note 2). The results of operations for this unit
have been included in discontinued operations for the periods presented.
On October 30, 2012, we completed the acquisition of all the outstanding equity interests of Bode Gravel Co., a California
subchapter S corporation ("Bode Gravel"), and Bode Concrete LLC, a California limited liability company ("Bode Concrete" and,
together with Bode Gravel, the "Bode Companies"), pursuant to an equity purchase agreement (see Note 2). All of the assets
acquired and liabilities assumed were recorded at their respective fair values as of the date of the acquisition, and the results of
operations are included in the consolidated financial statements from the date of acquisition.
On September 14, 2012, we purchased four ready-mixed concrete plants and related assets and inventory from Colorado River
Concrete L.P., Cindy & Robin Concrete, L.P. and E&R Artecona Family Limited Partnership (collectively, "CRC") (see Note 2).
All of the assets acquired were recorded at their respective fair values as of the date of the acquisition, and the results of operations
are included in the consolidated financial statements from the date of acquisition.
On August 20, 2012, we completed the sale of substantially all of our California precast operations to Oldcastle Precast, Inc.
("Oldcastle") (see Note 2). The results of operations for these units have been included in discontinued operations for the periods
presented.
Assets and Liabilities Held for Sale
We classify long-lived assets (disposal groups) to be sold as held for sale in the period in which all of the following criteria
are met: management, having the authority to approve the action, commits to a plan to sell the asset (disposal group); the asset
(disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales
61
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
of such assets (disposal groups); an active program to locate a buyer and other actions required to complete the plan to sell the
asset (disposal group) have been initiated; the sale of the asset (disposal group) is probable, and transfer of the asset (disposal
group) is expected to qualify for recognition as a completed sale within one year, except if events or circumstances beyond our
control extend the period of time required to sell the asset (disposal group) beyond one year; the asset (disposal group) is being
actively marketed for sale at a price that is reasonable in relation to its current fair value; and actions required to complete the plan
indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
We initially measure a long-lived asset (disposal group) that is classified as held for sale at the lower of its carrying value or
fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held-for-sale
criteria are met. Conversely, gains are not recognized on the sale of a long-lived asset (disposal group) until the date of sale. We
assess the fair value of a long-lived asset (disposal group) less any costs to sell each reporting period it remains classified as held
for sale and report any subsequent changes as an adjustment to the carrying value of the asset (disposal group), as long as the new
carrying value does not exceed the carrying value of the asset at the time it was initially classified as held for sale.
Upon determining that a long-lived asset meets the criteria to be classified as held for sale, we report the assets and liabilities
of the disposal group, if material, in the line items assets held for sale and liabilities held for sale, respectively, in our consolidated
balance sheet.
Cash and Cash Equivalents
We record as cash equivalents all highly liquid investments having maturities of three months or less at the date of purchase.
Our cash equivalents may include money market accounts, certificates of deposit and commercial paper of highly rated corporate
or government issuers. We classify our cash equivalents as held-to-maturity. Cash equivalents are stated at cost plus accrued
interest, which approximates market value. The maximum amount placed in any one financial institution is limited in order to
reduce risk. At times, our investments may be in excess of amounts insured by the Federal Deposit Insurance Corporation. We
have not experienced any losses on these accounts. Cash held as collateral or escrowed for contingent liabilities is included in
other current and noncurrent assets based on the expected release date of the underlying obligation.
Accounts Receivable
Accounts receivables are reported net of allowance for doubtful accounts and customer disputes. We maintain an allowance
for accounts receivable that we believe may not be collected in full. A provision for bad debt expense recorded to selling, general
and administrative expenses increases the allowance. A provision for customer disputes recorded as a reduction to revenue also
increases the allowance. Accounts receivable are written off when we determine the receivable will not be collected. Accounts
receivable that we write off our books decrease the allowance. We determine the amount of bad debt expense and customer dispute
losses we record each period and the resulting adequacy of the allowance at the end of each period by using a combination of
historical loss experience, a customer-by-customer analysis of our accounts receivable balances each period, and subjective
assessments of our loss exposure.
Inventories
Inventories consist primarily of cement and other raw materials, aggregates at our pits and quarries, and building materials
that we hold for sale or use in the ordinary course of business. Inventories are stated at the lower of cost or fair market value using
the average cost and first-in, first-out methods. We reduce the carrying value of our inventories for estimated excess and obsolete
inventories equal to the difference between the cost of inventory and its estimated realizable value based upon assumptions about
future product demand and market conditions. Once the new cost basis is established, the value is not increased with any changes
in circumstances that would indicate an increase after the remeasurement. If actual product demand or market conditions are less
favorable than those projected by management, inventory write-downs may be required that could result in a material change to
our consolidated results of operations or financial position.
Prepaid Expenses
Prepaid expenses primarily include amounts we have paid for insurance, licenses, taxes, rent and maintenance contracts. We
expense or amortize all prepaid amounts as used or over the period of benefit, as applicable.
62
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Property, Plant and Equipment, Net
We state property, plant and equipment at cost and use the straight-line method to compute depreciation of these assets other
than mineral deposits over the following estimated useful lives: buildings and land improvements, from 10 to 40 years; machinery
and equipment, from 10 to 30 years; mixers, trucks and other vehicles, from one to 12 years; and other, from three to 10 years.
We capitalize leasehold improvements on properties held under operating leases and amortize those costs over the lesser of their
estimated useful lives or the applicable lease term. We compute depletion of mineral deposits as such deposits are extracted
utilizing the unit-of-production method. We expense maintenance and repair costs when incurred and capitalize and depreciate
expenditures for major renewals and betterments that extend the useful lives of our existing assets. When we retire or dispose of
property, plant or equipment, we remove the related cost and accumulated depreciation from our accounts and reflect any resulting
gain or loss in our statements of operations.
Impairment of Long-lived assets
We evaluate the recoverability of our long-lived assets for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by comparing the carrying
amount of an asset to future undiscounted net cash flows expected to be generated by the asset. Such evaluations for impairment
are significantly impacted by estimates of future prices for our products, capital needs, economic trends in the applicable construction
sector and other factors. If we consider such assets to be impaired, the impairment we recognize is measured by the amount by
which the carrying amount of the assets exceeds their fair value. Assets to be disposed of by sale are reflected at the lower of their
carrying amounts, or fair values, less cost to sell. We test for impairment using a multi-tiered approach that incorporates an equal
weighting to a multiple of earnings and an equal weighting to undiscounted estimated future cash flows.
Intangible Assets Including Goodwill
Identifiable intangible assets with finite lives are amortized over their estimated useful lives. They are amortized using a
straight-line approach based on the estimated useful life of each asset. Goodwill represents the amount by which the total purchase
price we have paid for acquisitions exceeds our estimated fair value of the net tangible and identifiable intangible assets
acquired. Goodwill is not amortized, but is evaluated for impairment within the reporting unit on an annual basis. We generally
test for intangible asset impairment in the fourth quarter of each year, because this period gives us the best visibility of the reporting
units’ operating performances for the current year (seasonally, April through October are our highest revenue and production
months), and our outlook for the upcoming year, since much of our customer base is finalizing operating and capital budgets during
the fourth quarter. The impairment test we use involves estimating the fair value of our reporting units and comparing the result
to the reporting unit's carrying value. We estimate fair value using an equally weighted combination of discounted cash flows and
multiples of revenue and EBITDA. The discounted cash flow model includes forecasts for revenue and cash flows discounted at
our weighted average cost of capital. Multiples of revenue and EBITDA are calculated using the trailing twelve months results
compared to the enterprise value of the Company, which is determined based on the combination of the market value of our capital
stock and total outstanding debt. If the fair value exceeds the carrying value, the second step is not performed and no impairment
is recorded. If however, the fair value is below the carrying value, a second step is performed to calculate the amount of the
impairment by measuring the goodwill at an implied fair value. See Note 4 for further discussion of our goodwill and purchased
intangible assets.
Debt Issue Costs
We amortize debt issue costs related to our $175.0 million asset-based revolving credit facility (the "Revolving Facility"), our
8.5% Senior Secured Notes due 2018 (the "2018 Notes"), and our 9.5% Convertible Secured Notes due 2015 (the "Convertible
Notes") as interest expense over the scheduled maturity period of the debt. Unamortized debt issuance costs were $6.8 million
and $7.6 million as of December 31, 2014 and 2013, respectively. We include unamortized debt issuance costs in other assets.
See Note 9 for additional information regarding our debt, and Note 10 regarding our extinguishment of debt during 2013 and 2012.
Revenue and Expenses
We derive substantially all of our revenue from the production and delivery of ready-mixed concrete, aggregates, and related
building materials. We recognize revenue, net of sales tax, when products are delivered, selling price is fixed or determinable,
persuasive evidence of an arrangement exists, and collection is reasonably assured. Amounts billed to customers for delivery costs
are classified as a component of total revenues and the related delivery costs (excluding depreciation) are classified as a component
63
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
of total cost of goods sold. Cost of goods sold consists primarily of product costs and operating expenses (excluding depreciation,
depletion and amortization). Operating expenses consist primarily of wages, benefits, insurance and other expenses attributable
to plant operations, repairs and maintenance, and delivery costs. Selling expenses consist primarily of sales commissions, salaries
of sales managers, travel and entertainment expenses, and trade show expenses. General and administrative expenses consist
primarily of executive and administrative compensation and benefits, office rent, utilities, communication and technology expenses,
provision for doubtful accounts, and legal and professional fees.
Deferred Rent
We recognize escalating lease payments on a straight-line basis over the term of each respective lease with the difference
between cash payment and rent expense recognized being recorded as deferred rent in accrued liabilities in the accompanying
consolidated balance sheets.
Insurance Programs
We maintain third-party insurance coverage against certain risks. Under our insurance programs, we share the risk of loss
with our insurance underwriters by maintaining high deductibles subject to aggregate annual loss limitations. In connection with
these automobile, general liability and workers’ compensation insurance programs, we have entered into standby letters of credit
agreements totaling $11.3 million as of both December 31, 2014 and 2013. We fund our deductibles and record an expense for
losses we expect under the programs. We determine expected losses 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 claim reporting patterns, claim settlement patterns, judicial decisions, legislation and economic conditions. The amounts
accrued for self-insured claims were $9.5 million and $8.6 million as of December 31, 2014 and 2013, respectively. We include
these accruals in accrued liabilities.
Income Taxes
In accordance with Accounting Standards Codification ("ASC") 740 - Income Taxes, we use the liability method of accounting
for income taxes. Under this method, we record deferred income taxes based on temporary differences between the financial
reporting and tax bases of assets and liabilities and use enacted tax rates and laws that we expect will be in effect when we recover
those assets or settle those liabilities, as the case may be, to measure those taxes. We record a valuation allowance to reduce the
deferred tax assets to the amount that is more likely than not to be realized. We have a valuation allowance of $34.9 million and
$44.5 million as of December 31, 2014 and 2013, respectively.
Fair Value of Financial Instruments
Our financial instruments consist of cash and cash equivalents, trade receivables, trade payables, long-term debt, other long-
term obligations, and derivative liabilities. We consider the carrying values of cash and cash equivalents, trade receivables and
trade payables to be representative of their respective fair values because of their short-term maturities or expected settlement
dates. The fair value of our 2018 Notes, estimated based on broker / dealer quoted market prices, was $209.0 million as of
December 31, 2014. The carrying value of outstanding amounts under our Revolving Facility approximates fair value due to the
floating interest rate. The fair value of our Convertible Notes was $0.1 million at both December 31, 2014 and 2013, with no
embedded derivative. The fair value of issued Warrants (as defined herein) was $25.2 million and $21.7 million at December 31,
2014 and 2013, respectively. The fair value of the Bode Earn-out (as defined herein) associated with the acquisition of the Bode
Companies was $5.3 million at December 31, 2014 and $7.0 million at December 31, 2013. For further information, see Note 11
regarding our derivative liabilities, Note 12 regarding our other long-term obligations, and Note 13 regarding our fair value
disclosures.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America ("U.S. GAAP") requires the use of estimates and assumptions by management in determining the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and
assumptions that we consider significant in the preparation of our financial statements include those related to our allowance for
64
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
doubtful accounts, goodwill, intangibles, valuation of derivatives, accruals for self-insurance, income taxes, the valuation of
inventory and the valuation and useful lives of property, plant and equipment.
Stripping Costs
We include post-production stripping costs in the cost of inventory produced during the period as these costs are incurred.
Post-production stripping costs represent stripping costs incurred after the first salable minerals are extracted from the mine.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares
outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income (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. See Note 19 for additional information regarding our earnings (loss) per share.
Comprehensive Income
Comprehensive income represents all changes in equity of an entity during the reporting period, except those resulting from
investments by and distributions to stockholders. For the years ended December 31, 2014, 2013 and 2012, no differences existed
between our consolidated net income and our consolidated comprehensive income.
Stock-based Compensation
Stock-based employee compensation cost is measured at the grant date based on the calculated fair value of the award. We
recognize expense over the employee’s requisite service period, generally the vesting period of the award, or in the case of
performance-based awards, over the life of the derived service period. The related excess tax benefit received upon exercise of
stock options or vesting of restricted stock, if any, is reflected in the statement of cash flows as a financing activity rather than an
operating activity. See Note 18 for additional information regarding our stock-based compensation plans.
Recent Accounting Pronouncements
In November 2014, the Financial Accounting Standards Board (the "FASB") issued an amendment related to derivatives and
hedging. The objective of this amendment is to eliminate the use of different methods in practice and thereby reduce existing
diversity under U.S. GAAP in the accounting for hybrid financial instruments issued in the form of a share. This amendment
applies to all entities that are issuers of, or investors in, hybrid financial instruments that are issued in the form of a share. This
amendment does not change the current criteria in U.S. GAAP for determining when separation of certain embedded derivative
features in a hybrid financial instrument is required. Instead, this amendment clarifies how current U.S. GAAP should be interpreted
in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of
a share. Specifically, this amendment clarifies that an entity should consider all relevant terms and features, including the embedded
derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract. Furthermore, this amendment
clarifies that no single term or feature would necessarily determine the economic characteristics and risks of the host contract.
Rather, the nature of the host contract depends upon the economic characteristics and risks of the entire hybrid financial instrument.
In addition, this amendment clarifies that, in evaluating the nature of a host contract, an entity should assess the substance of the
relevant terms and features when considering how to weight those terms and features. This amendment is effective for public
entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is
permitted. We do not expect the adoption of this guidance in fiscal year 2016 to have a material impact on our consolidated
financial statements and results of operations.
In August 2014, the FASB issued an amendment related to going concern. The amendment requires management to evaluate
at every interim and annual period whether conditions exist that raise substantial doubt about an entity's ability to continue as a
going concern within one year of the financial statement issuance date. Management will need to consider conditions that are
known and reasonably knowable at the financial statement issuance date and determine whether the entity will be able to meet its
obligations within the one-year period. Additional disclosures are required if it is probable that the entity will be unable to meet
its current obligations. The amendment is effective for annual and interim periods ending after December 15, 2016. Early adoption
is permitted. We do not expect the adoption of this guidance in fiscal year 2016 to have a material impact on our consolidated
financial statements and results of operations.
65
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In June 2014, the FASB issued an amendment related to recognition of stock compensation expense for awards with certain
performance targets. The amendment requires that a performance target that affects vesting and that could be achieved after the
requisite service period be treated as a performance condition and the related expense should be recognized in accordance with
current accounting guidance for performance-based stock awards. The amendment provides alternative methods of initial adoption
and is effective for annual and interim periods beginning after December 15, 2015. Early adoption is permitted. We do not expect
the adoption of this guidance on the first day of fiscal year 2016 to have a material impact on our consolidated financial statements
and results of operations.
In May 2014, the FASB issued an amendment related to revenue recognition. The new guidance sets forth a new five-step
revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate
numerous industry-specific pieces of revenue recognition guidance that have historically existed under U.S. GAAP. The underlying
principle of the new amendment is that a business or other organization will recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects what it ultimately expects to receive in exchange for the goods or services.
The amendment also requires more detailed disclosures and provides additional guidance for transactions that were not addressed
completely in the prior accounting guidance. The amendment provides alternative methods of initial adoption and is effective for
annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is not permitted.
We are currently evaluating the impact that this standard will have on our consolidated financial statements and results of operations.
In April 2014, the FASB issued an amendment on reporting discontinued operations and disclosures of disposals of components
of an entity. Specifically, the amendment revises the definition of a discontinued operation, expands disclosure requirements for
transactions that meet the definition of a discontinued operation and requires entities to disclose additional information about
individually significant components that are disposed of or held for sale and do not qualify as discontinued operations. Additionally,
entities will be required to reclassify assets and liabilities of a discontinued operation for all comparative periods presented in the
statement of financial position and to separately present certain information related to the operating and investing cash flows of
the discontinued operation, for all comparative periods, in the statement of cash flows. The amendment is effective for annual
and interim periods beginning after December 15, 2014 and is to be adopted on a prospective basis for all disposals (except disposals
classified as held for sale prior to the adoption date) or components initially classified as held for sale in periods beginning on or
after the adoption date, with early adoption permitted. We do not expect the adoption of this guidance on the first day of fiscal
year 2015 to have a material impact on our consolidated financial statements and results of operations.
In July 2013, the FASB issued an amendment on the financial statement presentation for an unrecognized tax benefit when a
net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The amendment specifies that an unrecognized
tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred
tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward with certain exceptions. The guidance
is effective for annual and interim reporting periods beginning after December 15, 2013. We adopted this guidance effective
January 1, 2014, and there was no material impact on our consolidated financial statements or results of operations.
2. ACQUISITIONS AND DISPOSITIONS
2014 Acquisitions
On October 20, 2014, we acquired the assets of Custom-Crete ("Custom-Crete"), with operations in Dallas / Fort Worth,
Houston, San Antonio, and Austin, Texas from Oldcastle Architectural, Inc., a wholly owned subsidiary of CRH plc ("Oldcastle
Architectural") for $37.4 million in cash. The fair value of the assets acquired and liabilities assumed in the Custom-Crete acquisition
is preliminary and remains subject to potential adjustments, including, but not limited to, working capital adjustments. Additionally,
we expect to make a subsequent payment to Oldcastle Architectural for land that is pending the division of certain shared properties.
On December 5, 2014, we acquired the assets of Mobile-Crete of South Texas, LLC and Scofield Construction Services, LLC
(collectively, "Mobile-Crete") with operations in San Antonio, Austin, and south Texas for $21.5 million in cash, plus potential
earn-out payments of up to $3.0 million in cash (the "Mobile-Crete Earn-out"). The earn-out payments of up to $1.5 million in
each of the next two years are tied to the applicable year's average daily closing price of West Texas Intermediate Crude Oil reaching
certain predetermined levels. The fair value of the assets acquired and liabilities assumed in the Mobile-Crete acquisition is
preliminary and remains subject to adjustments, including, but not limited to, adjustments related to working capital, the fair value
of the Mobile-Crete Earn-out, identifiable intangible assets, and property, plant and equipment.
66
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Custom-Crete and Mobile-Crete acquisitions included 16 volumetric ready-mixed concrete facilities and 109 volumetric
ready-mixed concrete trucks. The addition of these operations expands our presence into all of the major metropolitan markets
in Texas and provides us with the capability to deliver ready-mixed concrete to our customers via on-site batching and mixing to
customer specifications.
On October 20, 2014, we acquired the equity of New York Sand and Stone, LLC ("NYSS") for $15.2 million in cash. The
NYSS acquisition included leases to operate two aggregate distribution terminals in New York. These terminals allow us to deliver
raw materials more efficiently to our New Jersey / New York market. The fair value of the assets acquired and liabilities assumed
in the NYSS acquisition is preliminary and remains subject to potential adjustments, including, but not limited to, working capital
adjustments.
Also during the year ended December 31, 2014, we completed six other acquisitions comprised of seven ready-mixed concrete
plants and related assets in our New York and west Texas markets. The aggregate consideration paid consisted of $15.5 million
in cash and $1.1 million in promissory notes. The acquisition of these assets expands our business in our existing markets. The
fair value of the assets acquired and liabilities assumed from these six ready-mixed concrete acquisitions are preliminary and
remains subject to potential adjustments, including, but not limited to, the fair value of intangible assets.
The following table summarizes the consideration paid for the 2014 acquisitions and presents the allocation of these amounts
to the net tangible and intangible assets acquired and liabilities assumed based on the estimated fair values as of the respective
acquisition dates (in thousands).
Accounts receivable
Inventory
Other current assets
Property, plant and equipment
Definite-lived intangible assets
Total assets acquired
Current liabilities
Long-term liabilities
Total liabilities assumed
Goodwill
Consideration paid
Custom-Crete(1)
3,629
$
514
—
11,661
9,600
25,404
2,598
473
3,071
15,061
37,394
$
$
$
2014 Acquisitions
NYSS(2)
5,940
1,161
131
1,442
5,042
13,716
2,540
—
2,540
4,003
15,179
$
$
$
$
Mobile Crete(3)
$
— $
—
—
—
—
— $
—
—
— $
21,510
21,510
$
$
$
$
All Other(4)
—
295
102
7,400
6,101
13,898
—
—
—
2,671
16,569
(1) The purchase price allocation for the Custom-Crete acquisition is subject to change pending payment for the division of certain
shared properties, as well as a working capital true-up.
(2) The purchase price allocation for the NYSS acquisition is subject to change pending a working capital true-up.
(3) The fair value of the assets acquired and liabilities assumed in the Mobile-Crete acquisition is preliminary and remains subject
to adjustments, including, but not limited to, adjustments related to working capital, the fair value of the Mobile-Crete Earn-
out, identifiable intangible assets, and property, plant and equipment.
(4) Consideration paid for all other acquisitions includes $1.1 million of notes payable to previous owners. The purchase price
allocations for all other acquisitions are subject to change pending the fair value of intangible assets.
These allocations require the significant use of estimates and are based on information that was available to management at
the time these consolidated financial statements were prepared. We utilized recognized valuation techniques, including the income
approach, sales approach, and cost approach for the net assets acquired. Any changes to the purchase price allocations will be
made as soon as practical, but no later than one year from the respective acquisition dates.
67
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Acquired intangible assets in 2014 of $20.7 million consisted of customer relationships, trade names, non-compete agreements,
and leasehold interests. The amortization period of these intangible assets range from 2 years to 11.67 years. The major classes
of intangible assets acquired in the 2014 acquisitions were as follows (in thousands):
Customer relationships
Trade name
Non-compete
Leasehold interest
Total
Weighted Average
Amortization Period
(In Years)
Intangible Assets
Acquired in 2014
Acquisitions
8.43
10.00
4.81
9.79
8.09
$
$
10,040
2,900
4,421
3,382
20,743
We recorded $0.6 million of amortization expense related to these intangible assets during the year ended December 31, 2014
covering the period from February 10, 2014 through December 31, 2014. The estimated future aggregate amortization expense of
intangible assets from the 2014 acquisitions as of December 31, 2014 is set forth below (in thousands):
2015
2016
2017
2018
2019
Thereafter
Total
Year Ending
December 31,
2,887
2,882
2,795
2,767
2,367
6,427
20,125
$
$
The goodwill ascribed to each of these acquisitions is related to the synergies we expect to achieve with expansion in the
markets in which we already operate as well as entry into new metropolitan areas of our existing geographic markets. The goodwill
will be deductible for tax purposes and relates to our ready-mixed concrete reportable segment, with the exception of the NYSS
acquisition which relates to our other non-reportable segments. See Note 4 for additional information regarding goodwill and
intangible assets and Note 17 for additional information regarding income taxes.
We recorded approximately $16.6 million of revenue and $0.8 million of income from operations in our consolidated results
of operations for the year ended December 31, 2014 related to the 2014 acquisitions following their respective dates of acquisition.
The unaudited pro forma information presented below reflects the combined financial results for all of the acquisitions
completed during 2014, excluding three of the six acquisitions that are included in the caption "All Other" in the table captioned
"2014 Acquisitions" above, as historical financial results for these operations were impractical to obtain from the former owners.
We estimate that revenue and income from operations for these three acquisitions in total would have been approximately $4.8
million and $0.1 million, respectively, for each of the years ending December 31, 2014 and 2013. All other acquisitions have been
included and represent our estimate of the results for the years ended December 31, 2014 and 2013 as if the acquisition had been
completed on January 1, 2013 (in thousands, except per share information):
68
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For the year ended December 31,
(unaudited)
2014
2013
Revenue from continuing operations
Net income (loss)
Income (loss) per share, basic
Income (loss) per share, diluted
$
$
$
$
791,459
24,752
1.83
1.78
$
$
$
$
693,839
(15,282)
(1.18)
(1.18)
The above pro forma results are unaudited and were prepared based on the historical GAAP results of the Company and the
historical results of the six acquired companies for which financial information was available, based on data provided by the former
owners. These results are not necessarily indicative of what the Company's actual results would have been had the transaction
occurred on January 1, 2013. The unaudited pro forma net income (loss) and net income (loss) per share amounts above reflect
the following adjustments: (1) inclusion of an additional $2.4 million and $2.6 million in amortization of intangibles for the years
ended December 31, 2014 and 2013, respectively, (2) exclusion of $1.3 million of legal and professional fees incurred by the
Company in 2014 related to the acquisitions, and (3) exclusion of $0.4 million of net interest expense incurred by the former
owners for the year ended December 31, 2013, as no debt was assumed in any of the acquisitions. As the purchase price allocation
for Mobile-Crete is still preliminary and fair values for the related intangible assets have not been determined, no amortization on
these intangible assets is included in the pro forma results. We applied the same effective tax rate to calculate our pro forma net
income (loss) as the effective rate we applied to calculate our reported net income (loss) for each of the years ended December
31, 2014 and 2013 (see Note 17 regarding our effective tax rate). The unaudited pro forma results do not reflect any operational
efficiencies or potential cost savings that may occur as a result of consolidation of the operations.
Sale of Pennsylvania Precast Concrete Operation
On January 30, 2014, the Board approved the sale of our one remaining precast concrete operation in Pennsylvania, as this
business no longer fits our goal of becoming the preeminent supplier of ready-mixed concrete in the United States. As such, the
related assets and liabilities have been classified as held for sale effective with the first quarter of 2014. During the first quarter
of 2014, we engaged a broker to actively pursue potential buyers. We continue to evaluate proposals from buyers for this operation
and expect any transaction would close during the first half of 2015. The results of operations for this unit have been included in
discontinued operations for the periods presented. Listed below are the major classes of assets and liabilities expected to be sold
as part of any transaction that are included in held for sale captions on the accompanying condensed consolidated balance sheet
as of December 31, 2014 (in thousands):
December 31, 2014
$
$
$
$
1,337
704
897
841
3,779
398
504
902
Assets held for sale:
Trade accounts receivable, net
Inventories
Other current assets
Property, plant and equipment, net
Total assets held for sale
Liabilities held for sale:
Accounts payable
Accrued liabilities
Total liabilities held for sale
69
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Purchase of Bodin Concrete Assets
In July 2013, we acquired three ready-mixed concrete plants and related assets in our north Texas market from Bodin for
$4.4 million in cash. We acquired plant and equipment valued at $3.3 million and recognized goodwill of $1.1 million. The
goodwill ascribed to the purchase is related to the synergies we expected to, and have achieved with, expansion into the eastern
corridor of the north Texas market in which we already operate. The goodwill is deductible for tax purposes. See Note 17 for
additional information regarding income taxes.
Sale of Smith Precast Operations
In December 2012, we completed the sale of substantially all of our assets associated with Smith located in Phoenix, Arizona,
to Jensen for $4.3 million in cash and the assumption of certain obligations. The assets purchased by Jensen included certain
facilities, fixed assets, and working capital items. In addition, Jensen assumed the obligations of a capital lease previously held
by Smith. The results of operations for this unit have been included in discontinued operations for the periods presented.
During the third quarter of 2013, pursuant to the terms of the asset purchase agreement, we made payments totaling $0.5
million to Jensen related to the reacquisition of certain uncollected receivables as well as the settlement of certain accrued liabilities.
Purchase of Bode Gravel and Bode Concrete Equity Interests
In October 2012, we completed the acquisition of all of the outstanding equity interests of the Bode Companies pursuant to
an equity purchase agreement dated October 17, 2012. The Bode Companies operated two fixed and one portable ready-mixed
concrete plant and 41 drum mixer trucks in the San Francisco, California area. The purchase price for the acquisition was $24.5
million in cash, plus working capital and closing adjustments of $1.6 million, plus potential earn-out payments (the "Bode Earn-
out"). The earn-out payments are contingent upon reaching negotiated volume hurdles, with an aggregate present value of up to
$7.0 million in cash payable over a six-year period, resulting in total consideration fair value of $33.1 million. We funded the
acquisition from cash on hand and borrowings under our credit agreement. In March 2013, we completed our final working capital
adjustments with the former equity owners, resulting in a reduction in goodwill of $0.2 million. In January 2014 we made the
first payment on the Bode Earn-out in the amount of $2.3 million.
Purchase of Colorado River Concrete Assets
In September 2012, we purchased four ready-mixed concrete plants and related assets and inventory from CRC in our west
Texas market for $2.4 million in cash and a $1.9 million promissory note. The purchase of these assets allowed us to expand our
business in two of our major markets — west Texas and north Texas. The goodwill ascribed to the purchase is related to the
synergies we expected to, and have achieved with, expansion of these areas in which we already operate. The goodwill is deductible
for tax purposes.
Sale of California Precast Operations
In August 2012, we executed a definitive asset purchase agreement to sell substantially all of our California precast operations
to Oldcastle for $21.3 million in cash, plus net working capital adjustments. The assets purchased by Oldcastle included certain
facilities, fixed assets, and working capital items. The results of operations for these units have been included in discontinued
operations for the periods presented.
In conjunction with the Oldcastle agreement, we also entered into certain sublease and license agreements with Oldcastle for
certain land and property that is leased or owned by us. As the sublease and license agreements provide payment for the full
amount of our obligation under the leases, we did not record any liability for exit obligations associated with these agreements.
During the first quarter of 2013, pursuant to the terms of the asset purchase agreement, we made payments totaling $1.9 million
to Oldcastle related to the reacquisition of certain uncollected receivables as well as the settlement of certain accrued liabilities.
At December 31, 2013, $0.2 million of the acquired receivables are recorded in other receivables on our consolidated balance
sheet.
70
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In March 2014, we completed the sale of our remaining owned assets related to our California precast operations. We sold
land and building for net proceeds of $1.5 million in cash and recorded a gain on the transaction of $0.6 million. The gain is
included in discontinued operations in the accompanying consolidated statements of operations for year ended December 31, 2014.
Other
During the third quarter of 2012, we made the decision to sell certain of our land and buildings in northern California and
classified these assets as held for sale. These assets were recorded at the estimated fair value less costs to sell, which approximated
net book value of $2.6 million. This transaction closed during the fourth quarter of 2012 and we received $3.2 million in proceeds.
Accordingly, we recorded a gain on sale of assets of $0.6 million, which was included in our statement of operations for the year
ended December 31, 2012.
3. DISCONTINUED OPERATIONS
As disclosed in Note 2, we completed the sale of our California and Arizona precast operations in August 2012 and December
2012, respectively. In January 2014, our Board approved the sale of our one remaining precast concrete operation in Pennsylvania.
Accordingly, we have classified this operation's assets and liabilities as held for sale in the accompanying condensed consolidated
balance sheet effective with the first quarter of 2014. We have presented the results of operations for these units for all periods
as discontinued operations in the accompanying consolidated statements of operations.
The results of these discontinued operations were as follows (in thousands):
Years Ended December 31,
2013
2012
2014
Revenue
$
8,920
$
Depreciation, depletion and amortization, or DD&A
Operating expenses, excluding DD&A, and other income
Loss from discontinued operations
Gain (loss) on disposal of assets
Loss on impairment of long-lived assets
—
(9,481)
(561)
640
(900)
Income (loss) from discontinued operations, before income
taxes
Income tax expense (benefit)
Loss from discontinued operations
(821)
172
(993) $
$
$
16,914
(148)
(18,448)
(1,682)
(219)
—
(1,901)
(45)
(1,856) $
47,881
(790)
(50,649)
(3,558)
2,154
—
(1,404)
(16)
(1,388)
In the fourth quarter of 2014, we recorded an impairment loss on long-lived assets of $0.9 million related to our Pennsylvania
precast concrete operation as the carrying value exceeded the net realizable value of the related long-lived assets.
4. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
We record as goodwill the amount by which the total purchase price we pay in our acquisition transactions exceeds our
estimated fair value of the identifiable net assets we acquire. We test goodwill for impairment on an annual basis, or more often
if events or circumstances indicate that there may be impairment. We generally test for goodwill impairment in the fourth quarter
of each year, because this period gives us the best visibility of the reporting units’ operating performances for the current year
(seasonally, April through October are our highest revenue and production months) and our outlook for the upcoming year, since
much of our customer base is finalizing operating and capital budgets during the fourth quarter. The impairment test we use
involves estimating the fair value of our reporting units and comparing the result to the reporting unit's carrying value. We estimate
fair value using an equally weighted combination of discounted cash flows and multiples of revenue and EBITDA. The discounted
cash flow model includes forecasts for revenue and cash flows discounted at our weighted average cost of capital. Multiples of
revenue and EBITDA are calculated using the trailing twelve months results compared to the enterprise value of the Company,
which is determined based on the combination of the market value of our capital stock and total outstanding debt. We completed
71
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
our annual assessment of impairment during the fourth quarter of 2014 for those units with goodwill as of January 1, 2014, and
there was no impairment. In the absence of any evidence to the contrary, we consider goodwill resulting from acquisitions in the
current year to be recorded at fair value and not impaired, as the arm's length transactions that generated the goodwill were completed
at a market rate.
The changes in goodwill by reportable segment from January 1, 2013 to December 31, 2014 are as follows (in thousands):
Ready-mixed
Concrete
Segment
Other Non-
Reportable
Segments
Total
Balance at January 1, 2013
Acquisitions (See Note 2)
Working capital adjustments (See Note 2)
Balance at December 31, 2013
Acquisitions (See Note 2)
Balance at December 31, 2014
$
$
$
10,717
1,138
(209)
11,646
36,111
47,757
$
$
$
— $
—
—
—
3,000
3,000
$
10,717
1,138
(209)
11,646
39,111
50,757
Goodwill acquired during 2014 and 2013 resulted from our acquisitions in those respective years and which are more fully
described in Note 2.
Intangible Assets
Our intangible assets are as follows (in thousands) as of December 31, 2014 and 2013:
December 31, 2014
Gross
Accumulated
Amortization
Net
Weighted Average
Remaining Life
(in years)
Customer relationships
Non-competes
Trade names
Leasehold interest
Total intangible assets
Customer relationships
Trade name
Total intangible assets
$
$
$
$
23,540
4,421
4,200
3,382
35,543
Gross
13,500
1,300
14,800
$
$
$
$
(3,214) $
(218)
(330)
(61)
(3,823) $
20,326
4,203
3,870
3,321
31,720
8.06
4.58
9.31
9.63
7.91
December 31, 2013
Accumulated
Amortization
Net
(1,575) $
(152)
(1,727) $
11,925
1,148
13,073
Weighted Average
Remaining Life
(in years)
8.83
8.83
8.83
We recorded $2.1 million, $2.0 million and $0.6 million of amortization on our intangibles for the years ended December 31,
2014, 2013 and 2012, respectively, which is included in our consolidated statements of operations.
72
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The estimated remaining amortization of our finite-lived intangible assets as of December 31, 2014, is as follows (in thousands):
Year Ending December 31,
2015
2016
2017
2018
2019
Thereafter
Total
$
$
4,367
4,362
4,275
4,247
3,848
10,621
31,720
5. INVENTORIES
Inventory at December 31 consisted of the following (in thousands):
Raw materials
Building materials for resale
Other
6. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is as follows (in thousands):
Land and mineral deposits
Buildings and improvements
Machinery and equipment
Mixers, trucks and other vehicles
Other, including construction in progress
Less: accumulated depreciation and depletion
December 31,
2014
2013
29,263
1,479
980
31,722
$
$
25,019
1,383
1,208
27,610
December 31,
2014
2013
47,618
16,648
95,710
80,001
9,509
249,486
(72,962)
176,524
$
$
43,964
13,955
74,560
48,510
12,265
193,254
(54,694)
138,560
$
$
$
$
As of December 31, 2014 and 2013, the net carrying amounts of mineral deposits were $11.3 million and $12.3 million,
respectively. As of December 31, 2013, other included $3.7 million of drum mixer trucks that were acquired prior to year end but
had not been placed in service. As of December 31, 2014 and 2013, gross assets recorded under capital leases, consisting primarily
of drum mixer trucks, were $8.6 million and $5.7 million, respectively, and accumulated amortization was $0.6 million and less
than $0.1 million, respectively.
73
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. ALLOWANCE FOR DOUBTFUL ACCOUNTS AND CUSTOMER DISPUTES
Activity in our allowance for doubtful accounts receivable and customer disputes consisted of the following (in thousands):
Balance, beginning of period
Provision for doubtful accounts and customer disputes
Uncollectible receivables written off, net of recoveries
Balance, end of period
8. ACCRUED LIABILITIES
A summary of accrued liabilities is as follows (in thousands):
December 31,
2014
2013
$
$
2,813
1,924
(1,011)
3,726
$
$
2,368
849
(404)
2,813
Accrued materials
Accrued compensation and benefits
Accrued insurance reserves
Accrued property, sales and other taxes
Bode Earn-out, current portion
Deferred rent
Accrued interest
Other
9. DEBT
A summary of our debt and capital leases is as follows (in thousands):
Senior secured notes due 2018
Senior secured credit facility expiring 2018
Convertible secured notes due 2015
Capital leases
Other financing
Total debt
Less: current maturities
Long-term debt, net of current maturities
December 31,
2014
2013
$
$
14,319
11,251
10,512
5,235
2,250
2,126
1,487
3,211
50,391
$
$
10,077
8,179
9,713
5,485
2,250
2,157
1,896
3,193
42,950
December 31,
2014
2013
$
$
200,000
—
200,000
—
117
7,395
12,925
220,437
5,104
117
5,746
8,281
214,144
3,990
$
215,333
$
210,154
74
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The principal amounts due under our debt agreements for the next five years are as follows (in thousands):
2015
2016
2017
2018
2019
Thereafter
Year Ending
December 31,
$
$
5,104
4,777
4,649
204,262
1,497
148
220,437
Senior Secured Notes due 2018
On November 22, 2013, we completed an offering of $200.0 million aggregate principal amount of 8.5% senior secured notes
due 2018 at an offering price of 100%. We used a portion of the net proceeds from the 2018 Notes to repay all of our outstanding
borrowings under the Revolving Facility and to redeem all of our outstanding 9.5% senior secured notes due 2015 (the "2013
Notes"). The issuance of the 2018 Notes and redemption of the 2013 Notes qualified as a Senior Notes Refinancing (as defined
below), under the terms of the 2013 Loan Agreement (as defined below).
The 2018 Notes are governed by an indenture (the “Indenture”) dated as of November 22, 2013, by and among us and U.S.
Bank National Association, as trustee and noteholder collateral agent (the “Notes Collateral Agent”). We are obligated to pay
interest on the 2018 Notes on June 1 and December 1 of each year. The 2018 Notes mature on December 1, 2018, and are redeemable
at our option prior to maturity at prices specified in the Indenture. The Indenture contains negative covenants that restrict the
ability of us and our restricted subsidiaries to engage in certain transactions, as described below, and also contains customary
events of default.
The Indenture contains covenants that restrict or limit our ability to, among other things:
•
•
•
•
•
•
•
•
•
•
incur additional indebtedness or issue disqualified stock or preferred stock;
pay dividends or make other distributions or repurchase or redeem our stock or subordinated indebtedness or make
investments;
prepay, redeem or repurchase certain debt;
sell assets or issue capital stock of our restricted subsidiaries;
incur liens;
enter into agreements restricting our restricted subsidiaries’ ability to pay dividends, make loans to other U.S. Concrete
entities or restrict the ability to provide liens;
enter into transactions with affiliates;
consolidate, merge or sell all or substantially all of our assets;
engage in certain sale / leaseback transactions; and
designate our subsidiaries as unrestricted subsidiaries.
As defined in the Indenture, we are entitled to incur indebtedness if, on the date of such incurrence and given effect thereto
on a proforma basis, the consolidated coverage ratio exceeds 2.0 to 1.0.
75
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Our obligations under the 2018 Notes are jointly and severally and fully and unconditionally guaranteed on a senior secured
basis by each of our existing and future domestic subsidiaries that guarantee the indebtedness under the Revolving Facility. Each
guarantee is subject to release in the following customary circumstances:
•
•
•
a disposition of all or substantially all of the assets of the guarantor subsidiary, by way of merger, consolidation or
otherwise; provided the proceeds of the disposition are applied in accordance with the Indenture;
a disposition of the capital stock of the guarantor subsidiary to a third person, if the disposition complies with the Indenture
and as a result the guarantor subsidiary ceases to be a restricted subsidiary;
the designation by us of the guarantor subsidiary as an unrestricted subsidiary or the guarantor subsidiary otherwise ceases
to be a restricted subsidiary, in each case in accordance with the Indenture; or
•
legal or covenant defeasance of the 2018 Notes and discharge of our obligations under the Indenture.
The 2018 Notes are issued by U.S. Concrete, Inc., the parent company, and are guaranteed on a full and unconditional basis
by each of its indirect wholly owned subsidiaries. The guarantees are joint and several, and there are no non-guarantor subsidiaries.
U.S. Concrete, Inc. does not have any independent assets or operations. There are no significant restrictions on the ability of the
Company or any guarantor to obtain funds from its subsidiaries by dividend or loan.
The 2018 Notes and the guarantees thereof rank equally in right of payment with all of our existing and future senior
indebtedness. The 2018 Notes and the guarantees thereof are secured by first-priority liens on certain of the property and assets
directly owned by us, including material owned real property, fixtures, intellectual property, capital stock of subsidiaries and certain
equipment, subject to permitted liens and certain exceptions, and by a second-priority lien on the our assets securing the Revolving
Facility on a first-priority basis, including inventory (including as-extracted collateral), accounts, certain specified mixer trucks,
chattel paper, general intangibles (other than collateral securing the 2018 Notes on a first-priority basis), instruments, documents,
cash, deposit accounts, securities accounts, commodities accounts, letter of credit rights and all supporting obligations and related
books and records and all proceeds and products of the foregoing, subject to permitted liens and certain exceptions. The 2018
Notes and the guarantees thereof are effectively subordinated to all indebtedness and other obligations, including trade payables,
of each of our future subsidiaries that are not guarantors.
For the years ended December 31, 2014 and 2013, we recorded interest expense related to our 2018 Notes of $17.0 million
and $1.8 million, respectively.
Senior Secured Credit Facility expiring 2018
On October 29, 2013, we entered into a First Amended and Restated Loan and Security Agreement (the "2013 Loan
Agreement") with certain financial institutions named therein, (the "Lenders") and Bank of America, N.A., as agent and sole lead
arranger (the "Administrative Agent"), which amended and restated our existing credit agreement and provides us with the
Revolving Facility. Under the terms of the 2013 Loan Agreement and in conjunction with the issuance of our 2018 Notes, the
maximum credit availability under our Revolving Facility increased from $102.5 million to $125.0 million, and included an
uncommitted accordion feature that allowed for an increase in the total commitments under the facility to as much as $175.0
million. On September 12, 2014, we amended the 2013 Loan Agreement to increase the maximum credit availability under our
Revolving Facility from $125.0 million to $175.0 million. The amendment also removed certain conditions to funding, including
the removal of (i) the uncommitted accordion feature, (ii) the maximum leverage ratio condition for the refinancing of certain
senior secured notes of the Company, and (iii) a requirement that any such senior notes refinancing debt must mature six months
or more after the expiration of the 2013 Loan Agreement. The 2013 Loan Agreement expires on October 2, 2018. As of both
December 31, 2014 and 2013, we had no outstanding borrowings and $11.3 million of undrawn standby letters of credit under the
Revolving Facility.
On May 15, 2014, we amended the 2013 Loan Agreement to permit us to repurchase shares of our common stock in an amount
up to $50.0 million, provided that no default or event of default under the terms of the 2013 Loan Agreement exists and is continuing
or would result from the stock repurchase. We must pay for any stock repurchases with cash on hand, and we must not have any
Revolver Loans (as defined in the 2013 Loan Agreement) outstanding at the time of any stock repurchase.
76
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Our actual maximum credit availability under the 2013 Loan Agreement varies from time to time and is determined by
calculating the value of our eligible accounts receivable, inventory and mixer trucks, which serve as priority collateral on the
facility, minus reserves imposed by the Lenders and other adjustments, all as specified in the 2013 Loan Agreement and discussed
further below. Our availability under the Revolving Facility at December 31, 2014 increased to $109.8 million from $88.3 million
at December 31, 2013. The 2013 Loan Agreement also contains a provision for discretionary over-advances and involuntary
protective advances by Lenders of up to $12.5 million in excess of borrowing base levels. The 2013 Loan Agreement provides
for swingline loans, up to a $10.0 million sublimit, and letters of credit, up to a $30.0 million sublimit.
Advances under the Revolving Facility are in the form of either base rate loans or “LIBOR Loans” denominated in U.S.
dollars. The interest rate for base rate loans denominated in U.S. dollars fluctuates and is equal to the greater of (a) Bank of
America’s prime rate; (b) the Federal funds rate, plus 0.50%; or (c) the rate per annum for a 30 days interest period equal to the
British Bankers Association LIBOR Rate, as published by Reuters at approximately 11:00 a.m. (London time) two business days
prior (“LIBOR”), plus 1.0%; in each case plus the Applicable Margin, as defined in the 2013 Loan Agreement. The interest rate
for LIBOR Loans denominated in U.S. dollars is equal to the rate per annum for the applicable interest period equal to LIBOR,
plus the Applicable Margin, as defined in the 2013 Loan Agreement. Issued and outstanding letters of credit are subject to a fee
equal to the Applicable Margin, as defined in the 2013 Loan Agreement, a fronting fee equal to 0.125% per annum on the stated
amount of such letter of credit, and customary charges associated with the issuance and administration of letters of credit. Among
other fees, we pay a commitment fee of either 0.25% or 0.375% per annum (due monthly) on the aggregate unused revolving
commitments under the Revolving Facility. The fee we pay is determined by whether the amount of the unused line is above or
below 50% of the Aggregate Revolver Commitments, as defined in the 2013 Loan Agreement. The Applicable Margin ranges
from 0.25% to 0.75% for base rate loans and from 1.5% to 2.0% for LIBOR Loans, and is determined based on Average Availability
for the most recent fiscal quarter, as defined in the 2013 Loan Agreement.
Up to $30.0 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. Advances under the Revolving Facility are
limited by a borrowing base which is equal to the lesser of the Revolving Facility minus the LC Reserve, the Senior Notes Availability
Reserve, and the Tax Reserve, all as defined in the 2013 Loan Agreement, or the sum of (a) 90% of the face amount of eligible
accounts receivable (reduced to 85% under certain circumstances), plus (b) the lesser of (i) 55% of the value of eligible inventory
or (ii) 85% of the product of (x) the net orderly liquidation value of inventory divided by the value of the inventory and (y) multiplied
by the value of eligible inventory, and (c) the lesser of (i) $40.0 million or (ii) the sum of (A) 85% of the net orderly liquidation
value (as determined by the most recent appraisal) of eligible trucks plus (B) 80% of the cost of newly acquired eligible trucks
since the date of the latest appraisal of eligible trucks minus (C) 85% of the net orderly liquidation value of eligible trucks that
have been sold since the latest appraisal date and 85% of the depreciation amount applicable to eligible trucks since the date of
the latest appraisal of eligible trucks, minus (D) such reserves as the Administrative Agent may establish from time to time in its
permitted discretion. The Administrative Agent may, in its permitted discretion, reduce the advance rates set forth above, adjust
reserves or reduce one or more of the other elements used in computing the borrowing base.
The 2013 Loan Agreement contains usual and customary negative covenants for transactions of this type, including, but not
limited to, restrictions on our ability to consolidate or merge; substantially change the nature of our business; sell, lease or otherwise
transfer any of our assets; create or incur indebtedness; create liens; pay dividends; and make investments or acquisitions. The
negative covenants are subject to certain exceptions as specified in the 2013 Loan Agreement. The 2013 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 twelve calendar months, as determined in accordance with the 2013 Loan Agreement. For the trailing twelve month period
ended December 31, 2014, our fixed charge coverage ratio was 1.92 to 1.0. As of December 31, 2014, we were in compliance
with all covenants under the 2013 Loan Agreement.
The 2013 Loan Agreement also includes customary events of default, including, among other things, payment default,
covenant default, breach of representation or warranty, bankruptcy, cross-default, material ERISA events, change of control,
material money judgments and failure to maintain subsidiary guarantees.
The 2013 Loan Agreement is secured by a first-priority lien on certain assets of the Company and our guarantors, including
inventory (including as extracted collateral), accounts, certain specified mixer trucks, general intangibles (other than collateral
securing the 2018 Notes on a first-priority basis, as described above), instruments, documents, chattel paper, cash, deposit accounts,
securities accounts, commodities accounts, letter of credit rights and all supporting obligations and related books and records and
all proceeds and products of the foregoing, subject to permitted liens and certain exceptions. The 2013 Loan Agreement is also
77
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
secured by a second-priority lien on the collateral securing the 2018 Notes as defined below on a first-priority basis (see “Senior
Secured Notes due 2018” above).
For the years ended December 31, 2014 and 2013, we recorded interest expense related to the Revolving Facility of $0.3
million and $0.5 million, respectively.
Senior Secured Notes due 2015
On March 22, 2013, we completed our offer to exchange (the “Exchange Offer”) up to $69.3 million aggregate principal
amount of newly issued 2013 Notes for all $55.0 million aggregate principal amount of our Convertible Notes. At the time of
settlement, we issued $61.1 million aggregate principal amount of 2013 Notes in exchange for $48.5 million of Convertible Notes,
plus approximately $0.3 million in cash for accrued and unpaid interest on the Convertible Notes exchanged in the Exchange Offer.
After giving effect to the exchange, $6.5 million aggregate principal amount of Convertible Notes remained outstanding as of
March 22, 2013 (see additional information under "Convertible Notes due 2015" below).
In November 2013, we used a portion of the proceeds from our 2018 Notes offering to redeem all $61.1 million of our
outstanding 2013 Notes. See Note 10 for additional information regarding the extinguishment of this debt.
Convertible Secured Notes due 2015
On August 31, 2010, we issued $55.0 million aggregate principal amount of Convertible Notes. Under the terms of the
indenture governing the Convertible Notes, the Convertible Notes bore interest at a rate of 9.5% per annum. Interest payments
were payable quarterly in cash in arrears. Additionally, we recorded a discount of approximately $13.6 million related to an
embedded derivative that was bifurcated and separately valued (see Note 11). This discount was being accreted over the term of
the Convertible Notes and included in interest expense.
In accordance with the terms of the indenture governing the Convertible Notes, we provided a Conversion Event Notice, as
defined in the indenture, to the remaining holders of Convertible Notes on June 18, 2013. Holders had until the close of business
on August 2, 2013 (the "Conversion Termination Date") to tender their Convertible Notes for shares of common stock. Prior to
August 3, 2013, remaining note holders tendered $6.4 million of Convertible Notes in exchange for 0.6 million shares of our
common stock. As of August 3, 2013, the remaining Convertible Notes no longer include a conversion feature and ceased to accrue
interest. After giving effect to the tendered Convertible Notes, $0.1 million aggregate principal amount of Convertible Notes
remained outstanding as of December 31, 2014 and will mature on August 31, 2015.
For the years ended December 31, 2014, 2013 and 2012, we recorded interest expense related to the interest rate and
amortization of the discount on our Convertible Notes of zero, $2.1 million and $7.5 million, respectively. The weighted average
interest rate for the Convertible Notes was zero as of both December 31, 2014 and 2013.
Capital Leases and Other Financing
During 2013, we utilized $5.0 million of available lease commitments under a master leasing agreement with Capital One
Equipment Finance Corporation with fixed annual interest rates ranging from 4.31% to 4.54%. Payments are due monthly for a
term of five years. The lease terms include a one dollar buyout option at the end of the lease term. Accordingly, this financing
has been classified as a capital lease.
On December 19, 2013, we entered into a master leasing agreement with GE Corporate Financial Services, Inc. to provide
up to $5.0 million in total lease commitments for drum mixer trucks and other machinery and equipment. As of December 31,
2014, we have utilized $2.1 million of lease commitments with fixed annual interest rates ranging from 4.15% to 4.80%, payable
monthly for a term of five years. The lease terms include a one dollar buyout option at the end of the lease term. Accordingly, this
financing has been classified as a capital lease.
During the year ended December 31, 2014, we signed four lease agreements with SunTrust Equipment Finance and Leasing
Corporation for a total commitment of $1.5 million, with a fixed annual interest rate of 3.75%, payable monthly for a term of five
years. The lease terms includes a one dollar buyout option at the end of the lease term. Accordingly, this financing has been
classified as a capital lease.
78
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The current portion of capital leases included in current maturities of long term debt was $1.6 million as of December 31,
2014.
As of December 31, 2014, we had five promissory notes outstanding that were issued primarily in connection with acquisitions
completed between October 2010 and August 2014 in an aggregate principal amount of $4.0 million. These promissory notes are
payable either monthly or annually over two to nine years, with annual effective interest rates ranging from 3.49% to 5.00%.
During the year ended December 31, 2013, we signed four promissory notes with Daimler Truck Financial ("Daimler") for
the purchase of drum mixer trucks in the aggregate amount of $6.2 million with annual interest rates ranging from 3.02% to 3.23%.
During the year ended December 31, 2014, we signed a series of promissory notes with Daimler for the purchase of drum mixer
trucks and other machinery and equipment in the aggregate amount of $7.4 million, with fixed annual interest rates ranging from
2.99% to 3.18%. The Daimler promissory notes are payable monthly for a term of five years.
The weighted average interest rate of our capital leases and other financing was 3.49% as of December 31, 2014 and was
3.83% at December 31, 2013.
10. EXTINGUISHMENT OF DEBT
As described in Note 9 above, concurrent with issuing the 2018 Notes in November 2013, we redeemed our $61.1 million of
outstanding 2013 Notes issued in connection with the Exchange Offer. As such, during the fourth quarter of 2013, we wrote-off
$1.6 million of previously deferred financing costs associated with 2013 Notes and recorded the charge as loss on extinguishment
of debt on the accompanying consolidated statements of operations.
In conjunction with the Conversion Event, described in Note 9 above, holders of our Convertible Notes tendered $6.4 million
of Convertible Notes in exchange for 0.6 million shares of our common stock. As a result of the Conversion Event (as defined in
the indenture governing the Convertible Notes) during the third quarter of 2013, we wrote-off $0.3 million of previously deferred
financing costs, $3.7 million of derivative liabilities, and $0.8 million of unamortized discount. We recorded a loss on
extinguishment of debt of $1.7 million, which is included on the accompanying consolidated statements of operations.
In March 2013, in connection with the Exchange Offer, described in Note 9 above, we exchanged $48.5 million of Convertible
Notes for $61.1 million of 2013 Notes. As a result of the Exchange Offer, during the first quarter of 2013, we wrote-off $2.4
million of previously deferred financing costs, $26.6 million in derivative liabilities, and $7.3 million of unamortized discount.
We recorded a gain on extinguishment of debt associated with this transaction of $4.3 million on the accompanying consolidated
statements of operations.
In August 2012, concurrently with entering into our prior credit agreement, we terminated our Senior Secured Credit Facility
due 2014 (the "2010 Agreement"). As a result, during the third quarter of 2012, we wrote-off $2.6 million of previously deferred
financing costs associated with the terminated 2010 Credit Agreement and recorded the charge as loss on extinguishment of debt
on the accompanying consolidated statements of operations.
In connection with issuing the 2018 Notes and entering into the 2013 Loan Agreement, we have incurred $8.4 million of
deferred financing costs. Deferred financing costs are classified as other assets on the accompanying consolidated balance sheet.
These deferred financing costs are being amortized over the terms of the related agreements using the straight line method, which
approximates the effective interest method.
11. DERIVATIVES
General
We are exposed to certain risks relating to our ongoing business operations. However, derivative instruments are not used to
hedge these risks. In accordance with ASC 815 - Derivatives and Hedging ("ASC 815"), we are required to account for derivative
instruments as a result of the issuance of the Warrants and Convertible Notes on August 31, 2010. None of our derivative contracts
manage business risk or are executed for speculative purposes. Our Convertible Notes embedded derivative was written-off as
of the Conversion Termination Date as discussed in Notes 9 and 10 above, as the remaining noteholders no longer have conversion
rights.
79
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table presents the fair value of our derivative instruments (in thousands) as of December 31, 2014 and 2013:
Fair Value
December 31,
Derivative Instruments Not Designated as
Hedging Instruments under ASC 815
Warrants
Balance Sheet Location
Derivative liabilities
2014
2013
$
25,246
$
21,690
The following table presents the effect of derivative instruments (in thousands) on the accompanying consolidated statements
of operations for the years ended December 31, 2014, 2013, and 2012, excluding income tax effects:
Years Ended December 31,
Derivative Instruments Not
Designated as
Hedging Instruments under
ASC 815
Warrants
Convertible Note embedded
derivative
Location of Loss
Recognized
Derivative loss
Derivative loss
$
$
2014
2013
2012
(3,556) $
(16,833) $
(4,195)
—
(3,556) $
(13,131)
(29,964) $
(15,530)
(19,725)
Warrant and Convertible Note volume positions are presented in the number of shares underlying the respective
instruments. The table below presents our volume positions (in thousands) as of December 31, 2014, 2013, and 2012:
Derivative Instruments Not Designated as Hedging
Instruments under ASC 815
Warrants
Convertible Note embedded derivative
Number of Shares
December 31,
2014
2013
2012
2,999
—
2,999
3,000
—
3,000
3,000
5,238
8,238
We do not have any derivative instruments with credit features requiring the posting of collateral in the event of a credit
downgrade or similar credit event.
12. OTHER LONG-TERM OBLIGATIONS AND DEFERRED CREDITS
Other long-term obligations and deferred credits are comprised primarily of the Bode Earn-out that we entered into with the
former equity owners of the Bode Companies, as part of the acquisition of the Bode Companies during the fourth quarter of 2012.
In accordance with the agreement, we are obligated to make certain annual payments to the former owners of the Bode Companies
upon the achievement of certain pre-defined incremental sales volume milestones. The Bode Earn-out was valued based on the
net present value of the expected future payments, using a contractual discount rate of 7.0% and was capped at a fair value of $5.3
million at December 31, 2014 and $7.0 million at December 31, 2013. A long-term obligation of $3.0 million and $4.8 million is
classified as a long-term liability on our consolidated balance sheets at December 31, 2014 and 2013, respectively, and reflects
the portion we expect to pay beyond one year of the balance sheet date and within the six-year term of the agreement. The discount
on the Bode Earn-out is being accreted to interest expense over the period during which payments are expected to be made. Our
first payment was made in January 2014. We expect our obligation to cease during 2017.
The remaining other long-term obligations and deferred credits balances consists primarily of the long-term portion of our
income tax liability (see Note 17).
13. FAIR VALUE DISCLOSURES
Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants as of the measurement date. Accounting guidance also establishes a hierarchy for
80
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by
requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in
valuing the asset or liability and are developed based on market data obtained from sources independent of us. Unobservable inputs
are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability. The guidance
establishes three levels of inputs that may be used to measure fair value:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value
of the assets or liabilities.
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value
measurements. We review the fair value hierarchy classification on a quarterly basis. Changes in the observability of valuation
inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.
The following table presents our fair value hierarchy for liabilities measured at fair value on a recurring basis as of December 31,
2014 and 2013 (in thousands):
Derivative – Warrants(1)
Other Obligations - Bode Earn-out(2)
Derivative – Warrants(1)
Other Obligations - Bode Earn-out(2)
As of December 31, 2014
Total
Level 1
Level 2
Level 3
25,246
5,344
30,590
$
$
— $
—
— $
— $
—
— $
25,246
5,344
30,590
As of December 31, 2013
Total
Level 1
Level 2
Level 3
21,690
7,000
28,690
$
$
— $
—
— $
— $
21,690
—
7,000
— $
28,690
$
$
$
$
(1) Represents the Warrants (as defined herein, see Note 15).
(2) Represents the fair value of the Bode Earn-out (see Note 2). 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 $5.3 million as of December 31, 2014 and $7.0 million
as of December 31, 2013.
The liability for the Warrants was valued utilizing a Black-Scholes-Merton model. Inputs into the model were based upon
observable market data where possible. Where observable market data did not exist, the Company modeled inputs based upon
similar observable inputs. The key inputs in determining fair value of our derivative liabilities include our stock price, stock price
volatility, risk free interest rates and interest rates for conventional debt of similarly situated companies.
81
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A reconciliation of the changes in Level 3 fair value measurements is as follows for December 31, 2014 and 2013 (in thousands):
Warrants
Convertible
Notes Embedded
Derivative
Bode Earn-out
Balance at January 1, 2013
Total losses included in net loss
Write-off of derivative on Convertible Notes tendered for
2013 Notes (1)
Write-off of derivative on Convertible Notes tendered for
common stock or remaining at the Conversion
Termination Date (2)
Balance at December 31, 2013
Total losses included in net income
Payment on Bode Earn-out
Write-off of derivative on exercised Warrants (3)
Balance at December 31, 2014
$
$
$
4,857
16,833
$
17,173
13,131
—
(26,641)
—
21,690
3,560
—
(4)
25,246
$
(3,663)
—
—
—
—
— $
7,000
—
—
—
7,000
—
(1,656)
—
5,344
(1) Represents the pro rata portion of derivative liability associated with tendered Convertible Notes measured at the date of
exchange, which is included in the year ended December 31, 2013 gain (loss) on extinguishment of debt on the accompanying
consolidated statements of operations.
(2) Represents the pro rata portion of derivative liability associated with tendered Convertible Notes measured at the date of
tender or remaining at the Conversion Termination Date, which is included in additional paid-in capital on the accompanying
consolidated balance sheet for the year ended December 31, 2013.
(3) Represents the pro rata portion of the derivative liability associated with exercised Warrants measured at the date of share
issuance, which is included in the year ended December 31, 2014 derivative loss on the accompanying consolidated statements
of operations.
Our other financial instruments consist of cash and cash equivalents, trade receivables, trade payables and long-term debt. We
consider the carrying values of cash and cash equivalents, trade receivables and trade payables to be representative of their respective
fair values because of their short-term maturities or expected settlement dates. The carrying value of outstanding amounts under
our 2013 Loan Agreement approximates fair value due to the floating interest rate. The fair value of the 2018 Notes, estimated
based on broker / dealer quoted market prices, was $209.0 million as of December 31, 2014. The fair value of our Convertible
Notes was approximately $0.1 million and included no embedded derivative at both December 31, 2014 and 2013.
14. STOCKHOLDERS’ EQUITY
Common Stock and Preferred Stock
The following table presents information regarding U.S. Concrete’s common stock (in thousands):
Shares authorized
Shares outstanding at end of period
Shares held in treasury
December 31,
2014
2013
100,000
13,978
697
100,000
14,036
414
Under our restated certificate of incorporation, we are authorized to issue 100.0 million shares of common stock, par value
$0.001, and 10.0 million shares of preferred stock, $0.001 par value. Additionally, we are authorized to issue “blank check”
preferred stock, which may be issued from time to time in one or more series upon authorization by our Board. The Board, without
further approval of the stockholders, is authorized to fix the dividend rights and terms, conversion rights, voting rights, redemption
rights and terms, liquidation preferences, and any other rights, preferences and restrictions applicable to each series of the preferred
stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate
purposes could, among other things, adversely affect the voting power of the holders of our common stock and, under certain
82
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
circumstances, make it more difficult for a third party to gain control of us, discourage bids for our common stock at a premium
or otherwise affect the market price of our common stock. There was no preferred stock issued or outstanding as of December 31,
2014 and 2013.
Share Repurchase Program
In May 2014, our Board authorized a program to repurchase up to $50.0 million of our outstanding common stock (the "Share
Repurchase Program") until the earlier of March 31, 2017, or a determination by the Board to discontinue the repurchase program.
Related Party Share Repurchase
During the second quarter of 2014, as part of the Share Repurchase Program, we paid $4.8 million in cash to Whippoorwill
Associates, Inc. ("Whippoorwill") pursuant to a privately negotiated agreement to repurchase 200,000 shares of our common
stock. We repurchased the shares for $24.12 per share, which was the closing price of our common stock on the NASDAQ stock
market on the trading day prior to the repurchase. As of May 19, 2014, and prior to the transaction, Whippoorwill owned
approximately 3.0 million shares, or approximately 21%, of our outstanding common stock and, as such, the transaction was
considered a related party repurchase. In addition, we paid $0.1 million in legal fees associated with the Whippoorwill share
repurchase. There were no related party share repurchases during the third and fourth quarters of 2014.
Treasury Stock
Employees may elect to satisfy their tax obligations on the vesting of their restricted stock by having the required tax payments
withheld based on a number of vested shares having an aggregate value on the date of vesting equal to the tax obligation. As a
result of such employee elections, we withheld approximately 83,000 shares during the year ended December 31, 2014, at a total
value of approximately $2.1 million, and approximately 296,000 shares during the year ended December 31, 2013, at a total value
of approximately $4.9 million. We accounted for the withholding of these shares as treasury stock.
15. WARRANTS
On August 31, 2010 (the "Effective Date"), 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 Effective Date. The Warrants have been included
in derivative liabilities on the consolidated balance sheets (see Note 11) and are recorded at their fair value (see Note 13). The
Warrants are classified as a current liability on the consolidated balance sheets as they can be exercised by the holders at any time.
In connection with the issuance of the Class A Warrants, we entered into a Class A Warrant Agreement with American Stock
Transfer & Trust Company, LLC, as warrant agent ("AST"). Subject to the terms of the Class A Warrant Agreement, holders of
Class A Warrants are entitled to purchase shares of common stock at an exercise price of $22.69 per share. In connection with
the issuance of the Class B Warrants, the Company entered into a Class B Warrant Agreement (collectively with the Class A
Warrant Agreement, the "Warrant Agreements") with AST. Subject to the terms of the Class B Warrant Agreement, holders of
Class B Warrants are entitled to purchase shares of common stock at an exercise price of $26.68 per share. Subject to the terms
of the Warrant Agreements, both classes of Warrants have a seven year term and will expire on the seventh anniversary of the
Effective Date. The Warrants may be exercised for cash or on a net issuance basis.
If, at any time before the expiration date of the Warrants, we pay or declare a dividend or make a distribution on the common
stock payable in shares of our capital stock, or make subdivisions or combinations of our outstanding shares of common stock
into a greater or lesser number of shares or issue any shares of our capital stock by reclassification of common stock, then the
exercise price and number of shares issuable upon exercise of the Warrants will be adjusted so that the holders of the Warrants
will be entitled to receive the aggregate number and kind of shares that they would have received as a result of the event if their
Warrants had been exercised immediately before the event. In addition, if we distribute to holders of the common stock an
Extraordinary Distribution (defined in each Warrant Agreement to include assets, securities or warrants to purchase securities),
then the exercise price of the Warrants will be decreased by the amount of cash and / or the fair market value of any securities or
assets paid or distributed on each share of common stock. However, no adjustment to the exercise price will be made if, at the
time of an Extraordinary Distribution, we make the same distribution to holders of Warrants as we make to holders of common
stock pro rata based on the number of shares of common stock for which the Warrants are exercisable.
83
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In the event of a Fundamental Change (defined in each Warrant Agreement to include transactions such as mergers,
consolidations, sales of assets, tender offers, exchange offers, reorganizations, reclassifications, compulsory share exchanges or
liquidations in which all or substantially all of the outstanding common stock is converted into or exchanged for stock, other
securities, cash or assets), if the consideration paid consists 90% or more of publicly traded securities, each holder of a Warrant
will have the right upon any subsequent exercise to receive the kind and amount of stock, other securities, cash and assets that
such holder would have received if the Warrant had been exercised immediately prior to such Fundamental Change. If a
Fundamental Change occurs (other than a Fundamental Change in which the consideration paid consists at least 90% of publicly
traded securities), then each holder of a Warrant will be entitled to receive an amount equal to the Fair Market Value (as defined
in each of the Warrant Agreements) of their Warrant on the date the Fundamental Change is consummated.
No adjustment in the exercise price of the Warrants shall be required unless such adjustment would require an increase or
decrease of at least $0.05 in the exercise price; provided that any adjustments that are not required to be made shall be carried
forward and taken into account in any subsequent adjustment.
16. CORPORATE HEADQUARTERS RELOCATION AND LEASE EXIT COSTS
During the first quarter of 2012, we made the decision to relocate our corporate headquarters from Houston, Texas to Euless,
Texas. The move was completed in July 2012. As a result of this decision, we paid severance costs to employees that did not
relocate with the Company as well as other employee-related and general moving costs. For the years ended December 31, 2013
and 2012, we recorded approximately $0.7 million and $2.2 million, respectively, for these severance, other employee-related,
and moving costs. These costs are included in selling, general, and administrative ("SG&A") expenses on the consolidated
statements of operations. No costs were recorded for the year ended December 31, 2014.
In connection with the relocation, we ceased use of our leased corporate office space in Houston effective July 21, 2012. As
a result, during the third quarter of 2012, we recorded a $0.4 million non-cash charge to SG&A expenses for the net present value
of the difference between the remaining lease payments and the market value we believe we could obtain for a sublease of the
space over the remainder of the term. We continued to incur rent expense for the remainder of the lease term, which we included
in SG&A expenses; and the expense was being reduced by the amortization of the cease-use obligation over the remaining lease
term. The associated nominal accretion expense was included as a charge to SG&A expenses over the remaining lease term.
During the third quarter of 2013, we signed an agreement with the landlord to terminate the lease for a payment of $0.2 million.
Prior to the lease termination, we did not sublease the space and recorded no rental income. We recorded credits of approximately
$0.1 million in amortization of the cease-use obligation for each of the years ended December 31, 2013 and 2012. No credits were
recorded for the year ended December 31, 2014.
17. INCOME TAXES
Our consolidated federal and state income tax returns include the results of operations of acquired businesses from their dates
of acquisition.
84
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A reconciliation of our effective income tax rate to the amounts calculated by applying the federal statutory corporate tax rate
of 35% is as follows (in thousands):
Tax expense (benefit) at statutory rate
Add (deduct):
State income taxes
Nondeductible items
Valuation allowance
Derivatives and note discount
Unrecognized tax benefit
Other
Income tax provision (benefit) from
continuing operations
Years Ended December 31,
2013
2012
2014
$
8,306
$
(5,987)
$
(9,859)
2,797
1,304
(9,752)
(911)
369
43
1,037
970
495
8,369
(3,732)
16
(1,552)
2,095
5,705
—
(51)
(88)
$
2,156
$
1,168
$
(3,750)
Effective income tax rate
9.1%
(6.8)%
13.3%
The amounts of our consolidated federal and state income tax provision (benefit) from continuing operations were as follows
(in thousands):
Current:
Federal
State
Deferred:
Federal
State
Income tax provision (benefit)
from continuing operations
Years Ended December 31,
2013
2012
2014
$
$
$
$
487
1,674
2,161
$
130
1,144
1,274
(5) $
— $
—
(5)
(106)
(106)
—
314
314
(3,623)
(441)
(4,064)
2,156
$
1,168
$
(3,750)
Income tax expense (benefit) was allocated between continuing operations and discontinued operations as follows:
Continuing operations
Discontinued operations
Income tax expense (benefit)
Years Ended December 31,
2013
2012
2014
$
$
2,156
172
2,328
$
$
1,168
(45)
1,123
$
$
(3,750)
(16)
(3,766)
85
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Deferred income tax provisions result from temporary differences in the recognition of expenses for financial reporting
purposes and for tax reporting purposes. We present the effects of those differences as deferred income tax liabilities and assets,
as follows (in thousands):
Deferred tax assets:
Derivatives
Goodwill and other intangibles
Receivables
Inventory
Accrued insurance
Depletion
Deferred revenue
Stock compensation
Charitable contribution carryover
Other accrued expenses
Capital loss carryforwards
Net operating loss carryforwards
Other
Total gross deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred income tax liabilities:
Property, plant and equipment, net
Other
Total gross deferred tax liabilities
Net deferred tax liability
December 31,
2014
2013
$
8,463
6,747
988
4,264
4,021
490
332
986
166
5,224
3,736
10,039
1,507
46,963
(34,937)
12,026
16,566
—
16,566
4,540
$
6,203
8,579
1,094
3,654
3,768
686
180
731
176
3,758
4,029
22,179
366
55,403
(44,473)
10,930
14,845
417
15,262
4,332
$
$
The allocation of deferred taxes between current and long-term as of December 31, 2014 and 2013 was as follows (in
thousands):
Current deferred tax asset, net
Long-term deferred tax liability, net
Net deferred tax liability
December 31,
2014
2013
$
$
1,887
6,427
4,540
$
$
708
5,040
4,332
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 valuation allowances as of December 31, 2014
and 2013 in the amount of $34.9 million and $44.5 million, respectively, for other deferred tax assets because of uncertainty
regarding their ultimate realization. Our total net deferred tax liability as of December 31, 2014 and 2013 was $4.5 million and
$4.3 million, respectively.
86
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Despite income in 2014 and projected future taxable income, the Company continues to be in a three year cumulative loss
position and will, therefore, continue to record a valuation allowance on all U.S. deferred tax assets. The cumulative loss position
is considered a significant source of negative evidence and limits our ability to consider other subjective evidence such as our
projections for future growth when assessing the need for a deferred tax valuation allowance. Our cumulative loss position will
continue to change as a result of historical and current earnings performance. This change among other factors, may cause us to
reduce our valuation allowance on deferred tax assets in the foreseeable future. Any adjustment to our valuation allowance would
impact our income tax expense in the period our evaluation changes.
We reorganized pursuant to Chapter 11 of the bankruptcy code under the terms of our plan of reorganization (the "Plan"),
with an effective date of August 31, 2010. Under our Plan, our previously outstanding 8.375% Senior Subordinated Notes due
2014 were cancelled, giving rise to cancellation of indebtedness income ("CODI"). The Internal Revenue Code ("IRC"), provides
that CODI arising under a plan of bankruptcy reorganization is excludable from taxable income, but the debtor must reduce certain
of its tax attributes by the amount of CODI realized under the Plan. Based on the estimate of CODI and required tax attribute
reduction, the effects of the Plan did not cause a significant change in our recorded net deferred tax liability. Our required reduction
in tax attributes, or deferred tax assets, was accompanied by a corresponding release of valuation allowance that was reducing the
carrying value of such tax attributes.
We underwent a change in ownership for purposes of Section 382 of the IRC as a result of our Plan and emergence from
Chapter 11 on August 31, 2010. As a result, the amount of our pre-change net operating losses ("NOL's"), and other tax attributes
that are available to offset future taxable income are subject to an annual limitation. The annual limitation is based on the value
of the corporation as of the effective date of the Plan. As of December 31, 2014, approximately $10.9 million of our $36.4 million
federal NOL's are subject to annual Section 382 limitations. The ownership change and the resulting annual limitation on use of
NOL's are not expected to result in the expiration of our NOL carryforwards if we are able to generate sufficient future taxable
income within the carryforward periods. However, the limitation on the amount of NOL's available to offset taxable income in a
specific year may result in the payment of income taxes before all NOL's have been utilized. Additionally, a subsequent ownership
change may result in further limitation on the ability to utilize existing NOL's and other tax attributes.
As of December 31, 2014, we had deferred tax assets related to federal and state NOL's and tax credit carryforwards of $11.5
million. As a result of certain realization requirements of ASC Topic 718, Compensation - Stock Compensation, these deferred
tax assets do not include $3.8 million that arose directly from tax deductions related to equity compensation in excess of
compensation recognized for financial reporting. We have federal NOL's of approximately $36.4 million, including $10.7 million
related to the excluded deferred tax assets related to equity compensation, that are available to offset federal taxable income and
will expire in the years 2028 through 2032, if not fully utilized.
At December 31, 2014, we had unrecognized tax benefits of $3.6 million of which $1.7 million, if recognized, would impact
the effective tax rate. It is unlikely a reduction of unrecognized tax benefits will occur within the next 12 months. The unrecognized
tax benefits are included as a component of other long-term obligations. During the years ended December 31, 2014, 2013 and
2012, we recorded interest and penalties related to unrecognized tax benefits of less than $0.1 million, $0.1 million and $(0.1)
million, respectively. Total accrued penalties and interest at December 31, 2014 and 2013 was approximately $0.2 million and
$0.3 million, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Years Ended December 31,
2013
2012
2014
Unrecognized tax benefits at January 1
Additions for tax positions related to current year
Additions for tax positions related to prior years
Reductions due to lapse of statute of limitations
Settlements
Unrecognized tax benefits at December 31
$
$
3,489
475
100
(63)
(365)
3,636
$
$
6,598
311
393
(3,813)
—
3,489
$
$
6,556
145
508
(611)
—
6,598
We recognize interest and penalties related to uncertain tax positions in income tax expense.
87
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
We conduct business domestically and, as a result, U.S. Concrete, Inc. or one or more of our subsidiaries file income tax
returns in the U.S. federal jurisdiction and various state and local jurisdictions. In the normal course of business, we are subject
to examination in the U.S. federal jurisdiction, and generally in state jurisdictions. With few exceptions, we are no longer subject
to U.S. federal, state and local tax examinations for years before 2011.
18. STOCK-BASED COMPENSATION
Management Equity Incentive Plan
As of December 31, 2014, there were 1.0 million shares remaining for future issuance under the Long Term Incentive Plan
(the "LTI Plan"). The LTI Plan enables us to grant stock options, stock appreciation rights, restricted stock awards, restricted stock
units, cash awards and performance awards to management, employees, and directors of the Company.
Stock-Based Compensation
Under authoritative accounting guidance, share-based compensation cost is measured at the grant date based on the calculated
fair value of the award. The expense is recognized on a straight-line basis over the employee’s requisite service period, generally
the vesting period of the award or for performance-based awards, over the derived service period. We have elected to use the
long-form method of determining our pool of windfall tax benefits as prescribed under authoritative accounting guidance.
For the years ended December 31, 2014, 2013 and 2012, we recognized stock-based compensation expense related to restricted
stock, restricted stock units and stock options of $3.7 million, $5.4 million and $2.5 million, respectively, with no related excess
tax benefit recognized. Stock-based compensation expense is reflected in SG&A expenses in our consolidated statements of
operations.
As of December 31, 2014, there was approximately of $3.7 million of unrecognized compensation cost related to restricted
stock units and restricted stock awards, net of estimated forfeitures. As of December 31, 2014, we expect to recognize the related
compensation cost over a weighted-average period of approximately 0.8 years.
Restricted Stock Units
Restricted stock units generally vest over a one to three year period on a quarterly basis. The restricted stock units are subject
to restrictions on transfer and certain conditions to vesting. During the restriction period, the holders of restricted stock units are
not entitled to vote and receive dividends on those restricted units as the restricted stock units do not represent outstanding shares
of our common stock.
Restricted stock unit activity for the year ended December 31, 2014 was as follows (shares in thousands):
Unvested restricted stock units outstanding at beginning of
period
Granted
Vested
Forfeited
Unvested restricted stock units outstanding at end of period
Weighted-
Average
Grant
Date
Fair Value
Number
of
Units
29
22
(28)
(1)
22
$
$
19.78
25.57
19.75
16.27
25.57
During 2014, 2013, and 2012, the weighted-average grant date fair value of restricted stock units granted was $25.57, $16.89
and $5.00, respectively. The fair value of our restricted stock units was determined based upon the price of our common stock on
the date of grant.
During 2014, 2013, and 2012, the total fair value of restricted stock units vested was $0.6 million, $1.4 million and $0.9
million, respectively.
88
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Compensation expense associated with awards of restricted stock units was $0.6 million, $2.7 million and $0.7 million for
the years ended December 31, 2014, 2013, and 2012, respectively. For restricted stock units that were granted prior to May 2013,
there was an equivalent number of incentive restricted stock units, "IRSU's," issued. These IRSU's represented the right to receive
0.35020 of a share of common stock upon satisfaction of certain criteria. Compensation costs for 2013 associated with our restricted
stock units included $1.2 million for achievement of the performance goal associated with delivery of a Conversion Event Notice,
which occurred on June 18, 2013, triggering the conversion of certain previously vested IRSU's into approximately 69,000 common
shares. No compensation expense had previously been recognized for these grants, as achievement of the performance goal was
not considered probable.
Restricted Stock Awards
Restricted stock awards are subject to restrictions on transfer and certain conditions to vesting. The restricted stock awards
issued to date consist of a 60% time-vested component and a 40% stock performance hurdle component. The time-vested component
vests annually over a three or four year period. The stock performance hurdle component triggers vesting upon our stock price
reaching certain thresholds. During the restriction period, the holders of restricted stock are entitled to vote and receive dividends,
thus these awards are included in our outstanding shares of common stock.
Restricted stock award activity for the year ended December 31, 2014 was as follows (shares in thousands):
Unvested restricted stock awards outstanding at beginning of
period
Granted
Vested
Forfeited
Unvested restricted stock awards outstanding at end of period
Number
of
Shares
Weighted-
Average
Grant Date
Fair Value
487
186
(222)
(17)
434
$
$
7.40
21.11
6.88
13.67
13.30
During 2014, 2013, and 2012, the weighted-average grant date fair value of restricted stock awards granted was $21.11, $11.55
and $3.51, respectively. The fair value of restricted stock awards subject only to time-vesting restrictions was determined based
upon the price of our common stock on the date of grant. The fair value of restricted stock subject to our common stock reaching
certain price thresholds was determined utilizing a Monte Carlo financial valuation model which is appropriate for path-dependent
options. Compensation expense determined utilizing the Monte Carlo simulation is recognized regardless of whether the common
stock reaches the defined thresholds. The range of assumptions used to estimate the fair value of performance-based restricted
stock awards granted during the years ended December 31, 2014, 2013, and 2012 were as follows:
Expected term (years)
Expected volatility
Risk-free interest rate
Years Ended December 31,
2013
2012
2014
0.08 - 1.08
0.17 - 1.17
1.17 - 2.00
38.6% - 42.6%
41.3% - 43.3%
43.5% - 44.8%
0.87% - 1.17%
0.38% - 0.68%
0.39% - 0.54%
Weighted-average grant date fair value
$14.18 - $26.42
$5.51 - $16.32
$1.02 - $3.53
During 2014, 2013, and 2012, the total fair value of restricted stock awards vested was $1.5 million, $3.0 million and $0.7
million, respectively.
Compensation expense associated with restricted stock awards under our incentive compensation plan was $3.1 million, $2.7
million and $1.8 million for the years ended December 31, 2014, 2013, and 2012, respectively. During 2012, we modified the
terms of one of our restricted stock awards issued during 2011, resulting in a change in the stock performance hurdle and the
valuation of the related shares. The incremental compensation expense associated with the modification of these 0.2 million of
restricted stock awards was negligible for 2012.
89
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Stock Options
Proceeds from the exercise of stock options are credited to common stock at par value, and the excess is credited to additional
paid-in capital. We estimated the fair value of each of our stock option awards on the date of grant using a Black-Scholes option
pricing model. We determined the expected volatility using the historical and implied volatilities of a peer group of companies
given the limited trading history of our common stock at the time. For each option awarded, the risk-free interest rate was based
on the U.S. Treasury yield in effect at the time of grant for periods corresponding with the expected life of the option. The expected
life of an option represents the weighted average period of time that an option grant is expected to be outstanding, giving
consideration to its vesting schedule and historical exercise patterns. There were no stock option grants in 2014, 2013 or 2012.
Options outstanding at December 31, 2014 relate to grants prior to 2012.
Compensation expense related to stock options was less than $0.1 million during each of the years ended December 31, 2014,
2013 and 2012. Stock option activity for the year ended December 31, 2014 was as follows (shares in thousands):
Options outstanding at beginning of year
Granted
Exercised
Forfeited and expired
Options outstanding at end of year
Options exercisable at end of year
Number
of Shares
Underlying
Options
Weighted-
Average
Exercise
Price
80
—
(27)
(7)
46
46
$
$
$
17.53
—
14.32
23.62
18.46
18.46
The total intrinsic value of stock options exercised during the year ended December 31, 2014 and December 31, 2013 were
$0.2 million and $0.1 million, respectively. There were no stock options exercised during the year ended December 31, 2012.
The following table summarizes information about stock options outstanding as of December 31, 2014 (shares in
thousands):
Options Outstanding
Weighted
Average
Remaining
Contractual
Life
5.75
5.75
5.78
5.78
5.76
Number of
Shares
Outstanding
11
15
10
10
46
Options Exercisable
Weighted
Average
Exercise Price
12.00
$
15.00
22.69
26.68
18.46
$
Number of
Shares
Outstanding
11
15
10
10
46
Weighted
Average
Exercise Price
12.00
$
15.00
22.69
26.68
18.46
$
Range of exercise prices
$12.00 - $12.00
$15.00 - $15.00
$22.69 - $22.69
$26.68 - $26.68
$12.00 - $26.68
The aggregate intrinsic value of outstanding and exercisable stock options was $0.5 million, $0.5 million and zero at
December 31, 2014, 2013, and 2012, respectively.
19. NET EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares
outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income (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.
90
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following is a reconciliation of the components of the basic and diluted earnings per share calculations for December 31,
2014, in thousands:
December 31, 2014
Numerator:
Income from continuing operations
Loss from discontinued operations, net of
income taxes
Numerator for diluted earnings per share
$
$
Denominator:
Basic weighted average common shares
outstanding
Restricted stock and restricted stock units
Warrants
Stock options
Denominator for diluted earnings per share
21,575
(993)
20,582
13,541
210
136
11
13,898
We have not included a reconciliation of the components of the basic and diluted earnings per share calculations for December
31, 2013 or 2012 as we reported losses from continuing and discontinued operations in the accompanying consolidated statements
of operations for those years, and thus the share counts used in the basic and diluted calculations are the same.
For the years ended December 31, 2014, 2013, and 2012, our potentially dilutive shares include the shares underlying our
restricted stock awards, restricted stock units, stock options, and Warrants. For the years ended December 31, 2013 and 2012, our
potentially dilutive shares include the shares underlying our Convertible Notes. 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:
Potentially dilutive shares:
Convertible Notes
Unvested restricted stock awards and restricted stock units
Stock options
Warrants
Total potentially dilutive shares
20. BUSINESS SEGMENTS
2014
December 31,
2013
2012
—
84
14
1,500
1,598
349
516
80
3,000
3,945
5,238
1,107
107
3,000
9,452
Our two reportable segments consist of ready-mixed concrete and aggregate products, as described below.
Our ready-mixed concrete segment produces and sells ready-mixed concrete. This segment serves the following principal
markets: north and west Texas, California, New Jersey, New York, Washington, D.C. and Oklahoma. With the acquisition of the
volumetric ready-mixed concrete businesses during the fourth quarter of 2014 (see Note 2), we have further expanded our presence
in Texas into all of the major metropolitan markets. Our aggregate products segment includes crushed stone, sand and gravel
products and serves the north and west Texas, New Jersey, and New York markets in which our ready-mixed concrete segment
operates. Other products not associated with a reportable segment include our building materials stores, hauling operations, lime
slurry, Aridus® rapid-drying concrete technology, brokered product sales, a recycled aggregates operation, and an aggregates
distribution operation. The financial results of the acquisitions completed in 2014, 2013, and 2012 have been included in their
respective reportable segment or in other products as of their respective acquisition dates.
91
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 are 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 net income (loss) from continuing operations excluding interest, income taxes, depreciation, depletion
and amortization, derivative loss, and gain (loss) on extinguishment of debt. Additionally, we adjust Adjusted EBITDA for items
similar to certain of those used in calculating the Company’s compliance with debt covenants. The additional items that are adjusted
to determine our Adjusted EBITDA are:
•
•
•
non-cash stock compensation expense;
corporate officer severance expense; and
expenses associated with the relocation of our corporate headquarters.
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 (i) internally measure our operating
performance and (ii) 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, net income or loss, is not based on
U.S. GAAP, and is not necessarily 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.
We account for inter-segment sales at market prices. Corporate includes executive, administrative, financial, legal, human
resources, business development and risk management activities which are not allocated to reportable segments and are excluded
from segment Adjusted EBITDA. Eliminations include transactions to account for intercompany activity.
In January 2014, our Board approved of the sale of our one remaining precast operation in Pennsylvania. Historical segment
results have been recast to conform to this change.
92
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table sets forth certain financial information relating to our continuing operations by reportable segment (in
thousands):
Years ended December 31,
2013
2012
2014
Revenue:
Ready-mixed concrete
Sales to external customers
Aggregate products
Sales to external customers
Intersegment sales
Total aggregate products
Total reportable segment revenue
Other products and eliminations
Total revenue
Reportable Segment Adjusted EBITDA:
Ready-mixed concrete
Aggregate products
Total reportable segment Adjusted EBITDA
Reconciliation of reportable segment Adjusted EBITDA to income
(loss) from continuing operations before income taxes:
Total reportable segment Adjusted EBITDA
Other products and eliminations income from operations
Corporate overhead, net of insurance allocations
Depreciation, depletion and amortization for reportable segments
Interest expense, net
Corporate gain (loss) on early extinguishment of debt
Corporate derivative loss
Corporate, other products and eliminations other income, net
Income (loss) from continuing operations before income taxes
Capital Expenditures:
Ready-mixed concrete
Aggregate products
Other
Total capital expenditures
Revenue by Product:
Ready-mixed concrete
Aggregate products
Building materials
Lime
Hauling
Other
Total revenue
93
$
632,787
$
545,302
$
473,807
31,662
20,956
52,618
685,405
18,309
703,714
84,706
10,549
95,255
95,255
3,082
(30,870)
(20,362)
(20,431)
11
(3,556)
602
23,731
21,754
9,128
1,685
32,567
632,787
31,662
15,410
10,459
4,221
9,175
703,714
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
21,715
16,498
38,213
583,515
14,640
598,155
58,583
7,192
65,775
$
$
$
$
65,775
2,615
(29,957)
(15,777)
(11,332)
985
(29,964)
550
(17,105) $
12,236
5,773
1,979
19,988
545,302
21,715
14,656
7,356
4,533
4,593
598,155
$
$
$
$
18,261
13,736
31,997
505,804
11,417
517,221
41,486
4,142
45,628
45,628
956
(29,460)
(12,549)
(11,344)
(2,630)
(19,725)
1,023
(28,101)
5,232
1,752
1,036
8,020
473,807
18,261
11,363
6,762
4,729
2,299
517,221
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As of December 31,
2013
2014
Identifiable Assets:
Ready-mixed concrete and concrete-related products
Aggregate products
Other products and corporate
Total identifiable assets
$
$
117,131
40,878
18,515
176,524
$
$
91,776
36,819
9,965
138,560
21. RISK CONCENTRATION
We grant credit, generally without collateral, to our customers, which include general contractors, municipalities and
commercial companies located primarily in Texas, California, New Jersey, New York, Pennsylvania, Washington D.C., and
Oklahoma. Consequently, we are subject to potential credit risk related to changes in business and economic factors in those
states. We generally have lien rights in the work we perform, and concentrations of credit risk are limited because of the diversity
of our customer base. Further, our management believes that our contract acceptance, billing and collection policies are adequate
to limit potential credit risk.
Several of our subsidiaries are parties to various collective bargaining agreements with labor unions having multi-year terms.
As of December 31, 2014, approximately 617 of our employees, or 28.8% of our workforce, were represented by labor unions
having collective bargaining agreements with us. Generally, these agreements have multi-year terms and expire on a staggered
basis between 2015 and 2019. As of December 31, 2013, approximately 575 of our employees, or 32.2% of our workforce, were
represented by agreements that expire between 2014 and 2018.
22. SIGNIFICANT CUSTOMERS AND SUPPLIERS
We did not have any customers that accounted for more than 10% of our revenues or any suppliers that accounted for more
than 10% of our cost of goods sold in 2014, 2013, or 2012. We did not have any customers that accounted for more than 10% of
our accounts receivable as of December 31, 2014 or December 31, 2013.
23. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
From time to time, and currently, we are subject to various claims and litigation brought by employees, customers and other
third parties for, among other matters, personal injuries, property damages, product defects and delay damages that have, or
allegedly have, resulted from the conduct of our operations. As a result of these types of claims and litigation, we must periodically
evaluate the probability of damages being assessed against us and the range of possible outcomes. In each reporting period, if we
determine that the likelihood of damages being assessed against us is probable, and, if we believe we can estimate a range of
possible outcomes, then we will record a liability. The amount of the liability will be based upon a specific estimate, if we believe
a specific estimate to be likely, or it will reflect the low end of our range. Currently, there are no material legal proceedings pending
against us.
In the future, we may receive funding deficiency demands related to multi-employer pension plans to which we contribute. We
are unable to estimate the amount of any potential future funding deficiency demands because the actions of each of the other
contributing employers in the plans has an effect on each of the other contributing employers, and the development of a rehabilitation
plan by the trustees and subsequent submittal to and approval by the Internal Revenue Service is not predictable. Further, the
allocation of fund assets and return assumptions by trustees are variable, as are actual investment returns relative to the plan
assumptions.
As of March 5, 2015, there are 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, or so-called “rip and tear” coverage. In
94
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 unasserted product defect claims related to ready-mixed
concrete we have delivered prior to December 31, 2014.
We believe that the resolution of all litigation currently pending or threatened against us or any of our subsidiaries will not
materially exceed our existing accruals for those matters. However, because of the inherent uncertainty of litigation, there is a
risk that we may have to increase our accruals for one or more claims or proceedings to which we or any of our subsidiaries is a
party as more information becomes available or proceedings progress, and any such increase in accruals could have a material
adverse effect on our consolidated financial condition or results of operations. We expect in the future that we and our operating
subsidiaries will, from time to time, be a party to litigation or administrative proceedings that arise in the normal course of our
business.
We are subject to federal, state and local environmental laws and regulations concerning, among other matters, air emissions
and wastewater discharge. Our management believes we are in substantial compliance with applicable environmental laws and
regulations. From time to time, we receive claims from federal and state environmental regulatory agencies and entities asserting
that we may be in violation of environmental laws and regulations. Based on experience and the information currently available,
our management does not believe that these claims will materially exceed our related accruals. Despite compliance and experience,
it is possible that we could be held liable for future charges, which might be material, but are not currently known to us or cannot
be estimated by us. In addition, changes in federal or state laws, regulations or requirements, or discovery of currently unknown
conditions, could require additional expenditures.
As permitted under Delaware law, we have agreements that provide indemnification of officers and directors for certain events
or occurrences while the officer or director is or was serving at our request in such capacity. The maximum potential amount of
future payments that we could be required to make under these indemnification agreements is not limited; however, we have a
director and officer insurance policy that potentially limits our exposure and enables us to recover a portion of future amounts that
may be paid. As a result of the insurance policy coverage, we believe the estimated fair value of these indemnification agreements
is minimal. Accordingly, we have not recorded any liabilities for these agreements as of December 31, 2014.
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.
Lease Payments
We lease certain mobile and other equipment, land, facilities, office space and other items which, in the normal course of
business, are renewed or replaced by subsequent leases. Total expense for such operating leases amounted to $11.9 million in
2014, $11.2 million in 2013, and $13.8 million in 2012.
Future minimum rental payments with respect to our operating lease obligations as of December 31, 2014, are as follows
(in thousands):
2015
2016
2017
2018
2019
Thereafter
Year Ending
December 31,
9,455
$
8,446
7,651
6,508
3,998
10,462
46,520
$
Our annual lease expense differs from our future minimum rental payments as a result of month to month equipment leases
to support our operations.
95
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Insurance Programs
We maintain third-party insurance coverage against certain risks. Under certain components of our insurance program, we
share the risk of loss with our insurance underwriters by maintaining high deductibles subject to aggregate annual loss
limitations. Generally, our deductible retentions per occurrence for auto, workers’ compensation and general liability insurance
programs are $1.0 million, although certain of our operations are self-insured for workers’ compensation. We fund these deductibles
and record an expense for expected losses under the programs. The expected losses are determined using a combination of our
historical loss experience and subjective assessments of our future loss exposure. The estimated losses are subject to uncertainty
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 noted above could materially affect our insurance obligations and future expense. The amount accrued for
self-insurance claims was $9.5 million as of December 31, 2014, compared to $8.6 million as of December 31, 2013, which is
recorded in accrued liabilities.
Performance Bonds
In the normal course of business, we and our subsidiaries are contingently liable for performance under $9.2 million in
performance bonds that various contractors, states and municipalities have required as of December 31, 2014. The bonds principally
relate to construction contracts, reclamation obligations and 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.
24. EMPLOYEE BENEFIT PLANS AND MULTI-EMPLOYER PENSION PLANS
Defined Contribution 401(k) Plan
We maintain a defined contribution 401(k) profit sharing plan for employees meeting various employment requirements.
Eligible employees may contribute amounts up to the lesser of 60% of their annual compensation or the maximum amount IRS
regulations permit. During 2014, we matched 100% of the first 1% of employee contributions and 50% of the next 5% of employee
contributions. During 2013, we matched 50% of employee contributions up to a maximum of 6% of their compensation. During
2012, we matched 50% of employee contributions up to a maximum of 5% of their compensation. We paid matching contributions
of $1.5 million in 2014 and $1.0 million in each of 2013 and 2012.
Multi-Employer Pension Plans
Several of our subsidiaries are parties to various collective bargaining agreements with labor unions having multi-year terms
that expire on a staggered basis. Under these agreements, our applicable subsidiaries pay specified wages to covered employees,
observe designated workplace rules and make payments to multi-employer pension plans and employee benefit trusts rather than
administering the funds on behalf of these employees. The risks of participating in these multi-employer pension plans are different
from single-employer plans. Assets contributed to the multi-employer plan by one employer may be used to provide benefits to
employees of other participating employers. If a participating employer stops contributing to the plan, the unfunded obligations
of the plan may be borne by the remaining participating employers. If we choose to stop participating in some of these multi-
employer plans, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a
withdrawal liability. We were not required to record a liability in fiscal 2014 or 2013 for full and partial withdrawals from any
multi-employer pension plans. For additional information regarding our potential future obligations, see Note 23.
The required disclosures and our participation in significant multi-employer pension plans are presented in the table below.
The EIN / Pension Plan Number column provides the Employer Identification Number (“EIN”) and the three-digit plan number,
if applicable. The Pension Protection Act zone status is based on information available from the plan or the plan’s public filings.
Among other factors, plans in the red zone are generally less than 65% funded, plans in the orange or yellow zones are less than
80% funded, and plans in the green zone are at least 80% funded. The FIP / RP Status Pending / Implemented column indicates
plans for which a financial improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented.
The last column lists the expiration date(s) of the collective-bargaining agreements to which the plans are subject. Our contributions
did not represent more than 5% of total contributions to any of the significant plans shown below.
96
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Pension
Protection Act
Zone Status
EIN / PPN
91-6145047
/001
2014
Green
2013
and
2012
Green
FIP / RP
Status
Pending /
Implemented
No
Contributions
(in Thousands)
2014
$3,568
2013
$3,204
2012
$2,514
Surcharge
Imposed
No
Expiration
Date of
Collective
Bargaining
Agreement
6/30/2016
Orange
Orange
Yes
933
837
534
No
7/1/2017
Green
Green
No
819
650
584
No
6/30/2016
Red
Red
Yes
559
513
426
No
4/30/2018
Green
Yellow
Yes
184
193
165
No
6/30/2014
Red
Red
Yes
179
180
61
No
8/31/2016
Green
Orange
Yes
161
151
124
No
3/31/2015 to
3/31/2019
3/31/2015 to
4/30/2018
Pension Fund
Western
Conference of
Teamsters
Pension Plan
Operating
Engineers
Pension Trust
Fund
Local 282
Pension Trust
Fund
Trucking
Employees of
North Jersey
Pension Fund
Pension Fund
Local 445
Automotive
Industries
Pension Plan
Operating
Engineers 825
Pension Fund
94-6090706
4/001
011-624531
3/001
22-6063702
/001
13-1864489
/001
94-1133245
/001
22-6033380
/001
Other
Various
Various Various
Various
540
495
539
Various
$6,943
$6,223
$4,947
Plans with collective bargaining agreements that expired during 2014 are currently under negotiation. Contributions to the
Western Conference of Teamsters Pension Plan and the Operating Engineers Pension Trust Fund increased from 2012 to 2013 due
primarily to the full-year impact of employees added as part of the Bode acquisition during 2012. At the date that these consolidated
financial statements were issued, Forms 5500 were generally not available for the plan year ending in 2014.
25. QUARTERLY SUMMARY (unaudited)
Revenue - continuing operations
Net (loss) income
Net (loss) income per share-basic
Net (loss) income per share-diluted
Year Ended December 31, 2014
(in thousands, except per share data)
First
Quarter
Second
Quarter
Third
Quarter
$
$
$
$
146,257
$
(1,153) $
(0.09) $
(0.09) $
180,358
7,861
0.58
0.57
$
$
$
$
197,589
13,007
0.96
0.94
$
$
$
$
Fourth
Quarter
179,510
867
0.06
0.06
97
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Revenue - continuing operations
Net (loss) income
Net (loss) income per share-basic
Net (loss) income per share-diluted
Year Ended December 31, 2013
(in thousands, except per share data)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
$
125,425
$
(14,364) $
(1.16) $
(1.16) $
157,390
6,675
0.53
0.50
$
$
$
$
167,196
$
(7,302) $
(0.55) $
(0.55) $
148,144
(5,138)
(0.38)
(0.38)
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 are 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.
26. SUBSEQUENT EVENT
On February 24, 2015, we announced that we completed the acquisition of all of the issued and outstanding equity interests
of Right Away Redy Mix, Inc. ("Right Away"), in Oakland, California. The purchase price was $18.0 million in cash, plus closing
adjustments of $0.8 million, plus potential future earn-out payments of up to $6.0 million based on the achievement of certain
defined annual volume thresholds over a six-year period. Right Away is the largest independent producer of ready-mixed concrete
in San Francisco’s East Bay market. Right Away operates four ready-mixed concrete facilities and a fleet of 49 drum mixer trucks.
In addition, Right Away owns and operates a fleet of transfer trucks used to transport cement and aggregates throughout the East
Bay. We will prepare the preliminary purchase price allocation for this acquisition as soon as practical, but no later than one year
from the acquisition date.
98
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
As of December 31, 2014, our management, with the participation of our principal executive officer and our principal financial
officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)), which are designed to provide reasonable assurance that the information
required to be disclosed 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's rules and forms. Disclosure controls 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.
Based on the evaluation, our principal executive officer and our principal financial officer have concluded that our disclosure
controls and procedures were effective at the reasonable assurance level as of December 31, 2014.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as that
term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external reporting purposes in accordance with generally accepted accounting principles. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies and procedures may deteriorate.
On December 5, 2014, we acquired the assets of Mobile-Crete of South Texas, LLC and Scofield Construction Services, LLC
(collectively, "Mobile-Crete"). Our management has acknowledged that it is responsible for establishing and maintaining a system
of internal controls over financial reporting for Mobile-Crete. We are in the process of integrating Mobile-Crete, and therefore
have excluded Mobile-Crete from our December 31, 2014 assessment of the effectiveness of internal control over financial reporting.
The impact of the Mobile-Crete transaction has not, nor is it expected to, materially affect our internal control over financial
reporting.
Under the supervision and with the participation of our management, including our principal executive, financial and accounting
officers, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework
in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on that evaluation, our management has concluded that our internal control over financial reporting was
effective as of December 31, 2014.
Grant Thornton LLP, the Company's independent registered public accounting firm, has audited our consolidated financial
statements included in this report and has issued an attestation report on the Company's internal control over financial reporting,
which is included herein.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2014 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
U.S. Concrete, Inc.
99
We have audited the internal control over financial reporting of U.S. Concrete, Inc. (a Delaware corporation) and subsidiaries (the
“Company”) as of December 31, 2014, based on criteria established in the 2013 Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting
(“Management’s Report”). Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit. Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the
internal control over financial reporting of Mobile-Crete of South Texas, LLC and Scofield Construction Services, LLC, whose
financial statements reflect total assets and revenues constituting approximately 5 and 1 percent, respectively, of the related
consolidated financial statement amounts as of and for the year ended December 31, 2014. As indicated in Management’s Report,
Mobile-Crete of South Texas, LLC and Scofield Construction Services, LLC were acquired during 2014. Management’s assertion
on the effectiveness of the Company’s internal control over financial reporting excluded internal control over financial reporting
of Mobile-Crete of South Texas, LLC and Scofield Construction Services, LLC.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December
31, 2014, based on criteria established in the 2013 Internal Control-Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements of the Company as of and for the year ended December 31, 2014, and our report dated March
6, 2014 expressed an unqualified opinion on those financial statements.
/s/ GRANT THORNTON LLP
Dallas, Texas
March 6, 2015
Item 9B. Other Information
Not applicable.
100
PART III
Except as otherwise indicated, in Items 10, 11, 12, 13 and 14 below, pursuant to the General Instructions to Form 10-K, we
intend to incorporate by reference the information we refer to in those Items from the definitive proxy statement for our 2015
Annual Meeting of Stockholders (our "2015 Annual Proxy Statement"). We intend to file our 2015 Annual Proxy Statement with
the Securities and Exchange Commission on or about March 27, 2015, but in any event within 120 days after the fiscal year ended
December 31, 2014.
Item 10. Directors, Executive Officers and Corporate Governance
For the information this Item requires, please see the information under the headings “Proposal No. 1—Election of Directors,”
“Executive Officers,” “Information Concerning the Board of Directors and Committees” and “Section 16(a) Beneficial Ownership
Reporting Compliance” in the 2015 Annual Proxy Statement, which is incorporated in this Item by this reference.
We have a code of ethics applicable to all our employees and directors. In addition, our principal executive, financial and
accounting officers are subject to the provisions of the Code of Ethics of U.S. Concrete, Inc. for chief executive officer and senior
financial officers, a copy of which is available on our Web site at www.us-concrete.com. In the event that we amend or waive any
of the provisions of these codes of ethics applicable to our principal executive, financial and accounting officers, we intend to
disclose that action on our website, as required by applicable law.
Item 11. Executive Compensation
For the information this Item requires, please see the information under the headings “Compensation Discussion and Analysis,”
“Director Compensation,” “Executive Compensation,” “Compensation Program and Risk Management,” “Compensation
Committee Interlocks and Insider Participation” and “Compensation Committee Report” in the 2015 Annual Proxy Statement,
which is incorporated in this Item by this reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Except as set forth below, for the information this Item requires, please see the information under the heading “Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" in the 2015 Annual Proxy Statement,
which is incorporated in this Item by this reference.
Equity Compensation Plan Information
All shares of common stock issuable under our compensation plans are subject to adjustment to reflect any increase or decrease
in the number of shares outstanding as a result of stock splits, combination of shares, recapitalizations, mergers or consolidations.
The following table summarizes, as of December 31, 2014, the indicated information regarding equity compensation to our
employees, officers, directors and other persons under our equity compensation plans (in thousands). These plans use or are based
on shares of our common stock. We do not have any equity compensation plans not approved by security holders.
Plan Category
Equity compensation plans approved by security holders(1)
Number of Securities
to Be Issued Upon
Exercise of
Outstanding Stock
Options
Weighted Average
Exercise Price of
Outstanding Stock
Options
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in First
Column)
46
$
18.46
988
(1) We adopted a management equity incentive plan (the "2010 Plan"), effective as of August 31, 2010, under which 9.5% of
the equity of the Company authorized pursuant to our Plan of Reorganization, on a fully-diluted basis, is reserved for issuance
as equity-based awards to management and employees, and 0.5% of such equity, on a fully-diluted basis, is reserved for
issuance to directors of the Company. On January 23, 2013, we adopted, and on May 15, 2013, the Company’s stockholders
approved the U.S. Concrete Long Term Incentive Plan (the “2013 Plan”), which allows, among other things, for approximately
0.5 million shares of common stock to be reserved for grant as equity-based awards to our management, employees, and
101
directors. The 2013 Plan enables us to grant stock options, stock appreciation rights, restricted stock awards, restricted stock
units, cash awards, and performance awards. We reserved 2.7 million shares of common stock for issuance in connection
with the 2010 and 2013 Plans and as of December 31, 2014, there were 1.0 million shares remaining for future issuance.
Item 13. Certain Relationships and Related Transactions, and Director Independence
For the information this Item requires, please see the information under the headings “Certain Relationships and Related
Transactions” and "Information Concerning the Board of Directors and Committees - Board of Directors - Director Independence"
in the 2015 Annual Proxy Statement, which is incorporated in this Item by this reference.
Item 14. Principal Accountant Fees and Services
For the information this Item requires, please see the information appearing under the heading “Fees Incurred by U.S. Concrete
to Independent Registered Public Accounting Firm” in the 2015 Annual Proxy Statement, which is incorporated in this Item by
this reference.
Item 15. Exhibits and Financial Statement Schedules
PART IV
(a)(1) Financial Statements.
For the information this item requires, please see Index to Consolidated Financial Statements on page 54 of this report.
(2) Financial Statement Schedules.
All financial statement schedules are omitted because they are not required or the required information is shown in our
consolidated financial statements or the notes thereto.
(3) Exhibits.
The information on exhibits required by this Item 15 is set forth in the Index to Exhibits appearing on pages 104-106 of this
Report and is incorporated by reference herein.
102
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
U.S. CONCRETE, INC.
Date: March 6, 2015
By:
/s/ William J. Sandbrook
William J. Sandbrook
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities indicated on March 6, 2015.
Signature
Title
/s/ William J. Sandbrook
William J. Sandbrook
President and Chief Executive Officer and Director
(Principal Executive Officer)
/s/ William M. Brown
William M. Brown
/s/ Kevin R. Kohutek
Kevin R. Kohutek
/s/ Kurt M. Cellar
Kurt M. Cellar
/s/ Eugene I. Davis
Eugene I. Davis
/s/ Michael D. Lundin
Michael D. Lundin
/s/ Robert M. Rayner
Robert M. Rayner
/s/ Theodore P. Rossi
Theodore P. Rossi
/s/ Colin M. Sutherland
Colin M. Sutherland
Senior Vice President and Chief Financial Officer (Principal
Financial Officer)
Vice President and Chief Accounting Officer (Principal
Accounting Officer)
Director
Director
Director
Director
Director
Director
103
Exhibit
Number
2.1*
2.2*
2.3*
3.1*
3.2*
4.1*
4.2*
4.3*
4.4*
4.5*
INDEX TO EXHIBITS
Description
—Debtors’ Joint Plan of Reorganization filed pursuant to Chapter 11 of the United States Bankruptcy Code filed
on July 27, 2010 with the United States Bankruptcy Court for the District of Delaware in Case No. 10-11407
(Jointly Administered) (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K
filed on July 30, 2010 (File No. 000-26025)).
—Debtors’ Disclosure Statement filed pursuant to Chapter 11 of the United States Bankruptcy Code filed on June 2,
2010 with the United States Bankruptcy Court for the District of Delaware in Case No. 10-11407 (Jointly
Administered) (incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed on July
30, 2010 (File No. 000-26025)).
Equity Purchase Agreement, dated as of October 17, 2012, by and between Randolph R. Boardman and Terri L.
Boardman, Trustees under the Randolph R. Boardman and Terri L. Boardman Family Trust Agreement dated
January 21, 1997, Douglas H. Boardman and Lauren Boardman, Trustees of the Douglas H. Boardman and Lauren
Boardman Family Trust, Danvers M. Boardman, III, Trustee under the DMB III Trust Agreement dated July 12,
2008 and Kathy M. Boardman, Trustee under the KMSB Trust Agreement dated June 26, 2008, as Sellers, and
Randolph R. Boardman, Terri L. Boardman, Douglas H. Boardman, Lauren Boardman, Danvers M. Boardman III
and Kathy M. Boardman, on the one hand, and Central Concrete Supply Co., Inc., and U.S. Concrete, Inc., on the
other hand (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed October
18, 2012 (File No. 001-34530.))
—Amended and Restated Certificate of Incorporation of U.S. Concrete, Inc. (incorporated by reference to Exhibit 1
to the Company’s Registration Statement on Form 8-A filed on August 31, 2010 (File No. 000-26025)).
—Third Amended and Restated By-Laws of U.S. Concrete, Inc. (incorporated by reference to Exhibit 2 to the
Company’s Registration Statement on Form 8-A filed on August 31, 2010 (File No. 000-26025)).
—Form of common stock certificate (incorporated by reference to Exhibit 3 to the Company’s Registration Statement
on Form 8-A filed August 31, 2010 (File No. 000-26025)).
—Indenture, dated as of August 31, 2010, by and among U.S. Concrete, Inc., the Guarantors named therein, and U.S.
Bank National Association, as Trustee and Noteholder Collateral Agent (incorporated by reference to Exhibit 4.2 to
the Company’s Current Report on Form 8-K filed on September 2, 2010 (File No. 000-26025)).
—Form of Convertible Secured Note, included in Exhibit 4.2 (incorporated by reference to Exhibit 4.5 to the
Company’s Current Report on Form 8-K filed on September 2, 2010 (File No. 000-26025)).
—Class A Warrant Agreement, dated as of August 31, 2010, by and among U.S. Concrete, Inc., subsidiaries named
therein, and U.S. Bank National Association, as noteholder collateral agent (incorporated by reference to Exhibit 4
to the Company’s Registration Statement on Form 8-A filed on August 31, 2010 (File No. 000-26025)).
—Class B Warrant Agreement, dated as of August 31, 2010, by and among U.S. Concrete, Inc., subsidiaries named
therein, and U.S. Bank National Association, as noteholder collateral agent (incorporated by reference to Exhibit 5
to the Company’s Registration Statement on Form 8-A filed on August 31, 2010 (File No. 000-26025)).
4.6* —First Supplemental Indenture, dated as of October 30, 2012, by and among Bode Gravel Co., and Bode Concrete
LLC, as new guarantors, U.S. Concrete, Inc., as issuer, and U.S. Bank National Association, as Trustee (incorporated
by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-4 filed on February 6, 2013 (File
No. 333-186493).
4.7* —Second Supplemental Indenture, dated as of March 22, 2013, by and among U.S. Concrete, Inc., as issuer, the
Guarantors party thereto and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.2
to the Company’s Current Report on Form 8-K dated March 22, 2013 (File No. 001-34530)).
4.8* —First Amendment to Intercreditor Agreement, dated as of March 22, 2013, by and among Bank of America, N.A.,
as successor in interest to JPMorgan Chase Bank, N.A., as administrative agent for the ABL Secured Parties (as
defined in the Intercreditor Agreement), U.S. Bank National Association, as trustee and noteholder collateral agent
for the Convertible Note Parties (as defined therein), U.S. Bank, as trustee and noteholder collateral agent for the
Senior Secured Parties (as defined therein), U.S. Concrete, Inc. and each of the other Loan Parties (as defined in the
Intercreditor Agreement) (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K
dated March 22, 2013 (File No. 001-34530)).
4.9* —Indenture, dated as of November 22, 2013, by and among U.S. Concrete, Inc., the subsidiary guarantors party
thereto, and U.S. Bank National Association, as trustee and noteholder collateral agent (incorporated by reference to
Exhibit 4.1 to the Company’s Current Report on Form 8-K dated November 22, 2013 (File No. 001-34530)).
104
4.10* —Second Amendment to Intercreditor Agreement, dated as of November 22, 2013, by and among Bank of America,
N.A., as administrative agent for the ABL Secured Parties, U.S. Bank National Association, as trustee and noteholder
collateral agent, U.S. Concrete, Inc., and the other Loan Parties party thereto (incorporated by reference to Exhibit
4.3 to the Company’s Current Report on Form 8-K dated November 22, 2013 (File No. 001-34530)).
10.1*
10.2*†
10.3*†
10.4*†
10.5*†
10.6*†
10.7*†
—Pledge Commitment Letter, dated as of July 27, 2010, by and among U.S. Concrete, Inc., JPMorgan Securities
Inc., JPMorgan Chase Bank, N.A. and Wells Fargo Capital Finance, LLC (incorporated by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K filed on July 28, 2010 (File No. 001-34530)).
—Severance Agreement, dated as of July 31, 2007, by and between U.S. Concrete, Inc. and Jeff L. Davis (incorporated
by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010
(File No. 001-34530)).
—First Amendment to Severance Agreement, effective as of December 31, 2008, by and between U.S. Concrete, Inc.
and Jeff L. Davis (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2010 (File No. 001-34530)).
—U.S. Concrete, Inc. Management Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s
Current Report on Form 8-K filed on September 2, 2010 (File No. 000-26025)).
—U.S. Concrete, Inc. Non-Qualified Stock Option Award Agreement (incorporated by reference to Exhibit 10.5 to
the Company’s Current Report on Form 8-K filed on September 2, 2010 (File No. 000-26025)).
—U.S. Concrete, Inc. Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.6 to the
Company’s Current Report on Form 8-K filed on September 2, 2010 (File No. 000-26025)).
—Form of Indemnification Agreement (incorporated by reference to Exhibit 10.7 to the Company’s Current Report
on Form 8-K filed on September 2, 2010 (File No. 000-26025)).
10.8*† —Executive Severance Agreement, effective as of August 22, 2011 between U.S. Concrete, Inc. and William J.
Sandbrook (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August
22, 2011 (File No. 001-34530)).
10.9*† —Indemnification Agreement, effective as of August 22, 2011 between U.S. Concrete, Inc. and William J. Sandbrook
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 22, 2011
(File No. 001-34530)).
10.10* —Asset Purchase Agreement dated August 2, 2012 by and among U.S. Concrete, Inc. and Central Precast
Concrete, Inc., San Diego Precast Concrete, Inc., Sierra Precast Inc. and Oldcastle Precast, Inc. (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed August 3, 2012 (File No.
001-34530)).
10.11*† —Offer Letter to William Matthew Brown, dated August 7, 2012 (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed August 4, 2012 (File No. 001-34530)).
10.12*† —Executive Severance Agreement dated August 8, 2012 by and between U.S. Concrete, Inc. and William
Matthew Brown (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed
August 9, 2012 (File No. 001-34530)).
10.13*† —Indemnification Agreement dated August 8, 2012 by and between U.S. Concrete, Inc. and William Matthew
Brown (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed August 7,
2012 (File No. 001-34530)).
10.14*† —Executive Severance Agreement dated January 23, 2013 by and between U.S. Concrete, Inc. and Niel L.
Poulsen (incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K dated March
8, 2013 (File No. 001-34530)).
10.15*† —Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K filed on March 6, 2013 (File No. 0001-34530)).
10.16*† —U.S. Concrete, Inc. Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K dated April 17, 2013 (File No. 001-34530)).
10.17*† —U.S. Concrete, Inc. Deferred Compensation Plan Adoption Agreement (incorporated by reference to Exhibit 10.2
to the Company’s Current Report on Form 8-K dated April 17, 2013 (File No. 001-34530)).
10.20*† —U.S. Concrete, Inc. Long Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K dated May 15, 2013 (File No. 001-34530)).
10.21*† —Form of Restricted Stock Agreement (Employee Form) (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated July 1, 2013 (File No. 001-34530)).
105
10.22*
10.23*†
—First Amended and Restated Loan and Security Agreement, dated as of October 29, 2013 (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 29, 2013 (File No.
001-34530)).
—U.S. Concrete, Inc. Management Equity Incentive Plan effective January 1, 2013 (incorporated by reference to
Exhibit 10.23 to the Company’s Annual Report on Form 10-K dated March 7, 2014 (File No. 001-34530)).
10.24*† —Executive Severance Agreement dated August 1, 2013 by and between U.S. Concrete, Inc. and Paul M. Jolas
(incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K dated March 7, 2014
(File No. 001-34530)).
10.25*
10.26*
—First Amendment to First Amended and Restated Loan and Security Agreement, dated as of May 15, 2014
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated May 16, 2014
(File No. 001-34530)).
—Second Amendment to First Amended and Restated Loan and Security Agreement, dated as of September 12,
2014 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September
15, 2014 (File No. 001-34530)).
10.27†
—U.S. Concrete, Inc. and Subsidiaries 2014 Annual Incentive Plan.
12.1
21.1
23.1
31.1
31.2
32.1
32.2
95.1
—Ratio of Earnings to Fixed Charges.
—Subsidiaries.
—Consent of Grant Thornton LLP, independent registered public accounting firm.
—Rule 13a-14(a)/15d-14(a) Certification of William J. Sandbrook.
—Rule 13a-14(a)/15d-14(a) Certification of William M. Brown.
—Section 1350 Certification of William J. Sandbrook.
—Section 1350 Certification of William M. Brown.
—Mine Safety Disclosure.
101.INS —Instance Document
101.SCH —XBRL Taxonomy Extension Schema Document
101.CAL —XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF —XBRL Taxonomy Extension Definition Linkbase Document
101.LAB —XBRL Taxonomy Extension Label Linkbase Document
101.PRE —XBRL Taxonomy Extension Presentation Linkbase Document
* Incorporated by reference to the filing indicated.
† Management contract or compensatory plan or arrangement.
106