Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion, which presents our results, should be read in conjunction with the accompanying consolidated financial statements and notes thereto, along with Item 1A. Risk Factors and “Cautionary Statement Concerning Forward-Looking Statements” preceding Item 1 of this report. In addition, a detailed discussion of the 2019 year-over-year changes from 2018 can be found in Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2019 and is hereby incorporated by reference into this Annual Report on Form 10-K. The following discussion reflects 2020 (current year) results compared to 2019 (prior year), unless otherwise noted.
Our Business
We are a leading heavy building materials supplier of aggregates and ready-mixed concrete in select geographic markets in the United States, the U.S. Virgin Islands and Canada. We operate through two primary segments, which are ready-mixed concrete and aggregate products.
Ready-mixed concrete. Our ready-mixed concrete segment (which represented 85.0% of our revenue in 2020) 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, New Jersey, New York City, Washington, D.C., Philadelphia, Northern California, Oklahoma and the U.S. Virgin Islands.
Aggregate products. Our aggregate products segment (which represented 11.1% of our revenue, excluding $64.2 million of intersegment sales) produces crushed stone, sand and gravel from 20 aggregates facilities located in British Columbia, Canada, Texas, Oklahoma, New Jersey, New York, and the U.S. Virgin Islands. We sell 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 13.7 million tons of aggregates in 2020, with British Columbia, Canada representing 39%, Texas and Oklahoma representing 32%, New Jersey and New York representing 27% and the U.S. Virgin Islands representing 2% of the total production. During 2020, we consumed 34% of our aggregate production internally and sold 66% to third-party customers. We believe our aggregates reserves provide us with additional raw materials sourcing flexibility and supply availability.
Overview
The geographic markets for our products are generally local, except for our Canadian aggregate products operation, Polaris, which primarily serves markets in California. 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.
Our ready-mixed concrete sales volume decreased 10.2% to 8.2 million cubic yards and generated revenue of $1.2 billion. Ready-mixed concrete sales volume was down primarily due to delayed projects and regional demand, which were both heavily impacted by the COVID-19 pandemic in 2020. Partially offsetting the volume decline, our ready-mixed concrete average selling price (“ASP”) increased 1.2%, resulting in the 10th consecutive year of increased ASP. Our aggregate products sales volume increased 10.8%, and ASP increased 9.6%, resulting in record total aggregate products revenue of $216.4 million, including intersegment sales of $64.2 million.
Record sales of aggregate products in 2020 helped partially offset the decrease in ready-mixed concrete sales, as total Company revenue declined 7.6%. Despite the decline in revenue, the successful implementation of our business contingency plans during the year, as well as a gain from the value of our contingent consideration, resulted in an $11.1 million increase in operating income.
COVID-19 Impact
On January 30, 2020, the World Health Organization declared a global emergency with respect to the outbreak of COVID-19. On March 13, 2020, then President Trump declared the COVID-19 pandemic a national emergency. Residents throughout the U.S. have spent varying periods under “stay-at-home” or “shelter-in-place” orders. The full, long-term impacts of the pandemic are unknown and evolving. Construction has generally been considered an “essential” service and thus excluded from many “stay-at-home” orders. While we have generally remained operational during this time in the regions we serve with the implementation of new, enhanced safety and health protocols, certain of our operations were more negatively impacted, particularly in April and May, in states with stringent restrictions. For example, our ready-mixed concrete sales decreased $117.2 million during 2020, resulting in part from lower ready-mixed concrete operations in New York City and California, both of which have had more stringent restrictions related to COVID-19. As restrictions have gradually evolved, construction levels have begun improving in many of those areas. We continue to monitor the impact on our customers and our ongoing projects and pipeline. The business contingency plans and cost-cutting measures we implemented across our operations, which are continually reviewed and updated in response to the evolving pandemic, helped to mitigate the impact from the decrease in ready-mixed concrete sales volumes on our operating income in 2020. Given the unprecedented uncertainty surrounding the pandemic, we are currently unable to project the full impact the pandemic will have on our results of operations in 2021 and beyond.
2020 Acquisitions
On February 24, 2020, we acquired all of the equity of Coram Materials, a sand and gravel producer in New York (the “Coram Acquisition”). The Coram Acquisition expanded our aggregate products operations in our East Region. Coram Materials' operations supply natural sand used in concrete and other applications to the New York City area. In November 2020, we acquired certain assets of Sugar City Building Materials Co. that expanded our ready-mixed concrete operations in our West Region. We funded both of these acquisitions through borrowings under the Revolving Facility.
Results of Operations
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($ in millions except selling prices)
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2020
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2019
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Increase/(Decrease)
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% Change(1)
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Revenue
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$
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1,365.7
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100.0
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%
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$
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1,478.7
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100.0
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%
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$
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(113.0)
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(7.6)
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%
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Cost of goods sold before depreciation, depletion and amortization
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1,070.6
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78.4
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1,187.6
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80.3
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(117.0)
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(9.9)
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Selling, general and administrative expenses
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127.0
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9.3
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130.0
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8.8
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(3.0)
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(2.3)
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Depreciation, depletion and amortization
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99.7
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7.3
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93.2
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6.3
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6.5
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7.0
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Change in value of contingent consideration
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(7.3)
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(0.5)
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2.8
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0.2
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(10.1)
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NM
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Gain on sale/disposal of assets and businesses, net
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(0.6)
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—
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(0.1)
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—
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0.5
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(500.0)
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Operating income
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76.3
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5.6
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65.2
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4.4
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11.1
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17.0
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Interest expense, net
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45.9
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3.4
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46.1
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3.1
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(0.2)
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(0.4)
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Loss on extinguishment of debt
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12.4
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0.9
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—
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—
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12.4
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NM
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Other income, net
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(1.5)
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(0.1)
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(9.5)
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(0.6)
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(8.0)
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(84.2)
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Income before income taxes
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19.5
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1.4
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28.6
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1.9
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(9.1)
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(31.8)
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Income tax expense (benefit)
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(5.0)
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(0.4)
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12.3
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0.8
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(17.3)
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(140.7)
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Net income
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24.5
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1.8
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16.3
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1.1
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8.2
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50.3
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Amounts attributable to non-controlling interest
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1.0
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0.1
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(1.4)
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(0.1)
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(2.4)
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(171.4)
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Net income attributable to U.S. Concrete
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$
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25.5
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1.9
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%
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$
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14.9
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1.0
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%
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$
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10.6
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|
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71.1
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%
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Ready-Mixed Concrete Data:
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ASP per cubic yard
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$
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140.69
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$
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138.97
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$
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1.72
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1.2
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%
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Sales volume in thousand cubic yards
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8,242
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9,181
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(939)
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(10.2)
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%
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Aggregate Products Data:
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ASP per ton(2)
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$
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13.08
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$
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11.93
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$
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1.15
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9.6
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%
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Sales volume in thousand tons
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12,622
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11,392
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1,230
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10.8
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%
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(1) “NM” is defined as “not meaningful.”
(2) Our calculation excludes freight and certain other ancillary revenue. Our definition and calculation of ASP may differ from other companies in the construction materials industry.
Revenue. Our consolidated revenue declined by $113.0 million, or 7.6%, primarily due to lower sales of ready-mixed concrete, partially offset by record sales of aggregate products. As our business is seasonal and subject to adverse weather, our results in both years were negatively impacted by inclement weather in various regions and during various periods of the year, while 2020 was also impacted by the regional effects of the COVID-19 pandemic. Ready-mixed concrete sales declined by $117.2 million, or 9.2%, due to a 10.2% decline in sales volume partially offset by a 1.2% increase in ASP. Our ready-mixed concrete operations experienced sales declines in all markets, with the most significant impact in our East Region. New York and California both had more stringent restrictions related to COVID-19, and our operations in those states as well as elsewhere are still recovering from the impacts of the pandemic-related construction job delays. In addition, during 2020, our California operations were negatively impacted by supply shortages of cement resulting from temporary closures of a cement supplier's plant. Sales of aggregate products increased 10.9% to an all-time high of $216.4 million, driven by a 9.6% increase in ASP and a 10.8% increase in volume. Aggregate product sales increased due to a $27.4 million contribution from Coram Materials, as well as increased sales in our Central Region, partially offset by lower sales in other markets due to lower demand. Other product revenue decreased primarily due to lower aggregate distribution and hauling revenue.
Cost of goods sold before depreciation, depletion and amortization (“DD&A”). Cost of goods sold before DD&A decreased $117.0 million, or 9.9%. As a percentage of sales, cost of goods sold before DD&A was 190 basis points lower in 2020. The improvement was due to optimizing concrete mixes, more efficient operations of our plants and lower delivery costs as a result of lower volumes in addition to the benefit of lower diesel costs and less congested traffic patterns for most of the year, partially offset by higher insurance costs. Our variable costs in our ready-mixed concrete segment, which include primarily raw material costs, labor and benefits costs, utilities and delivery costs, were lower overall primarily related to the lower sales volume. Despite record sales volumes in our aggregate products segment, variable costs in the segment, which include quarry labor and benefits, utilities, repairs and maintenance, pit costs to prepare the stone and gravel for use, and delivery costs, actually decreased primarily due to lower freight expense and more efficient operation of our facilities. Total fixed costs in our aggregate products segment, which include primarily property taxes, equipment rental and plant management costs, were higher, due in part to the Coram Acquisition as well as incremental costs to manage our aggregate inventories.
Selling, general and administrative (“SG&A”) expenses. SG&A expenses decreased $3.0 million, primarily as a result of a $7.5 million decrease in stock-based compensation expense and the positive impact of additional cost-saving measures in response to the COVID-19 pandemic, partially offset by certain personnel-related expenses, including incentive compensation, severance costs and a pension withdrawal liability.
Depreciation, depletion and amortization. DD&A expense increased $6.5 million, or 7.0%, primarily related to depreciation on additional plants and equipment purchased for our existing business or acquired through acquisitions and depletion on acquired mineral deposits.
Change in value of contingent consideration. We recorded a $7.3 million net gain on revaluation of contingent consideration in 2020 compared to a $2.8 million loss in 2019. These amounts were related to fair value changes in contingent consideration associated with certain acquisitions. The 2020 non-cash net gain from fair value changes in contingent consideration was primarily due to the EBITDA performance for a previous acquisition being lower than contractual targets. The 2019 non-cash expense was primarily due to changes in the probability-weighted assumptions related to future EBITDA performance.
Loss on extinguishment of debt. In connection with our October 2020 redemption of $400.0 million of the 2024 Notes, we recognized a $12.4 million loss, primarily due to the early redemption premium. Also included in the loss were essentially offsetting amounts to write off the related unamortized original issuance premium and debt issuance costs from the redeemed notes.
Other income, net. Other income, net, in 2019 included a gain from an eminent domain proceeding in Washington, D.C. and insurance proceeds from prior hurricane losses in our U.S. Virgin Island operations, neither of which was repeated in 2020.
Income taxes. We recorded an income tax benefit of $5.0 million for 2020 and expense of $12.3 million for 2019. For 2020, our effective tax rate differed substantially from the federal statutory tax rate primarily due to (1) additional tax benefits recognized related to the CARES Act enacted on March 27, 2020 and (2) final Treasury regulations regarding the business interest deduction limitation (“Final 163(j) Regulations”) published in the Federal Register on September 14, 2020.
The CARES Act, among other things, modified the business interest deduction limitation for tax years beginning in 2019 and 2020 from 30% of adjusted taxable income (“ATI”) to 50% of ATI. As a result, we recorded an additional tax benefit of $3.2 million in 2020 to reflect the CARES Act change to our estimated interest limitation for the year ended December 31, 2019. The Final 163(j) Regulations removed an unfavorable interpretation of the computation of ATI, which negatively impacted our business interest deduction for the tax years ended December 31, 2018 and 2019. The guidance provided in the Final 163(j) Regulations eliminated our business interest deduction limitation for those tax years, and we recognized an additional tax benefit of $10.2 million in 2020, which included amounts related to the CARES Act net operating loss carryback provision. In addition, we recognized a CARES Act benefit of $2.1 million in 2020 related to employee retention credits, which are intended to be a reimbursement for certain wage and benefit costs we would have otherwise not incurred.
For 2019, our effective tax rate differed substantially from the federal statutory rate primarily due to a $5.8 million valuation allowance we recorded for (1) an interest expense limitation carryforward attribute resulting from the Tax Act, which we did not believe was more likely than not to be realized under the then-existing interpretation of the applicable statute and (2) certain foreign losses generated for which we do not believe the tax benefits are more likely than not to be realized.
Segment information
Our chief operating decision maker reviews operating results based on our two reportable segments, which are ready-mixed concrete and aggregate products, and evaluates segment performance and allocates resources based on Adjusted EBITDA. We define Adjusted EBITDA as our net income, excluding the impact of income taxes, depreciation, depletion and amortization, net interest expense, the loss on extinguishment of debt, and certain other non-cash, non-recurring and/or unusual, non-operating items including, but not limited to: non-cash stock compensation expense, non-cash change in value of contingent consideration, acquisition-related costs, officer transition expenses, purchase accounting adjustments for inventory, pension withdrawal liability and realignment initiative costs. Acquisition-related costs consist of fees and expenses for accountants, lawyers and other professionals incurred during the negotiation and closing of strategic acquisitions. Acquisition-related costs do not include fees or expenses associated with post-closing integration of strategic acquisitions. Many of the impacts excluded to derive Adjusted EBITDA are similar to those excluded in calculating our compliance with our debt covenants.
We consider Adjusted EBITDA to be an indicator of the operational strength and performance of our business. We have included Adjusted EBITDA because it is a key financial measure used by our management to (1) internally measure our operating performance and (2) assess our ability to service our debt, incur additional debt and meet our capital expenditure requirements.
Adjusted EBITDA should not be construed as an alternative to, or a better indicator of, net income or loss, is not based on accounting principles generally accepted in the United States of America (“U.S. GAAP”) and is not a measure of our cash flows or ability to fund our cash needs. Our measurement of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies and may not be comparable to similarly titled measures used in our various agreements, including the Third Loan Agreement, the Term Loan Agreement, the 2024 Indenture and the 2029 Indenture. See Note 8, “Debt” and Note 18, “Segment Information,” to our consolidated financial statements included in this report for definitions of certain debt agreements and additional information regarding our segments and a reconciliation of Adjusted EBITDA to net income.
Ready-mixed concrete
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|
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|
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|
|
($ in millions except selling prices)
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2020
|
|
2019
|
|
Increase/(Decrease)
|
|
% Change
|
Ready-Mixed Concrete Segment:
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|
|
|
|
|
|
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Revenue
|
$
|
1,161.4
|
|
|
$
|
1,278.6
|
|
|
$
|
(117.2)
|
|
|
(9.2)
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%
|
Segment revenue as a percentage of total revenue
|
85.0
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%
|
|
86.5
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%
|
|
|
|
|
Adjusted EBITDA
|
$
|
149.6
|
|
|
$
|
157.7
|
|
|
$
|
(8.1)
|
|
|
(5.1)
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%
|
Adjusted EBITDA as a percentage of segment revenue
|
12.9
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%
|
|
12.3
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%
|
|
|
|
|
|
|
|
|
|
|
|
|
Ready-Mixed Concrete Data:
|
|
|
|
|
|
|
|
ASP per cubic yard(1)
|
$
|
140.69
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|
|
$
|
138.97
|
|
|
$
|
1.72
|
|
|
1.2
|
%
|
Sales volume in thousand cubic yards
|
8,242
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|
|
9,181
|
|
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(939)
|
|
|
(10.2)
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%
|
(1) Calculation excludes certain ancillary revenue that is reported within the segment.
Adjusted EBITDA. The impact of lower volume of ready-mixed concrete, resulting from the impacts of inclement weather in various regions and during various periods of the year as well as the regional effects of the COVID-19 pandemic, was largely mitigated by actions taken as part of our business contingency plans in the form of labor management, concrete mix optimization, higher asset utilization and delivery efficiencies, which included lower fuel costs and generally less congested traffic patterns. Adjusted EBITDA as a percentage of segment revenue improved 60 basis points due to the benefits of these business contingency plans.
Aggregate products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions except selling prices)
|
2020
|
|
2019
|
|
Increase
|
|
% Change
|
Aggregate Products Segment:
|
|
|
|
|
|
|
|
Sales to external customers
|
$
|
105.7
|
|
|
$
|
89.5
|
|
|
|
|
|
Freight revenue on sales to external customers
|
46.5
|
|
|
52.2
|
|
|
|
|
|
Intersegment sales
|
64.2
|
|
|
53.5
|
|
|
|
|
|
Total aggregate products revenue
|
$
|
216.4
|
|
|
$
|
195.2
|
|
|
$
|
21.2
|
|
|
10.9
|
%
|
Segment revenue, excluding intersegment sales, as a percentage of total Company revenue
|
11.1
|
%
|
|
9.6
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%
|
|
|
|
|
Adjusted EBITDA
|
$
|
80.9
|
|
|
$
|
53.8
|
|
|
$
|
27.1
|
|
|
50.4
|
%
|
Adjusted EBITDA as a percentage of segment revenue
|
37.4
|
%
|
|
27.6
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%
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Products Data:
|
|
|
|
|
|
|
|
ASP per ton
|
$
|
13.08
|
|
|
$
|
11.93
|
|
|
$
|
1.15
|
|
|
9.6
|
%
|
Sales volume in thousand tons
|
12,622
|
|
|
11,392
|
|
|
1,230
|
|
|
10.8
|
%
|
Adjusted EBITDA. Adjusted EBITDA for our aggregate products segment increased 50.4% to a record $80.9 million. Overall, our segment Adjusted EBITDA as a percentage of segment revenue improved 980 basis points, due in large part to the Coram Acquisition and increased volume in Texas, including the benefit of a new Texas greenfield operation. Our Adjusted EBITDA benefited from higher revenue, lower freight costs and our ability to leverage fixed costs on higher volumes through operating efficiencies.
Liquidity and Capital Resources
Overview
Our primary sources of liquidity are cash generated from operations, available cash and cash equivalents, and access to our credit facilities, including (1) the Revolving Facility, which provides for borrowings of up to $300.0 million, subject to a borrowing base, and (2) the Term Loan Facility, which provided for borrowings of up to $179.1 million as of December 31, 2020.
We ended 2020 with $11.1 million of cash and cash equivalents, $230.2 million available for borrowing under the Revolving Facility and $179.1 million available for borrowing under the Term Loan Facility, providing total available liquidity of $420.4 million. Our total available liquidity increased in 2020 due primarily to the addition of the Term Loan Facility during 2020.
The following key financial measures reflect our financial condition as of the end of 2020 and 2019 ($ in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Cash and cash equivalents
|
|
$
|
11.1
|
|
|
$
|
40.6
|
|
Working capital
|
|
$
|
56.3
|
|
|
$
|
103.7
|
|
Total debt(1)
|
|
$
|
702.4
|
|
|
$
|
687.3
|
|
(1) Includes long-term debt, net of unamortized debt issuance costs, including current maturities, finance leases, promissory notes and any outstanding borrowings under the Revolving Facility and Term Loan Facility.
Our primary liquidity needs over the next 12 months consist of (1) financing working capital requirements; (2) servicing our indebtedness; (3) purchasing property, plant and equipment; and (4) payments related to strategic acquisitions. Our portfolio strategy includes acquisitions in various regions and markets. We may seek financing for additional acquisitions, which could include debt or equity capital.
Our working capital needs are typically at their lowest level in the first quarter, increase in the second and third quarters to fund increases in accounts receivable and inventories during those periods, and then decrease in the fourth quarter. Availability under the Revolving Facility is governed by a borrowing base primarily determined by our eligible accounts receivable, inventory, mixer trucks and machinery. Our borrowing base also typically declines during the first quarter due to lower accounts receivable balances as a result of normal seasonality of our business caused by weather.
The projection of our cash needs is based upon many factors, including without limitation, our expected volume, pricing, cost of materials and capital expenditures. Based on our projected cash needs, we believe that cash on hand, availability under the Revolving Facility and Term Loan Facility, and cash generated from operations will provide us with sufficient liquidity in the ordinary course of business, not including potential acquisitions. We initiated business contingency planning and will continue to adjust those plans as needed to mitigate the impact of the COVID-19 pandemic on our cash needs. If, however, availability under the Revolving Facility, Term Loan Facility, cash on hand and our operating cash flows are not adequate to fund our operations, we would need to obtain other equity or debt financing or sell assets to provide additional liquidity.
The principal factors that could adversely affect the amount of our internally generated funds include:
•deterioration of revenue, due to lower volume and/or pricing, because of weakness in the markets in which we operate or COVID-19 operating restrictions;
•declines in gross margins due to shifts in our product mix, increases in fixed or variable costs or the impact of COVID-19;
•any deterioration in our ability to collect our accounts receivable from customers as a result of weakening in construction demand or payment difficulties experienced by our customers, including from COVID-19; and
•inclement weather beyond normal patterns that could adversely affect our sales volumes.
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
2020
|
|
2019
|
|
2018
|
Net cash provided by (used in):
|
|
|
|
|
|
|
Operating activities
|
|
$
|
181.3
|
|
|
$
|
138.8
|
|
|
$
|
122.8
|
|
Investing activities
|
|
(172.1)
|
|
|
(33.8)
|
|
|
(91.7)
|
|
Financing activities
|
|
(38.7)
|
|
|
(84.2)
|
|
|
(33.4)
|
|
Effect of exchange rates on cash and cash equivalents
|
|
—
|
|
|
(0.2)
|
|
|
(0.3)
|
|
Net increase (decrease) in cash
|
|
$
|
(29.5)
|
|
|
$
|
20.6
|
|
|
$
|
(2.6)
|
|
Our net cash provided by operating activities generally reflects the cash effects of transactions and other events used in the determination of net income or loss, including non-controlling interest. Overall, the 2020 improvement in cash generated from operations was driven primarily by management's cost control initiatives, the deferral of the remittance of $9.0 million of payroll taxes as permitted by the CARES Act, income tax refunds, and our ongoing initiatives to optimize working capital. The 2019 cash generated from operations was also aided by income tax refunds received.
Our net cash used to fund investing activities was higher in 2020 and 2018 because we paid $149.4 million in 2020 and $72.3 million in 2018 to fund acquisitions. In addition, we incurred $24.4 million, $42.7 million and $39.9 million in 2020, 2019 and 2018, respectively, primarily to fund purchases of machinery and equipment as well as mixer trucks and other vehicles to service our business. During 2019, we received $6.0 million of proceeds for an eminent domain matter and insurance proceeds relating to property damage suffered in 2017. Investing activities also included proceeds from the sale of businesses and/or property, plant and equipment of $1.7 million in 2020, $2.9 million in 2019 and $20.7 million in 2018. Proceeds were higher in 2018 primarily from the sale of our Dallas/Fort Worth area lime operations.
In 2021, we expect to invest between $40 million and $50 million in capital expenditures, excluding expenditures financed through finance leases as well as any acquisitions. These expenditures are planned primarily for maintenance and expansion, land purchases and new plants, as well as plant improvements, plant equipment, drum mixer trucks and other rolling stock. We expect to fund these expenditures with cash flows from operations, existing cash and cash equivalents and as needed, borrowings under our Revolving Facility. Our capital expenditure budget and allocation of it to the foregoing investments are estimates and are subject to change.
Financing activities in 2020 included $400.0 million of proceeds from our 2029 Notes offering, offset by related debt issuance costs, redemption of $400.0 million of our 2024 Notes including a $12.7 million redemption premium (see discussion below), $14.8 million of proceeds from finance lease and other transactions primarily for our Texas greenfield aggregates operation and $6.5 million of net borrowings under our Revolving Facility. In addition, in 2020, we made payments of $27.0 million primarily related to our finance leases and promissory notes and paid $10.0 million for contingent and deferred consideration obligations. Financing activities in 2019 included $15.0 million of net borrowings under our Revolving Facility to operate our business and fund acquisitions. In addition, we made payments of $32.8 million primarily related to our finance leases and promissory notes and paid $33.4 million for contingent and deferred consideration obligations. Financing activities in 2018 included $6.0 million of net borrowings under our Revolving Facility to operate our business and fund acquisitions. In addition, we made payments of $29.6 million primarily related to our finance leases and promissory notes and paid $5.9 million for contingent and deferred consideration obligations. We also repurchased 0.2 million shares of our common stock at a cost of $6.7 million during 2018 under the 2017 share repurchase program.
The discussion that follows provides a description of our arrangements relating to our outstanding indebtedness.
Asset Based Revolving Credit Facility (“Revolving Facility”)
We have a senior secured asset-based credit facility with certain Lenders and Bank of America, N.A., as agent for the Lenders that provides for up to $300.0 million of revolving borrowings. The Revolving Facility also permits the incurrence of other secured indebtedness not to exceed certain amounts as specified therein. The Revolving Facility provides for swingline loans up to a $15.0 million sublimit and letters of credit up to a $50.0 million sublimit. Loans under the Revolving Facility are in the form of either base rate loans or “LIBOR loans” denominated in U.S. dollars. As of December 31, 2020, we had $6.5 million outstanding under the Revolving Facility at an interest rate of 3.50%.
Our actual maximum credit availability under the Revolving Facility varies from time to time and is determined by calculating the value of our eligible accounts receivable, inventory, mixer trucks and machinery, minus reserves imposed by the Lenders and other adjustments, as specified in the Third Loan Agreement, which matures August 31, 2022.
The Third Loan Agreement contains usual and customary covenants including, but not limited to: restrictions on our ability to consolidate or merge; substantially change the nature of our business; sell, lease or otherwise transfer any of our assets; create or incur indebtedness; create liens; pay dividends or make other distributions; make loans; prepay certain indebtedness; and make investments or acquisitions. The covenants are subject to certain exceptions as specified in the Third Loan Agreement. The Third Loan Agreement also requires that we, upon the occurrence of certain events, maintain a fixed charge coverage ratio of at least 1.0 to 1.0 for each period of 12 calendar months. As of December 31, 2020, we were in compliance with all covenants under the Third Loan Agreement.
Delayed Draw Term Loan Facility (“Term Loan Facility”)
On April 17, 2020, we entered into a secured delayed draw term loan credit and guaranty agreement with certain subsidiaries as guarantors thereto, Bank of America, N.A. as administrative agent, and the lenders and other parties named therein. The Term Loan Agreement provided for an initial $180.0 million delayed draw term loan facility, which was reduced to $179.1 million as of December 31, 2020. Commitments are reduced by approximately $0.4 million each quarter through September 30, 2021. The Term Loan Agreement permits borrowings until December 15, 2021. Any borrowings outstanding on December 15, 2021 will mature on May 1, 2025 (subject to a springing maturity on March 1, 2024 to the extent any of our 2024 Notes remain outstanding on such date). We entered into the Term Loan Agreement to enhance our liquidity and financial flexibility. Proceeds of the Term Loan Facility, if drawn, will be used for working capital and general corporate purposes, including to repay outstanding borrowings under our Revolving Facility.
Borrowings under the Term Loan Agreement bear interest at our option of either: (1) LIBOR (subject to a floor of 0.75%) plus a margin ranging from 2.75% to 3.75% or (2) a base rate (which is equal to the greatest of the prime rate, the Federal Funds effective rate plus 0.50% and LIBOR plus 1.00% and is subject to a floor of 1.75%) plus a margin ranging from 1.75% to 2.75%. The applicable margin depends on the aggregate amount borrowed. Additionally, each draw on the Term Loan Facility will be issued at a price of 99.0% of the amount drawn. The Term Loan Agreement is secured by a first priority lien and security interest on certain real property of the subsidiary guarantors and substantially all of the personal property of the Company and its subsidiary guarantors that is not secured by a first priority security interest under the Revolving Facility (the “Revolving Facility Collateral”) and a second priority security interest on the Revolving Facility Collateral. The Term Loan Agreement contains usual and customary covenants including, but not limited to, restrictions on our and our guarantor subsidiaries’ ability to consolidate or merge; substantially change the nature of our business; sell, lease or otherwise transfer any of our assets; create or incur indebtedness; create liens; pay dividends or make other distributions; make loans; prepay certain indebtedness; and make investments or acquisitions, but it does not contain any financial maintenance covenants.
Senior Unsecured Notes
At December 31, 2020, we had outstanding $200.0 million aggregate principal amount of 2024 Notes and $400.0 million aggregate principal amount of 2029 Notes. The Senior Unsecured Notes are governed by similar indentures that contain customary covenants, including negative covenants that restrict our ability and our restricted subsidiaries' ability to engage in certain transactions, as described below, and also contain customary events of default.
During September 2020, we issued the 2029 Notes, and in October 2020 we used the proceeds from that issuance, in addition to borrowings from the Revolving Facility, to redeem $400.0 million aggregate principal amount of our 2024 Notes to extend the maturity of our debt portfolio consistent with the long-lived nature of our asset base. As a result of this early debt retirement, we recognized a redemption premium of $12.7 million offset by non-cash net credits (acceleration of unamortized premium, net of unamortized debt issuance costs) of $0.3 million. The net expense of $12.4 million was recognized as a loss on extinguishment of debt.
The 2024 Notes are governed by the 2024 Indenture, dated as of June 7, 2016, by and among U.S. Concrete, Inc., as issuer (the “Issuer”), the subsidiary guarantors party thereto, and U.S. Bank National Association, as trustee. The 2024 Notes accrue interest at a rate of 6.375% per annum, which is payable on June 1 and December 1 of each year. The 2024 Notes mature on June 1, 2024 and are redeemable at our option prior to maturity at prices specified in the 2024 Indenture.
The 2029 Notes are governed by the 2029 Indenture dated as of September 23, 2020, among the Issuer, the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee. The 2029 Notes accrue interest at a rate of 5.125% per annum, which is payable on March 1 and September 1 of each year, beginning on March 1, 2021. The 2029 Notes mature on March 1, 2029 and are redeemable at our option prior to maturity at prices specified in the 2029 Indenture.
The Senior Unsecured Notes are guaranteed on a full and unconditional senior unsecured basis by each of the Issuer's restricted subsidiaries (each, a “Guarantor Subsidiary,” and collectively, the “Guarantor Subsidiaries”) that guarantee any obligations under the Revolving Facility and certain of the Issuer's other indebtedness or certain indebtedness of the Issuer's restricted subsidiaries (other than a foreign subsidiary or domestic subsidiary thereof that guarantees only indebtedness incurred by a foreign subsidiary or a domestic subsidiary thereof). Each Guarantor Subsidiary is directly or indirectly 100% owned by the Issuer. The guarantees are joint and several. The Issuer does not have any independent assets or operations. There are no significant restrictions in the 2024 Indenture or the 2029 Indenture on the ability of the Guarantor Subsidiaries to make distributions to the Issuer. The Senior Unsecured Notes are not guaranteed by any of the Issuer's direct or indirect foreign subsidiaries (or any domestic subsidiaries of any such foreign subsidiaries), U.S. Virgin Islands subsidiaries or domestic subsidiaries that are not wholly owned (collectively, the “Non-Guarantor Subsidiaries”).
The Senior Unsecured Notes and the guarantees thereof are effectively subordinated to all of the Issuer's and the Guarantor Subsidiaries' existing and future secured obligations, including obligations under the Revolving Facility, the Term Loan Facility, our finance leases and our promissory notes, to the extent of the value of the collateral securing such obligations; senior in right of payment to any of our and the Guarantor Subsidiaries' future subordinated indebtedness; pari passu in right of payment with any of our and the Guarantor Subsidiaries' existing and future senior indebtedness, including the Issuer's and the Guarantor Subsidiaries' obligations under the Revolving Facility, the Term Loan Facility and our finance leases; and structurally subordinated to all existing and future indebtedness and other claims and liabilities, including trade payables and preferred stock, of any Non-Guarantor Subsidiaries.
Supplemental Guarantor Financial Information
The following tables present summarized financial information for the Issuer and the Guarantor Subsidiaries on a combined basis after intercompany transactions have been eliminated, including adjustments to eliminate intercompany transactions between the Issuer and the Guarantor Subsidiaries. All assets and liabilities have been allocated to the Issuer and the Guarantor Subsidiaries generally based on legal entity ownership. Issuer investments in, and earnings of, Non-Guarantor Subsidiaries are excluded from the summarized financial information presented below.
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheets ($ in millions)
|
December 31, 2020
|
|
December 31, 2019
|
Assets:
|
|
|
|
Due from Non-Guarantor Subsidiaries, current
|
$
|
0.6
|
|
|
$
|
8.9
|
|
Other current assets
|
285.8
|
|
|
320.2
|
|
Property, plant and equipment, net
|
598.1
|
|
|
470.3
|
|
Amount due from Non-Guarantor Subsidiaries, long-term
|
110.9
|
|
|
111.4
|
|
Other long-term assets
|
299.2
|
|
|
307.7
|
|
Liabilities:
|
|
|
|
Current liabilities
|
$
|
258.6
|
|
|
$
|
245.9
|
|
Long-term debt
|
667.2
|
|
|
653.3
|
|
Other long-term liabilities
|
134.5
|
|
|
120.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Operations ($ in millions)
|
2020
|
|
2019
|
Revenue
|
$
|
1,259.6
|
|
|
$
|
1,361.2
|
|
Cost of goods sold before depreciation, depletion and amortization
|
1,001.6
|
|
|
1,107.6
|
|
Operating income
|
64.1
|
|
|
50.1
|
|
Net income
|
16.6
|
|
|
5.5
|
|
Other Debt
We have financing agreements with various lenders primarily for the purchase of mixer trucks and other machinery and equipment with $101.7 million in outstanding principal as of December 31, 2020.
For additional information regarding our arrangements relating to outstanding indebtedness, see Note 8, “Debt,” to our consolidated financial statements included in this report.
Contingent Liabilities and Commitments
We have entered into standby letter of credit agreements in the normal course of business primarily relating to self-insurance. At December 31, 2020, the Company had a maximum financial exposure from these standby letters of credit totaling $25.9 million, of which $1.1 million reduces the Company's borrowing availability under its Revolving Facility. We are also contingently liable for performance under $11.8 million in performance bonds relating to our operations. In the Company's past experience, no material claims have been made against these financial instruments.
Commitments
The following are our contractual commitments associated with our indebtedness, operating lease obligations and certain acquisition-related payment obligations as of December 31, 2020 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual obligations
|
|
Total
|
|
Less Than
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More Than
5 Years
|
Principal on debt
|
|
$
|
708.2
|
|
|
$
|
33.7
|
|
|
$
|
54.6
|
|
|
$
|
218.5
|
|
|
$
|
401.4
|
|
Interest on debt
|
|
224.8
|
|
|
36.2
|
|
|
69.4
|
|
|
54.3
|
|
|
64.9
|
|
Operating leases
|
|
95.5
|
|
|
17.8
|
|
|
30.9
|
|
|
25.1
|
|
|
21.7
|
|
Deferred consideration payments(1)
|
|
12.0
|
|
|
9.9
|
|
|
1.3
|
|
|
0.8
|
|
|
—
|
|
Total
|
|
$
|
1,040.5
|
|
|
$
|
97.6
|
|
|
$
|
156.2
|
|
|
$
|
298.7
|
|
|
$
|
488.0
|
|
(1)Includes certain amounts previously reported as contingent consideration for which the performance period has concluded, the related contingency has been removed and payment will be made in 2021.
The following long-term liabilities included on the consolidated balance sheet are excluded from the contractual obligations table: accrued employment costs, contingent consideration, income tax contingencies, self-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.
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, revenue and expenses. See Note 1, “Organization and Summary of Significant Accounting Policies,” to our consolidated financial statements included in this report for more information about our significant accounting policies. 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 that 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.
Business Combinations
The acquisition method of accounting requires that we recognize the net assets acquired in business combinations at their acquisition date fair value. Goodwill is measured as the consideration transferred at the acquisition date in excess of the net fair value of the net assets acquired and liabilities assumed. The measurement of the fair value of net assets acquired requires considerable judgment. Although independent appraisals may be used to assist in the determination of the fair value of certain assets and liabilities, the appraised values are usually based on significant estimates provided by management, such as forecasted revenue or profit.
In determining the fair value of intangible assets, we utilize the cost approach (primarily through the cost-to-recreate method), the market approach and the income approach. The income approach may incorporate the use of a discounted cash flow method. In applying the discounted cash flow method, the estimated future cash flows and residual values for each intangible asset are discounted to a present value using a discount rate based on an estimated weighted average cost of capital for the building materials industry. These cash flow projections are based on management’s estimates of economic and market conditions including revenue growth rates, operating margins, capital expenditures and working capital requirements.
While we use our best estimates and assumptions as part of the process to value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. During the measurement period, which occurs before finalization of the purchase price allocation, changes in assumptions and estimates that result in adjustments to the fair value of assets acquired and liabilities assumed are recorded in the period they are determined, with the corresponding offset to goodwill. See Note 2, “Business Combinations,” to our consolidated financial statements included in this report for additional information about our acquisitions.
Goodwill and Goodwill Impairment
Goodwill represents the amount by which the purchase price of net assets acquired in a business combination exceeds the fair value of the acquired net identifiable tangible and intangible assets. We test goodwill for impairment on an annual basis, or more often if events or circumstances indicate that there may be impairment. The impairment evaluation of goodwill is a critical accounting estimate because goodwill represented 15.8% of the Company's total assets at December 31, 2020, the evaluation requires the use of significant estimates and assumptions and considerable management judgment, and an impairment charge could be material to the Company's financial condition and its results of operations. We generally test for goodwill impairment in the fourth quarter of each year.
Goodwill is tested for impairment at the reporting unit level. We have three reporting units: one each for our ready-mixed- concrete and aggregate products operating segments and one for a small non-reportable operating segment. The components within the ready-mixed concrete and aggregate products operating segments have been aggregated and determined to be single reporting units. To perform the impairment analysis, we estimate the fair value of our reporting units and compare the result to the reporting unit's carrying value. If the fair value of a reporting unit does not exceed its carrying value, then the goodwill is deemed to be impaired. We generally estimate the fair value using an equally weighted combination of discounted cash flows and multiples of invested capital to EBITDA. The discounted cash flow model includes forecasts for revenue and cash flows discounted at our weighted average cost of capital. We calculate multiples of invested capital to EBITDA using a weighted average of two selected 12 month period results by reporting unit compared to the enterprise value of the Company, which is determined based on the combination of the market value of our common stock and total outstanding debt. An impairment is determined to be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
We completed our annual impairment assessment during the fourth quarter of 2020 as of October 1, 2020 and determined there was no impairment of goodwill. While the amounts by which the fair values of the reporting units exceeded their carrying values (the “cushions”) have generally decreased from our 2019 review due to the impact of the COVID-19 pandemic, our major reporting units still had ample cushion. Our smallest reporting unit, which has only $3.3 million of goodwill, had the lowest cushion, 9.3%. Our fair value estimates were determined using estimates and assumptions that we believe were reasonable at the time, including assumptions regarding future operating results. Such estimates and assumptions are subject to inherent uncertainty. Actual results may differ materially from those estimates. Changes in those assumptions or estimates with respect to a reporting unit or its prospects, which may result from a change in market conditions, market trends, interest rates or other factors outside of our control, or significant underperformance relative to historical or projected future operating results, including further impacts of the COVID-19 pandemic, could significantly impact the calculated fair value of the reporting units, and could result in an impairment charge in the future. See Note 6, “Goodwill and Intangible Assets, Net,” to our consolidated financial statements included in this report for additional information about our goodwill.
Insurance Programs
We maintain third-party insurance coverage against certain workers' compensation, automobile and general liability risks 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 suitable for a company of our size and with our risk profile, although there are variations among our business units, and we regularly evaluate our retention levels and coverage limits. We have 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, claims development, retention levels, safety practices, 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 these self-insurance claims, which was classified in accrued liabilities and other long-term obligations and deferred credits, was $33.0 million as of December 31, 2020 and $23.3 million as of December 31, 2019.
Income Taxes
We use the asset and 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 the temporary differences are expected to reverse. In cases where the expiration date of tax loss carryforwards or other tax attributes 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 consider all positive and negative evidence including reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. Valuation allowances related to deferred tax assets could be impacted by changes in tax laws, changes in statutory tax rates and future taxable income levels. If we were to determine that we are unable to realize all or a portion of our deferred tax assets in the future, we would reduce such amounts through a charge to income tax expense in the period in which the determination is made. Conversely, if we were to determine that we can realize our deferred tax assets in the future in excess of the net carrying amounts, we would decrease the recorded valuation allowance through a decrease to income tax expense in the period in which the determination is made. Based on these considerations, we had valuation allowances as of December 31, 2020 and 2019 of $6.2 million and $15.1 million, respectively, for certain deferred tax assets due to uncertainty regarding their ultimate realization. In 2020, we reduced our valuation allowance established for our interest limitation carryforward attribute by $10.4 million as a result of the CARES Act and Final 163(j) Regulations and increased the valuation allowance for certain foreign losses generated for which we do not believe the tax benefits are more likely than not to be realized. Much of the tax benefit normally associated with releasing a valuation allowance was offset by the elimination of the related deferred tax asset for the interest limitation carryforward attribute.
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. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of unrecognized tax benefits. These differences, should they occur, will be reflected as increases or decreases to income tax expense in the period in which new information is available. See Note 14, “Income Taxes,” to our consolidated financial statements included in this report for further discussion.
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).
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the potential loss from adverse changes in interest rates, foreign exchange rates and market prices. Our exposure to market risk includes interest rate risk related to our Revolving Facility, the impact of interest rates as they impact the overall economy and foreign exchange risk due to certain transactions denominated in Canadian dollars related to our aggregate products operations in Canada.
We do not use derivative instruments to hedge risks relating to our ongoing business operations or for speculative purposes.
Interest Rate Risk
Borrowings under our Revolving Facility expose us to certain market risks. Interest on amounts drawn varies based on the floating rates under the Revolving Facility. Based on our $6.5 million of outstanding borrowings under the Revolving Facility as of December 31, 2020, a 100 basis-point change in the interest rate would increase or decrease annual interest expense by $0.1 million.
Our operations are subject to factors affecting the overall strength of the U.S. economy and economic conditions impacting financial institutions, including the level of interest rates, availability of funds for construction and level of general construction activity. A significant decrease in the level of general construction activity in any of our market areas may have a material adverse effect on our consolidated revenue and earnings.
Foreign Exchange Risk
Our primary exposure to foreign currency risk relates to our Canadian aggregate facility. Certain activities are transacted in Canadian dollars, but recorded in U.S. dollars. Changes in exchange rates between the U.S. dollar and the Canadian dollar result in transaction gains or losses, which we recognize in our consolidated statements of operations.
Future net transaction gains and losses are inherently difficult to predict as they are reliant on how the Canadian dollar fluctuates in relation to the U.S. dollar and the relative composition of current assets and liabilities denominated in the Canadian dollar each reporting period. We do not currently expect the economic impact to us of foreign exchange rates to be material.
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of U.S. Concrete, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of U.S. Concrete, Inc. and subsidiaries (the Company) as of December 31, 2020 and December 31, 2019, and the related consolidated statements of operations, total equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and December 31, 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 24, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
|
|
|
|
|
|
Acquisition of Coram Materials Corp. and certain of its affiliates
|
Description of the Matter
|
As disclosed in Note 2 to the consolidated financial statements, the Company completed the acquisition of the Coram Materials Corp. and certain of its affiliates for purchase consideration of $142.9 million during the year ended December 31, 2020. The acquisition was accounted for under the acquisition method of accounting for business combinations.
|
Auditing the Company's accounting for the acquisition of Coram Materials Corp. and certain of its affiliates was complex due to the significant assumptions that required the use of management specialists. Certain of these assumptions relate to the future performance of the acquired business, are forward-looking and could be affected by future economic and market conditions.
|
How We Addressed the Matter in Our Audit
|
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company's acquisition processes. For example, we tested certain internal controls over the Company's acquisition date valuation process, including controls over the selection of the valuation methodologies used as well as the key inputs and assumptions used to value the mineral reserve assets and other property, plant and equipment assets.
|
Our audit procedures included, among others, assessing the appropriateness of the valuation methodology and testing the significant assumptions and the underlying data used by the Company. We involved our valuation specialists to assist with our evaluation of the methodology used by the Company and significant assumptions included in the fair value estimates. For example, we compared the significant assumptions used to value the mineral reserve assets to current industry, market and economic trends, historical results of the acquired businesses and to other relevant factors. For other property, plant and equipment assets, we assessed management’s estimates of the fair values using independently obtained external information and comparing it to the assumptions included in the Company’s fair value estimates. We also performed sensitivity analyses of the significant assumptions to evaluate the change in the fair value resulting from changes in the assumptions.
|
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2017.
Dallas, Texas
February 24, 2021
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in millions except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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December 31,
|
|
|
2020
|
|
2019
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11.1
|
|
|
$
|
40.6
|
|
Trade accounts receivable, net
|
|
212.5
|
|
|
233.1
|
|
Inventories
|
|
70.3
|
|
|
59.0
|
|
Other receivables, net
|
|
13.2
|
|
|
8.4
|
|
Prepaid expenses and other
|
|
11.1
|
|
|
7.9
|
|
Total current assets
|
|
318.2
|
|
|
349.0
|
|
Property, plant and equipment, net
|
|
788.2
|
|
|
673.5
|
|
Operating lease assets
|
|
76.1
|
|
|
69.8
|
|
Goodwill
|
|
238.2
|
|
|
239.5
|
|
Intangible assets, net
|
|
70.9
|
|
|
92.4
|
|
Other assets
|
|
14.7
|
|
|
9.1
|
|
Total assets
|
|
$
|
1,506.3
|
|
|
$
|
1,433.3
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
|
$
|
127.8
|
|
|
$
|
136.4
|
|
Accrued liabilities
|
|
86.1
|
|
|
63.5
|
|
Current maturities of long-term debt
|
|
33.7
|
|
|
32.5
|
|
Current operating lease liabilities
|
|
14.3
|
|
|
12.9
|
|
Total current liabilities
|
|
261.9
|
|
|
245.3
|
|
Long-term debt, net of current maturities
|
|
668.7
|
|
|
654.8
|
|
Long-term operating lease liabilities
|
|
65.5
|
|
|
59.7
|
|
Other long-term obligations and deferred credits
|
|
51.9
|
|
|
49.1
|
|
Deferred income taxes
|
|
56.6
|
|
|
54.8
|
|
Total liabilities
|
|
1,104.6
|
|
|
1,063.7
|
|
Commitments and contingencies (Note 16)
|
|
|
|
|
Equity:
|
|
|
|
|
Preferred stock, $0.001 par value per share (10,000,000 shares authorized; none issued)
|
|
—
|
|
|
—
|
|
Common stock, $0.001 par value per share (100,000,000 shares authorized; 17,942,000 and 17,911,000 shares issued, respectively; and 16,675,000 and 16,696,000 shares outstanding, respectively)
|
|
—
|
|
|
—
|
|
Additional paid-in capital
|
|
363.8
|
|
|
348.9
|
|
Retained earnings
|
|
53.3
|
|
|
31.1
|
|
Treasury stock, at cost (1,267,000 and 1,215,000 common shares, respectively)
|
|
(37.9)
|
|
|
(36.6)
|
|
Total shareholders' equity
|
|
379.2
|
|
|
343.4
|
|
Non-controlling interest
|
|
22.5
|
|
|
26.2
|
|
Total equity
|
|
401.7
|
|
|
369.6
|
|
Total liabilities and equity
|
|
$
|
1,506.3
|
|
|
$
|
1,433.3
|
|
The accompanying notes are an integral part of these consolidated financial statements.
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in millions except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Revenue
|
|
$
|
1,365.7
|
|
|
$
|
1,478.7
|
|
|
$
|
1,506.4
|
|
Cost of goods sold before depreciation, depletion and amortization
|
|
1,070.6
|
|
|
1,187.6
|
|
|
1,212.2
|
|
Selling, general and administrative expenses
|
|
127.0
|
|
|
130.0
|
|
|
126.5
|
|
Depreciation, depletion and amortization
|
|
99.7
|
|
|
93.2
|
|
|
91.8
|
|
Change in value of contingent consideration
|
|
(7.3)
|
|
|
2.8
|
|
|
—
|
|
Asset impairment
|
|
—
|
|
|
—
|
|
|
1.3
|
|
Gain on sale/disposal of assets and businesses, net
|
|
(0.6)
|
|
|
(0.1)
|
|
|
(15.3)
|
|
Operating income
|
|
76.3
|
|
|
65.2
|
|
|
89.9
|
|
Interest expense, net
|
|
45.9
|
|
|
46.1
|
|
|
46.4
|
|
Loss on extinguishment of debt
|
|
12.4
|
|
|
—
|
|
|
—
|
|
Other income, net
|
|
(1.5)
|
|
|
(9.5)
|
|
|
(4.6)
|
|
Income before income taxes
|
|
19.5
|
|
|
28.6
|
|
|
48.1
|
|
Income tax expense (benefit)
|
|
(5.0)
|
|
|
12.3
|
|
|
16.8
|
|
Net income
|
|
24.5
|
|
|
16.3
|
|
|
31.3
|
|
Amounts attributable to non-controlling interest
|
|
1.0
|
|
|
(1.4)
|
|
|
(1.3)
|
|
Net income attributable to U.S. Concrete
|
|
$
|
25.5
|
|
|
$
|
14.9
|
|
|
$
|
30.0
|
|
|
|
|
|
|
|
|
Earnings per share attributable to U.S. Concrete:
|
|
|
|
|
|
|
Basic
|
|
$
|
1.54
|
|
|
$
|
0.91
|
|
|
$
|
1.82
|
|
Diluted
|
|
$
|
1.53
|
|
|
$
|
0.91
|
|
|
$
|
1.82
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
Basic
|
|
16.6
|
|
|
16.4
|
|
|
16.5
|
|
Diluted
|
|
16.6
|
|
|
16.4
|
|
|
16.5
|
|
The accompanying notes are an integral part of these consolidated financial statements.
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF TOTAL EQUITY
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Retained Earnings (Deficit)
|
|
Treasury
Stock
|
|
Total
Shareholders'
Equity
|
|
Non-
controlling
Interest
|
|
Total
Equity
|
December 31, 2017
|
|
16.7
|
|
|
$
|
319.0
|
|
|
$
|
(13.8)
|
|
|
$
|
(24.8)
|
|
|
$
|
280.4
|
|
|
$
|
21.7
|
|
|
$
|
302.1
|
|
Stock-based compensation
|
|
0.1
|
|
|
10.4
|
|
|
—
|
|
|
(1.9)
|
|
|
8.5
|
|
|
—
|
|
|
8.5
|
|
Stock options exercised
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
Adjustment for prior year business combination
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.8
|
|
|
1.8
|
|
Share repurchase program
|
|
(0.2)
|
|
|
—
|
|
|
|
|
(6.7)
|
|
|
(6.7)
|
|
|
—
|
|
|
(6.7)
|
|
Net income
|
|
—
|
|
|
—
|
|
|
30.0
|
|
|
—
|
|
|
30.0
|
|
|
1.3
|
|
|
31.3
|
|
December 31, 2018
|
|
16.6
|
|
|
329.6
|
|
|
16.2
|
|
|
(33.4)
|
|
|
312.4
|
|
|
24.8
|
|
|
337.2
|
|
Stock-based compensation
|
|
0.1
|
|
|
19.1
|
|
|
—
|
|
|
(3.2)
|
|
|
15.9
|
|
|
—
|
|
|
15.9
|
|
Stock options exercised
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
Net income
|
|
—
|
|
|
—
|
|
|
14.9
|
|
|
—
|
|
|
14.9
|
|
|
1.4
|
|
|
16.3
|
|
December 31, 2019
|
|
16.7
|
|
|
348.9
|
|
|
31.1
|
|
|
(36.6)
|
|
|
343.4
|
|
|
26.2
|
|
|
369.6
|
|
Stock-based compensation
|
|
—
|
|
|
11.6
|
|
|
—
|
|
|
(1.3)
|
|
|
10.3
|
|
|
—
|
|
|
10.3
|
|
Cumulative-effect adjustment upon adoption of ASC 326, net of taxes
|
|
—
|
|
|
—
|
|
|
(3.3)
|
|
|
—
|
|
|
(3.3)
|
|
|
—
|
|
|
(3.3)
|
|
Transfer of non-controlling interest
|
|
—
|
|
|
3.3
|
|
|
—
|
|
|
—
|
|
|
3.3
|
|
|
(3.3)
|
|
|
—
|
|
Distribution to non-controlling interest
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.2)
|
|
|
(0.2)
|
|
Payment from non-controlling interest
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.3
|
|
|
0.3
|
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.5
|
|
|
0.5
|
|
Net income
|
|
—
|
|
|
|
|
25.5
|
|
|
—
|
|
|
25.5
|
|
|
(1.0)
|
|
|
24.5
|
|
December 31, 2020
|
|
16.7
|
|
|
$
|
363.8
|
|
|
$
|
53.3
|
|
|
$
|
(37.9)
|
|
|
$
|
379.2
|
|
|
$
|
22.5
|
|
|
$
|
401.7
|
|
The accompanying notes are an integral part of these consolidated financial statements.
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net income
|
|
$
|
24.5
|
|
|
$
|
16.3
|
|
|
$
|
31.3
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
99.7
|
|
|
93.2
|
|
|
91.8
|
|
Amortization of debt issuance costs
|
|
2.1
|
|
|
1.8
|
|
|
1.8
|
|
Change in value of contingent consideration
|
|
(7.3)
|
|
|
2.8
|
|
|
—
|
|
Loss on extinguishment of debt
|
|
12.4
|
|
|
—
|
|
|
—
|
|
Gain on sale of businesses and assets, net
|
|
(0.6)
|
|
|
(0.1)
|
|
|
(15.3)
|
|
Gains from eminent domain matter and property insurance claims
|
|
—
|
|
|
(6.0)
|
|
|
—
|
|
Asset impairment
|
|
—
|
|
|
—
|
|
|
1.3
|
|
Deferred income taxes
|
|
5.5
|
|
|
12.2
|
|
|
14.6
|
|
Provision for doubtful accounts and customer disputes
|
|
3.0
|
|
|
3.2
|
|
|
4.6
|
|
Stock-based compensation
|
|
11.6
|
|
|
19.1
|
|
|
10.4
|
|
Other, net
|
|
0.1
|
|
|
(2.2)
|
|
|
(1.3)
|
|
Changes in assets and liabilities, excluding effects of acquisitions:
|
|
|
|
|
|
|
Accounts receivable
|
|
15.1
|
|
|
(8.6)
|
|
|
(16.9)
|
|
Inventories
|
|
(3.6)
|
|
|
(7.8)
|
|
|
(2.1)
|
|
Prepaid expenses and other current assets
|
|
(7.6)
|
|
|
8.8
|
|
|
(2.0)
|
|
Other assets and liabilities
|
|
9.3
|
|
|
3.9
|
|
|
(3.0)
|
|
Accounts payable and accrued liabilities
|
|
17.1
|
|
|
2.2
|
|
|
7.6
|
|
Net cash provided by operating activities
|
|
181.3
|
|
|
138.8
|
|
|
122.8
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
(24.4)
|
|
|
(42.7)
|
|
|
(39.9)
|
|
Payments for acquisition of businesses
|
|
(149.4)
|
|
|
—
|
|
|
(72.3)
|
|
Proceeds from sale of businesses and property, plant and equipment
|
|
1.7
|
|
|
2.9
|
|
|
20.7
|
|
Proceeds from eminent domain matter and property insurance claims
|
|
—
|
|
|
6.0
|
|
|
2.6
|
|
Purchase of environmental credits
|
|
—
|
|
|
—
|
|
|
(2.8)
|
|
Net cash used in investing activities
|
|
(172.1)
|
|
|
(33.8)
|
|
|
(91.7)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Proceeds from revolver borrowings
|
|
447.7
|
|
|
353.5
|
|
|
431.2
|
|
Repayments of revolver borrowings
|
|
(441.2)
|
|
|
(368.5)
|
|
|
(425.2)
|
|
Proceeds from issuance of senior unsecured notes
|
|
400.0
|
|
|
—
|
|
|
—
|
|
Repayment of senior unsecured notes
|
|
(400.0)
|
|
|
—
|
|
|
—
|
|
Premium paid on early retirement of debt
|
|
(12.7)
|
|
|
—
|
|
|
—
|
|
Debt issuance costs
|
|
(9.0)
|
|
|
—
|
|
|
—
|
|
Payments of acquisition-related liabilities
|
|
(10.0)
|
|
|
(33.4)
|
|
|
(5.9)
|
|
Payments for finance leases, promissory notes and other
|
|
(27.0)
|
|
|
(32.8)
|
|
|
(29.6)
|
|
Payments for share repurchase program
|
|
—
|
|
|
—
|
|
|
(6.7)
|
|
Shares redeemed for employee income tax obligations
|
|
(1.3)
|
|
|
(3.2)
|
|
|
(1.9)
|
|
Proceeds from finance lease and other
|
|
14.8
|
|
|
0.2
|
|
|
4.7
|
|
Net cash used in financing activities
|
|
(38.7)
|
|
|
(84.2)
|
|
|
(33.4)
|
|
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS
|
|
—
|
|
|
(0.2)
|
|
|
(0.3)
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
(29.5)
|
|
|
20.6
|
|
|
(2.6)
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
40.6
|
|
|
20.0
|
|
|
22.6
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
11.1
|
|
|
$
|
40.6
|
|
|
$
|
20.0
|
|
U.S. CONCRETE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
Net cash paid for interest
|
|
$
|
40.7
|
|
|
$
|
45.5
|
|
|
$
|
45.5
|
|
Net cash paid (received) for income taxes
|
|
(6.4)
|
|
|
(7.3)
|
|
|
2.5
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-cash Investing and Financing Activities:
|
|
|
|
|
|
|
Capital expenditures funded by finance leases and promissory notes
|
|
$
|
26.4
|
|
|
$
|
20.6
|
|
|
$
|
39.4
|
|
Change in asset retirement obligations
|
|
6.2
|
|
|
—
|
|
|
—
|
|
Acquisitions funded by contingent consideration and deferred payments
|
|
1.7
|
|
|
—
|
|
|
1.1
|
|
Transfer of non-controlling interest
|
|
3.3
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximately $0.6 million of accounts payable owed by the Company was effectively settled as part of the Coram Acquisition, as defined in Note 2 to these consolidated financial statements, and was eliminated in consolidation in 2020.
The accompanying notes are an integral part of these consolidated financial statements.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
U.S. Concrete, Inc., a Delaware corporation, is a heavy building materials supplier of aggregates, ready-mixed concrete and concrete-related products and services to the construction industry in several major markets in the United States, as well as select markets in the U.S. Virgin Islands and Canada. U.S. Concrete, Inc. is a holding company and conducts its businesses through its consolidated subsidiaries. In these notes to the consolidated financial statements (these “Notes”), we refer to U.S. Concrete, Inc. and its subsidiaries as “we,” “us,” “our,” 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 majority or wholly owned subsidiaries. All significant intercompany account balances and transactions have been eliminated. Certain computations may be impacted by the effect of rounding.
For acquisitions accounted for as business combinations, all of the assets acquired and liabilities assumed are recorded at their respective fair value as of the date of the acquisition. The results of operations of acquisitions (discussed in more detail in Note 2) are included in the consolidated financial statements from the respective date of acquisition.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform with the current year presentation.
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 revenue and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions that we consider significant in the preparation of our financial statements include those related to our business combinations, goodwill, intangibles, accruals for self-insurance, income taxes, valuation of contingent consideration, allowance for doubtful accounts, the valuation of inventory, and the valuation and useful lives of property, plant and equipment.
Business Combinations
We evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or as business combinations using a screen to determine when a set of assets is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similarly identifiable assets, the set is not a business.
We account for business combinations under the acquisition method of accounting. Accordingly, we recognize assets acquired and liabilities assumed in a business combination, including contingent liabilities and deferred payment obligations, based on the fair value estimates as of the date of acquisition. Goodwill is measured as the excess of the fair value of the consideration paid over the fair value of the identified net tangible and intangible assets acquired.
The fair value of acquired receivables, inventory, machinery and equipment, land and buildings are based on inputs derived principally from, or corroborated by, observable market data (i.e., Level 2 inputs as defined below under the heading “Fair Value of Financial Instruments”). Additionally, we may use a cost valuation approach to value long-lived assets when a market valuation approach is unavailable.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The estimates used for determining the fair value of certain other assets and liabilities related to acquisitions, such as mineral reserves and intangible assets, are considered Level 3 inputs (as defined below under the heading “Fair Value of Financial Instruments”). We utilize recognized valuation techniques, including the income approach, sales approach and cost approach to value the net assets acquired. We generally use a third party valuation firm to assist us with developing our estimates of fair value. In determining the fair value of mineral reserves, we use an excess earnings approach, which requires the use of estimated future cash flows, net of capital investments in the specific operation. Management’s cash flow projections involve the use of significant estimates and assumptions with respect to the expected production of the aggregate facility over the estimated time period, sales prices, shipment volumes, and expected profit margins.
In determining the fair value of intangible assets, we use the cost approach (primarily through the cost-to-recreate method), the market approach and the income approach. The income approach may incorporate the use of a discounted cash flow method. In applying the discounted cash flow method, the estimated future cash flows and residual values for each intangible asset are discounted to a present value using a discount rate based on an estimated weighted average cost of capital for the building materials industry. Cash flow projections are based on management’s estimates of economic and market conditions including revenue growth rates, operating margins, capital expenditures and working capital requirements. The impact of changes to the estimated fair value of assets acquired and liabilities assumed is recorded in the reporting period in which the adjustment is identified. Final valuations of assets and liabilities are obtained and recorded as soon as practical, but no later than one year from the date of the acquisition. See Note 12 for additional information regarding balances of contingent consideration obligations.
Foreign Currency
The Company accounts for its Canadian operations using the United States dollar (“US dollar”) as the functional currency, as the primary economic environment in which the entity transacts business is the United States. Transactions in Canadian dollars are recognized at the rates of exchange prevailing at the dates of the transaction. At the end of each reporting period, monetary assets and liabilities denominated in Canadian dollars are remeasured at the rates prevailing at that date. Foreign currency differences arising on remeasurement of monetary items are recognized in earnings.
Cash and Cash Equivalents
We record as cash equivalents all highly liquid investments having maturities of three months or less at the original 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 fair value. The maximum amount placed in any one financial institution is limited in order to reduce risk. At times, our cash and investments may be in excess of amounts insured by either the Federal Deposit Insurance Corporation or the Canadian Deposit Insurance Corporation. We have not experienced any losses on these accounts. Cash held as collateral or escrowed for contingent liabilities, if any, is included in other current and noncurrent assets based on the expected release date of the underlying obligation.
Business and Credit Concentrations
We grant credit, generally without collateral, to our customers, which include general contractors, municipalities and commercial companies located primarily in Texas, New Jersey, New York City, Philadelphia, Washington, D.C., California, Oklahoma, the U.S. Virgin Islands and Hawaii. Consequently, we are subject to potential credit risk related to changes in business and economic factors in those states and territories. 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. We did not have any customers that accounted for more than 10% of our revenue or any suppliers that accounted for more than 10% of our cost of goods sold in 2020, 2019 or 2018. We did not have any customers that accounted for more than 10% of our accounts receivable as of December 31, 2020 or December 31, 2019.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounts Receivable
Effective January 1, 2020, we adopted Accounting Standards Codification (“ASC”) 326, “Current Expected Credit Losses.” While the prior accounting rules used a model of incurred losses to estimate credit losses on certain types of financial instruments, including trade accounts receivable, ASC 326 requires entities to use a forward-looking approach based on expected losses, which may result in the earlier recognition of allowances for losses. We applied the new credit loss model on a prospective basis and recorded a cumulative-effect adjustment, net of taxes, of $3.3 million to opening retained earnings for the increase to the allowance for doubtful accounts. With the adoption of ASC 326, we amended our accounting policy for accounts receivable, which follows.
Accounts receivable consist primarily of receivables from contracts with customers for the sale of ready-mixed concrete, aggregates and other products. Accounts receivable initially are recorded at the transaction amount. We utilize liens or other legal remedies in our collection efforts of certain accounts receivable. Each reporting period, we evaluate the collectability of the receivables and record an allowance for doubtful accounts and customer disputes for our estimated losses on balances that may not be collected in full, which reduces the accounts receivable balance. Additions to the allowance result from a provision for bad debt expense that is recorded to selling, general and administrative expenses. A provision for customer disputes recorded as a reduction to revenue also increases the allowance. Accounts receivable are written off and reflected as a reduction to the allowance if and when we determine the receivable will not be collected.
We determine the amount of bad debt expense and customer dispute losses each reporting period and the resulting adequacy of the allowance at the end of each reporting period by using a combination of historical loss experience, customer-by-customer analysis, and subjective assessments of our loss exposure. For accounts receivable balances as of and prior to December 31, 2019, our allowance for doubtful accounts was based on our estimated probable losses. Beginning January 1, 2020, upon our adoption of ASC 326, our allowance for doubtful accounts is based on our estimated expected losses, and the underlying evaluations include analysis of forward-looking information, including economic conditions.
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 measured at the lower of cost or net realizable value, which is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Cost in all periods presented was determined 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. The value is not increased with any changes in circumstances that would indicate an increase after the remeasurement date. If actual product demand or market conditions are less favorable than those projected by management, inventory write-downs may be required.
Property, Plant and Equipment, Net
We present property, plant and equipment at cost less accumulated depreciation. 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 record amortization of assets recorded under finance leases as depreciation expense. 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 consolidated statements of operations.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We use the straight-line method to compute depreciation and amortization of these assets, other than mineral deposits, over the following estimated useful lives:
|
|
|
|
|
|
|
|
|
Class of Assets
|
|
Range of Service Lives
|
Buildings and land improvements
|
|
10 to 40 years
|
Machinery and equipment
|
|
10 to 30 years
|
Mixers, trucks and other vehicles
|
|
1 to 12 years
|
Other
|
|
3 to 10 years
|
Reclamation Costs
Reclamation costs resulting from normal use of long-lived assets are recognized over the period the asset is in use when there is a legal obligation to incur these costs upon retirement of the assets. Additionally, reclamation costs resulting from normal use under a mineral lease are recognized over the expected lease term when there is a legal obligation to incur these costs upon expiration of the lease. The obligation, which is not reduced by estimated offsetting cash flows, is recorded at fair value as a liability at the obligating event date and is accreted through charges to operating expenses. This fair value is also capitalized as part of the carrying amount of the underlying asset and depleted over the estimated useful life of the asset. If the obligation is settled for other than the carrying amount of the liability, a gain or loss is recognized on settlement.
To determine the fair value of the obligation, we estimate the cost (including a reasonable profit margin) for a third party to perform the legally required reclamation tasks. This cost is then increased for both future estimated inflation and an estimated market risk premium related to the estimated years to settlement. Once calculated, this cost is discounted to fair value using present value techniques with a credit-adjusted, risk-free rate commensurate with the estimated years to settlement.
In estimating the settlement date, we evaluate the current facts and conditions to determine the most likely settlement date. If this evaluation identifies alternative estimated settlement dates, we use a weighted average settlement date considering the probabilities of each alternative.
We review reclamation obligations at least annually for revisions to the costs or a change in the estimated settlement date. Additionally, reclamation obligations are reviewed in the period that a triggering event occurs that would result in either a revision to the cost or a change in the estimated settlement date. Examples of events that would trigger a change in the cost include a new reclamation law or amendment of an existing mineral lease. Examples of events that would trigger a change in the estimated settlement date include the acquisition of additional reserves or the closure of a facility.
For reclamation obligation amounts, (referred to in our financial statements as asset retirement obligations) see Note 10.
Impairment of Long-lived Assets
We evaluate our long-lived assets for impairment and the reasonableness of the estimated useful lives whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable or that a change in useful life may be appropriate. 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 value, less cost to sell. In 2018, we recorded a $1.3 million non-cash impairment for properties in New Jersey and Michigan that were sold in 2018. In 2020, we determined that, as a result of initiatives to consolidate the Company's branding in our New York operations, the useful life of one of our definite-lived trade name intangible assets needed to be shortened. We accounted for the change in useful life prospectively effective October 1, 2020 after determining there was no impairment of the carrying value. See Note 6 for additional information regarding the weighted average remaining lives of our trade name intangible assets and our future amortization of definite-lived intangible assets by year.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Leases
As of January 1, 2019, we adopted ASC 842, “Leases,” by using the transition approach that permitted application of the new standard at the adoption date instead of the earliest comparative period presented in the financial statements. The core principle of the guidance is that lessees are required to recognize a right-of-use asset and a lease liability, measured on a discounted basis, at the commencement date for all leases with terms greater than twelve months, excluding mineral leases. Additionally, this guidance requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. As a result of adopting the new standard, we recorded additional lease assets and lease liabilities of $76.9 million and $79.2 million, respectively, on the consolidated balance sheet as of January 1, 2019. The additional lease assets equal the lease liabilities, excluding the impact of deferred rent, which was previously recorded in accrued liabilities. The standard did not materially impact our consolidated net earnings and had no impact on cash flows.
In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. We also elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements. We elected to exclude leases with an initial term of 12 months or less from the consolidated balance sheet. We made an accounting policy election to combine lease and non-lease components when calculating the lease liability under the new standard. Non-lease components, which may include taxes, maintenance, insurance and certain other expenses applicable to the leased property, are primarily considered variable costs. We did not elect the hindsight practical expedient to determine the lease term for existing leases.
We are the lessee in a lease contract when we obtain the right to control the asset. We lease certain land, office space, equipment and vehicles. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years or more. The exercise of lease renewal options is primarily at our discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
Certain of our lease agreements include rental payments based on a percentage of volume sold over contractual levels and others include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Where observable, we use the implicit interest rate in determining the present value of future payments. Where the implicit interest rate is not observable, we use our incremental borrowing rate based on the information available at lease commencement date in determining the present value of future payments. We give consideration to our outstanding debt as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates.
See Note 9 for additional information regarding our leases.
Goodwill Impairment
Goodwill represents the cost of net assets acquired in a business combination over the fair value of the acquired net identifiable tangible and intangible assets. Goodwill is assigned to the reporting unit that it will benefit. We do not amortize goodwill but instead evaluate it for impairment within the reporting unit. Goodwill impairment exists when the fair value of a reporting unit is less than its carrying amount. Goodwill is tested for impairment annually, as of October 1, or more frequently if events or circumstances indicate that assets might be impaired. The annual test for impairment is performed in the fourth quarter of each year, because this period gives us the best visibility of the reporting units’ operating performance for the current year (seasonally, April through October are our highest revenue and production months) and our outlook for the upcoming year, because much of our customer base is finalizing operating and capital budgets during the fourth quarter. We have the option of either assessing qualitative factors to determine whether it is more likely than not that the carrying value of our reporting units exceeds their respective fair value or proceeding directly to a quantitative test. We elected to perform the quantitative impairment test for all years presented. The quantitative impairment test involves estimating the fair value of our reporting units and comparing the result to the reporting unit's carrying value, including goodwill. If the fair value is less than the carrying value, goodwill impairment is determined to be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. We changed our reporting units in 2019 and performed the impairment assessment both before and after the change, with no difference in the assessment results. There was no impairment of goodwill in 2020, 2019 or 2018.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We generally estimate fair value using an equally weighted combination of discounted cash flows and multiples of invested capital to EBITDA. The discounted cash flow model includes forecasts for revenue and cash flows discounted at our weighted average cost of capital. We calculate multiples of invested capital to EBITDA using a weighted average of two selected 12 month period results by reporting unit 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. Determining the fair value of our reporting units involves the use of significant estimates and assumptions and considerable management judgment. We base our fair value estimates on assumptions we believe to be reasonable at the time, but such assumptions are subject to inherent uncertainty and actual results may differ.
Intangible Assets
Our definite-lived intangible assets consist of identifiable trade names, customer relationships, non-compete agreements, leasehold interests, favorable contracts and emissions credits that were acquired through business or asset purchases. We amortize these intangible assets over their estimated useful lives, which range from 3 to 25 years, using a straight-line approach. Our indefinite-lived intangible assets consist of a land right acquired in a 2014 acquisition that will be reclassified to property, plant and equipment upon the completion of certain settlement activities. For the land right, we performed a qualitative assessment and determined that this indefinite-lived intangible asset was not impaired as of December 31, 2020. See Note 6 for further information about our intangible assets.
Debt Issuance Costs
Debt issuance costs represent fees and other direct incremental costs incurred in connection with the Company's borrowings. Debt issuance costs are initially capitalized and then are amortized as interest expense over the scheduled maturity period of the debt. Upon any prepayment of the related debt, we accelerate the recognition of the related costs as refinancing or extinguishment of debt. The issuance costs related to our line-of-credit arrangement are recorded in other assets and amortized over the term of the arrangement, regardless of whether there are any outstanding borrowings.
Revenue
We derive substantially all of our revenue from the production and delivery of ready-mixed concrete, aggregates and related building materials. Revenue from the sale of these products is recognized when control passes to the customer, which generally occurs at the point in time when products are delivered. We do not deliver products unless we have an order or other documentation authorizing delivery to our customers. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. Sales and other taxes we collect concurrently with revenue-producing activities are excluded from revenue. Incidental items, such as mix formulation and testing services that are immaterial in the context of the revenue contract and completed in close proximity to the revenue-producing activities, are recorded within cost of goods sold as incurred. We generally do not provide post-delivery services, such as paving or finishing. Customer dispute costs are recorded as a reduction of revenue at the end of each period and are estimated by using a combination of historical customer experience and a customer-by-customer analysis.
Amounts billed to customers for delivery costs are classified as a component of total revenue. Our payment terms vary by the type and location of our customer and the products offered. The term between invoicing and when payment is due is not significant. As permitted under U.S. GAAP, we have elected not to assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods to the customer will be one year or less.
See Note 18 for disaggregation of revenue by segment and product, which we believe best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.
We do not have any customer contracts that meet the definition of unsatisfied performance obligations in accordance with U.S. GAAP.
Cost of Goods Sold
Cost of goods sold consists primarily of product costs and operating expenses, excluding depreciation, depletion and amortization, which is reported separately. Operating expenses consist primarily of wages, benefits, insurance and other expenses attributable to plant operations, repairs and maintenance and delivery costs.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Selling, General and Administrative Expenses
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.
Income Taxes
We use the asset and liability method of accounting for income taxes under which we record deferred income taxes (which are included on our balance sheets as either other assets or deferred income taxes, as appropriate), 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 the temporary differences are expected to reverse. We record a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized and recognize interest and penalties related to uncertain tax positions in income tax expense. We include additional taxes on global intangible low-tax income (“GILTI”) in income tax expense in the year incurred.
Contingent Consideration
We record an estimate of the fair value of contingent consideration, incurred with certain acquisitions, within accrued liabilities and other long-term obligations and deferred credits on our consolidated balance sheets. We estimate the fair value of any acquisition-related contingent consideration arrangements using a Monte Carlo simulation model, an income approach or a discounted cash flow technique, as appropriate. The fair value of the contingent consideration arrangements is sensitive to changes in the forecasts of earnings and/or the relevant operating metrics and changes in discount rates. The fair value of contingent consideration arrangements is reassessed quarterly based on assumptions used in our latest projections and input provided by practice leaders and management. Any change in the fair value estimate, which could include accretion of interest expense due to passage of time as well as any changes in the inputs to the model, is recorded in our consolidated statement of operations for that period. The current portion of contingent consideration is included in accrued liabilities and the long-term portion is included in other long-term obligations and deferred credits on our consolidated balance sheets. For changes in our contingent consideration balances, see Note 12.
Fair Value of Financial Instruments
Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Accounting guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. We review the fair value hierarchy classification on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain assets and liabilities within the fair value hierarchy.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our other financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and long-term debt. We consider the carrying values of cash and cash equivalents, accounts receivable and accounts payable to be representative of their respective fair value because of their short-term maturities or expected settlement dates. The carrying values of the outstanding amounts under our Revolving Facility (as defined in Note 8) and our operating and finance lease assets and liabilities approximate fair value due to the nature of the underlying collateral associated with the debt along with floating interest rates. For further information on financial instruments, see Note 10 regarding our other long-term obligations and deferred credits.
As of January 1, 2020, we adopted a FASB update to disclosure requirements for fair value measurement, which removed, modified and added certain disclosure requirements related to fair value measurements covered in Topic 820, “Fair Value Measurement.” The adoption of this update did not have a material impact on the consolidated financial statements.
Stripping Costs
Stripping costs are the costs of removing overburden and waste materials to access mineral deposits. We include post-production stripping costs in the cost of inventory produced during the period these costs are incurred. Post-production stripping costs represent stripping costs incurred after the first salable minerals are extracted from the mine.
Earnings Per Share
Basic earnings per share is computed by dividing net income attributable to U.S. Concrete by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income attributable to U.S. Concrete 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 15 for the calculation of the denominator used in the computation of basic and diluted earnings per share and the potential shares from equity awards that were excluded from the calculation because they were anti-dilutive or their associated performance targets had not been met.
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, shareholders. For all years presented, 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 on a straight-line basis over the employee’s requisite service period, generally the vesting period of the award, or in the case of performance-based awards, over the shorter of the derived service period or when the performance hurdles are achieved. We recognize forfeitures of stock-based awards as they occur. We recognize excess tax benefits and tax deficiencies in the income statement when awards vest or are settled. See Note 13 for additional information regarding our stock-based compensation plans.
Subsidiary Guarantees
In March 2020, the SEC adopted amendments to the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees, in Rule 3-10 of Regulation S-X. The amended rule focuses on providing material, relevant and decision-useful information regarding guarantees and other credit enhancements, while eliminating certain prescriptive requirements. We adopted these amendments as of March 31, 2020. Accordingly, combined summarized financial information has been presented only for the issuers and guarantors of our registered securities for the most recent fiscal year, and the alternate disclosures are provided outside of these notes to the consolidated financial statements.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
2. BUSINESS COMBINATIONS
On February 24, 2020, we acquired all of the equity of Coram Materials Corp. and certain of its affiliates (collectively, “Coram Materials”). Coram Materials is a sand and gravel products provider located on Long Island in New York. This acquisition increased the vertical integration of our New York City operations.
The acquisition of all of the equity of Coram Materials (the “Coram Acquisition”) was accounted for as a business combination. We funded the initial cash purchase consideration through borrowings under our Revolving Facility. The combined assets acquired through the Coram Acquisition included an aggregates facility with 330 acres of land, including 180 mining acres containing approximately 41.9 million tons of in-place, proven and permitted aggregate reserves. To effect this transaction, we incurred $0.6 million of transaction costs, which were included in selling and general administrative expenses in our consolidated statements of operations for the year ended December 31, 2020.
The fair value of acquired receivables, inventory, machinery and equipment, land and buildings are based on inputs derived principally from, or corroborated by, observable market data (i.e., Level 2 inputs). The fair value of machinery and equipment, land and buildings was based on a market valuation approach or a cost valuation approach when a market valuation approach was unavailable. The estimates used for determining the fair value of the mineral reserves were unobservable and significant to the overall measurement (i.e., Level 3 inputs). The fair value of the mineral reserves was determined using an excess earnings approach, which required management to estimate future cash flows, net of capital investments in the specific operation. Management’s cash flow projections involved the use of significant estimates and assumptions with respect to the expected production of the aggregate facility over the estimated time period, sales prices, shipment volumes, and expected profit margins. The present value of the projected net cash flows represents the preliminary fair value assigned to mineral reserves. The discount rate is a significant assumption used in the valuation model.
The total consideration for the Coram Acquisition and the amounts related to the assets acquired and liabilities assumed based on the estimated fair values as of the acquisition date were as follows:
|
|
|
|
|
|
($ in millions)
|
Coram Materials
|
Accounts receivable(1)
|
$
|
2.0
|
|
Inventory
|
10.0
|
|
Other current assets
|
0.3
|
|
Property, plant and equipment
|
130.9
|
|
Total assets acquired
|
143.2
|
|
Current liabilities
|
0.1
|
|
Other long-term liabilities
|
0.2
|
|
Total liabilities assumed
|
0.3
|
|
Total consideration (fair value)(2)
|
$
|
142.9
|
|
(1) The aggregate fair value of the acquired accounts receivable approximated the aggregate gross contractual amount.
(2) Consisted of a $140.2 million initial cash payment, a $1.7 million present value of deferred consideration, and a $1.6 million working capital adjustment paid in August 2020, less a $0.6 million settlement of accounts payable owed by the Company to Coram Materials at the acquisition date. The total amount of deferred consideration was $2.0 million, which is payable over two years.
In November 2020, we acquired certain assets of Sugar City Building Materials Co. (the “Sugar City Acquisition”) that expanded our ready-mixed concrete operations in our West Region for total cash consideration of $7.6 million. We accounted for the Sugar City Acquisition as a business combination. The assets acquired primarily included inventory and property, plant and equipment. The preliminary $2.2 million of goodwill from the Sugar City Acquisition, which has been ascribed to our ready-mixed concrete segment, is related to the synergies we expect to receive in that segment and is deductible for tax purposes. Our accounting for the Sugar City Acquisition is preliminary; however, we do not expect to record material adjustments in 2021.
Impact of Acquisitions
During 2020, these two acquisitions generated revenue of $28.2 million, including intersegment sales of $11.4 million, and generated operating income of $12.2 million following their respective dates of acquisition.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The unaudited pro forma consolidated financial results shown below represent our estimate of the Company's results of operations as if these two acquisitions had been completed on January 1, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions except per share)
|
2020
|
|
2019
|
Revenue
|
$
|
1,374.2
|
|
|
$
|
1,504.2
|
|
Net income attributable to U.S. Concrete
|
$
|
30.6
|
|
|
$
|
15.0
|
|
|
|
|
|
Net income per share attributable to U.S. Concrete - basic
|
$
|
1.85
|
|
|
$
|
0.91
|
|
Net income per share attributable to U.S. Concrete - diluted
|
$
|
1.84
|
|
|
$
|
0.91
|
|
The above pro forma results are unaudited and were prepared based on the historical U.S. GAAP results of the Company and the historical results of these two acquisitions, 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 these two acquisitions occurred on January 1, 2019.
The unaudited pro forma amounts above reflect the following adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
2020
|
|
2019
|
Decrease (increase) in cost of goods sold related to fair value increase in inventory
|
$
|
4.8
|
|
|
$
|
(4.0)
|
|
Increase in depreciation, depletion and amortization expense
|
(1.0)
|
|
|
(3.4)
|
|
Exclusion of buyer transaction costs
|
0.9
|
|
|
0.1
|
|
Exclusion of seller transaction costs
|
0.3
|
|
|
—
|
|
Increase in interest expense
|
(1.0)
|
|
|
(5.5)
|
|
Increase in income tax expense
|
(0.7)
|
|
|
(1.0)
|
|
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.
3. ALLOWANCE FOR DOUBTFUL ACCOUNTS AND CUSTOMER DISPUTES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
2020
|
|
2019
|
Balance, beginning of period
|
|
$
|
8.5
|
|
(1)
|
$
|
6.1
|
|
Provision for doubtful accounts and customer disputes
|
|
2.6
|
|
|
3.2
|
|
Uncollectible receivables written off, net of recoveries
|
|
(3.6)
|
|
|
(4.7)
|
|
Other adjustments
|
|
(0.3)
|
|
|
(0.6)
|
|
Balance, end of period(2)
|
|
$
|
7.2
|
|
|
$
|
4.0
|
|
(1) Includes a $4.5 million adjustment to the 2019 ending balance for the cumulative effect of the prospective adoption of ASC 326 as of January 1, 2020.
(2) Excludes $1.3 million and $0.5 million of allowances for other receivables as of December 31, 2020 and 2019, respectively, which are included in other receivables, net on our consolidated balance sheets.
4. INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
($ in millions)
|
|
2020
|
|
2019
|
Raw materials
|
|
$
|
64.4
|
|
(1)
|
$
|
53.4
|
|
Building materials for resale
|
|
4.1
|
|
|
3.6
|
|
Other
|
|
1.8
|
|
|
2.0
|
|
Total
|
|
$
|
70.3
|
|
|
$
|
59.0
|
|
(1) An additional $2.5 million of inventory was classified as other assets, since we do not expect to sell it within one year.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
5. PROPERTY, PLANT AND EQUIPMENT, NET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
($ in millions)
|
|
2020
|
|
2019
|
Land and mineral deposits
|
|
$
|
439.3
|
|
|
$
|
313.0
|
|
Buildings and improvements
|
|
76.5
|
|
|
66.2
|
|
Machinery and equipment
|
|
331.1
|
|
|
295.7
|
|
Mixers, trucks and other vehicles
|
|
278.8
|
|
|
258.8
|
|
Furniture and fixtures
|
|
1.8
|
|
|
1.9
|
|
Construction in progress
|
|
20.9
|
|
|
27.8
|
|
|
|
1,148.4
|
|
|
963.4
|
|
Less: accumulated depreciation, depletion and amortization
|
|
(360.2)
|
|
|
(289.9)
|
|
Total
|
|
$
|
788.2
|
|
|
$
|
673.5
|
|
As of December 31, 2020 and 2019, the net carrying amounts of mineral deposits were $341.2 million and $231.7 million, respectively. We recorded depreciation, depletion and amortization expense on our property, plant and equipment of $78.4 million for 2020, $69.3 million for 2019 and $67.9 million for 2018, in our consolidated statements of operations.
6. GOODWILL AND INTANGIBLE ASSETS, NET
Acquired intangible assets are classified into three categories: (1) goodwill, (2) intangible assets with finite lives subject to amortization, and (3) intangible assets with indefinite lives. Goodwill and intangible assets with indefinite lives are not amortized; rather, they are reviewed for impairment at least annually.
Goodwill
Goodwill is recognized when the consideration paid for a business exceeds the fair value of the tangible and identifiable intangible assets acquired. Goodwill is allocated to reporting units for purposes of testing goodwill for impairment. Accumulated goodwill impairment losses, recorded prior to 2018, amount to $4.4 million in the ready-mixed concrete segment and $1.4 million in the aggregate products segment for the three years presented.
The accumulated impairment was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
( $ in millions)
|
|
2020
|
|
2019
|
|
2018
|
Goodwill, gross
|
|
$
|
244.0
|
|
|
$
|
245.3
|
|
|
$
|
245.1
|
|
Accumulated impairment
|
|
(5.8)
|
|
|
(5.8)
|
|
|
(5.8)
|
|
Goodwill, net
|
|
$
|
238.2
|
|
|
$
|
239.5
|
|
|
$
|
239.3
|
|
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The changes in the goodwill by reportable segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
Ready-Mixed Concrete Segment
|
|
Aggregate Products Segment
|
|
Other Non-Reportable Segments
|
|
Total
|
Goodwill, net at December 31, 2018
|
|
$
|
149.8
|
|
|
$
|
86.2
|
|
|
$
|
3.3
|
|
|
$
|
239.3
|
|
Measurement period adjustments for prior year business combinations
|
|
0.2
|
|
(1)
|
—
|
|
|
—
|
|
|
0.2
|
|
Goodwill, net at December 31, 2019
|
|
150.0
|
|
|
86.2
|
|
|
3.3
|
|
|
239.5
|
|
Acquisitions
|
|
2.2
|
|
|
—
|
|
|
—
|
|
|
2.2
|
|
Adjustments for prior year business combinations
|
|
(1.0)
|
|
(2)
|
(2.5)
|
|
(3)
|
—
|
|
|
(3.5)
|
|
Goodwill, net at December 31, 2020
|
|
$
|
151.2
|
|
|
$
|
83.7
|
|
|
$
|
3.3
|
|
|
$
|
238.2
|
|
(1) The fair value of property, plant and equipment acquired in 2018 was determined to be $0.2 million lower than the original estimate.
(2) Reflects a correction in the acquisition accounting for a 2017 acquisition, recorded in 2020 to other income in our consolidated statement of operations as it was not material to the current and prior periods.
(3) Reflects a correction in the acquisition accounting for a 2017 acquisition, which was recorded in 2020 to deferred income taxes in our consolidated balance sheets, as it was not material to the current and prior periods and had no impact on the consolidated statements of operations.
Intangible Assets
Our purchased intangible assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
($ in millions)
|
|
Gross(1)
|
|
Accumulated Amortization(1)
|
|
Net
|
|
Weighted Average Remaining Life
(in Years)
|
|
Definite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
104.1
|
|
|
$
|
(70.6)
|
|
|
$
|
33.5
|
|
|
3.2
|
|
Trade names
|
|
40.4
|
|
|
(12.0)
|
|
|
28.4
|
|
|
7.3
|
(2)
|
Non-competes
|
|
7.3
|
|
|
(5.9)
|
|
|
1.4
|
|
|
2.2
|
|
Leasehold interests
|
|
12.6
|
|
|
(8.6)
|
|
|
4.0
|
|
|
3.8
|
|
Environmental credits
|
|
2.8
|
|
|
(0.4)
|
|
|
2.4
|
|
|
15.0
|
|
Total definite-lived intangible assets
|
|
167.2
|
|
|
(97.5)
|
|
|
69.7
|
|
|
5.3
|
|
Indefinite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
Land rights
|
|
1.2
|
|
|
—
|
|
|
1.2
|
|
|
|
|
Total purchased intangible assets
|
|
$
|
168.4
|
|
|
$
|
(97.5)
|
|
|
$
|
70.9
|
|
|
|
|
(1) During 2020, we removed $23.4 million of fully amortized intangible assets.
(2) Management determined that, as a result of initiatives to consolidate the Company's branding in its New York City operations, the useful life of one of our definite-lived trade name intangible assets needed to be shortened. We are accounting for the change in its useful life prospectively effective October 1, 2020.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
($ in millions)
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Weighted Average Remaining Life
(in Years)
|
Definite-lived intangible assets
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
108.5
|
|
|
$
|
(59.7)
|
|
|
$
|
48.8
|
|
|
3.9
|
Trade names
|
|
44.5
|
|
|
(13.6)
|
|
|
$
|
30.9
|
|
|
19.1
|
Non-competes
|
|
18.3
|
|
|
(15.3)
|
|
|
$
|
3.0
|
|
|
2.4
|
Leasehold interests
|
|
12.5
|
|
|
(6.7)
|
|
|
$
|
5.8
|
|
|
5.4
|
Favorable contract
|
|
4.0
|
|
|
(3.9)
|
|
|
$
|
0.1
|
|
|
0.9
|
Environmental credits
|
|
2.8
|
|
|
(0.2)
|
|
|
$
|
2.6
|
|
|
16.0
|
Total definite-lived intangible assets
|
|
190.6
|
|
|
(99.4)
|
|
|
$
|
91.2
|
|
|
9.4
|
Indefinite-lived intangible assets
|
|
|
|
|
|
|
|
|
Land rights
|
|
1.2
|
|
|
—
|
|
|
$
|
1.2
|
|
|
|
Total purchased intangible assets
|
|
$
|
191.8
|
|
|
$
|
(99.4)
|
|
|
$
|
92.4
|
|
|
|
As of December 31, 2020, the estimated remaining amortization of our definite-lived intangible assets was as follows ($ in millions):
|
|
|
|
|
|
|
|
|
2021
|
|
$
|
20.9
|
|
2022
|
|
15.0
|
|
2023
|
|
8.6
|
|
2024
|
|
8.3
|
|
2025
|
|
5.4
|
|
Thereafter
|
|
11.5
|
|
Total
|
|
$
|
69.7
|
|
Unfavorable lease intangibles with a gross carrying amount of $0.9 million and $1.5 million as of December 31, 2020 and 2019, respectively, and a net carrying amount of $0.3 million and $0.5 million as of December 31, 2020 and 2019, respectively, were included in other long-term obligations and deferred credits in our consolidated balance sheets. These unfavorable lease intangibles had a weighted average remaining life of 4.3 years as of December 31, 2020.
We recorded net amortization expense for our definite-lived intangible assets and unfavorable lease intangibles of $21.3 million in 2020 and $23.9 million in both 2019 and 2018 in our consolidated statements of operations.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
7. ACCRUED LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
($ in millions)
|
|
2020
|
|
2019
|
Compensation and benefits
|
|
$
|
24.8
|
|
|
$
|
11.9
|
|
Self-insurance reserves, current(1)
|
|
13.6
|
|
|
9.2
|
|
Property, sales and other taxes
|
|
11.9
|
|
|
9.0
|
|
Deferred consideration
|
|
10.3
|
|
|
2.2
|
|
Materials
|
|
8.9
|
|
|
9.8
|
|
Interest
|
|
6.8
|
|
|
3.3
|
|
Contingent consideration
|
|
0.3
|
|
|
10.8
|
|
Other
|
|
9.5
|
|
|
7.3
|
|
Total
|
|
$
|
86.1
|
|
|
$
|
63.5
|
|
(1) Including health insurance reserves of $2.7 million and $2.8 million as of December 31, 2020 and 2019, respectively.
8. DEBT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
($ in millions)
|
|
2020
|
|
2019
|
5.125% Senior unsecured notes due 2029
|
|
$
|
400.0
|
|
(1)
|
$
|
—
|
|
6.375% Senior unsecured notes due 2024 and unamortized premium(2)
|
|
201.8
|
|
|
606.8
|
|
Asset based revolving credit facility
|
|
6.5
|
|
(3)
|
—
|
|
Delayed draw term loan facility
|
|
—
|
|
|
—
|
|
Finance leases
|
|
87.9
|
|
|
67.3
|
|
Promissory notes
|
|
13.8
|
|
|
20.4
|
|
Debt issuance costs
|
|
(7.6)
|
|
|
(7.2)
|
|
Total debt
|
|
702.4
|
|
|
687.3
|
|
Less: current maturities
|
|
(33.7)
|
|
|
(32.5)
|
|
Long-term debt, net of current maturities
|
|
$
|
668.7
|
|
|
$
|
654.8
|
|
(1) The effective interest rate for these notes was 5.25%.
(2) The effective interest rate for these notes was 6.56% for both periods.
(3) The interest rate for the revolving facility was 3.50%.
As of December 31, 2020, the principal amounts due under our debt agreements for the next five years and thereafter were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
2021
|
|
$
|
33.7
|
|
2022
|
|
34.6
|
|
2023
|
|
20.0
|
|
2024
|
|
212.0
|
|
2025
|
|
6.5
|
|
Thereafter
|
|
401.4
|
|
Total
|
|
$
|
708.2
|
|
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Senior Unsecured Notes
On September 23, 2020, we completed a private offering of $400.0 million aggregate principal amount of 5.125% senior unsecured notes due 2029 (the “2029 Notes”). In connection with issuing the 2029 Notes, we incurred $6.1 million of debt issuance costs. We used the net proceeds from the offering plus borrowings from our Revolving Facility (as defined below) to redeem $400.0 million of our 2024 Notes (as defined below) at a price of 103.188% plus accrued unpaid interest. In the fourth quarter of 2020, we recognized a $12.4 million pre-tax loss on the partial redemption of the 2024 Notes, which includes the redemption premium of $12.7 million and a $3.5 million write-off of pro rata unamortized debt issuance costs, net of $3.8 million of pro rata unamortized premium.
The 2029 Notes are governed by an indenture (the “2029 Indenture”) dated as of September 23, 2020, among U.S. Concrete, Inc., (“the Issuer”) as issuer, the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee. The 2029 Notes accrue interest at a rate of 5.125% per annum, which is payable on March 1 and September 1 of each year, beginning on March 1, 2021. The 2029 Notes mature on March 1, 2029, and are redeemable at our option prior to maturity at prices specified in the 2029 Indenture. The 2029 Indenture contains negative covenants that restrict our ability and our restricted subsidiaries' ability to engage in certain transactions, as described below, and also contains customary events of default.
We have $200.0 million remaining principal amount of our 6.375% senior unsecured notes due 2024 (the “2024 Notes”, and collectively with the 2029 Notes, the “Senior Unsecured Notes”) governed by an indenture (the “2024 Indenture”) dated as of June 7, 2016, by and among U.S. Concrete, Inc., as issuer, the subsidiary guarantors party thereto, and U.S. Bank National Association, as trustee. The 2024 Notes accrue interest at a rate of 6.375% per annum, which is payable on June 1 and December 1 of each year. The 2024 Notes mature on June 1, 2024, and are redeemable at our option prior to maturity at prices specified in the 2024 Indenture. The 2024 Indenture contains negative covenants that restrict our ability and our restricted subsidiaries' ability to engage in certain transactions, as described below, and also contains customary events of default.
The 2024 Indenture and 2029 Indenture contain covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to:
•incur additional debt or issue disqualified stock or preferred stock;
•pay dividends or make other distributions, repurchase or redeem our stock or subordinated indebtedness or make certain investments;
•sell assets and issue capital stock of our restricted subsidiaries;
•incur liens;
•allow certain restrictions on the ability of our restricted subsidiaries to pay dividends or make other payments to us;
•enter into transactions with affiliates;
•consolidate, merge or sell all or substantially all of our assets; and
•designate our subsidiaries as unrestricted subsidiaries.
Our obligations under the Senior Unsecured Notes are jointly and severally and fully and unconditionally guaranteed on a senior unsecured basis by each of our restricted subsidiaries that guarantees any obligations under the Revolving Facility or that guarantees certain of our other indebtedness or certain indebtedness of our restricted subsidiaries (other than foreign restricted subsidiaries that guarantee only indebtedness incurred by another foreign subsidiary).
The Issuer does not have any independent assets or operations. In addition, the Senior Unsecured Notes are not guaranteed by any of the Issuer's direct or indirect foreign subsidiaries (or any domestic subsidiaries of any such foreign subsidiaries), U.S. Virgin Islands subsidiaries or domestic subsidiaries that are not wholly owned. 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 Senior Unsecured Notes and the guarantees thereof are effectively subordinated to all of our and our guarantors' existing and future secured obligations, including obligations under the Revolving Facility, the Term Loan Facility (as defined below), our finance leases and our promissory notes, to the extent of the value of the collateral securing such obligations; senior in right of payment to any of our and our guarantors' future subordinated indebtedness; pari passu in right of payment with any of our and our guarantors' existing and future senior indebtedness, including our and our guarantors' obligations under the Revolving Facility, the Term Loan Facility, the Senior Unsecured Notes and our finance leases; and structurally subordinated to all existing and future indebtedness and other claims and liabilities, including trade payables and preferred stock, of any non-guarantor subsidiaries.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Asset Based Revolving Credit Facility (“Revolving Facility”)
We have a senior secured asset-based credit facility that provides for up to $300.0 million of revolving borrowings and up to $50.0 million for the issuance of letters of credit through its August 31, 2022 maturity date. The issuance of letters of credit reduces the amount available for borrowings under the Revolving Facility. The Third Amended and Restated Loan and Security Agreement (“Third Loan Agreement”) is secured by a first priority lien on substantially all of the personal property of the Company and our guarantors, subject to permitted liens and certain exceptions.
Our actual maximum credit availability varies from time to time and is determined by calculating the value of our eligible accounts receivable, inventory, mixer trucks and machinery, minus reserves and other adjustments, as specified in the Third Loan Agreement. Loans may not exceed the borrowing base as defined in the Third Loan Agreement. As of December 31, 2020, we had $6.5 million outstanding under the Revolving Facility, $1.1 million of undrawn standby letters of credit issued, and our borrowing base was $237.7 million. At December 31, 2020, we had $230.2 million of available borrowings under the Revolving Facility. The Third Loan Agreement also contains a provision for over-advances and protective advances in each case, of up to $25.0 million in excess of the borrowing base levels and provides for swingline loans, up to a $15.0 million sublimit. Loans under the Revolving Facility are in the form of either base rate loans or “LIBOR loans” denominated in U.S. dollars.
The Third Loan Agreement requires that we, upon the occurrence of certain events, maintain a fixed charge coverage ratio of at least 1.0 to 1.0 for each period of 12 calendar months. As of December 31, 2020, we were in compliance with all covenants under the Third Loan Agreement.
Delayed Draw Term Loan Facility (“Term Loan Facility”)
On April 17, 2020, we entered into a secured delayed draw term loan credit and guaranty agreement (the “Term Loan Agreement”) with certain subsidiaries as guarantors thereto, Bank of America, N.A. as administrative agent and collateral agent, and the lenders and other parties named therein. The Term Loan Agreement provided for an initial $180.0 million delayed draw term loan facility (the “Term Loan Facility”), which was reduced to $179.1 million as of December 31, 2020. Commitments are reduced by approximately $0.4 million each quarter through September 30, 2021. The Term Loan Agreement permits borrowings until December 15, 2021. Any borrowings outstanding on December 15, 2021 will mature on May 1, 2025 (subject to a springing maturity on March 1, 2024 to the extent any of our 2024 Notes remain outstanding on such date). In connection with entering into the Term Loan Agreement, we incurred $2.9 million of debt issuance costs, the unamortized portion of which was included in other assets on our consolidated balance sheet as of December 31, 2020, because there were no outstanding borrowings under the Term Loan Facility. We entered into the Agreement to enhance our liquidity and financial flexibility.
Borrowings under the Term Loan Agreement bear interest at our option of either: (1) LIBOR (subject to a floor of 0.75%) plus a margin ranging from 2.75% to 3.75% or (2) a base rate (which is equal to the greatest of the prime rate, the Federal Funds effective rate plus 0.50% and LIBOR plus 1.00% and is subject to a floor of 1.75%) plus a margin ranging from 1.75% to 2.75%. The applicable margin depends on the aggregate amount borrowed. Additionally, each draw on the Term Loan Facility will be issued at a price of 99.0% of the amount drawn. The Term Loan Agreement is secured by a first priority lien and security interest on certain real property of the subsidiary guarantors and substantially all of the personal property of the Company and its subsidiary guarantors that is not secured by a first priority security interest under the Revolving Facility (the “Revolving Facility Collateral”) and a second priority security interest on the Revolving Facility Collateral. The Term Loan Agreement contains usual and customary covenants including, but not limited to, restrictions on our and our guarantor subsidiaries’ ability to consolidate or merge; substantially change the nature of our business; sell, lease or otherwise transfer any of our assets; create or incur indebtedness; create liens; pay dividends or make other distributions; make loans; prepay certain indebtedness; and make investments or acquisitions, but it does not contain any financial maintenance covenants.
Finance Leases and Promissory Notes
We have a series of promissory notes with various lenders primarily for the purchase of mixer trucks and other machinery and equipment in an aggregate outstanding principal amount of $13.8 million as of December 31, 2020, with fixed annual interest rates ranging from 1.54% to 3.84%, payable monthly for terms ranging from four to five years. During 2020, we entered into agreements to defer certain promissory note payments and extend maturity dates by 90 days to mitigate the cash flow impact from the COVID-19 pandemic which resulted in changes to the effective interest rates of these agreements. The promissory note deferrals amounted to $1.9 million as of December 31, 2020 and will be repaid over the next three years.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
We have leasing agreements with various other lenders for the purchase of mixer trucks and other machinery and equipment with a total remaining principal amount of $87.9 million as of December 31, 2020, with fixed annual interest rates ranging from 0.12% to 6.61%, payable monthly for terms ranging from less than three to seven years. Because the lease terms include one dollar buyout options at the end of the lease, we have classified these financings as finance leases.
The weighted average interest rate of our finance leases and promissory notes was 3.47% as of December 31, 2020 and 3.77% as of December 31, 2019.
Fair Value of Senior Unsecured Notes
The fair value of our Senior Unsecured Notes, estimated based on broker/dealer quoted market prices, was $617.7 million as of December 31, 2020 and $627.0 million as of December 31, 2019.
9. LEASES
During 2020, we entered into agreements for a deferral of certain finance lease payments and either extended maturity dates by 90 days, increased future monthly payments for additional interest, or agreed to pay the deferred amount in lump sum at maturity. The agreements were entered into to help mitigate the cash flow impact from the COVID-19 pandemic. In April 2020, the FASB issued interpretive guidance providing companies with the option to elect to account for lease concessions related to the effects of the COVID-19 pandemic as though the enforceable rights and obligations existed in the original lease. Entities may make the elections as long as the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee. For concessions that provide a deferral of payments with no substantive changes to the consideration in the original contract, we can evaluate whether to account for these concessions (1) as if there were no changes made to the lease agreement and accordingly, continue to recognize expense and increase accounts payable, (2) as a resolution of a contingency that fixes previously variable lease payments and remeasure the lease liability without reconsideration of the lease classification, or (3) as negative variable lease payments and accordingly, negative lease expense. We elected to account for the lease payment deferrals as a resolution of a contingency that fixes previously variable lease payments and remeasure the lease obligations, with no reconsideration of lease classification during the quarter ended June 30, 2020. As of December 31, 2020, we expect to repay the remaining $6.0 million deferred amount over the next 5.2 years.
Supplemental balance sheet information related to leases and balance sheet classification was as follows ($ in millions):
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December 31,
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2020
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2019
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|
Assets:
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|
|
|
|
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|
Operating lease assets
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Operating lease assets
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|
$
|
76.1
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|
$
|
69.8
|
|
|
Finance lease assets
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|
Property, plant and equipment, net
|
|
110.1
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|
(1)
|
91.5
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(2)
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Total lease assets
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$
|
186.2
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|
$
|
161.3
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Liabilities:
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|
|
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|
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Operating
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Current operating lease liabilities
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$
|
14.3
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|
$
|
12.9
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|
|
Finance
|
|
Current maturities of long-term debt
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27.1
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24.2
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Operating
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Long-term operating lease liabilities
|
|
65.5
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|
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59.7
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Finance
|
|
Long-term debt, net of current maturities
|
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60.8
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|
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43.1
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Total lease liabilities
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$
|
167.7
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$
|
139.9
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(1) Net of accumulated amortization of $34.7 million.
(2) Net of accumulated amortization of $29.4 million.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Supplemental statement of operations information related to leases was as follows ($ in millions):
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2020
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2019
|
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2018
|
Operating lease costs:
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|
|
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Cost of goods sold before depreciation, depletion and amortization
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$
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20.5
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$
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21.7
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$
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21.1
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Selling, general and administrative expenses
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2.9
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|
2.5
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2.3
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Total operating lease costs
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23.4
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(1)
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24.2
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(2)
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23.4
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Finance lease costs:
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|
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Depreciation, depletion and amortization
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16.3
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11.6
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|
18.4
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Interest expense, net
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3.1
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|
|
2.6
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|
|
2.1
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Total finance lease costs
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|
19.4
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|
14.2
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|
|
20.5
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Total lease costs
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$
|
42.8
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$
|
38.4
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$
|
43.9
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(1) Includes short-term lease and variable lease costs of approximately $5.3 million.
(2) Includes short-term lease and variable lease costs of approximately $5.9 million.
Maturities of lease liabilities were as follows ($ in millions):
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Operating Leases
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Finance Leases
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2021
|
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$
|
17.8
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|
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$
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29.6
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2022
|
|
16.3
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|
|
25.0
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2023
|
|
14.6
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|
|
19.2
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2024
|
|
13.7
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|
|
11.9
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2025
|
|
11.4
|
|
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6.7
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Thereafter
|
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21.7
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|
|
1.4
|
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Total lease payments
|
|
95.5
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|
|
93.8
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Less interest
|
|
15.7
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|
|
5.9
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|
Present value of lease liabilities
|
|
$
|
79.8
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|
|
$
|
87.9
|
|
Lease terms and discount rates were as follows:
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|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
Weighted average remaining lease term (years):
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|
|
|
|
Operating leases
|
|
6.4
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|
6.6
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Finance leases
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|
3.6
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|
3.4
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Weighted average discount rate:
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|
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Operating leases
|
|
5.2%
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6.2%
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Finance leases
|
|
3.5%
|
|
3.8%
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Supplemental cash flow information related to leases was as follows ($ in millions):
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2020
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2019
|
Cash paid for amounts included in the measurement of lease liabilities:
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|
|
|
Operating cash flows for operating leases
|
|
$
|
17.3
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|
|
$
|
17.7
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Operating cash flows for finance leases
|
|
3.1
|
|
|
2.6
|
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Financing cash flows for finance leases
|
|
20.2
|
|
|
22.0
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Net assets obtained in exchange for finance lease liabilities
|
|
26.4
|
|
|
18.1
|
|
Net right-of-use assets obtained in exchange for operating lease liabilities
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|
20.2
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|
|
8.2
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|
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
10. OTHER LONG-TERM OBLIGATIONS AND DEFERRED CREDITS
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|
December 31,
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($ in millions)
|
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2020
|
|
2019
|
Self-insurance reserves
|
|
$
|
22.1
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|
|
$
|
16.9
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|
Asset retirement obligations
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|
8.8
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(1)
|
5.2
|
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Compensation and benefits-related
|
|
8.3
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|
|
—
|
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Income taxes
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4.6
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|
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4.9
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Deferred consideration
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|
1.4
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|
|
0.6
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Contingent consideration
|
|
0.2
|
|
|
16.4
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Other
|
|
6.5
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|
|
5.1
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Total
|
|
$
|
51.9
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$
|
49.1
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(1) During 2020, we increased asset retirement obligations related to our aggregate facilities by $6.4 million, of which $1.8 million was included in accrued liabilities on our consolidated balance sheets. This increase primarily related to revisions in cash flow estimates and the Coram Acquisition.
11. NON-CONTROLLING INTEREST
Through our ownership of Polaris Materials Corp. (“Polaris”), we hold an 88% interest in the Orca Sand and Gravel Limited Partnership (“Orca”). Orca was formed to develop the Orca quarry in British Columbia, Canada, with the remaining 12% minority interest held by the 'Namgis First Nation (“Namgis”). Non-controlling interest consists of the Namgis’s share of the fair value equity in the partnership offset by the capital contributions loaned to the Namgis by Polaris.
To enable the Namgis to make their required equity contributions to Orca once a construction decision was made, Polaris loaned the Namgis $8.0 million (Canadian dollars) in prior years (the “Loan”), which we recorded at fair value upon our acquisition of Polaris. Polaris’s sole recourse for repayment is against distributions payable to the Namgis by the partnership. Reflective of the equity nature of the funding, the balance of the Loan offsets the non-controlling interest’s share of equity. During 2020, we recorded $1.8 million of accretion against the non-controlling interest's share of income in our consolidated statements of operations. Beginning in 2020, the Loan accrues interest at an annual rate of 6%. Until the Loan principal and interest are repaid, the Namgis may elect that up to one-half of the amount to which they are entitled under the partnership agreement be paid in cash and the remainder of the amount to first repay interest and then principal on the Loan. As of December 31, 2020, the Namgis have repaid $4.0 million of the Loan, of which $3.7 million was through the application of non-cash distributions and the remainder through cash payments. The Loan and repayments of the Loan are all recorded in non-controlling interest in our consolidated balance sheet.
Also through our ownership of Polaris, we previously held a 70% interest in Eagle Rock Materials Ltd. (“Eagle Rock”), which was originally formed to develop the Eagle Rock quarry project in British Columbia, Canada. During 2020, all ownership interest in Eagle Rock reverted back to the Company, such that Eagle Rock is now a wholly owned subsidiary, which resulted in the elimination of the previously recorded $3.3 million Eagle Rock non-controlling interest.
12. CONTINGENT CONSIDERATION
There were no transfers of assets or liabilities between fair value measurement levels for the years ended December 31, 2020 or 2019. As of December 31, 2020, upon the conclusion of the performance period that determined the amount of consideration earned in a prior year acquisition and the elimination of the underlying contingency, we reclassified the fair value of the amount that was earned but not yet paid to deferred consideration.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
A reconciliation of the changes in Level 3 fair value measurements is as follows ($ in millions):
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|
|
|
|
|
Contingent Consideration
|
Balance at December 31, 2018
|
$
|
60.7
|
|
Increase in contingent consideration valuation
|
2.8
|
|
Payments
|
(36.3)
|
|
Balance at December 31, 2019
|
27.2
|
|
Decrease in contingent consideration valuation
|
(7.3)
|
|
Payments
|
(10.7)
|
|
Reclassified to deferred consideration upon elimination of the underlying contingency
|
(8.6)
|
|
Balance at December 31, 2020
|
$
|
0.6
|
|
13. STOCK-BASED COMPENSATION
Our stock-based compensation programs are designed to be long-term retention programs to attract, retain and provide incentives for certain management employees, officers and non-employee directors and to align interests with our stockholders. We grant stock-based compensation awards under the U.S. Concrete, Inc. Long Term Incentive Plan (the “LTI Plan”), as amended. Under the LTI Plan, we had reserved a total of approximately 2.0 million shares of our common stock for issuance and approximately 0.1 million shares remained available for future issuance as of December 31, 2020. Although additional types of stock-based compensation are allowed under the LTI Plan, we typically grant restricted stock units (“RSUs”) and restricted stock awards (“RSAs”), including such awards that vest depending on the achievement of various target prices of our stock. RSAs result in share issuance at grant, while RSUs settle in shares upon vesting. During the restriction period for RSAs, the holders of the related stock are entitled to vote and receive any dividends; however, such dividends would be forfeited in the event the stock does not vest. As a result, these awards are included in our outstanding shares of common stock. RSUs are subject to transfer restrictions in addition to their vesting conditions. RSUs are not considered to be outstanding shares of our common stock.
The Compensation Committee of the Board of Directors generally approves an annual grant of stock awards in March of each year that includes a 60% time-vested component that vests annually over a three-year period and a 40% stock performance hurdle component that must be met within three years of the grant date to vest. For such performance awards granted in 2020 and 2019, achievement of certain stock performance hurdles could result in vesting up to 200% of the target number of performance stock units granted. In 2018, the potential vesting was limited to the target number of performance stock units granted. Other grants subject to service only conditions generally vest over one to three years, and are subject to forfeiture upon termination of service before the end of the vesting period.
RSUs that are granted to our Board of Directors as compensation for their services generally vest over a one-year period on a quarterly basis.
We recognized stock-based compensation expense of $11.6 million in 2020, $19.1 million in 2019 and $10.4 million in 2018. The 2020 amount includes $1.5 million of incremental expense for modifications to the vesting criteria of certain awards granted to a former officer. We realized income tax benefits of $0.8 million in 2020, $2.4 million in 2019 and $2.4 million in 2018, including an immaterial amount of excess tax benefits. Stock-based compensation expense is reflected in selling, general and administrative expenses on our consolidated statements of operations.
As of December 31, 2020, we had $9.2 million of unrecognized stock-based compensation expense, which we expect to recognize over a remaining weighted average period of 1.7 years.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Valuation of RSUs and RSAs with Stock Performance Hurdles
The fair value of the equity grants subject to market performance hurdles is determined utilizing a Monte Carlo financial valuation model. The assumptions used to estimate the fair value of grants with market performance hurdles, which were in the form of RSUs in 2020 and 2019 and RSAs in 2018 were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Expected term (years)
|
|
1.1 - 1.6
|
|
0.0 - 0.5
|
|
0.7 - 0.9
|
Expected volatility
|
|
43.8%
|
|
41.1%
|
|
40.4%
|
Risk-free interest rate
|
|
0.9%
|
|
2.1%
|
|
2.4%
|
Vesting price(1)
|
|
$43.23 - $55.21
|
|
$45.90 - $58.60
|
|
$91.10 - $99.10
|
Weighted average grant date fair value per share
|
|
$11.49 - $16.24
|
|
$39.60 - $48.75
|
(2)
|
$48.14 - $52.81
|
(1)The vesting price is the average of the daily volume-weighted average share price of our common stock over any period of 20 consecutive trading days within the three-year period beginning on the date of grant.
(2)The 2019 grant was conditioned upon obtaining stockholder approval of an amendment to reserve additional common shares of our stock to the LTI Plan for future issuance as equity-based awards to management and employees. Our common stock price increased from March 1, 2019 and the date when the conditional approval was satisfied in May 2019 at our annual stockholders' meeting, resulting in a higher weighted average grant date fair value per share and shorter derived service period than it otherwise would have been.
RSU activity for 2020 was as follows (units in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Units(1)
|
|
Weighted Average
Grant Date
Fair Value Per Share
|
Unvested RSUs at beginning of year
|
|
331
|
|
|
$
|
46.15
|
|
Granted
|
|
598
|
|
|
19.82
|
|
Vested
|
|
(105)
|
|
|
46.58
|
|
Forfeited
|
|
(73)
|
|
|
32.59
|
|
Unvested RSUs at end of year
|
|
751
|
|
|
$
|
26.17
|
|
(1) Reflects the performance portion of the RSUs granted in 2020 and 2019 at the potential maximum 200% of the target, as applicable.
Additional RSU information was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Weighted average fair value per share on grant date
|
|
$
|
19.82
|
|
|
$
|
46.26
|
|
|
$
|
49.94
|
|
Fair value of vested RSUs on vest date (in millions)
|
|
$
|
2.5
|
|
|
$
|
6.9
|
|
|
$
|
0.6
|
|
RSA activity for 2020 was as follows (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Shares
|
|
Weighted Average
Grant Date
Fair Value Per Share
|
Unvested RSAs at beginning of year
|
|
208
|
|
|
$
|
58.20
|
|
Vested
|
|
(67)
|
|
|
65.97
|
|
Forfeited/cancelled
|
|
(73)
|
|
|
49.39
|
|
Unvested RSAs at end of year
|
|
68
|
|
(1)
|
$
|
57.03
|
|
(1) Approximately 66% of these are expected to be cancelled on March 1, 2021, as they are not expected to meet the 2018 stock performance hurdles.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Additional RSA information was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Weighted average fair value per share on grant date
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
61.97
|
|
Fair value of vested RSAs on vest date (in millions)
|
|
$
|
1.7
|
|
|
$
|
4.0
|
|
|
$
|
6.2
|
|
14. INCOME TAXES
The components of income before income taxes were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Income before income taxes:
|
|
|
|
|
|
U.S.
|
$
|
10.9
|
|
|
$
|
16.3
|
|
|
$
|
43.4
|
|
Non-U.S.
|
8.6
|
|
|
12.3
|
|
|
4.7
|
|
Total income before income taxes
|
$
|
19.5
|
|
|
$
|
28.6
|
|
|
$
|
48.1
|
|
A reconciliation of the federal statutory corporate income tax rate to our effective income tax rate follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Tax expense at statutory rate
|
$
|
4.1
|
|
|
21.0
|
%
|
|
$
|
6.0
|
|
|
21.0
|
%
|
|
$
|
10.1
|
|
|
21.0
|
%
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
Rates different from statutory(1)
|
—
|
|
|
—
|
|
|
(1.3)
|
|
|
(4.5)
|
|
|
(0.9)
|
|
|
(1.9)
|
|
Statutory income tax change
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.1
|
|
|
4.4
|
|
State income taxes(2)
|
1.3
|
|
|
6.7
|
|
|
1.5
|
|
|
5.2
|
|
|
0.8
|
|
|
1.7
|
|
Nondeductible items
|
1.1
|
|
|
5.6
|
|
|
1.3
|
|
|
4.5
|
|
|
1.3
|
|
|
2.7
|
|
GILTI inclusion
|
(0.3)
|
|
|
(1.5)
|
|
|
0.2
|
|
|
0.7
|
|
|
1.1
|
|
|
2.3
|
|
Valuation allowance(3)
|
(2.4)
|
|
|
(12.3)
|
|
|
5.8
|
|
|
20.3
|
|
|
4.7
|
|
|
9.8
|
|
Unrecognized tax benefit(4)
|
(5.6)
|
|
|
(28.7)
|
|
|
(0.1)
|
|
|
(0.4)
|
|
|
(2.2)
|
|
|
(4.7)
|
|
CARES Act(5)
|
(3.4)
|
|
|
(17.4)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other
|
0.2
|
|
|
1.0
|
|
|
(1.1)
|
|
|
(3.8)
|
|
|
(0.2)
|
|
|
(0.4)
|
|
Income tax expense (benefit)
|
$
|
(5.0)
|
|
|
(25.6)
|
%
|
|
$
|
12.3
|
|
|
43.0
|
%
|
|
$
|
16.8
|
|
|
34.9
|
%
|
(1) Includes differences between the U.S. federal tax rates and the rates in Canada and the U.S. Virgin Islands.
(2) Includes a $0.3 million benefit recognized in 2020 with respect to the CARES Act (as defined below) and Final 163(j) Regulations change to our interest limitation.
(3) Includes a $3.4 million benefit recognized in 2020 with respect to the CARES Act and Final 163(j) Regulations change to our interest limitation.
(4) Includes a $6.3 million benefit recognized in 2020 with respect to the CARES Act and Final 163(j) Regulations change to our interest limitation.
(5) Benefit recognized in 2020 with respect to the CARES Act and Final 163(j) Regulations, which resulted in a net operating loss carryback to prior years.
We operate under a tax holiday in the U.S. Virgin Islands, which is effective through December 31, 2030, and may be extended if certain additional requirements are satisfied. The tax holiday is conditional upon our meeting certain employment and investment thresholds. The impact of these tax holidays decreased foreign taxes $0.4 million, $1.6 million and $1.0 million for 2020, 2019, and 2018, respectively. The tax holiday benefited diluted earnings per share by $0.02, $0.10, and $0.06 in 2020, 2019, and 2018, respectively.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The amounts of our consolidated federal and state income tax expense (benefit) were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Current:
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
(12.3)
|
|
|
$
|
(1.9)
|
|
|
$
|
2.2
|
|
U.S. State
|
|
0.9
|
|
|
1.9
|
|
|
(0.2)
|
|
Non-U.S.
|
|
0.9
|
|
|
0.1
|
|
|
0.2
|
|
|
|
(10.5)
|
|
|
0.1
|
|
|
2.2
|
|
Deferred:
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
3.8
|
|
|
$
|
9.6
|
|
|
$
|
14.2
|
|
U.S. State
|
|
0.1
|
|
|
0.6
|
|
|
(0.2)
|
|
Non-U.S.
|
|
1.6
|
|
|
2.0
|
|
|
0.6
|
|
|
|
5.5
|
|
|
12.2
|
|
|
14.6
|
|
Income tax expense (benefit)
|
|
$
|
(5.0)
|
|
|
$
|
12.3
|
|
|
$
|
16.8
|
|
Deferred income tax provisions result from temporary differences in the recognition of expenses for financial reporting purposes and for tax reporting purposes. Our deferred income tax liabilities and assets were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
Deferred tax assets:
|
|
|
|
|
Goodwill and other intangibles
|
|
$
|
5.9
|
|
|
$
|
8.3
|
|
Inventory
|
|
1.7
|
|
|
1.3
|
|
Accrued insurance
|
|
7.2
|
|
|
5.2
|
|
Stock compensation
|
|
2.9
|
|
|
3.5
|
|
Interest limitation carryover
|
|
—
|
|
|
10.4
|
|
Start-up acquisition costs
|
|
2.6
|
|
|
2.8
|
|
Accrued compensation
|
|
4.9
|
|
|
2.2
|
|
Other accrued expenses
|
|
3.6
|
|
|
1.2
|
|
Deferred payroll taxes
|
|
3.1
|
|
|
—
|
|
Operating lease liabilities
|
|
19.9
|
|
|
18.1
|
|
Net operating loss (“NOL”) carryforwards
|
|
10.3
|
|
|
11.3
|
|
Property, plant and equipment, net - Polaris
|
|
3.2
|
|
|
3.3
|
|
Other
|
|
3.1
|
|
|
1.9
|
|
Total gross deferred tax assets
|
|
68.4
|
|
|
69.5
|
|
Valuation allowance
|
|
(6.2)
|
|
|
(15.1)
|
|
Net deferred tax assets
|
|
62.2
|
|
|
54.4
|
|
Deferred income tax liabilities:
|
|
|
|
|
Property, plant and equipment, net - non-Polaris
|
|
(67.7)
|
|
|
(56.4)
|
|
Partnership outside basis
|
|
(25.8)
|
|
|
(28.2)
|
|
Operating lease assets
|
|
(19.0)
|
|
|
(17.9)
|
|
Other
|
|
(1.8)
|
|
|
(2.2)
|
|
Total gross deferred tax liabilities
|
|
(114.3)
|
|
|
(104.7)
|
|
Net deferred tax liability(1)
|
|
$
|
(52.1)
|
|
|
$
|
(50.3)
|
|
(1) Our state deferred tax assets of $4.5 million at both December 31, 2020 and December 31, 2019 were classified as other assets on our consolidated balance sheets, while our deferred income tax liabilities represented amounts for our U.S. federal and foreign tax jurisdictions.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted to provide relief for taxpayers affected by the ongoing coronavirus pandemic. The CARES Act, among other things, modified the business interest deduction limitation for tax years beginning in 2019 and 2020 from 30% of adjusted taxable income (“ATI”) to 50% of ATI. As a result, during 2020 we recorded an additional tax benefit of $3.2 million to reflect the CARES Act change to our estimated interest limitation for the year ended December 31, 2019.
In addition to the interest limitation change, the CARES Act included modifications for net operating loss carryovers and carrybacks, immediate refund of alternative minimum tax credit carryovers and a technical correction to the Tax Cuts and Jobs Act of 2017 (the “2017 Act”) for qualified improvement property. An unfavorable interpretation of the calculation of ATI for purposes of the business interest limitation as provided in the proposed regulations issued in November 2018 initially prevented us from recognizing additional tax benefits related to the CARES Act net operating loss carryback provision. The U.S. Treasury issued final regulations regarding the business interest deduction limitation (“Final 163(j) Regulations”), which were published in the Federal Register on September 14, 2020. The Final 163(j) Regulations changed the unfavorable interpretation included in the proposed regulations that negatively impacted our calculation of ATI. Accordingly, during 2020 we recognized an additional tax benefit of $10.2 million related to the CARES Act net operating loss carryback provision and the estimated impact to our 2018 and 2019 tax years for the change in interpretation of ATI provided in the Final 163(j) Regulations.
The CARES Act also included non-income tax relief beneficial to us, including the deferral of certain payroll tax payments and payroll tax credits for retaining employees. As of December 31, 2020, we had deferred paying $9.0 million of payroll taxes. In addition, we recognized a benefit of $2.1 million related to employee retention credits, which are intended to be a reimbursement for certain wage and benefit costs we would have otherwise not incurred.
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 had valuation allowances as of December 31, 2020 and 2019 in the amounts of $6.2 million and $15.1 million, respectively, for certain deferred tax assets due to the uncertainty regarding their ultimate realization.
As of December 31, 2020, the Company had NOL carryforwards related to tax losses in Canada and the U.S. that may be used to reduce future taxable income. The Canadian NOL carryforwards were approximately $12.9 million as of December 31, 2020 and expire at various dates from 2032 to 2040. The U.S. federal NOL carryforwards were approximately $2.8 million as of December 31, 2020 and expire at various dates from 2031 to 2036. The deferred tax assets associated with state NOL carryforwards were approximately $6.2 million as of December 31, 2020, and the underlying state NOL carryforwards expire at various dates from 2021 to 2039. We maintain a valuation allowance of $5.3 million for certain NOL carryforwards because of the uncertainty of their recovery.
Under U.S. tax law, we treat our Canadian and U.S. Virgin Island subsidiaries as controlled foreign corporations. We consider the undistributed earnings, if any, and other outside basis differences in our investments in our Canadian subsidiaries to be indefinitely reinvested and, accordingly, no foreign withholding or other income taxes have been provided thereon. Due to complexities in the tax laws, it is not practicable to estimate the amount of deferred income taxes not recorded that are associated with those earnings or other outside basis differences. We have not, nor do we currently anticipate in the foreseeable future, the need to repatriate funds, other than for the repayment of intercompany loan obligations, to the U.S. from our Canadian subsidiaries to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.
At December 31, 2020, we had unrecognized tax benefits of $7.2 million, including accrued penalties and interest, of which $6.4 million would impact the effective tax rate if recognized. The unrecognized tax benefits were primarily included as components of other long-term obligations and income taxes receivable. We recorded interest and penalties related to unrecognized tax benefits, which were included in income tax expense in our consolidated statements of operations of $0.1 million in 2020, $0.2 million in 2019 and $0.2 million in 2018. Total accrued penalties and interest at December 31, 2020 and 2019 were approximately $1.2 million and $1.0 million, respectively, which were included in the related tax liability in our consolidated balance sheets. It is reasonably possible that our unrecognized tax benefits could significantly decrease within the next twelve months should we ultimately resolve our ongoing Texas margin tax issue.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Unrecognized tax benefits at January 1
|
|
$
|
11.3
|
|
|
$
|
4.6
|
|
|
$
|
6.2
|
|
Additions for tax positions related to current year
|
|
—
|
|
|
0.5
|
|
|
0.5
|
|
Additions for tax positions related to prior year
|
|
5.1
|
|
|
7.4
|
|
|
—
|
|
Reductions - prior year decrease
|
|
(10.4)
|
|
|
(1.2)
|
|
|
—
|
|
Lapse of statute of limitations
|
|
—
|
|
|
—
|
|
|
(2.1)
|
|
Unrecognized tax benefits at December 31
|
|
$
|
6.0
|
|
|
$
|
11.3
|
|
|
$
|
4.6
|
|
We conduct business in the U.S., Canada and the U.S. Virgin Islands, and U.S. Concrete, Inc. or one or more of our subsidiaries file income tax returns in the U.S., Canada, U.S. Virgin Islands and various provincial, state and local jurisdictions. In the normal course of business, we are subject to examination in the U.S., Canada, U.S. Virgin Islands and the provincial state and local jurisdictions in which we conduct business. We are currently under examination by the Internal Revenue Service for our 2016 through 2018 tax years, and the Canadian Revenue Agency is conducting an active examination in connection with our acquisition of Polaris in 2017. With few exceptions, we are no longer subject state or local tax examinations or such examinations by the U.S. Virgin Islands for years before 2017.
15. EARNINGS PER SHARE
The following is the calculation of the denominators used in the computation of basic and diluted net income per common share attributable to the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2020
|
|
2019
|
|
2018
|
Denominator for diluted earnings per share:
|
|
|
|
|
|
Basic weighted average common shares
|
16,580
|
|
|
16,398
|
|
|
16,453
|
|
Dilutive effect of stock-based awards
|
57
|
|
|
43
|
|
|
60
|
|
Diluted weighted average common shares
|
16,637
|
|
|
16,441
|
|
|
16,513
|
|
Potentially dilutive shares totaling (in thousands) 91 in 2020, 291 in 2019, and 245 in 2018 were excluded from the diluted earnings per share calculations.
16. 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.
From time to time, we may receive funding deficiency demands or withdrawal liability assessments related to multi-employer pension plans to which we contribute. We are unable to estimate the amount of any future demands or assessments because the actions of each of the other contributing employers in the plans has an effect on each of the other contributing employers, and the development of a rehabilitation plan by the trustees and subsequent submittal to and approval by the Internal Revenue Service is not predictable. Further, the allocation of fund assets and return assumptions by trustees are variable, as are actual investment returns relative to the plan assumptions. As of December 31, 2020, the Company had accrued $1.5 million for a withdrawal liability assessment related to a multi-employer pension plan in which the Company participated. The Company disputes and continues to negotiate the assessment.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of February 24, 2021, there were no material product defect claims pending against us. Accordingly, our existing accruals for claims against us do not reflect any material amounts relating to product defect claims. While our management is not aware of any facts that would reasonably be expected to lead to material product defect claims against us that would have a material adverse effect on our business, financial condition or results of operations, it is possible that claims could be asserted against us in the future. We do not maintain insurance that would cover all damages resulting from product defect claims. In particular, we generally do not maintain insurance coverage for the cost of removing and rebuilding structures. In addition, our indemnification arrangements with contractors or others, when obtained, generally provide only limited protection against product defect claims. Due to inherent uncertainties associated with estimating unasserted claims in our business, we cannot estimate the amount of any future loss that may be attributable to unasserted product defect claims related to ready-mixed concrete we have delivered prior to December 31, 2020.
We believe that the resolution of any litigation currently pending or threatened against us or any of our subsidiaries will not materially exceed our existing accruals for those matters. However, because of the inherent uncertainty of litigation, there is a risk that we may have to increase our accruals for one or more claims or proceedings to which we or any of our subsidiaries is a party as more information becomes available or proceedings progress, and any such increase in accruals could have a material adverse effect on our consolidated financial condition or results of operations. We expect in the future that we and our operating subsidiaries will, from time to time, be a party to litigation or administrative proceedings that arise in the normal course of our business.
We are subject to federal, state and local environmental laws and regulations concerning, among other matters, air emissions and wastewater discharge. Our management believes we are in substantial compliance with applicable environmental laws and regulations. From time to time, we receive claims from federal and state environmental regulatory agencies and entities asserting that we may be in violation of environmental laws and regulations. Based on experience and the information currently available, our management does not believe that these claims will materially exceed our related accruals. Despite compliance and experience, it is possible that we could be held liable for future charges, which might be material, but are not currently known to us or cannot be estimated by us. In addition, changes in federal or state laws, regulations or requirements, or discovery of currently unknown conditions, could require additional expenditures.
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, 2020.
We and our subsidiaries are parties to agreements that require us to provide indemnification in certain instances when we acquire businesses and real estate and in the ordinary course of business with our customers, suppliers, lessors and service providers. As of February 24, 2021, there were no material pending claims related to such indemnification.
Insurance Programs
We maintain third-party insurance coverage against certain workers’ compensation, automobile and general liability risks. Under certain components of our insurance program, we share the risk of loss with our insurance underwriters by maintaining high deductibles subject to aggregate annual loss limitations. Generally, our deductible retentions per occurrence for auto, workers’ compensation and general liability insurance programs are $1.0 million to $2.0 million for workers' compensation and general liability and $2.0 million to $10.0 million for automobile, although certain of our operations are self-insured for workers’ compensation. We record an expense for expected losses under the programs. The expected losses are determined using a combination of our historical loss experience and subjective assessments of our future loss exposure. The estimated losses are subject to uncertainty, including changes in claims reporting patterns, claims settlement patterns, judicial decisions, legislation and economic conditions. Although we believe that the estimated losses we have recorded are reasonable, significant differences related to the items noted above could materially affect our insurance obligations and future expense. The amount accrued for self-insurance claims, which was recorded in accrued liabilities and other long-term obligations and deferred credits, aggregated $33.0 million as of December 31, 2020 and $23.3 million as of December 31, 2019.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Guarantees
In the normal course of business, we and our subsidiaries were contingently liable under $11.8 million in performance bonds that various contractors, states and municipalities have required as of December 31, 2020. The bonds principally relate to construction contracts, reclamation obligations, licensing and permitting. We and our subsidiaries have indemnified the underwriting insurance company against any exposure under the performance bonds. No material claims have been made against these bonds.
The Company has entered into standby letter of credit arrangements with various banks generally for the purpose of protection against insurance claims. As of December 31, 2020, the Company had a maximum financial exposure from these standby letters of credit totaling $25.9 million, of which $1.1 million reduces the Company's borrowing availability under its Revolving Facility. See Note 8 for additional information.
17. EMPLOYEE SAVINGS PLANS AND MULTI-EMPLOYER PENSION PLANS
Employee Savings Plans
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 Internal Revenue Service (“IRS”) regulations permit. During 2019 and 2018, we matched 100% of the first 5% of pay contributed by employees. In 2020, we matched 100% of the first 5% of pay contributed by employees until April 30, 2020 after which date the Company suspended matching contributions in response to the COVID-19 pandemic. These matching contributions vested immediately. The Company's matching contribution was $2.1 million in 2020, $6.0 million in 2019 and $5.9 million in 2018, and was predominantly included in selling, general and administrative expenses in the consolidated statements of operations.
We also maintain a non-qualified contribution retirement plan (“Non-Qualified Savings Plan”) covering highly compensated employees, as defined in the plan. This plan allows eligible employees to defer receipt of up to 75% of their base compensation and 75% of their annual bonus. We do not match contributions to this plan.
Contributions under both plans may be invested in various investment funds at the employee's discretion. Such contributions, including the Company's matching contributions described above, may not be invested in the Company's common stock.
At inception of the Non-Qualified Savings Plan, the Company established a rabbi trust to fund the plan's obligations. The market value of the trust assets for the Non-Qualified Savings Plan was $2.8 million as of December 31, 2020 and $2.1 million as of December 31, 2019 and was included in other assets on our consolidated balance sheets. The related liability to the participants is included in other long-term obligations and deferred credits on our consolidated balance sheets.
Multi-Employer Pension Plans
Several of our subsidiaries are parties to various collective bargaining agreements with labor unions having multi-year terms that expire at various times. As of December 31, 2020, 34.7% of our workforce, or 1,029 of our employees, were represented by labor unions having collective bargaining agreements with us. Included in this amount were 137 employees, or 4.6% of our workforce, who were represented by labor unions having collective bargaining agreements that will expire within one year.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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. In 2020, we recorded a $1.5 million liability for withdrawal from one of the multi-employer pension plans. We were not required to record a liability in 2019 or 2018 for full or partial withdrawals from any multi-employer pension plans. For additional information regarding our potential future obligations, see Note 16.
The required disclosures and our participation in significant multi-employer pension plans are presented in the table below. The EIN/Pension Plan Number column provides the Employer Identification Number (“EIN”) and the three-digit plan number, if applicable. The Pension Protection Act zone status is based on information available from the plan or the plan’s public filings. Among other factors, plans in the red zone are generally less than 65% funded, plans in the orange or yellow zones are less than 80% funded, and plans in the green zone are at least 80% funded. The FIP/RP Status Pending/Implemented column indicates plans for which a financial improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented. The final column lists the expiration date(s) of the collective-bargaining agreements to which the plans are subject.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Pension Fund
|
|
EIN/PPN
|
|
Pension
Protection Act
Zone Status
|
|
FIP/RP
Status
Pending/
Implemented
|
|
Contributions
($ in millions)
|
|
Surcharge
Imposed
|
|
Expiration
Date of
Collective
Bargaining
Agreement
|
|
|
2020
|
|
2019
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
Western Conference of Teamsters Pension Plan
|
|
91-6145047/001
|
|
Green
|
|
Green
|
|
No
|
|
$
|
5.8
|
|
|
$
|
6.2
|
|
|
$
|
5.9
|
|
|
No
|
|
5/29/2022 to 8/27/2023
|
Local 282 Pension Trust Fund
|
|
11-6245313/001
|
|
Green
|
|
Green
|
|
No
|
|
3.6
|
|
|
4.3
|
|
|
4.4
|
|
|
No
|
|
6/30/2023 to 6/30/2024
|
Pension Trust Fund For Operating Engineers
|
|
94-6090764/001
|
|
Orange
|
|
Orange
|
|
No
|
|
1.1
|
|
|
1.2
|
|
|
1.2
|
|
|
No
|
|
6/30/2021
|
Trucking Employees of North Jersey Pension Fund
|
|
22-6063702/001
|
|
Red
|
|
Red
|
|
Yes
|
|
0.7
|
|
|
0.7
|
|
|
0.6
|
|
|
No
|
|
4/30/2023
|
Other
|
|
Various
|
|
Various
|
|
Various
|
|
Various
|
|
2.0
|
|
|
2.1
|
|
|
2.0
|
|
|
No
|
|
3/31/2021 to
7/31/2024
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
13.2
|
|
|
$
|
14.5
|
|
|
$
|
14.1
|
|
|
|
|
|
At the date these consolidated financial statements were issued, Forms 5500 were generally not available for the 2020 plan year. Based on the most recent Forms 5500 available for each multi-employer pension plan, our 2019 and 2018 contributions for the Local 282 Pension Trust Fund and the Trucking Employees of North Jersey Pension Fund represented more than 5% of total contributions.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
18. SEGMENT INFORMATION
Our two reportable segments consist of ready-mixed concrete and aggregate products, as described below.
Our ready-mixed concrete segment produces and sells ready-mixed concrete. This segment serves the following markets: Texas, Northern California, New York City, New Jersey, Philadelphia, Washington, D.C., Oklahoma and the U.S. Virgin Islands. Our aggregate products segment includes crushed stone, sand and gravel products and serves the markets in which our ready-mixed concrete segment operates as well as the West Coast and Hawaii. Other products not associated with a reportable segment include our aggregates distribution operations, building materials stores, hauling operations, lime slurry (until divested in 2018), ARIDUS® Rapid Drying Concrete technology, brokered product sales and a recycled aggregates operation.
Our customers are generally involved in the construction industry, which is a cyclical business and is subject to general and more localized economic conditions. In addition, our business is impacted by seasonal variations in weather conditions, which vary by regional market. Accordingly, demand for our products and services during the winter months is typically lower than in other months of the year because of inclement weather. Also, sustained periods of inclement weather and other adverse weather conditions could cause the delay of construction projects during other times of the year.
Our chief operating decision maker evaluates segment performance and allocates resources based on Adjusted EBITDA. We define Adjusted EBITDA as our net income, excluding the impact of income taxes, depreciation, depletion and amortization, net interest expense, the loss on extinguishment of debt, and certain other non-cash, non-recurring and/or unusual, non-operating items including, but not limited to: non-cash stock compensation expense, non-cash change in value of contingent consideration, acquisition-related costs, officer transition expenses, purchase accounting adjustments for inventory, pension withdrawal liability and realignment initiative costs. Acquisition-related costs consist of fees and expenses for accountants, lawyers and other professionals incurred during the negotiation and closing of strategic acquisitions. Acquisition-related costs do not include fees or expenses associated with post-closing integration of strategic acquisitions. Many of the impacts excluded to derive Adjusted EBITDA are similar to those excluded in calculating our compliance with our debt covenants.
We consider Adjusted EBITDA to be an indicator of the operational strength and performance of our business. We have included Adjusted EBITDA because it is a key financial measure used by our management to (1) internally measure our operating performance and (2) assess our ability to service our debt, incur additional debt and meet our capital expenditure requirements.
Adjusted EBITDA should not be construed as an alternative to, or a better indicator of, net income or loss, is not based on U.S. GAAP, and is not a measure of our cash flows or ability to fund our cash needs. Our measurements of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies and may not be comparable to similarly titled measures used in the agreements governing our debt.
We generally account for inter-segment sales at market prices. Corporate includes executive, administrative, financial, legal, human resources, business development and risk management activities that are not allocated to reportable segments and are excluded from segment Adjusted EBITDA. Eliminations include transactions to account for intercompany activity.
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following tables set forth certain financial information relating to our reportable segment ($ in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Revenue by Segment:
|
|
|
|
|
|
|
Ready-mixed concrete
|
|
|
|
|
|
|
Sales to external customers
|
|
$
|
1,161.4
|
|
|
$
|
1,278.6
|
|
|
$
|
1,306.5
|
|
Aggregate products
|
|
|
|
|
|
|
Sales to external customers
|
|
105.7
|
|
|
89.5
|
|
|
83.1
|
|
Freight revenue on sales to external customers
|
|
46.5
|
|
|
52.2
|
|
|
53.4
|
|
Intersegment sales
|
|
64.2
|
|
|
53.5
|
|
|
46.1
|
|
Total aggregate products
|
|
216.4
|
|
|
195.2
|
|
|
182.6
|
|
Total reportable segment revenue
|
|
1,377.8
|
|
|
1,473.8
|
|
|
1,489.1
|
|
Other products and eliminations
|
|
(12.1)
|
|
|
4.9
|
|
|
17.3
|
|
Total revenue
|
|
$
|
1,365.7
|
|
|
$
|
1,478.7
|
|
|
$
|
1,506.4
|
|
|
|
|
|
|
|
|
Reportable Segment Adjusted EBITDA:
|
|
|
|
|
|
|
Ready-mixed concrete
|
|
$
|
149.6
|
|
|
$
|
157.7
|
|
|
$
|
179.2
|
|
Aggregate products
|
|
80.9
|
|
|
53.8
|
|
|
41.6
|
|
Total reportable segment Adjusted EBITDA
|
|
$
|
230.5
|
|
|
$
|
211.5
|
|
|
$
|
220.8
|
|
|
|
|
|
|
|
|
Reconciliation of Total Reportable Segment Adjusted EBITDA to Net Income:
|
|
|
|
|
|
|
Total reportable segment Adjusted EBITDA
|
|
$
|
230.5
|
|
|
$
|
211.5
|
|
|
$
|
220.8
|
|
Other products and eliminations income from operations
|
|
2.4
|
|
|
3.3
|
|
|
21.7
|
|
Corporate overhead
|
|
(60.5)
|
|
|
(59.5)
|
|
|
(54.9)
|
|
Depreciation, depletion and amortization for reportable segments
|
|
(93.5)
|
|
|
(86.1)
|
|
|
(85.8)
|
|
Interest expense, net
|
|
(45.9)
|
|
|
(46.1)
|
|
|
(46.4)
|
|
Change in value of contingent consideration for reportable segments
|
|
7.3
|
|
|
(2.8)
|
|
|
—
|
|
Corporate loss on early extinguishment of debt
|
|
(12.4)
|
|
|
—
|
|
|
—
|
|
Purchase accounting adjustments for inventory
|
|
(4.9)
|
|
|
—
|
|
|
(0.8)
|
|
Realignment initiative costs
|
|
(1.6)
|
|
|
—
|
|
|
—
|
|
Pension withdrawal liability
|
|
(1.5)
|
|
|
—
|
|
|
—
|
|
Eminent domain matter
|
|
—
|
|
|
5.3
|
|
|
(0.7)
|
|
Hurricane-related loss recoveries for reportable segments, net
|
|
—
|
|
|
2.1
|
|
|
0.8
|
|
Loss on mixer truck fire
|
|
—
|
|
|
(0.7)
|
|
|
—
|
|
Litigation settlement costs
|
|
|
|
(0.3)
|
|
|
(2.1)
|
|
Acquisition-related costs, net
|
|
(1.0)
|
|
|
1.0
|
|
|
(1.4)
|
|
Impairment of assets
|
|
—
|
|
|
—
|
|
|
(1.3)
|
|
Quarry dredge costs for specific event for reportable segments
|
|
—
|
|
|
—
|
|
|
(1.1)
|
|
Corporate, other products and eliminations other loss (income), net
|
|
0.6
|
|
|
0.9
|
|
|
(0.7)
|
|
Income before income taxes
|
|
19.5
|
|
|
28.6
|
|
|
48.1
|
|
Income tax expense (benefit)
|
|
(5.0)
|
|
|
12.3
|
|
|
16.8
|
|
Net income
|
|
$
|
24.5
|
|
|
$
|
16.3
|
|
|
$
|
31.3
|
|
U.S. CONCRETE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Capital Expenditures:
|
|
|
|
|
|
|
Ready-mixed concrete
|
|
$
|
11.4
|
|
|
$
|
18.0
|
|
|
$
|
24.0
|
|
Aggregate products
|
|
12.5
|
|
|
23.6
|
|
|
13.8
|
|
Other products and corporate
|
|
0.5
|
|
|
1.1
|
|
|
2.1
|
|
Total capital expenditures
|
|
$
|
24.4
|
|
|
$
|
42.7
|
|
|
$
|
39.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Revenue by Product:
|
|
|
|
|
|
|
Ready-mixed concrete
|
|
$
|
1,161.4
|
|
|
$
|
1,278.6
|
|
|
$
|
1,306.5
|
|
Aggregate products
|
|
152.2
|
|
|
141.7
|
|
|
136.5
|
|
Aggregates distribution
|
|
18.6
|
|
|
22.5
|
|
|
22.7
|
|
Building materials
|
|
28.6
|
|
|
28.9
|
|
|
26.2
|
|
Hauling
|
|
3.0
|
|
|
4.3
|
|
|
4.8
|
|
Lime
|
|
—
|
|
|
—
|
|
|
7.4
|
|
Other
|
|
1.9
|
|
|
2.7
|
|
|
2.3
|
|
Total revenue
|
|
$
|
1,365.7
|
|
|
$
|
1,478.7
|
|
|
$
|
1,506.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Identifiable Property, Plant and Equipment Assets:
|
|
|
|
|
|
|
Ready-mixed concrete
|
|
$
|
286.9
|
|
|
$
|
286.4
|
|
|
$
|
295.5
|
|
Aggregate products
|
|
478.1
|
|
|
359.6
|
|
|
355.0
|
|
Other products and corporate
|
|
23.2
|
|
|
27.5
|
|
|
29.7
|
|
Total identifiable assets
|
|
$
|
788.2
|
|
|
$
|
673.5
|
|
|
$
|
680.2
|
|